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YPF, Petronas and Pemex negotiating a joint venture


CEO Galuccio.

CANCUN, Mexico
Petroleumworld.com, Oct 01, 2014

Argentina's YPF and Malaysia's Petronas are negotiating a joint-venture with Mexico's Pemex - possibly starting with shallow water fields - in a bid to become the first foreign oil companies to seize the opportunities of Mexico's energy reform.

While executives from majors such as Shell, BG, Chevron and Occidental gathered in the Caribbean resort of Cancun last week for a conference on the historic liberalisation of the sector, the heads of the three companies were laying the foundations for a deal over private dinners, the golf course and on helicopter rides.

Emilio Lozoya, the man modernising Pemex, Mexico's state firm, and Miguel Galuccio, who in his two years running YPF has defied Argentina's gloom to attract investment and develop one of the biggest shale plays outside the US, go back years.

Their friendship was forged when Mr Galuccio headed up oil services group Schlumberger in Mexico and Mr Lozoya was in finance. But the two became closer when, in their current jobs, Mr Lozoya sought to broker a deal with Repsol, the Spanish company ejected from YPF when Argentina expropriated it in 2012.

 

The new ally is Shamsul Abbas, CEO of Malaysia's Petronas, the world's sixth biggest energy group by revenues. Petronas last year exited Venezuela but sees better bets in the region: in August, it inked a US$550m shale deal with YPF, and is now hearing Mexico's call, just as Pemex looks east.

In Cancun, the trio signed memorandums of understanding to foster co-operation, including on knowhow for deepwater, mature, heavy and extra-heavy crude fields, and, potentially, natural gas and infrastructure projects.

But the beachside business talk among the executives went deeper: the prospects for a full-blown partnership to invest in fields in Mexico.

 

"The idea is to seek which projects could make sense to develop jointly, the three of us," Mr Galuccio told the Financial Times in the first explicit commitment by an oil company CEO in forging a joint-venture with Pemex. Other companies have so far limited themselves to expressions of enthusiasm tempered with caution until full details of the terms Mexico is offering are known.

Mexico is throwing opening its energy sector to private investment after nearly 80 years of state monopoly and is betting on an influx of tens of billions of dollars in investment to boost Mexico's stalled production.

Authorities will next year hold tenders for 169 fields and Mr Lozoya is also courting partners directly for a dozen joint-ventures.

"We believe there is significant potential and further upside for oil and gas resources in Mexico," Mr Abbas said in an emailed response to questions. "We are excited by the energy reforms taking place, and coupled with our experience, we believe we will be able to add value to the country."

Mr Abbas' comments came shortly after he threatened to pull the plug on a US$10bn liquefied natural gas investment in Canada, saying new taxes and competition from US shale gas projects could make it a non-starter. Cooperation with Pemex and YPF in Mexico would "provide a strategic platform to growth to complement and provide optionality to our North American resource base", he said.

Mr Galuccio said the trio has the right skill set and could make a big impact in mature or shallow-water fields: Petronas is an offshore expert with deep-pockets; YPF's "bread and butter" is to squeeze more from declining fields and it is also has shale skills; and Pemex is a shallow-water leader. Neither Mr Galuccio nor Mr Abbas would be drawn on potential investment levels. Mr Lozoya declined to comment.

"I've told Emilio he needs a fast success story," Mr Galuccio said. "He can't change the reality of Mexico's production in three years but he has to . . . take three or four fields and turn them around . . . he needs a strong personal commitment".

Mr Galuccio, who took the helm of YPF after the government' shock expropriation, speaks from experience: Chevron's investment has helped boost investment in the Vaca Muerta shale field, Loma Campana, which is now Argentina's second-best producing field, to US$3bn this year with more than 250 wells.


 

Story by Jude Webber from The Financial Times.

ft.com|Sept 29 2014



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