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Early in the last century, the Mexican government enshrined national ownership of all hydrocarbon resources into its constitution, and in 1938 nationalized the industry with the establishment of state oil company PEMEX. The government of the day asked all Mexicans to help pay the costs of expropriating oil properties from foreign corporations. Families parted with treasured heirlooms to help government pay the expropriation costs. As a result, there is still a deeply emotional public attachment to the national company, which limits the ability of government to change the constitution to permit private investment. Any such change would require approval by a prohibitive two-thirds majority vote in the federal legislature as well as a majority of the state legislatures.
For decades, PEMEX did well for the country, managing to explore, produce, invest and pay taxes. Its conventional reserves grew to the point that Mexico ranked third in the western hemisphere, after Venezuela and the U.S. (Canada now ranks first, thanks to the Alberta oil sands). Oil prices rose, production increased, and the Mexican government became addicted to PEMEX's revenues. Instead of relying on taxation to finance expenditures, like most developed countries, the government took what it needed from PEMEX. The federal purse now takes more than 60 per cent of company revenues, which provide a third of the national budget. In spite of record high oil prices, PEMEX has run up massive debt and recently posted a net loss of US$7 billion for 2005.
The company is starved for investment funds to improve production in mature fields, such as the mammoth Cantarell -- where current production of almost two million barrels per day is projected to fall by 30 per cent in the next two years -- and to develop new discoveries such as the potentially vital Chicontepec field. As things stand currently, Mexico only has 10 years of oil reserves left.
The story on natural gas is even worse. Mexico's reserves have declined from 56.1 trillion cubic feet in 1999 to 48.6 trillion in 2005. Although PEMEX has managed to increase production slightly in the last three years, consumption has considerably outpaced domestic supply, forcing the country to become a net importer from the U.S. This trend is expected to continue.
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http://www.macleans.ca/topstories/business/article.jsp?content=20061113_136459_136459MEXICO CITY — When a Yucatan fisherman named Rudecindo Cantarell first noticed oil bubbling up into the waters of Campeche Sound in 1976, Russia was still Communist, Rocky won the Oscar for best picture and the notion of a political party other than the Institutional Revolutionary Party running Mexico unimaginable. Thirty years on, the Cantarell field -- second in size to Saudi Arabia's Ghawar complex and source of 60 per cent of Mexico's total production -- has begun to decline.
From a 2004 peak output of more than 2.1 million barrels of oil a day, Cantarell is down to 1.8 million b/d today, and will continue to diminish in the coming years. And its waning only seems to underscore the challenges facing the country's monopolistic state-run oil giant, Petroleos Mexicanos. The world's third-largest oil producer, Pemex "has no real prospects to substitute for Cantarell," oil analyst David Shields says. In spite of booming oil prices and record sales worth $86-billion (U.S.), it ended last year $7.1-billion in the red and has debt of $54-billion.
Output fell 4.6 per cent in August from a year earlier, and proven reserves stand at 16.5 billion barrels, representing eight to 10 years of assured production. What's more, as a state monopoly, Pemex has long been a sinecure for presidential cronies, loses an estimated $1-billion every year in corruption and suffers continual pipeline leaks and explosions.
The undersecretary for hydrocarbons at the Ministry of Energy, Hector Moreira, has been sounding the alarm bells recently, warning Pemex could go bankrupt within the next six years because of its debt. In an interview, however, Mr. Moreira played down that scenario somewhat, but admitted "that doesn't negate the fact that Pemex's debt is increasing, and that we need to do something to stop and reverse that. We cannot keep on accumulating debt."
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http://www.theglobeandmail.com/servlet/story/RTGAM.20061114.wxrpemex14/BNStory/Business/home