The ‘Great Men’ of Mexico’s oil history shared the same blindspot

Sooner or later, an investor seeking commercial opportunity in Mexico’s energy markets will need to form a view of Mexican history. In Mexico’s energy sector, the Great-Man Theory of history not only prevails, but is enforced by the power of the state.

The Great Man in this case is Lázaro Cárdenas, the late 1930s firebrand and president. It was his impulsive expropriation of the surface assets of the oil industry, coupled with the creation of a 100 percent state-owned oil company, that would form Mexico’s official narratives.

Toward the end of his presidency in 1940, Cárdenas realized that he had overreached. The oil law of November 9—-issued when he had just three weeks left in office—allowed the state to contract with oil companies to perform the services of exploration and extraction.

On HoustonChronicle.com: The president of Mexico may never allow Pemex to become a real oil company

Seventy-three years later, this law would be resurrected by President Enrique Peña Nieto to form the legal and ideological foundation for his justly-famous Energy Reforms of 2013-18.

His administration sought to convince a skeptical public and Congress that the crucial issue of allowing private oil companies to return to Mexico was supported by the authority of Lázaro Cárdenas in his oil law of 1940. The investor on the oil side would be right to feel indignant that, of the many arguments to support ditching state control of the energy industry, the authority of a man who had been dead for 43 years should have been invoked.

The first argument that should have been made in 2013 was that the Cárdenist experiment in oil statism had failed on all counts. The public should have been told that Pemex was a caricature of an oil company. As a state agency, Pemex could only operate in Mexico (while other national oil companies were operating in the U.S. Gulf of Mexico).

The public should have been told that Pemex professionals were being cheated out of global careers. The company was milked by oil field service companies for decades because Pemex, lacking international partners who would have brought their technology as part of a joint venture, had no choice but to pay double for second-hand technology.

The state, for its part, had milked Pemex during the same period. Loans made to Pemex were used to finance government operations rather modernize the company. As a result, oil production steadily declined, refineries fell into disrepair and shortages ensued.

It is believable that none of the $115 billion in Pemex debt was ever spent by Pemex for its own needs. It is more believable that Pemex was a money-laundering agent for the government.

Pemex today has $5 billion in contractor debt, some of which the company is trying to resell as bonds. The Mexican press reports that Schlumberger and Halliburton each have $500 million in accounts receivable.