Monday, 16 December 2013

The Oil and Natural Gas Aperture: Mexico stumbles into the 21st Century

     The Great Expropriation put into effect by Lazaro Cardenas del Rio, President of the United States of Mexico  -  1934 . 1940, was heralded as a great leap forward for Mexico.   By the stroke of a pen, three years of formal dispute, millions of words of negotiations, pushing and shoving, harsh threats by both sides, hypocrisy and justifiable self-interest practiced by both sides....Article 27 of the Constitution of 1917 was  finally imposed as would be a death penalty in a criminal trial.   All subsurface natural resources are under the protection of the Central Government, which is obliged to defend those resources for the benefit of all Mexicans, making all Mexicans owners of their national patrimony.

    Such magnificent words.   And all of it is fairly useless mattress stuffing to cover a move to the establishment of one of the largest corruption cash cows in the history of humanity.  Labour union dynasties were establish by 1940 that would make the AFL - CIO leadership look like a group of monks sworn to poverty.

      Some little known facts about the oil industry in Mexico from around 1900 through 1938 would indicate that the Americans were the least abusive of the "exploiters", and that it was the Germans, through their operation of the Royal Dutch - Shell consortium, trademarked Flying Eagle Oil Company who produced 60% of the oil extracted from Mexico during those latter years of foreign involvement.   The American company most involved in Veracruz State and elsewhere in Mexico was the Standard Oil of California, to-day known as Chevron.   That group produced about 30% of Mexico's total oil marketing during the last years of f0reign operations.

     Foreign or domestic mining and, at that time, drilling companies were constitutionally required to pay 30% of the gross value of any ore or other extraction to the Mexican Central Treasury....known as La Secretaria de Hacienda.  This was an amenable issue for the foreigners.  Their engineers enjoyed, in large part, life in Tampico, motoring up and down the Panuco River and its Tarzan Movie-like scenes, the beaches, the finest seafood, and many other amenities.  To this day there are the progeny of those Americans and 0ther foreigners who deigned to remain behind after the foreigners were forced to stand down from their operations.   Their lead workers / supervisors generally got along with the Mexican workers, and hobnobbed with them after hours, became godfathers of babies, ate at their tables, drank beer with them in the saloons and cantinas.   The Germans.....not so much.   In order, the Mexicans preferred the company and companies of the Americans, Brits, and on the bottom of the list.....the Germans.
     Lazaro Cardenas, however, knew to make the issue about foreigners in general and the Americans in particular.   The Obama-style smear machine, backed up by the European press, made great issue of the fact that the American companies were going to drain out the Mexican oilfields before going after their own American resources.    It was a form of subliminal warfare, according to the Cardenistas, with the Americans trying to make Mexico dependent upon American petroleum largess, thereby guaranteeing that Mexico could never challenge the United  States, militarily or even in terms of business and boundary negotiations.
     Cardenas and his negotiators also pointed out that the Americans were making 2 to 10 times more than the common Mexican chain roper and/or roughneck.   The world swooned over such obvious discrimination.   Of course, the Americans wages frequently reflected that they were  experienced drilling supervisors and engineers while the rig workers were untrained and inefficient, although they learned quickly and most had a good work ethic.  The wage matter was brought up primarily to demonstrate that the Americans would bring in people to do semi-skilled work, pay them American level wages, and finally freeze out the Mexican workers.   Even if it weren't true, it might become true.
      There was some solace in the fact that the debts involved in the Expropriation  would be recognised by the Central Government in Mexico City and bonds were issued to the companies that were losing their permits and leases.   Those bonds were finally paid off, on schedule to those who were wise enough to take them seriously, about five years ago, with appropriate interest, etc.
    The pinky, demagogue-fuelled  Mexican expropriation was different, say, from the Boshie-styled, pseudo-communist taking of "illegally" foreign-owned properties in Cuba.  None of that property was ever indemnified.  None of the 200,000 jobs provided by American, British, French, and Spanish investment were replaced.   Well, they were replaced after several years with half as many jobs that paid 1/10th as much.   But there was nothing to buy everything worked out fine.

