The history of the Mexican oil and gas industry is long and winding, but there are several key events that have served to shape the sector as it stands today. The first small quantities of Mexican oil were refined into kerosene near Tampico in 1876, and commercial production began at the turn of the twentieth century. US company Doheny’s Cerro Azul No. 4 well became the world’s largest producing well in February 1916, producing 260,000 bbl/d, and over the next 14 years the well pumped 57 million barrels. British company Pearson discovered one of the world’s largest oilfields, the Potrero del Llano, in what came to be known as the Golden Lane region, while laying railway tracks for a line that was to run between the Atlantic and Pacific coasts. He formed a company called Mexican Eagle to exploit the reserves, which was purchased by Royal Dutch Shell in 1919 for $75 million USD, and was the dominant firm in the Mexican petroleum industry until nationalization. By 1922, Mexico was the world’s second leading producer of crude oil. Until 1938, international interests, including Royal Dutch Shell, Exxon, the Pearson family, Sinclair, and Gulf Oil, largely controlled production.
President Lázaro Cárdenas intervened in a dispute between foreign oil companies and Mexican workers in 1938, when the workers were striking, demanding a pay increase and the introduction of welfare services. Citing the 27th article of the 1917 constitution, which states that any oil produced in Mexico belongs to the nation, Cárdenas embarked on the expropriation of the resources and facilities of the foreign producers. The reasoning behind this drastic measure was that the international oil companies operating in Mexico were not adopting conservation measures for remaining reserves, that there was a lack of interest in looking for new reserves, and the unfair labour practices used by the companies.
The day after this step was taken, the Consejo Administrativo del Petróleo (Petroleum Administrative Council) was created in order to take charge of the assets the state had taken over. By August 1940, after a problematic few months trying different administrative configurations, Pemex was founded.
One of the first major challenges for Mexico’s newly created oil company to face was an international economic boycott over the expropriation of 1938. This took many forms, from preventing Mexico from selling its oil internationally, to a ban on selling raw materials, replacement parts or vital equipment to the company. Mexico also saw foreign companies withdraw bank deposits that had been held in the country. Finally, after lengthy negotiations, the Mexican government agreed to compensate the oil companies for the expropriation, to the tune of $114 million USD. Payments began in 1940 and would finish in 1962.
Pemex was charged with the task of providing Mexico with oil and gas at the lowest possible price. It is important to note at this point that the prime directive of Pemex at its creation was not to create a profit, but simply to deal with domestic demand for petroleum products.
Pemex inherited 1.276 billion boe from the expropriation, and this steadily rose to 5.568 billion boe in 1960 as a result of exploration activities onshore, concentrated in the so-called Golden Lane oilfields in the state of Veracruz.
However, one of the most important events in Pemex’s history was caused by the actions of a fisherman named Rudesindo Cantarell. In 1976, Cantarell complained to the authorities that his fishing in the Campeche basin was being disrupted by oil clogging his nets. When Pemex investigated his claims, they discovered one of the world’s largest oil fields, which was duly named after the fisherman that led them to it. This unintended discovery generated half a trillion US dollars for Pemex, and ushered in a brand new era for the company.
Marco Bracamontes. (2015, January 29). Mexico’s Oil History – The early years [Video file]. Retrieved from https://www.youtube.com/watch?v=uZNyDQHcikU