As taboo as this idea may be, analysts and professionals from the oil and gas industry would be lying if they said it had never popped into their head that maybe the solution to PEMEX’s problems would be to privatize the company and float some of its shares. The NOC is crumbling in debt, with current levels reaching US$87 billion (among other liabilities), and it is no secret that oil and gas is a capital-intensive industry. Rather than go further into debt, why not go the other way and enter equity markets?
Many other NOCs have gone down this road in the past, and Saudi Aramco’s recent considerations for an IPO have given strength to the movement, bringing the taboo topic to resurface. In May 2011, Felipe Calderón Hinojosa, Mexico’s President at the time, stated that PEMEX should be more like Statoil, Norway’s originally state-owned oil and gas company that is now partly private and competes with the industry’s multinationals in various markets. Mexico Oil and Gas Review decided to analyze the company’s privatization experience as a model to follow for the Mexican parastatal.
Statoil began in 1972 under the name Den norske stats oljelskap AS as a company wholly owned by the Norwegian State. The NOC’s global success can be simplified into a threefold plan. Step one: learn. The company began building its competence through international recruitment and by participating in projects with IOCs in the Norwegian shelf, undertakings that both provided the NOC with knowledge, capabilities, and technology from abroad. The company also included a clause for the transfer of ownership in joint-venture projects. Step two: efficiency and competitiveness. Once Statoil proved itself as a key player in the Norwegian oil and gas market, it decided to take its competitiveness a step further by changing its mindset. Global success would require international project management experience, partnerships, and alliances to compensate for its small size, as well as a partial privatization. Step three: internationalization. After taking most of the previously mentioned steps between 1985 and 1990, the NOC entered into an alliance with BP, which would provide it with the much sought-after access to an international portfolio. Over the years, this led to even more alliances, with other companies requesting Statoil for its unique capabilities. Key to this was its experience in large challenging fields in harsh environments and its knowledge of relevant infrastructure, as it led this area in Norway.
Despite having established plans to do so much earlier, Statoil only became a public limited company in 2001, listing 20-30% the company on the Oslo and New York Stock Exchange. It was also the year it officially changed its name to Statoil from Den norske stats oljeskap, for obvious reasons. The motive behind the decision to privatize part of the firm lay in the profit-damaging overexpansion experienced by the firm during the 1990s. In order to prepare their company for its next step, at the end of the 20th Century, Statoil put together a three-year plan aimed at “concentrating and consolidating” its business, which called for the sale of 24% of its oil and gas assets, the cutting of its costs by 20%, and a reduction in staffing levels by 10%, in addition to an improvement of management systems.
The good news that can be extrapolated from the Statoil case for PEMEX is that the Mexican NOC is already on the right way to a successful privatization, but this does not mean it is in reach. The parastatal already has excellent knowledge in certain areas of the Mexican oil and gas industry, and its partnerships with winning companies from Round One and farm-outs will allow it to learn about the remaining segments, such as the deepwater one. While PEMEX may have part of the first step covered, the next steps may not come as easily. As the analysis of Statoil’s case shows, partnerships and alliances are key to success, and PEMEX’s un-collaborative culture is one of the first answers given by our interviewees when asked what needs reforming at the Mexican parastatal. And they are right, the company desperately needs a culture shift in this direction, and to understand it is now playing on equal grounds with other companies in the local oil and gas industry. Without this mindset, the NOC will miss out on crucial opportunities for learning, proving its worth, and participating in the management of international projects, let alone allying with an IOC at a global level. Besides from this, PEMEX has enviable characteristics for other companies in the global oil and gas industry, as it has become a leading company in shallow water production.
Moving away from opportunities for internationalization and focusing on the possibility of becoming private, PEMEX should also follow in the footsteps of Statoil. As David Enríquez, Partner at Goodrich, Riquelme y Asociados mentioned to us in an exclusive interview for MOGR 2016, PEMEX should cut its losses by getting rid of inefficient areas. In fact, he stated that, just like Statoil, the best time for PEMEX to go public will be when the NOC peaks in terms of efficiency and output. Otherwise, it will not be attractive to investors. The most difficult step, however, will be to reorganize the company in order to ensure efficient operations. The good news in this regard is that the Mexican parastatal has already begun its restructuring efforts, but results have yet to be seen. Only after these three steps have been taken should PEMEX consider the option of an IPO.
Statoil’s model provides a realistic model to follow for PEMEX, as the Mexican already has or is on its way to acquiring the required knowledge and capabilities. However, one aspect of the NOC that has been left out of the picture may make it more difficult for it to adopt the model: PEMEX’s lack of transparency. In a future article, Mexico Oil and Gas Review will review the way in which Ecopetrol, another company burdened by a lack of transparency, overcame this challenge to become a successful international oil and gas company.