Mexico's Petróleos Mexicanos, or Pemex, is the world's third-ranked company by oil production. Almost 40% of the Mexican government budget is derived from Pemex revenues, leaving the country highly exposed to a drop in oil prices and the company itself strapped for cash to support much-needed investment. At the same time, the company has been progressively de-skilled over the decades by an exclusive focus on financial returns for the government, constitutional restrictions on foreign participation in the oil sector, and suffocating interference by diverse government agencies and the powerful workers' union.
In this case study, Ognen Stojanovski leverages extensive interviews with present and former Pemex and Mexican government insiders to paint a detailed picture of the organizational dynamics that drive Pemex's performance and strategy. Particularly important are the manifold interactions between Pemex and a host of intrusive, and yet ultimately non-strategic, government agencies, with the net result being extensive government interference and yet no actual government ownership of oil sector performance.
Facing a steep drop-off in the free-flowing oil from the Cantarell field that long provided easy revenues even in the face of weak organizational and technical capability, Pemex now finds itself scrambling to plug the production gap through new investments in exploration. At the same time, politically-popular constitutional restrictions on foreign ownership of Mexican hydrocarbons limit Pemex's ability to enlist foreign help to rapidly develop offshore oil. Current President (and former Energy Minister) Felipe Calderón recognizes the crises of finances, reserves, and oversight that are now facing Pemex, and on April 8, 2008 he proposed a set of reforms to the Mexican Senate. The PESD case study of Pemex elucidates what is needed on the reform front as well as the formidable obstacles that stand in front of Calderón as he attempts to remake Pemex into a strong performer.