[OC] New Mexico Now Produces More Oil Than Mexico & VenezuelaSubmitted by latinometrics t3_111id9t in dataisbeautiful
studude765 t1_j8f60sh wrote
I would point out that both Venezuelan and Mexican oil are state-owned/operated production firms...also in both countries the governments use them to fund government spending and there is little to no capex in keeping up/expanding oil production...basically the state is really bad at running companies efficiently, and often uses them as a piggy-bank, which has been generally true forever. Governments suck at running companies/making them grow long-term. Capital allocation is terrible within these companies generally speaking.
Stoyfan t1_j8fka74 wrote
Its not so simple. After all, some of the largest oil producing companies are SOEs (Equinor and Aramco being examples). The issue with venezuela's oil production decline may be down to lack of investment and mismanagement but that isn't really the case for Mexico.
That has more to do with demand for domestic oil production increasing in the US, which means less demand for Mexican oil.You can see the result of that for New Mexican oil and Mexican oil production. One goes up whereas the other goes down because people are buying less from Mexico.
studude765 t1_j8fkzuh wrote
>Its not so simple. After all, some of the largest oil producing companies are SOEs (Equinor and Aramco being examples).
Both of these are publicly traded/have private shareholders...sure the state does own the bulk of the equity, but they are partially private and have to publicly report financial results. The other primary difference is that their profits are not solely used to fund the government/they are not operated in that ways as a source of tax revenue...both of these 2 companies have a line between the BOD and the government, which is not the case with PEMEX or Venezuela's oil company (which report directly to the government).
>The issue with venezuela's oil production decline may be down to lack of investment and mismanagement but that isn't really the case for Mexico.
Yes it is the case for Pemex...Pemex profits accounted for about 25% of Mexico's government revenues. Literally the first article that came up below...it's pretty well known that a lack of investment is the main reason for Pemex's long-term declining production.
https://money.cnn.com/2012/08/17/news/economy/mexico-oil/index.html
>That has more to do with demand for domestic oil production increasing in the US, which means less demand for Mexican oil.
Pemex can sell oil to anybody...oil is a globally traded commodity...they don't need just the US to buy it.
>You can see the result of that for New Mexican oil and Mexican oil production. One goes up whereas the other goes down because people are buying less from Mexico.
This is primarily due to the declining production of Pemex oil...
ravenhawk10 t1_j8gtj3z wrote
You say Saudi Aramco is publically traded but it’s only got a measly 1.5% traded and only from 2019. Its basically fully government owned and lines government coffers nicely every year. The whole point of the IPO was becuase the government wanted cash. To be fair they are using it for a sovereign wealth fund to diversify their revenue. Furthermore, the IPO didn’t attract much interest from western capital markets for problems commonly associated with SOEs, like corporate transparency and political risk.
It sounds more like Saudi Gov is just more competent at management than the Venezuela Gov.
studude765 t1_j8ipv7s wrote
>You say Saudi Aramco is publically traded but it’s only got a measly 1.5% traded and only from 2019.
They still have to operate as a publicly traded company with an unbiased BOD, and have to do all the financial reporting/auditing that comes with being publicly traded.
>Its basically fully government owned and lines government coffers nicely every year.
But it's not the government making capital allocation decisions, it's the BOD and management...this is the key difference
>The whole point of the IPO was becuase the government wanted cash. To be fair they are using it for a sovereign wealth fund to diversify their revenue. Furthermore, the IPO didn’t attract much interest from western capital markets for problems commonly associated with SOEs, like corporate transparency and political risk.
Again though...the company does not take direction from the government (at least directly).
>It sounds more like Saudi Gov is just more competent at management than the Venezuela Gov.
The thing is the Venezuelan government directly controls and mandates what their oil company does as far as dividends, capital investment, etc....this is not the case with Saudi Aramco. Even with Saudi Aramco though, these companies (with large state ownership) do tend to have worse capital investment ROI and poor capital allocation over time.
ravenhawk10 t1_j8jwt6d wrote
My point was that they have managed to operate successfully well before their IPO and associated reporting requirements. They seem to be following best practices and hiring professionals for operations. Then again, aren't these professionals essentially government employees?
Regarding the BOD, do note there are two government ministers sitting on the BOD. The BOD must retain a close relationship with the government, as the government is its only shareholder that matters. The government also has a big impact on the company's profits as its responsible for OPEC negotiations.
studude765 t1_j8nmryx wrote
>My point was that they have managed to operate successfully well before their IPO and associated reporting requirements.
They were profitable, but were they as profitable as they could have been? Did they generate as high of an ROIC as they could have? Also the fundamental difference in Saudi Aramco and Venezuela's oil company is that Saudi Aramco is run as a business with little to no direction from the Saudi family (though they do enjoy all of the dividend benefits)...in Venezuela the government directly makes business decisions for the oil company and that has led to poor capital allocation decisions...this is also somewhat true for PEMEX as well.
>They seem to be following best practices and hiring professionals for operations. Then again, aren't these professionals essentially government employees?
Again, the company does not get directly dictated what to do by the government, as does tend to happen in Venezuela and somewhat with PEMEX as well.
>Regarding the BOD, do note there are two government ministers sitting on the BOD.
Out of how many BOD members though? with Venezuela you have pretty much 100% government control and with PEMEX still more government control than 2 BOD members.
Yeangster t1_j8gmjto wrote
With Aramco, they generally just have to dig a hole in the ground with a shovel and oil comes gushing out. But it is true that the House of Saud has been pretty good at taking care of the goose that lays the golden eggs. Let’s if that stays the case after MBS overturns the old system.
Equinor is more the exception that proves the rule when it comes to national oil companies. They’re even competitive in producing resources outside of Norway!
With both Pemex and PSVSA, you see production collapsing due to a combination of cronyism, corruption, lack of investment, generally too many people with their hands in the pot and lack of foreign competition to keep things honest. PDVSA is even worse off because of nationalizations and all the other problems with the Venezuelan economy.
KikeRiffs t1_j8gnnni wrote
This is a true fact, however you forgot one variable which is affecting less (or maybe none) in New Mexico: Corruption.
Venezuela became a gangster state, the amount of money stolen is unimaginable. Think about the production of oil around 2008-2012 or so… the barrel price hit the 100s and producing at a still high capacity. None if this money was properly invested in the country.
Also Venezuela got into more debt with China in a loan-for-oil style of debt. There might be a big chunk of the daily production of oil just destined to pay that back.
Just to give you another last hint of the massive corruption: since Chavez, the government decided to give subsidised oil to Cuba for “humanitarian” reasons. But there were reports that Cuba was re-selling that oil in conjunction with some Venezuelan politicians as well. Free money!
So yeah, the money that should have been invested properly for a normal market, has been destined to corruption.
DuzTeD t1_j8ft47n wrote
> basically the state is really bad at running companies efficiently, and often uses them as a piggy-bank, which has been generally true forever
This is somewhat more true for Venezuela than Mexico, but in the context of the global economy the large oil reserve has put a target on the country's back, so to speak. Specifically after Venezuela nationalized their oil extraction industry and opted not to take out any more IMF loans in the early 2000s, their ability to stabilize currency was highly dependent on the oil market which since then has been often unpredictable. Combine this fact with the generally exploitative nature of the first world's relationship with Latin America ("corruption") and the middle eastern OPEC members having an outsized influence on oil production throughout the same period until today and it is not hard to see how Venezuelans came to suffer as a result.
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