Oil, Money, and Pemex

Last week I attended the Oil & Money Conference in London, one that brought together a broad group of senior industry executives with specialists in petroleum markets, economics, geopolitics and finance. Energy Intelligence and the International New York Times sponsored this 35th annual event.

HE Abdalla Salem El-Badri,
His Excellency Abdalla Salem El-Badri

Overall, my purpose for attending was to learn more about three things. I wanted to learn more about the roots of slumping oil prices, whether OPEC would save the day by reducing output, and other major industry commercial and geopolitical trends. I listened to many speakers, talked with a number of interesting people and came away with some new insights.

The oil price issue was discussed head-on during the first morning. In a panel session the Secretary General of OPEC, HE Abdalla Salem El-Badri, whom I met many years ago in Libya, said that the market was in balance: both demand and supply were growing at about the same pace. He said, “There is no need for outside action. The market should adjust itself in the near term.” Crude Oil Prices chart_dave post 2

After the session I met an old friend and former senior executive of Saudi Aramco. He explained the issue from a different perspective. “We know that Saudi Arabia cut production by 1 million b/d during the past year and is not willing to give up any more market share. It has long term contracts to fulfill. The rapid US production is the culprit. A recent OPEC-commissioned study showed that the US unconventional producers will cut back their growth rate when the price drops below $85/bbl.” I told him that I thought they would continue to invest at a high rate even at $65/bbl. We may not resolve that debate this time because the crude marker prices began to rise the next day. Stay tuned!

Emilio Lozoya Austin196px-Pemex_logo_svg

One important insight for me was the extent of transformation taking place within Pemex, the national oil company of Mexico. The young and charismatic Chief Executive Officer of Pemex, Emilio Lozoya Austin, attended the Conference. He spoke twice: receiving the Petroleum Executive of the Year Award and an upbeat Keynote Address.

Pemex is transforming into a profit-making organization in response to the long-awaited opening of the upstream business to third party companies. The constitutional reforms were executed about one year ago. However, Congress only passed necessary laws this July, giving rise to three regulatory agencies and mandating internal reforms for Pemex. In August, the outcome of Round Zero was announced when Pemex was given choice properties, sufficient to keep it viable for 20 years. Round One will be open to third parties. Does Mexico offer a major new opportunity for your company? This is your chance. For further reading see http://fas.org/sgp/crs/row/R43313.pdf.

One Reply to “Oil, Money, and Pemex”

  1. Excellent article on oil pricing, Dave.
    Especially, the warning that the valley may be deeper than some are assuming!
    And that subliminal message that PEMEX reforms may put even greater pressure on O & G and Asia-Pacific LNG net backs.
    As Neeraj Nandurdikar says in his excellent guest editorial in Oct JPT it is time to Fix E&P Asset Development with a bit more discipline and focus on the bottom line.

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