When you're drowning in debt, plagued by declining production, and running a refining business that seems chronically allergic to profits, buddying up with a more successful partner starts looking like a sound strategy.
That's essentially what just happened between Mexico's Pemex and Brazil's Petrobras.
The two state-controlled oil giants signed a memorandum of understanding this week to collaborate on exploration, production, refining, natural gas, petrochemicals, and more. But the headline item? Deepwater exploration in the Gulf of Mexico.
Petrobras is arguably the world's premier deepwater operator, having spent two decades perfecting the art of pulling oil from Brazil's massive pre-salt reservoirs buried thousands of feet beneath the ocean floor. Those discoveries transformed Brazil into an energy powerhouse and helped Petrobras build one of the most attractive offshore portfolios anywhere in the world.
Pemex, meanwhile, has been watching production decline as mature fields like Cantarell continue to fade. The company still carries roughly $80 billion in debt, posted another quarterly loss this year despite elevated oil prices, and remains heavily dependent on government support.
In other words, Pemex needs new barrels. Petrobras needs new opportunities. The timing makes sense for both.
Petrobras has been aggressively expanding its exploration portfolio, recently adding acreage in Namibia, Colombia, São Tomé and Príncipe, and elsewhere as it looks beyond Brazil for future growth. The company has also racked up a series of offshore discoveries and continues to generate some of the lowest-cost barrels in the industry.
For Mexico, the attraction is obvious. While the U.S. side of the Gulf of Mexico produces roughly 2 million barrels per day from deepwater fields, Mexico's side remains largely untapped.
The big question isn't whether the oil is there. It's who pays to find it.
Deepwater exploration can cost hundreds of millions of dollars before a single commercial barrel is produced. Given Pemex's financial condition, many analysts expect Petrobras would shoulder much of that burden if the partnership evolves into actual projects.
For now, it's only an MOU.
For Pemex, borrowing some deepwater expertise from Petrobras may be one of the more sensible ideas to emerge from the oil patch this year.
