Jerry Pacheco, a man who has written several articles on Mexican oil reform discusses how successful oil companies in The Bakken have a keen eye on Mexico and it’s highly criticized oil and gas industry which is currently under the control of Pemex. But their new, young President is seeking reform in his country.
Hegg Bakken Report: Today on The Hegg Bakken report we get in touch with a man who has written several articles on the Mexican government and the challenges they are facing with the oil and gas industry. He is also the executive director of the international business accelerator with the New Mexico small business development centres network and also a director for the Dallas Federal Bank the Alpaso branch. Jerry Pacheco thanks for agreeing to be on our show today.
Jerry Pacheco: My pleasure thank you.
Hegg Bakken Report: First and foremost I have to think that 2013 was a pretty good for you as you were named 2013 one of 2013 top 50 influential Hispanics in the United States, congratulations.
Interviewee: Well I appreciate that, thank you very much.
Hegg Bakken Report: You have a lot of hats that you wear you are a busy man you are a graduate of the University of New Mexico, you received a Bachelor’s degree in marketing management and give us a little snap shot of your life after college. What were some of the positions you have held and the places you have been.
Jerry Pacheco: Okay I started out as a trade specialist advising businesses how to break in to Mexico and Canada and then the rest of the America and I got sent down to Mexico City to open up the state of New Mexico first trade and tourism office back in the early 1990’s I was in three years in Mexico city representing the state of New Mexico trying to generate business and trade with Mexico. I spent a couple of years as a banker I got involved with Santa Theresa project in Southern New Mexico in Santa Theresa today we have the US Mexico borders largest project which is the Union Pacific sanitary so in a model and at fuel yards and I have been in development and industrial recruiting here on the US Mexico border for the past 15 years or so.
Hegg Bakken Report: What got our attention was an article that appeared in the Albuquerque journal this past fall forming Mexico’s oil company daunting and you started out by saying that you had written several times on the quandary the Mexican government faces with its state own petroleum company Panex. What are some of the other articles that you have written on the subject?
Jerry Pacheco: Well I have written about Panex specifically which was in a quandary because Panex had become this bloated inefficient government bureaucracy almost a government onto itself and I dealt with Panex several times on behalf of New Mexico we are trying to get natural gas sold into Mexico to Panex and it was just like pulling your hair out trying to deal with them. They kind of existed as identity onto itself and the ironic thing is, is that Panex was formed in 1938 as a reaction by then President to kind of reduce the influence of foreign investment and foreign governments in the Mexican economy.
So, Panex was formed to be, its own, state owned oil company well it became inefficient bloated very lacking in terms of technology to drill new wells and especially the exploration and yet it became a status a symbol of Mexico we see independence status and its own control of its own destiny. So, a lot of the political spirit a lot of the kind of sentimental spirit that a lot of Mexicans especially the politicians have Panex, precluded and prevented them from opening this state owned Oil Company to foreign investment which would revitalize it. So, I followed the Panex situation for many, many years and when the changes came about this last year they were indeed, earth shaking and it’s been a long road.
Hegg Bakken Report: You know in reading your article Mr. Pacheco the one in the Albuquerque journal from this last fall I couldn’t help but draw a liaison between what’s happening with the oil development in Mexico and the drug cartel is it, I mean from what we know about that, is it safe to draw that liaison, I mean is it comparable at all?
Jerry Pacheco: In terms of being safe in Mexico are you talking about to do business, is that?
Hegg Bakken Report: Well the controlling aspect of it.
Jerry Pacheco: I mean Panex has been a pretty heavily guarded sector and you have to take into consideration that Panex has been the main engine that generates so much of the Mexican governments revenues especially in areas such as education that the Mexican government has really been very protective of that and kind of used it as a golden goose, granted the nation has gone through, since 2008, the war on drugs started in Mexico kind of this horrible period of time where you have seen it, I mean there has been murders, there has been extortions and what have you. In about the last year and a half that’s been very much going down and that’s been a situation where, a situation where whoever you believe is a Mexican government or the cartels got tired of fighting with each other. The violence and a lot of the bad stuff has gone down its not totally eradicated and its not Mexico pre 2008 but it’s certainly gotten better.
