Courtesy Image of AlMomento.mx

Courtesy Image of AlMomento.mx

Change is on the horizon according to PEMEX’s latest news; a transformational step that aims to boost efficiency and maximize profitability. Its Administrative Council has just approved the company’s corporate restructuring this week enabling it to reach new markets and become what Emilio Lozoya calls a stronger and bolder PEMEX. Following this paradigm shift to PEMEX’s corporate structure, procurement activities will be centralized and also human development, legal, finance, planning and other important areas will now be concentrated at the corporate level to optimize productivity. PEMEX will also be seeking the right partnerships to develop its current assets while also creating new business ventures. Besides this, integrating research has also been prioritized to develop technological solutions that ensure operational competitiveness. These changes are not expected to increase costs or staff, but rather will work with human resources and budget that are already in place by maximizing available resources in order to become profitable for the State.

As prescribed by the articles 59, 60, and 62 and supported by the eighth transitory article in the Ley de Petróleos Mexicanos, two subsidiaries of PEMEX have been created to enable the its transformation. Exploration & Production and Industrial Transformation are the company’s new pillars, with the latter consisting of the former Refining, Gas & Basic Petrochemicals, and Petrochemicals divisions. PEMEX Exploration & Production is the company’s giant with a current budget of US$22.4 billion, and is set to receive 78.7% of PEMEX’s CAPEX starting in 2015 through 2019. Paired to this are all of its downstream counterparts embodied in PEMEX’s Industrial Transformation subsidiary, which combined received almost US$5 billion in 2014 and is expected to be apportioned the remaining 21.3% of the company’s CAPEX over the 2015-2019 period. As of today, significant projects are underway at PEMEX refineries and petrochemical complexes, namely Salina Cruz and Pajaritos. Moreover, five new affiliates have resulted from the corporate restructuring: Drilling, Logistics, Cogeneration & Services, Fertilizers, and Ethylene. Given the novelty of these new afiliates, an analysis of their individual roles in the company’s strategy are needed given that PEMEX’s procurement activities will also be impacted by their creation. Arturo Henríquez, new head of PEMEX Procurement, is already in the process of implementing a category management system for the centralized procurement system to meet specific needs of PEMEX’s subsidiaries.

Courtesy Image from El Financiero

Courtesy Image from El Financiero

The procurement of drilling equipment had a total value of roughly US$6 billion in 2013 and that figure is set to increase over the next years to boost drilling activities in PEMEX’s hydrocarbon assets. Logistics are essential to distribute hydrocarbons and their by-products; this division will be in charge of ground, maritime, and pipeline transportation of these to ensure their availability. Cogeneration & Services will be dedicated to maximize heat and vapor that is generated by industrial processes, mainly stemming from downstream activities, in order to reutilize these resources for power generation. The Fertilizers subsidiary is a whole new player, where the integration of the entire ammonia supply chain is expected to boost fertilizer production through petrochemical processes. And finally, probably one of the most important members of this new quintet is the Ethylene subsidiary, which will allow PEMEX to handle the ethane supply chain extending all the way to polymer production by exclusively dedicating itself to ethylene-driven activities.

Courtesy Image from El Independiente

Courtesy Image from El Independiente

Regarding this last affiliate, it is important to point out that one of the biggest ethylene projects in Latin America is currently being developed by Braskem-Idesa: Etileno XXI. The project is 85% completed, has already digested US$3.7 billion, and is still set to receive US$800 million more to begin yielding up to 1.5 billion tons of polyethylenes by late 2015. Braskem-Idesa has already signed an agreement with PEMEX’s Industrial Transformation subsidiary, more specifically, with its former Gas & Basic Petrochemicals unit, to guarantee the supply of 66,000 barrels of ethane per day for Etileno XXI.

Now, PEMEX has 90 days to disclose its new organizational framework for these subsidiaries and 120 days to publish the administrative plan and financial terms pertinent to its relationship with its subsidiaries. Evidently, all of these changes aim to turn PEMEX into an enterprise that fosters competition, best practices, and most importantly corporate transparency to become the oil and gas industry champion in post-Energy Reform Mexico. Reformulating its success formula may perhaps be a complicated process; nonetheless, it is one that was desperately needed to lay the grounds for PEMEX to thrive in the reshaped Mexican oil and gas industry.

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