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Pemex Squeezes Contracts

Pemex Squeezes Contracts

Posted by Jesus Mendoza on January 20, 2015

Petroleos Mexicanos’ pledge to protect its 153,000-strong workforce from cuts ahead of the opening of Mexico’s oil industry is cold comfort for Daniel Aquino.

Until earlier this month, Aquino was a drill rig welder for contractor GSP Offshore BV. Now the father of two waits for work along with hundreds of others in a gated plaza in the island city of Ciudad del Carmen after Pemex eliminated outsourcing jobs.

Aquino is one of several thousand contract workers estimated by the city’s business chamber to have lost their jobs as Pemex seeks $2 billion to $3 billion in savings this year on purchases and contract rates. The port city’s unemployed oilmen are in limbo as Pemex prepares to end its seven-decade monopoly just as global crude prices crash, in an industry overhaul that the government said would generate 1.5 million jobs by 2018.

Mexicos's Oil

“The energy reform is a lie,” Aquino said from Ciudad del Carmen, where service companies Halliburton co.(HAL) and Seadrill Ltd. (SDRL) have operations. “I’m going to keep looking for work here on the island but at this point Pemex has cut all the contracts with service providers and there are more cuts to come.”

Ciudad del Carmen

The oil industry is responsible for about 70 percent of employment in Ciudad del Carmen, a tiny swath of land on the Yucatan peninsula that services Mexico’s two largest fields Cantarell and Ku-Maloob-Zaap, according to Gonzalo Hernandez, head of the city’s Economic Development Chamber in Campeche state. About 40 percent of the 300,000 population are “floating residents” that live there while they have work.

“The moment contracts are cut, workers have two options: return to where they are from or stay and wait to see if they can find new work, which doesn’t seem likely in the short term,” Hernandez said in an interview in his office. “If Pemex continues not to renew contracts with companies, we are going to see more unemployment.”

Hernandez estimates that about 8,000 oil-industry service contractors have lost their jobs, a number Pemex disputes. No more than 1,500 outsourcing jobs have been affected with reports of as many as 15,000 layoffs “totally outside reality,” Chief Executive Officer Emilio Lozoya said Friday.

Full-time staff won’t be cut as Pemex joins oil producers worldwide in the race to lower costs after crude’s more than 50 percent plunge in the past six months, Lozoya said.

Trimming the Fat

“We still have important areas of opportunity to generate savings,” he said in a interview from Pemex headquarters in Mexico City. “Job cutting is not an area where we’re looking for possible savings.”

If oil prices don’t recover, global exploration and production spending could fall more than 30 percent this year, the biggest drop since 1986, according to forecasts from Cowen & Co., a New York-based investment bank. Schlumberger Ltd. is firing about 9,000 people, Royal Dutch Shell Plc is canceling a $6.5 billion project in Qatar and Statoil ASA is scrapping exploration in Greenland.

While Pemex cut drilling activity by 24 percent to 491 wells as of November, Lozoya is confident of meeting a daily output goal of 2.4 million barrels in 2015, or about where it was last year.

“Any budget cuts will affect spending first, and if it’s needed, investment will be last,” he said.

Idle Workers

Lozoya’s comments echo those of President Enrique Pena Nieto at a March 2014 rally where he told Pemex workers that none of them would lose their jobs. The energy reform will “generate more jobs for hundreds of thousands of Mexicans,” Pena Nieto said in a speech on March 18, the day Pemex celebrates its 1938 expropriation.

Lozoya, the 40-year-old Harvard University-educated executive, took Pemex’s helm in 2012 and has been readying the world’s seventh-largest crude producer for an historic industry overhaul that aims to turn around slumping output. Pemex’s production fell for a 10th consecutive year in 2014, hitting its lowest annual output since at least 1990 when the government first began releasing data.

Pemex is the lowest ranking national oil company in terms of revenue and cash flow per employee in Latin America, according to Claudia Pessagno, senior equity analyst for Latin American companies at IHS Energy.

“A lot of these companies’ employee bases are so bloated, they could really do a lot to improve to their cost structure simply by reducing their redundancies,” she said in a phone interview from Norwalk,Conneticut.

An estimated 3,402 employees in Mexico’s oil and mining industries lost jobs in December, according to the Mexican Social Security Institute. Economic activity in the Campeche state, where Ciudad del Carmen is based, fell the most in all of Mexico during the first half of 2014, contracting 1.9 percent from the same period a year earlier, according to the national statistics agency.

Plaza of Sorrows

In Ciudad del Carmen, where oil workers walk the streets in colored jumpsuits worn on rigs, hundreds of people sit in the Plaza Zaragoza, a newly renovated plaza backdropped by a yellow Spanish-style colonial church. It is in this plaza, known locally as the plaza of sorrows, where Aquino and other unemployed residents sit in hopes of finding contract labor.

“All my colleagues are unemployed now,” Jorge Antonio Jimenez, who worked as a drilling assistant at GSP before being laid off, said. “These days there is nothing to do here.”

Jimenez, who worked for 10 years as a contract laborer on oil rigs, says leaving Ciudad del Carmen, where he owns a home and is raising two daughters, isn't an option. In the meantime, he's holding out hope for the arrival of foreign companies.

“I hope the energy reform does bring new companies to town,” he said. “I’m ready to work for anyone that gives me the opportunity.”

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