Mexico's Pemex Appoints New CEO

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Mexico has been one of the world's leading oil exporters since the mid-1970s, when a gigantic offshore oil reservoir called Cantarell was discovered. For more than two decades, Pemex relied on that gusher and failed to invest enough in exploration for future needs. Cantarell's production has plummeted over the past five years, and Mexican oil output has fallen some 25% since peaking in 2004. Pemex has been unable to ramp up production at new, less promising fields fast enough to make up the difference.

The company also lacks the technical expertise to explore for deepwater reserves in Mexico's territorial waters in the Gulf of Mexico. Last week, after British oil company BP (BP) announced that it had made a large deepwater discovery in U.S. Gulf waters, Calderón told a radio interviewer that Mexico had to move quickly to develop technical skills or obtain them elsewhere. "I hope this sign from the Gulf of Mexico tells us something," the President said in that interview. "We don't have, whether you want to admit it, the technology or the organizational and operational capacity to do it by ourselves."

Energy Reforms Fail to Improve Output

Last October, Congress approved energy reforms designed to give Pemex more autonomy, allowing it to draw up new contracts that would make it easier to recruit international oil contractors as limited partners in new ventures. Because Mexico's constitution bars joint ventures where partners share oil production or profits, coming up with schemes that would be sufficiently attractive to private oil companies has been difficult. Nearly a year has passed, and the new contracts haven't been unveiled.

Earlier reforms provided Pemex some relief in the amount of taxes it must pay to the treasury, but that has had negligible effect on the company's operations. Although Reyes Heroles ramped up Pemex's investment—it is roughly $19.5 billion for 2009—some experts question whether the company is making the best possible use of its financial resources. Since private participation in oil activities has been restricted for many years, Pemex is believed to pay above-market costs for standard well-drilling and seismic work provided by such contractors as Schlumberger (SLB) and Halliburton (HAL).

Mexico's Energy Secretary, Georgina Kessel, sent a report to the Senate last week saying that Pemex had fallen short on two-thirds of the operating efficiency goals it set for itself, adding that "Pemex must take measures to achieve efficiencies similar to international standards if it is to reverse its negative financial results."

Suárez Coppel, who served as chief of advisors to the Finance Secretary under former Mexican President Vicente Fox, was brought in to improve those efficiencies. But he doesn't have a long track record of success: His most recent job in the private sector, as chief financial officer of Mexican beer brewer Grupo Modelo, ended in July after the company suffered big losses on foreign currency derivatives.

He faces even bigger challenges at Pemex, whose proven oil reserves are expected to last only another nine years. Some experts believe that Mexico, which is one of the top three oil suppliers to the U.S., could become a net oil importer within the decade.

Smith is BusinessWeek's Mexico bureau chief.

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