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Chevron Tries to Break into Pemex

Ever since Mexico's nationalization of the oil industry in 1938, the country's huge oil and gas reserves have been largely off-limits to international oilmen. Instead, Mexico's own engineers and workers built the state-owned oil company, Petroleos Mexicanos, or Pemex, into one of the world's largest oil companies. This has been a source of intense pride for Mexicans across political boundaries, thwarting the repeated attempts by pro-privatization ideologues and U.S. oil companies to open the oil industry to private firms.

Chevron is hoping that changes fast. In recent years, under the conservative government of President Felipe Calderon, Pemex has gradually started granting production contracts for its oil and gas fields to foreign oil firms, and it has expanded its use of oilfield service contractors such as Halliburton and Schlumberger. In initial rounds of production contracts, Chevron has been among the eager bidders. Mexican President-elect Enrique Peña Nieto, who takes office in December, has announced he will open Pemex wide to companies like Chevron.
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Chicontepec – Why It's the Wrong Place for Chevron

The principal area that is being opened to foreign oil companies is the Chicontepec Basin, an area about 200 kilometers northeast of Mexico City straddling the "La Huasteca" region of Veracruz and Puebla states. Chicontepec contains about 40 percent of Mexico's reserves, and has been a major focus of the Mexican government, which urgently needs new production from Chicontepec to offset the rapid production decline in its main offshore field, Cantarell.

However, production in Chicontepec is hampered by the oilfield's unusually complicated geology, in which small pockets of oil are scattered over a wide swath of geological formations, rather than large reservoirs of easily-tapped crude. This complicated geology has two insidious impacts. First, it means the favored technology for exploring and extracting oil is fracking, or hydraulic fracturing, the technique that has become ubiquitous in U.S. drilling and has become widely known for polluting groundwater. Second, it means that drilling must be scattered in a high number of locations – about 13,500 wells, much more than the total number of oil wells now producing in the entire country. This means that wells would have to be drilled throughout the ancestral territory of the region's Otomi native peoples.

So to the extent that Mexico needs foreign expertise, it needs companies that are environmentally sensitive, respectful of local indigenous communities, and responsible to the general public. Sound like Chevron? No.

Mexico may want to think long and hard before it signs any deals with Chevron.
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