More than two years after the passage of the energy reform, one of its critical elements — the so-called incentivated or integrated service contracts for oil exploration by private sector contractors– appears almost ready. The Pemex board agreed yesterday to hold a special board meeting on the 16th to consider and give final approval to the new contractual mechanism. These contracts are viewed by the Government as critical for enlisting the support of third-party contractors for exploration and development of oil and gas fields, while respecting the constitutional prohibitions on risk contracts and production sharing agreements. The incentivated contracts provide for two kinds of payments: one based on reimbursement of costs and the second based on the amount of petroleum discovered. This latter provision is being challenged as unconstitutional by the Chamber of Deputies and the matter is with the Supreme Court.
If the board endorses the contracts, the official in charge of the new contracts Sergio Guaso said Pemex expects to start awarding contracts based on the new mechanism in 3Q11.
Pemex plans to hold four bidding rounds using the new contracts. The first will be to reactivate the mature Magallanes, Carrizo and Santuario fields in the southern region; the second for mature fields in the north; the third in the Chicontepec region; and finally, in the deep waters of the Gulf.
(Excelsior 11/11, Pemex 11/10)
In an interview, Carlos Morales Gil, the head of production and exploration for Pemex, acknowledged that the state oil company has had to shut in gas production of 150,000 cubic feet/day in the Burgos basin south of the Texas border because of the inability to ensure the security of some of the gas wells. (At US$3.50 per cu.ft., the lost production is the equivalent of US$525,000 per day.) Morales said there had been no news of the six Pemex employees who were kidnapped on May 23d. “We’ve increased security, together with the Ministry of Defense, in the installations in the northeastern zone of the country, which has allowed us to partially recover the production that was reduced. However, there are zones where it is not safe to go, because of the crime threats to our people,” he said. (Reforma 11/10)
Pemex CEO Juan José Suárez Coppel reportedly testified at a closed hearing in Congress that the Gigante Uno gas well was still closed as a result of lack of security and that the five Pemex workers kidnapped one month ago are still missing. Suárez Coppel denied that the narcos controlled the well. Carlos Morales Gil, the head of Pemex Exploration and Production, said the closure of Gigante Uno cost the company US$160,000 per day. Morales said, “Effectively, in the northern part of Tamaulipas state and in part of northern Nuevo Leon, we have been living with a set of circumstances that make it complicated to operate,” but said that the blockades of installations have not been permanent. (Reforma 6/25)
Armed groups seized control of one of the largest gas wells in the Burgos Basin, just south of the U.S. border, on May 23rd, and continue to hold the facility. The seizure of the well, known as Gigante Numero Uno, in Nueva Ciudad Guerrero, Tamaulipas happened at the same time as five Pemex engineers were kidnapped in the same region. These natural gas wells are particularly valuable because they produce petroleum condensate as a byproduct, sometimes called ‘natural gasoline’ which can be used directly without refining. According to PRI Deputy Eduardo Bailey, who recently visited Pemex installations in the region, Pemex has had to reduce production because of threats to its personnel and roadblocks in the region. Some of Pemex’s contractors in the Burgos basin, including Schlumberger, Halliburton, Weatherford, and Petrobras have had their personnel kidnapped for ransom; Schlumberger also had 15 trucks stolen in the past few days. (Reforma 6/9, Reforma 6/10)
Probably not coincidentally, Pemex just announced it filed suit in U.S. District Court in Houston against five U.S. companies for allegedly receiving stolen condensates and other hydrocarbons. The U.S. companies are BASF Corporation, Murphy Energy Corporation, Trammo Petroleum Inc., Valley Fuels, and US Petroleum Depot, Inc. According to Pemex’s press release,
The lawsuit clearly describes how organized criminals are using threats against workers in Pemex Exploration and Production in order to steal from storage facilities or to hijack tanker trucks, in order to later sell the contraband condensate in the United States, where it was acquired by a variety of companies.
Bloomberg Business Week has an extensive story on the lawsuit.
Speaking in Berlin, President Calderón gave this perspective on Mexico’s challenges and performance:
I can say to you, my friends, that during the past year we faced not just four, but five Horsemen of the Apocalypse. These riders were:
First, this … influenza virus. …We had the global economic crisis. The Mexican economy was very close to the epicenter, very near the eye of the hurricane. …We had, obviously, the crisis coming from the violence of the organized crime groups one against the other, which basically affected certain areas of the country. …We also had the second worst drought in almost 70 years. And, fifth, we had the largest decline in oil production in Mexico’s entire history.
However, my friends, we are putting these five problems behind us, and we are overcoming them with determination.
Today, for example, we have clearly overcome the flu pandemic. More than 30 million vaccine doses have been given or are being given in Mexico.We now have the hospital capacity to face up to any emergency of this kind. Allow me to say that in the three years of my government, we have built or remodeled 1,500 hospitals clinics or across the country. … Turning to economic matters; today our economy is growing at a 4.2% rate, which is the IMF forecast. And we are generating jobs. The April jobs number is still to be confirmed, but we are expecting that during the first four months of the year 380,000 formal-sector jobs were created, the fastest job growth for a four month period in the last 10 years. We have also resolved the problem of providing drinking water to the population, despite the grave risks that we faced, especially in Mexico City, and we have stabilized the production of oil at 2.6 million barrels per day. In conclusion, my friends, we are overcoming the crisis.
Starting late December, the government began raising gasoline and other fuel prices to narrow energy subsidies. (In January 2009, President Calderón froze fuel prices as a response to the economic crisis.) The PRI and the PRD attacked the hikes, even though the price increases were implicit in the 2010 budget that both parties supported. PRI Senator Manlio Fabio Beltrones called the President ‘deaf’ to congressional demands to protect basic consumption goods from price increases. PRD Senator Carlos Navarrete said Congress could vote a rollback and take away the authority of the Ministry of Finance to set prices. (Reforma 1/8-9)
The final hopes for the SME electrical workers union to block the decree liquidating Luz y Fuerza were extinguished with two adverse court rulings. The Supreme Court turned down a request from the Federal District legislature to block the liquidation, and federal judge Guillermina Coutiño Mata—who had made a provisional ruling favoring the union last month—reversed herself and rejected the union’s request for a permanent injunction. She ruled that “employees do not have a right to keep a state entity subsisting, when its operation no longer benefits the population and damages public finances, just in order to keep their jobs.” (Excelsior 12/12)