     The Mexican thing was much more complicated.  The establishment of the company Petroleos Mexicanos, SA de CV (aka: PEMEX), caused to be created a moon circulating around the planet.   The planet was the central government and its republic, and the moon was what was suddenly the sixth largest oil company in the world, almost overnight.
     PEMEX was formed up out of new clay.  It was established as a government chartered, essentially private and free-standing Corporation and also a monopoly.  It had a CEO named by the President and approved by the Senate of the Heroico Congresso de la Republica Mexicana.  But after was a moon, circulating a planet like a good moon, but "out there", just out of reach....but still in the orbit.  Typically Mexican.

      PEMEX became at once a name of honour and patriotic pride.  The oil is ours.  We can make our own gasoline.   We can produce our own gas in canisters, or even pipe it long distances.  We are self-sufficient in hydro-carbon refining.
       PEMEX  also became at once a name associated with massive incompetence and corruption.  Money disappeared, projects were shabbily terminated, only to fall to ruin in weeks, and the notion of training engineers to handle major, medium-sized projects was studied for years....while Mexico's best and brightest went on into civil engineering, went to the United States and worked there, and/or came back and established construction engineering operations.   PEMEX learned far too late about obligatory scholarships that would have been especially symbiotic both for PEMEX and La Patria. 
     PEMEX became the great fountain of employment.  Hundreds of wells needed to be reworked,  scores of new wells around Coatzocoalcos - Minatitlan and Poza Rica needed to be sunk.   There were hundreds of kilometres of pipelines that desperately needed to be repaired, reconstructed, and initiated.   And the off-shore....mein Gott....the offshore in the Bay of Campeche....oil and gas for a thousand years.    But, because the Constitution required that all workers (and business owners actually) had to be members of their appropriate labour union, a new fountain of abuse was created.
     The PEMEX labour union, SINDICATO de TRABAJADORES PETROLEROS al SERVICIO de la REPUBLICA MEXICANA (STPSRM)....was established to assure  that the workers would receive all the benefits ascribed to the workers of all businesses, especially government-related businesses.   It immediately became a den of thieves, with the local "secretary-general" lording over the positions and demanding a "tithe" from each union-local member so as to "remain in good standing" with the local's executive committee.   These monies were funnelled up by the "rule of tithe" until finally the overall head of the Petroleros Union would wind up with what to-day would be about one billion Mexican pesos per month for his own favourite private charity.   And yes, that would be one billion dollars per year in to-day's money.
     A "reform" was initiated in the early 1970s that broke the overall union up into regional unions.  This meant that now, instead of one major cad and his lackeys, there would be several cads and their lackeys.  That is the nature of "reform" in a socialist or governmentally controlled system.  In the late 1980s, the famous corrupt Mexican labour union chief for the very important northeastern division....a fellow by the name of Joaquin Hernandez Galicia, with the nickname of "La Quina",  was brought down by a new President.  (Quina is a Barcelonan contraction of the word 'cinchona', which is a bush that produces tonics and things like quinine.   The derivatives are found in tonic water, quinine anti-malarial, and such bitters. A person nicknamed "La Quina" is a person with whom one should exercise caution due to his hard manner and tendency to take revenge.)  He had challenged and ridiculed the new president during the election campaign of 1988.   Six weeks into the new term, the Army kicked in "La Quina's" bronze doors in the upscale Tampico subdivision, and they stormed his luxurious home.   He was arrested along with some of his thug enforcers and before it was over several score million dollars were recovered, massive amounts of jewelry of the finest order, along with firearms and fine art pieces.    The sale of six frames of Renaissance-era art work, the names of the pieces escape me at these moments, brought 9,000,000 dollars in an auction by Sotheby's on behalf of the Mexican Treasury, several years ago.

