Black Gold Next Frontier for Top Billionaires: Corporate Mexico

bloomberg.com

 

by Adam Williams

3:00 AM MST
February 26, 2015

 

By Adam Williams (Bloomberg) -- Mexico’s top three billionaires -- Carlos Slim, Alberto Bailleres, and German Larrea -- dominate the country’s telecommunications, mining and retail industries. Next up on their priority list: oil. Slim, Bailleres and Larrea, Mexico’s three richest men according to the Bloomberg Billionaires Index, have created branches within their holding companies to compete in the oil and natural gas industries as the country’s government-run energy monopolies end. Bailleres’s Grupo Bal, which oversees mining companies Fresnillo Plc and Industrias Penoles SAB, formed PetroBal to explore for crude in Mexico two weeks ago. The participation of Mexico’s most powerful industrialists in the energy industry comes as international oil companies are backing off investment plans amid the lowest crude prices since 2008. Major producers could look to the magnates’ companies for extensive local experience and financing, said Duncan Wood, director of the Mexico Institute at the Woodrow Wilson International Center for Scholars. “There is a lot of money to be made in the energy sector,” Wood said in a phone interview from Washington. “It’s perfectly natural that all of these companies and conglomerates, given their experience in Mexico, are looking for opportunities in oil.” Mexico City-based Grupo Bal declined to comment on PetroBal, which is in development stages, Efren Maldonado, a press official, said Tuesday. Slim’s holding company Grupo Carso SAB also declined to elaborate on its energy plans. Daniel Muniz, Grupo Mexico’s chief financial officer, said on a fourth- quarter earnings call that the company is optimistic about opportunities created by Mexico’s energy reforms. Kingpin Forays Slim, the world’s third-richest man after Bill Gates and Warren Buffett, controls America Movil SAB, Mexico’s largest mobile-phone operator, as well as retailer Grupo Sanborns SAB and national Sears outlets. Slim’s foray into energy has been through Carso, which won rights to build and operate a 230-kilometer (142-mile) pipeline last month, and Tabasco Oil Co., which explores for crude in Colombia. Larrea, who oversees miner Grupo Mexico with his mother Sara Mota de Larrea, the country’s richest woman, has expanded to oil through his Perforadora Mexico unit, which provides oil rig jackups used to drill in water more than 350 feet deep. Bailleres raises and sells bulls for bullfighting and owns a number of bullfighting arenas. He also is a mining magnate overseeing Penoles, Fresnillo as well as department store operator Grupo Palacio de Hierro SAB. “These companies are already active in mining,” Wood said. “For them to go into something like coalbed methane or shale makes perfect sense as they already have a competitive advantage there.” Major Interest President Enrique Pena Nieto passed legislation in 2013 to open Mexico’s energy industry, ending government-run monopolies and allowing foreign producers for the first time since 1938. The country’s first auction this year of 14 shallow water blocks in the Gulf of Mexico has drawn interest from oil majors Exxon Mobil Corp., Chevron Corp., the first- and second-largest U.S. producers, respectively, and Royal Dutch Shell Plc, Europe’s largest oil company. Picking Partners In order for local newcomers to participate along with oil majors, they will probably have to partner with veteran producers to offset a lack of operational experience, said Gabriel Salinas, an energy lawyer at Houston-based Mayer Brown. Considering few Mexican companies have oil extraction experience, their value will be understanding the national business landscape, he said. “Oil and gas is a different ballpark for these companies,” Salinas said in a phone interview from Houston. “They currently don’t have the technical requirements to operate on their own, so their only way in to the sector will be as a partner.” Grupo Mexico is one of the domestic exceptions. Larrea’s company already partners on rig jackups with state-run Petroleos Mexicanos, known as Pemex. The moguls’ companies are looking to expand in Mexico amid a more than 50 percent slide in crude prices that has resulted in more than 100,000 job cuts worldwide. Pemex approved cutting $4.1 billion from its 2015 budget last week and will announce job reductions in the next few weeks, Chief Financial Officer Mario Beauregard said in an interview last week with Radio Formula. Producers including BP Plc and Shell have announced global spending cuts of more than $40 billion and assured investors they’re ready to tighten further if the market doesn’t recover significantly. “It takes a village to develop a petroleum basin,” George Baker, publisher of Mexico Energy Intelligence newsletter, said in a phone interview from Houston. “For oil companies to participate in auctions, the fiscal terms have to be attractive in a market cycle of depressed prices.”