Hegg Bakken Report: Their current president, how did he get elected?
Jerry Pacheco: Well Mexico is a democratic country he is of the PRI party and the PRI Party ruled Mexico for 71 years from 1929 to the year 2000 and he went through the electoral process with the nominee he was the former governor of the state of Mexico which is one of Mexico’s most popular state and was very popular candidate if you are a PRI supporter but very divisive amongst some of the other parties and very young. So a lot of people didn’t have a lot of expectations of this new president and a lot of people that went as far to say that his metal horse power was into what they needed in the presidency. But he has really been active he has taken on the education unions which were run by cartels amongst themselves. He has tried to put forth fiscal reform which is big in Mexico to try to get more Mexicans to pay taxes because Mexico is one of the nations in the world that have the lowest percentage of collection of taxes from its population and then the oil reform is kind of the tri-factor here, that’s an amazing thing to do with no other Mexican president. Even if they support it, privatizing the oil industry was able to ever get that past congress or past the popular sentiment in Mexico he did so to his credit he has accomplished quiet a bid in here.
Hegg Bakken Report: And does he remain popular as he was prior to being elected?
Jerry Pacheco: Yeah, he does, I mean again he is very polarizing there is a lot of people that are very resentful that PRI took power back after 12 years of being out of the presidency because the presidency was an iron fist for those 71 years. I mean you had to be PRI candidate to win an elective office everywhere from president to dog catcher and that started changing 15 years ago. But there was a lot of none PRI supporters that were still very suspicious with them a lot of people think that Panex shouldn’t have been privatized because again it’s a symbol of a nation’s strength and independence so we are going to see how this pens out. But certainly from a change aspect is been tremendous to what’s happened in the last year in Mexico.
Hegg Bakken Report: I know a few moments ago you mentioned some of the reforms who has proposed outside of oil are there any others that come to mind that really stand out as far as reforming?
Jerry Pacheco: Well the big one, we are monitoring right now is the Sysco reform in Mexico which encompasses everything from the way taxes are administered in all the areas versus the interior to some of the changes in Makilo industry and again Mexico it’s kind of a cache 22. Because Mexico does not collect such a big percentage of taxes from its population it has t rely more heavily on Panex as the golden goose that supplies the revenues for infrastructure for its budgetary needs. If Mexico could collect more taxes from its citizens then the pressure is off Panex so much to be monopolized and what have you, now that point is moved because Panex now has to compete with other companies going into Mexico that are going to be bid on new exploration, putting infrastructure and what have you. So, the Sysco reform in Mexico is a huge wide sweeping numb the bus kind of act that most of us that deal with Mexico are still kind of contemplating how it works and how it’s going to affect sectors like the Mekilp industry.
Hegg Bakken Report: Has president Peña brought any reforms to the oil arena in Mexico?
Jerry Pacheco: No, I mean this is the big reform, just allowing for foreign investment and for foreign companies to bid in terms of that oil exploration in certain parts of the nation and participate in that industry is again something that if you would asked me five years ago I would have said jeez, not I my lifetime this is going to happen and so it happened very quickly and you have to understand it wasn’t a question just of the president proposing you know foreign investment in the petroleum industry into congress. A constitutional change, the Mexican federal constitution had to be changed because the Mexican constitution was written after the Mexican revolution to grant the Mexican government the right to all sub terrain minerals that are rights which includes oil. So, you literally had to change the constitution in Mexico so a majority of the state legislatures in Mexico had to vote for the approval of what the congress and the president agreed upon and that occurred so you had to go state by state for approval.
Hegg Bakken Report: So, who owns the surface land and you mentioned the mineral rights, and how do they get it out of the ground, how does that process work?