From the Los Angeles Times:   a bit of an obituary for La Quina who died at the age of 91, 11 November 2013.  To wit -

Secretary General Hernandez
(La Quina)
The old man shortly after being released from
 prison having been convicted, correctly,
 for massive fraud and embezzlement.
  At one time he had four Lincoln
 limousines with 16 chauffeurs.
      Mexico has become a more democratic country in the 21st century. Even so, many of the old-school unions remain intact, including Hernandez's union, which represents workers in the crucial, but troubled, state-run oil company, Petroleos Mexicanos, or Pemex. These vestiges of an older, less-transparent time present an ongoing challenge to those who purport to represent the forces of modernization and reform.
     "Pemex was a latrine of corruption before La Quina came in, but he turned it into a sewer of corruption," George W. Grayson, a Mexico expert at the
College of William and Mary, said Monday. "And it still is."
      Hernandez was a man of slight build, the son of an oil worker who eschewed flash and who, though trained as a welder, possessed uncanny political skill. After rising to the top of the union in 1958, he maintained control by doling out favors to local politicians and everyday workers, personally receiving underlings who would ask for
loans or help with marital problems.
     He also had a reputation for violence. He was publicly accused of the 1977 slaying of a rival, Heriberto Kehoe Vincent, although the accusation was never proven. Two of his bodyguards also allegedly admitted to killing another rival in the 1980s.

