The Mexican Competitiveness Institute, known by its acronym IMCO, released in mid-July its 2009 report on the state of the Mexican economy.
Patterned after the Global Competitiveness Report issued by the World Economic Forum (WEF), the Mexican report examined a diverse set of 137 variables and chose 48 countries where a useful comparison with Mexico might be made. In the statistical appendix, these countries are scored in relation to some 70 variables.
The variables are as diverse as “Liberalization of energy policy”—where, alone among all countries, Mexico (using 2007 data for all variables) scored a zero (0)—to “Talent”—where the variable refers to the ability of a country to produce and attract globally competitive skills—Mexico scored 38.8 on a scale of 100.
When it came to recommendations regarding oil policy, two were offered: the upstream should be opened to competition from private investment, and the restrictions on payments to Petroleos Mexicanos SA contractors should be liberalized.
“Energy reform that permits competition in the exploration and extraction of oil and gas, as well as in the liberalization of the regulation of the energy sector, is what all countries have done who are oil producers”—except for Mexico, the report adds.
Mexico’s status
According to the report, Pemex is operating at its full capacity, and to expect more from Pemex given the same norms and legal conditions is “naive and irresponsible.”
This is strong language and, in the Mexican context, these are even stronger recommendations, ones that were subject to the very strict rules of self-censorship in the 3 months of energy debate in the Mexican Senate that ended on July 22, 2008.
Both in the report, and in off-line discussions with IMCO officials, the two countries that are recommended as ones that Mexico should emulate in upstream policy are Brazil and Norway.
The report says little about Mexico’s institutional, legal, and political readiness to carry out such reforms even on paper—to say nothing of putting them into practice.
How prepared is Mexico to undergo the chemotherapy, as it were, of an upstream liberalization in a body politic that suffers from the cancerous growths of 70 years of a government monopoly? And what clues—if any—are to be found in the voluminous statistics about how Brazil and Norway were ready for an upstream opening?
As a matter of curiosity, we also wanted to see how a few other countries, some oil producers, others not, scored on the same variables.
We want to see if any of the data suggest insights as to how both Norway and Brazil have world-class national oil companies that operate in deepwater environments, while Mexico has a regional-class national oil company that operates in shallow water (and, for decades, has been the world’s top offshore oil producer).
Mexico compared
We had these questions in mind in looking at the comparative data supplied by the World Economic Forum (WEF) and IMCO.
The WEF, evaluating 134 countries, placed Mexico 60 in overall competitiveness, that is, in the 55th percentile. Brazil was placed 64, in the 52nd percentile, close enough to be regarded as an equal.
In its report, again, using 2007 data, IMCO placed both Mexico and Brazil below the median of 48 countries, with percentile scores of 33 and 35, respectively—but again so close as to be statistically equal. In both the WEF and IMCO studies, Norway and the US were at the other end of the scale, Norway scoring 89 and 92, respectively, and the US scoring 99 and 77.
These general country ratings do little, however, to clarify the upstream situation: they suggest that the US and Norway are much more competitive than Brazil and Mexico, whose rankings are similar; but since we know that Brazil and Mexico are not at all similar in matters of deepwater expertise, this scale is not helpful.
Reform discussions
For most of 2008 Mexico was the battleground of ideas, proposals, and back-room negotiations regarding the reform of the oil sector.
What came out when a reform package was finally passed by congress in October 2008 was one in which a new Pemex Law created a stronger system of corporate governance, including four independent board members, plus the flexibility to devise new contractual models that fit the special needs for the oil industry. Of special concern in Pemex was the need to be able to incorporate new technology and innovations in management and field operations, especially in the upstream.
The reform package also had the intent of strengthening the government’s ability to guide and monitor Pemex and the oil industry more broadly speaking.
We then looked at the data sets to see what could be learned about government effectiveness, corporate governance, and innovation, areas of special concern in the upstream.
Other comparisons
Looking at the data compiled by IMCO that bear on government effectiveness, we selected five oil producers, noted their individual scores across nine variables, then took the average of the oil companies and compared those scores with Mexico’s.
Regarding the quality of regulation, IMCO gave Mexico a score of 56, Brazil 44, and Norway 89, but something here is also not right: Brazil has an upstream regulator that makes international tenders practically, legally, and philosophically workable; Mexico, however, has none.
Regarding the variable concerning liberalization of the energy sector, all countries under review scored 100, except China which scored 66.7 and Mexico, which, as mentioned, scored 0 (Table 1).
