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Lukoil and PEMEX Sign Petroleum Agreement

The Russian-owned petroleum company Lukoil has signed a landmark deal with Mexico’s state-owned oil company Pemex to search for and extract petroleum. This is the first deal signed by Pemex since Mexico decided to open up its energy sector to foreign investment in order to increase its efficiency and production capabilities.

Mexico had previously banned foreign presence in its energy sector in 1938. Last December, however, the Enrique Peña Nieto administration pushed through legislation lifting the ban and opening up the industry for foreign partnerships.

Pemex has faced falling investment that subsequently dropped its production levels down from a high of 3.8 million barrels a day in 2004 to 2.6 million barrels a day in 2013.

PEMEX revenues account for one-third of the national revenue of Mexico, and Mexico is deeply dependent on PEMEX revenue for social programs such as education, hospitals and roads.

Deposits of shale throughout the country continue to go untouched due to lack of investment, and it is hoped that this deal with Lukoil will change that. Lukoil is expected to engage Mexico to advance the development of shale gas reserves and exploring deep-water areas.

Lukoil is the second-largest private oil company worldwide by hydrocarbon reserves and provides Russia with 18% of its total oil production. It is also second only to Exxon Mobil in proven oil and gas reserves, and earns approximately $139 billion in revenue and $11 billion in net income.

After failing to obtain new deposits in Russia and left with few opportunities to expand within Russia, Lukoil and PEMEX are working together in an attempt by Lukoil to capture the newly available Mexican market. Lukoil’s CEO, Vagit Alekperov, said the agreement would help “bolster [Lukoil’s] operating and technological capacity.”

Lukoil will also provide Pemex with expertise in the field of environmental protection knowledge. This deal is good for Mexico in that it will allow for increased production over flagging levels, and may signal an inflow of further investment in Mexico’s energy sector by foreign firms.

– Jeff Meyer

Sources: RT, BN Americas, ReutersOil Patch Asia, USA Today