Jerry Pacheco: Well I mean in the past it has been Panex, I mean if you and I, let’s say you and I had a big ranch in Mexico and Mexico changed its land ownership years ago to allow foreigners such as you and me to go down there and buy a ranch or buy a house or what have you. But let’s say on our ranch we were deer hunting and I’m thinking old Beverly Hillbillies] hunting for some food and discovered all this oil. If that would have happened on our ranch in the old Panex days before this reform we didn’t have a right to that oil that is the Mexican government. So, in the old days Panex was the only game in town going and exploring and developing oil fields. But because it was so sequestered and so politically introverted a lot of the new technologies that we have in the United States and places like Canada were never introduced into the system in Mexico. So, Panex kept getting further and further behind and more amptiquated more inefficient to the point where Mexico one of the world’s biggest petroleum nations, I mean sitting in areas under this huge oil fields was predicted to be a net importer of oil. I think it was by 20/20 if its sufficient investment wasn’t spent in exploration and NRD.
Hegg Bakken Report: What’s the reality for oil companies here in the Bakken that would like to expand into Mexico and if there are any realities do you have advice for them?
Jerry Pacheco: It’s going to take a while just because the Mexican petroleum reform was enacted at the end of this last year. The next steps that need to be taken by the Mexican government is that congress needs to determine in which fields, in which areas it wants foreign investment and start writing that up and it has to develop the framework for how royalties are paid by the companies exploring for the oil and developing the oil fields. In other words the stuff that we take for granted here in the United States if we go lease a piece of land in Texas or North Dakota and we pay a royal fee to the land owner and this and that, they don’t have that in Mexico. The things we take for granted in the development of oil or even natural gas fields here have to be developed in Mexico and so the energy minister, Ochola down in Mexico is predicting that they should have the framework done sometime by the end of 2015 so we are looking about two years out before we are going to see the first foreign petroleum or petroleum tech companies go into Mexico and with boots on the ground.
Hegg Bakken Report: What’s the best way for Bakken oil entrepreneurs to learn the history and traditions of oil exploration in Mexico?
Jerry Pacheco: I mean it’s very simple on the internet and I’m not going to refer to any specific report but you will find a history of Panex, you will find all sorts of analytical articles by just putting Mexico’s petroleum reform, Panex, you will find the history of Panex. But thing, and that’s certainly helpful is this kind of secondary market information but it takes being on top of what’s going on in Mexico because with changes it seems like in that country are happening very quickly and if it’s a two year period I would imagine companies that are very serious in your part of the world would be monitoring the situation, conducting due diligence, maybe even taking a few trips down there to meet with counterparts that are experts in the petroleum industry forming strategic partnerships or alliances and being ready when the bits come out with the field, comfortable for the country and a comfortable field that they are able to do business down there.
Hegg Bakken Report: Jerry as I was researching you and this very subject I became an admirer of yours and the achievements that you have made and its quiet an impressive professional career that you have curved out for yourself, just one quick question on that, are there a couple of books that you have read in your life that impact your career today?
Jerry Pacheco: You know what’s so funny, I based my career on Mexico because I was in college in the pre-NAFTA time period. I got out about the time after we signed the North American pre trade agreement and I would certainly recommend books that I read back then but the country of Mexico is operating in such a velocity, such a young country changes so quickly that any of the books I read in the past are so antiquated right now that I would feel embarrassed recommending those. But I like the economists I like their economic reports, one other area I would d recommend to anybody let’s say that’s interested in the field that I went into which is the international trade is going to the exports.gov G-O-V website which is a beautiful website of almost any report in any country you could imagine. If I want to find out about the HVAC industry in Brazil there is most likely to be a report on that industry giving the players, the size of the market and what have you and there is how to guide there so if you are interested in learning about Mexico’s petroleum industry that’s a good place to go and that’s export.gov
Hegg Bakken Report: He is one of the 2013 top 50 influential Hispanics in the United States and it’s been my sincere pleasure in talking with you today. Jerry Pacheco I wish you the best and let’s make it a goal to shake hands one day soon.
Jerry Pacheco: Well I thank you, thank you for having me…