Turning to the WEF dataset, a promising variable concerns the efficacy of corporate boards. Here we find that Mexico’s ranking is 82 of 134, while those of Brazil, Norway, and the US are 42, 9, and 12, respectively. In terms of percentile rankings, Mexico ranked in the 39th percentile, while Brazil was in the 69th and Norway and the US above the 90th (Table 2).
Looking at innovation, the WEF offers seven variables, including a general one for capacity for innovation, where Mexico was ranked 67th out of 134, Brazil 27th, Norway 13th, and the US 6th. Here we start to see Brazil pulling away from Mexico as would be expected by the upstream performance of the two national oil companies.
Taking the average of the variables for innovation, Mexico would be ranked 81st, Brazil 50th, Norway 18th, and the US 3rd. The more telling, nonparametric statistic is the percentile rankings: Mexico ranks in the 40th percentile, while Brazil is in the 63rd, Norway the 87th, and the US the 98th (Table 2).
Observations
There are incompatibilities in the data not only because of the different data sets but because the IMCO data are from 2007, well before the oil reforms of 2008 and their implementation in 2009. IMCO might rate Mexico higher were these reforms taken into account.
The countries chosen for comparison in the IMCO study did not include major oil producers from Africa and the Middle East; a situation that means that the reader is not given a full picture of the competitive position of Mexico in the global oil market.
The data sets provide only hints, not hard facts, as to why Brazil and Norway pulled ahead of Mexico. Unfortunately, this means that there is no clear path shown, statistical or otherwise, as to how Mexico should catch up.
The data sets, especially those regarding government effectiveness and innovation, suggest that Mexico is significantly behind other oil-producing countries.
It seems premature, therefore, for IMCO to propose an upstream opening for competition in the exploration and production; or, in terms of the simile used earlier, the patient is not healthy enough to undergo chemotherapy.
The author
AuDAX Resources Ltd., Perth, invited 15 contractors to bid to drill the Sambuca prospect in the Sicily Channel off Tunisia in the first half of 2010.
Sambuca is in the contiguous G.R15.PU exploration permit northwest of Pantelleria Island off Italy and the Kerkouane permit off Tunisia. It appears to be one of the largest undrilled structures in the Mediterranean with a mean unrisked potential of 270 million boe recoverable.
The prospect covers 60 sq km in 400 m of water in the Pelagian basin north of Tazerka oil and gas field. Main objective is the Miocene Birsa sandstone at 1,440 m, and other targets are Miocene Ain Grab and Cretaceous Abiod as deep as 2,500 m.
Quebec
Questerre Energy Corp. and Talisman Energy Canada plan to spud at least two horizontal wells later in 2009 to test Ordovician Utica shale in Quebec’s St. Lawrence Lowlands.
Four Talisman-operated vertical wells have tested gas in the formation, earning Talisman a 75% working interest in 720,000 acres. Questerre has 25% working interest and a 4.25% gross overriding royalty on production.
The horizontal wells will have full-length laterals and multistage fracs in an attempt to prove the play’s commerciality, Questerre said.
Talisman is testing the Utica in the fourth vertical well, St. Edouard-1, and expects to have results in early August. Subject to the final results, the companies will evaluate pilot locations for horizontal wells adjacent to the vertical wells.
Alaska
Rampart Energy Co., Denver, is drilling an exploratory test in interior Alaska’s Nenana basin.
The well on the Nunivak prospect 3 miles west of Nenana and 55 miles southwest of Fairbanks is projected to about 12,000 ft. Drilling and testing are to be completed by September 2009.
Rampart said the well is part of a regional, multiyear onshore oil and gas exploration drilling program in the summer months.
Utah
Pacific Energy & Mining Co., Reno, Nev., signed a farmout agreement with Mar/Reg Oil Co. for the drilling of a horizontal leg in an existing well in Tin Cup Mesa oil field, San Juan County, Utah.
The field, discovered in 1981 by Marathon Oil Co. in the Paradox basin 21 miles southeast of Blanding, has produced more than 2.6 million bbl of oil and 3 bcf of gas from a 120-ft thick carbonate buildup in the Pennsylvanian Upper Ismay formation.
PEMC plans to spud a 2,500-ft lateral in the Federal 4-26 well in the second half of August 2009. Geological and engineering analysis indicates that a horizontal well drilled in Sec. 26 would intersect the fracture system that has not been drained by the vertically drilled wells.
The vertical 4-26 well has produced more than 156,000 bbl of oil and 355 MMcf of gas, and engineering analysis shows it did not efficiently drain the northern part of the oil field.
