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Parting Shot: A new beginning

Jan 1, 2014

Mexico’s energy reform opens the way for Pemex to modernize its capital structure and improve its financial position, writes its chief executive Emilio Lozoya

History will remember 2013 as one of the most important years for the Mexican energy sector. The oil and gas industry has been a cornerstone of Mexican history and tradition, and has played a fundamental role in the development of our economy.

Today, Pemex is the biggest and most important corporation in Mexico. We truly represent fuel to the Mexican economy. We are among the top five crude oil producers worldwide and we are one of the top three exporters of crude oil to the United States.

Yet, Pemex and the Mexican oil and gas sector — reflecting a global industry trend — are at a crossroads. The need for additional access to technology, know-how and financial resources, as well as the increasing energy requirements of Mexico’s evolving economy, has called for a thorough analysis of our sector and of our business model and the implementation of a new approach, as well as the adoption of a new mindset. President Enrique Peña Nieto has a clear understanding of these circumstances. Since his presidential campaign he has been determined to lay aside paradigms and prejudices, to embark on what will be one of the most influential events of modern Mexican history.

Allowing Pemex to work more like a corporation and less like a government agency will set the path to unleash our potential. More than before, we will be able to take full advantage of our human capital, of the technology that we have developed in the fields where we have advanced expertise, and to share it in exchange for the expertise and know-how in new productive frontiers, like deep waters and shale formations. Important challenges lay ahead of us, and in a more competitive environment Pemex will have to transform itself.

We will introduce a new more dynamic and efficient corporate structure, regrouping our four subsidiary entities into two, split between upstream and downstream, which will make decision-making more streamlined and timely. We will modernize corporate programs and business models which, in some cases, have not been revised since the establishment of the company back in 1938. And, also, we will engage in an arm’s length relationship with the federal government, which will grant additional capacities to Pemex with, of course, a higher commitment to transparency, accountability and stronger corporate governance policies and practices.

We will continue to look for the best ways to deploy our resources and optimize our capital base, including examining new financing strategies for our non-core businesses. Upstream activities, in the regions where we have most expertise and which offer a significant competitive advantage to Pemex, will continue to be the main focus for our investment. However, the reform provides Pemex the means to overhaul and improve the economics all along the entire value chain.

With this transition, Pemex will remain the leading company in Mexico, with greater access to technology, and will embark on a gradual course to a much more solid financial position. The Mexican oil and gas sector will eventually grow in importance and undoubtedly become an even more important driver of the Mexican economy than it has been up to now. Its growth and evolution will represent progress for Mexico, because of additional investment, infrastructure, job creation and a gradual increase in production of petroleum derivatives and feedstock to generate more energy at competitive prices.

The energy reform gives Mexico the opportunity to reach a strategic position in the North American energy market and take full advantage of Mexico’s vast resources to the benefit of its citizens. At the same time, Pemex now has the opportunity to participate in an open market, to compete and to collaborate with other operators. I trust we have a solid foundation to build upon and openly measure our performance against the best companies in the sector. We have the means and we will have the tools to become a better company and stronger source of wealth and prosperity for our country. LF

Emilio Lozoya is chief executive of Pemex

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