Mexican quake, swine flu: Pemex is fine (sort of)

Mexico’s state oil company is fine, in case you were wondering (and judging by the oil price, quite a few people are). Pemex is so far not affected by either the earthquake or the swine flu outbreak, company spokesmen have said.

“We haven’t seen any damage yet,” a spokesman told Dow Jones (via Rigzone), adding that the company is still checking for earthquake damage and it is premature to rule out any incidents. The epicentre of the quake, which was 6.0 in magnitude, was in Guerrero, a state that does not produce oil.

Reuters meanwhile reported that Pemex is not suffering any ill effect from the swine flu outbreak which has killed more than 100 people.

But as Gregor points out, both of these incidents pale into insignificance next to the steep decline in Mexican oil production.

Overall production in March was 34 per cent lower than the previous year and Mexico’s Cantarell oil field, which once supplied more than two-thirds of the country’s output, was overtaken in January as its biggest field.

A big part of Pemex’s problem is political: it provides the government with about 40 per cent of tax receipts, hampering its ability to invest in future production. Pemex is also prohibited from engaging in joint-risk contracts with private companies. Although a reform bill passed late last year went some way towards improvement, allowing the company to change some aspects of its operations, private partnerships remain constrained.

Pemex is fully state-owned and company leadership is replace every six years, in line with presidential terms. A recent paper from Wharton provides some background on the place Pemex holds in the Mexican national psyche – which goes some way towards explaining the political reluctance to allow much private or foreign involvement:

The petroleum industry was expropriated by the government during modern Mexico’s infancy and became a central part of its identity. Consequently, Mexicans have strong emotional ties to nationalized energy production, which is currently managed by Pemex. Ernesto Marcos, a former CFO of Pemex, describes the state-run company as “synonymous with the ultimate symbol of Mexican cultural identity: the Virgin of Guadalupe. The nationalization of petroleum is closely tied to our identity as a country and our sovereignty as an independent nation. It is almost a religious myth, an object of devotion.”

Not surprisingly, a widespread belief exists that Pemex belongs to the people and should remain with the people. Many citizens believe that a public company puts food on the table and benefits the country, while a privatized company will benefit already wealthy, greedy foreigners and rob Mexicans of profits from oil.

Related links:

Mexico oil operations fine despite flu (Reuters)
Mexico woe: Quakes, flu and oil (Gregor)
Mexico output falls 7.8% in first quarter (Reuters)
Adios, Cantarell (FT Energy Source)
Oil price drop casts cloud over Pemex (FT)

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