Petróleos Mexicanos (Pemex) is the Mexican state-owned petroleum company which used to have a monopoly on oil exploration and production in Mexico. Founded in 1938, it has grown to be the eighth-largest oil producer in the world, with production of approximately two million barrels of oil a day. Its revenue amounted to $58 billion in 2016.
A set of wide-ranging energy reforms enacted in Mexico at the end of 2013 has had a significant impact on the oil and gas sector. Competition will gradually increase as the country’s government auctions new oil fields but this also opens up new partnership opportunities for Pemex. An oil and gas safety regulator has been set up with a view to bringing best international practice to Mexico and enforcing its application.
We expect Mexico’s new regulatory framework, along with additional health and safety regulations, to have a positive impact on the company as it will be more exposed to best practice by competitors and partners.
Although Pemex is not a public company, it has a strong presence in international debt capital markets, on which it relies to finance its operations, with approximately $87 billion of debt outstanding. The company recognises how important the management of environmental, social and governance (ESG) risks is to its debt investors.
We started engaging with Pemex in 2013, pressing for the adoption of best practice on environmental risk management and labour safety, given our concerns about the frequency of oil spills, gas leaks and accidents involving fatalities in the company’s operations.
The company has proven receptive to our engagement. The energy regulation reform in Mexico also provided increased incentive for Pemex to adopt best international practice. We have been encouraging Pemex to improve its performance on environmental and labour safety through collaboration with its international partners and by developing a culture of safety among its employees.
Changes at the company
Throughout our engagement, we were assured that the company sees a strong sustainability performance, particularly on labour and environmental safety, as essential to gaining access to international debt capital markets in favourable conditions.
We welcomed its first ever publication of labour safety targets in the company’s 2017-2021 business plan. Achieving its 2021 target would equal a reduction of 36% in its lost time injury frequency rate compared to 2015, bringing the company in line with the performance of its peers on this issue. Equally positive was the company’s commitment to reduce its carbon emissions by 25% during the execution of the 2017-2021 plan, by implementing initiatives to reduce flaring, increase co-generation in its various industrial facilities and make energy efficiency improvements in its refineries.
We continue to engage with the company to follow the progress towards the targets set in its business plan and on its preparedness to deal with the physical and regulatory impacts of climate change.