Mexico: Congress Approved Energy Reform Opens Oil and Gas Sector to Private Companies and Investors

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The oil and gas industry in Mexico has entered an exciting time. After 76 years of nationalized oil, the Mexican Congress approved an energy reform that opens Mexico’s oil sector to domestic and foreign private capital. Private oil companies and investors will now be permitted to operate in Mexico alongside Pemex or on their own for the first time since the state subsumed major foreign oil companies in 1938.

The foreign investment will hopefully create a boost in Mexican oil innovation and productivity. An estimated 27 billion barrels of deepwater oil reserves exist in the Gulf of Mexico, and Mexican reserves remain largely unexplored. Additionally, Pemex currently has the lowest oil production per worker, at 24.5 barrels per day per employee as compared to 37.5 for Shell, 38.9 for British Petroleum, 55.1 for ExxonMobil, 78.4 for Norway’s Statoil, and 76.4 for Columbia’s Ecopetrol.

Pemex is working to combat its productivity problem by optimizing its human resources, which are among the least efficient in the industry, by training personnel and using them in other sectors of the company instead of conducting massive layoffs. Unlike other state held oil companies, like Columbia’s EcoPetrol, Brazil’s Petrobras, or Norway’s Statoil, Pemex maintains a large payroll with significant labor liabilities and low operating performance. In 2012, the company reported just over 151,000 workers working full- and part-time among its four subsidiaries. This number is twice the number of employees hired by private companies like ExxonMobil, who employs 76,900 employees and Shell, who employs 87,000 employees, and state-run companies like Petrobras, which employs 85,065, or even Statoil, which employs just 23,028. Some cite that Pemex’s production volumes do not justify the employment of so many workers and instead cite that the high employment contributes to the organization’s inefficiency.

The Mexican energy reform seeks to build a regulatory environment more conducive to foreign direct investment. Ideally, the new investment will increase competition and efficiency in the country. In the past ten years, the number of employees at Pemex has increased in management areas – which have increased 100 percent, supervisory areas, which have increased 50 percent, and operations, which have increased 12-15 percent. Pemex is aware of its over-hiring in administration, and it will result in near-zero levels of hiring in administration for the next several years. Conversely, due to the projected increase in oil extraction along the gulf coast, additional hiring in field positions is expected.

Ultimately, the Mexican Congress and Pemex will need to shift to compete in a more global world. Norway’s Statoil serves as a good model. With an employee base 6.6 times below that of Pemex, the Norwegian-run oil company is one of the most profitable and developed in the world. How much Mexico’s oil industry is able to grow through increases in efficiency as a result of the new legislation will be determined by the amount of foreign investment, partnerships, and hopeful reduction in corruption within the industry.