In a Change, Mexico Reins In Its Oil Monopoly

For seven decades, Pemex, Mexico’s state-owned oil monopoly and a mainstay of the government’s revenue, regulated itself — which is a polite way of saying it could do pretty much as it pleased.

No authority challenged the wisdom of investments like the billions it has spent here in the Chicontepec oil field to extract just a trickle of petroleum even as private companies have pulled torrents from similar shale rock in Texas and North Dakota.

The company’s safety procedures went largely unscrutinized as it joined the oil majors drilling in deepwater areas of the Gulf of Mexico. And the company faced no serious consequences for not keeping its promises to raise output or operate more efficiently.

But in the last few years, that has begun to change. The tiny National Hydrocarbons Commission, created by the Mexican Congress in 2008 to increase regulatory oversight of the company, is proving to be a surprisingly sharp thorn in Pemex’s side.

The five-member panel of energy specialists, which has a staff of 61 and an annual budget of about $7 million, has begun to confront the company’s executives over where and how they drill for oil. With a raft of new regulations and its own blunt assessments of the practicality of Pemex’s projects, the commission is pushing the company to explain its plans.

Pemex does not have to follow the regulators’ recommendations, but the commission’s young president, Juan Carlos Zepeda, is speaking out when it does not.

“The strength of the commission is in public opinion,” said Mr. Zepeda, 42, an economist who contends that Pemex, officially Petróleos Mexicanos, should be more transparent as it spends $20 billion this year to find and pump oil. “The force of change will come from Congress, from opinion leaders, from national universities, from society.”

As a symbol of Mexican nationalism, created in 1938 when the government expropriated foreign-owned oil companies, Pemex occupies a peculiar place in the country’s energy policy. The jobs it generates give it powerful political allies, and its union is so strong that no president risks defying it.

The government relies on the company’s oil revenue for as much as 40 percent of the national budget, taxing it so heavily that last year the company lost $6.5 billion on sales of $111.5 billion.

As long as oil gushed from Pemex’s giant offshore fields, there seemed little reason for anyone to challenge the status quo. But production has declined since 2004, and the company’s ability to find and exploit new sources of oil has been cast into doubt.

The commission has closely tracked the Chicontepec project, on which Pemex has already spent nearly $9 billion. The regulators told the company that in its haste to meet ambitious production goals, it was drilling hundreds of new wells without studying the region’s geology or the best recovery techniques.

The criticism was quickly picked up by members of Congress.

Mr. Zepeda is also scrutinizing Pemex’s plans to push deeper into the Gulf of Mexico. The memory of the BP disaster there in 2010 is still fresh, and Mr. Zepeda is concerned that Pemex does not have enough experience to drill three new exploratory wells at depths of almost 10,000 feet — more than twice the average depths it has been drilling in the region.

David Shields, an independent oil analyst based in Mexico City, said the change in approach was significant. “It was heresy in the past to question whether Pemex was doing things properly,” Mr. Shields said. The commission’s five members all had previously worked for Pemex or for government entities involved in energy. But their decisions have shown independence, said Miriam Grunstein, an oil specialist at the CIDE, a public research university in Mexico City.

“They have integrity,” Ms. Grunstein said. “They’re really admirable. It’s completely unexpected.”