     The common worker for PEMEX was almost required to give primary allegiance to  head of the union.  Those seeking work did not have to show how their employment would benefit the company's overall mission, they had to show how they would comply with the structure of keeping the head of the Union in deep shekels.   We disagree with the depiction of the PEMEX union being just as corrupt as it was thirty to fifty years ago.   PEMEX overall is nowhere near the level of corruption of the "good old days".  The unions have steadily been more and more marginalised, although to say that they are not corrupt would also be an over-statement.   In the opinion of El Gringo Viejo,  all public unions are corrupt, and most heavy industrial unions are corrupt, to a lesser or greater degree wherever they are found, Mexico, the United States, Europe, Japan.  It is the nature of the beast.
BUT NOW, We finally arrive at the point behind all of this perambulation.  Last week, the Heroic Congress of the Mexican Republic took up the issue, finally, after a score of years of threats and admonishments by the various Presidents since Miquel de la Madrid Hurtado (1982 - 1988) that PEMEX join the ranks of all other Oil Giants in the world and participate in free market exploration, refining, marketing, and petrochemical business adventures.   The Mexican Behemoth is a competent and legitimate player and would be moreso with a bit of competition and formal alliance.  Talk about a joint EXXON-MOBILE and PEMEX collaboration in a 20,000,000,000 USD refinery in or near Matamoros, across from Brownsville, for instance, is not thought to be (is this a pun?) a pipe-dream.  The idea of American riggers actually frakking and perforating in northern Mexican deserts may be a reality now...legally....within months.   Activity subsequent to the purchase of debilitated Mexican rigs in the Bay of Campeche by British Petroleum and Conoco - Phillips is already probably on drawing boards from Tulsa to Mexico City.
    The Congressional Action was, in fact, considerably brave.   It is the surmounting of something like voting not to have a Martin Luther King and/or Nelson Mandela national holiday in the United States.  That act spurs howls of "Racism!! Racism!!".  The Mexican Chamber of Deputies and the Senate approved a Constitutional Amendment that will allow foreign development of petroleum and other hydrocarbiferous assets beneath the surface of Mexican territorial soil.   The amendment essentially only brings the petroleum law into focus with the rule of extraction for any foreign firm that is involved with any "minerals of the national patrimony".  Gold, silver, copper, valuable trace metals, barite, etc. have long been mined and processed in Mexico by foreign companies since before, during, and after the Revolution of 1910 and the establishment of the Constitution of 1917.
     The pinkoes and the neo-Bolshies and the Frida-ites howled and threw themselves in front of the doors of the august halls of deliberation.  Almost all were members of the Partido Revolucionario Democratico,  Mexico's variation of the lunatic element of the American Democrat Party, (which is about 85% of the American Democrat Party's membership).    When the doors were blocked by the PRD nutcases, the remaining members of the Diputados (congressmen of the Lower House) simply went to another large conference room, convened with the President of the Lower House, voted and provided an 83% margin (including the dumboes blocking the doors), well beyond the two-thirds required by the Constitution, to amend said Constitution to facilitate the new inclusion of Oil and Gas into the mining provisions.    The upper house, the Senado de la Republica, had already voted earlier in the week, 98 to 23, to authorise said action.
     We now have only to wait and see if a majority of the States of the Mexican Union will approve of the measure.  The odds are overwhelming that two things will happen:   (1)   There will be insane demonstration, State congressional members taking their clothes off at the podium, graffiti spraying leftist scum painting public buildings inside and out with crude, crass, and coarse profanity and pseudo-religious commentators talking about the sacrifice of national sovereignty to the altar of materialism, and (2)  The overwhelming approval by the various State Congresses of the measure coming out from the Mexican Congress.
     The final State actions should be done on or before the 1st of April, 2014.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ might ask reasonably.....and so what?
   The introduction of American, and to a degree Canadian, technology  mixed
into the existing Mexican technology, along with the infusion of investment by sources in all three of those North American nations, will result in the establishment of an petroleum energy force that will provide "energy self-sufficiency" for all three countries for several hundred years, and perhaps more.
     Next, there will be a demand for semi-skilled and skilled workers in Mexico that will provide wages and benefits at about two - thirds the American level of remuneration.   In some cases, there will be American employment either directly in Mexico or in companies supplying certain things to the Mexican exploration and production issues as demand for such things intensifies.
     Although some may not believe it, there is a shortage of semi-skilled and skilled blue-collar workers in Mexico at this time.   And, although many may not believe it, I know it is true because I see it on a daily basis, almost all the men legally working in the United States and sending money home would prefer to be back near home and making money at such a rate that it would complement his lower cost of living.   The lower cost of living is not so much that things are a lot cheaper in Mexico.   The trick is that one knows where the bunny holes are in terms of buying and eating and moving around in the least expensive and highest quality combination possible.   It also means living in what had been a hovel that over the five or seven years that just went by has become a half-way decent home  with all the nice things like gas, water, electricity, functioning sewer, a fire department and/or ambulance within the next few kilometres.....and no house payment....and real-estate taxes of 10 dollars per year.
     El Gringo Viejo did not put a place in Mexico so much to save money so much, as for the purpose of just enjoying the life that he enjoyed.   It was quite a daunting effort to build a "cheap" adobe home.  But, because his tastes were corkscrewed by too many years of eating really excellent Mexican preparations on various economic levels, highest to the lowest, he shops for those things that please his palate and he finds them at very, very reasonable costs.    When he serves beer to the clients, he charges less than what a beer costs at retail in WalMart in the United States.   And it's better beer.   These are all "for instance" examples.
   El Gringo Viejo also knows quite personally, in that they are essentially neighbours, many people who have come back from working in the United States.   There are many others who go and come, legally, to places in North Carolina, Georgia, Wisconsin, and Michigan, with working papers and round trip air or bus transportation provided by the American company.   And they do not work for slave wages...they are well paid....and they fill positions, especially in urban areas (so to speak) where no one will respond to vigorous efforts at recruitment of local workers.
    So, it is certain that this value-added industry will have a substantial, non-inflationary positive economic impact, on Mexico and on the United States and Canada.
    We should also point out that the father-in-law of my daughter, my (choose one or all terms:  consuegro - fellow father-in-law, compere - fellow father - compadre - also fellow father) worked for many years in Mexico in the sale and fitting and advice concerning valve issues....extremely elaborate control valves for PEMEX.   Another thing, both in his experience and El Gringo Viejo's experience, is that there never was a PEMEX check that bounced.   They bought literally hundreds of parts and wholly rebuilt  valves from my consuergo's company for many years....and I believe that they continue to do so.  These were not 49.95 USD parts, by the way.
     S0, there is the news.  There is a little history.  The history is interminable, for there are tales and tales that can, and could, and perhaps should be told in a hundred saloons and a thousand parlours in the coming years.   One good place to start would be in the Humphrey Bogart and Spencer Tracy movie with the name, "Treasure of the Sierra Madre".   The opening third of the movie is actually set in Tampico during the period just before the expropriation, while the filming was done during the period just after WWII and post-expropriation.   While the film is fictional, some of it is based on a true life story and the rest is a fairly good representation of how things were during those days in Tampico, Tamaulipas and Poza Rica, Vera Cruz and the Sierra Madres to the west....not far from El Gringo Viejo's little adobe hut.
More on these matters later.   Thanks for your patience.
El Gringo Viejo