Mexico/Brazil: Pemex & Petrobras Open a Deepwater Door

What happened: Pemex and Petrobras signed a two-year MoU to establish strategic and technical cooperation across the hydrocarbons industry.

Why it matters: The MoU gives Mexican President Sheinbaum a positive energy headline at a time when Pemex still faces deep production and financing constraints. If the two NOCs achieve upstream success, it could build support for expanding cooperation into refining and petrochemicals.

What happens next: The key test is who pays for the risk capital that Pemex likely cannot provide. Moving from political signal to project execution will require viable assets, specific contracts, approvals and a credible funding structure.

On 23 June, Pemex and Petrobras signed the MoU in Rio de Janeiro following several months of political engagement between Mexico and Brazil. The deal follows earlier conversations between Presidents Claudia Sheinbaum and Lula, Petrobras CEO Magda Chambriard’s April visit to Mexico and a prior visit by Mexican Hydrocarbons Deputy Minister Juan José Vidal to Brazil. It is also Pemex's first major international commitment under CEO Juan Carlos Carpio Fragoso, who took over in May.

We view the agreement as positive in that it opens credible pathways for cooperation, but it remains largely just good PR. A wide gap separates the MoU from any materialized project, and the instrument carries no binding investment commitment.

For Sheinbaum, however, the agreement aligns with MORENA’s preference for a state-centered energy policy. It allows Mexico to seek outside expertise without presenting the move as a retreat from resource nationalism.

The Pemex Gap

Pemex needs help in areas where it has limited experience and weak execution capacity. Deepwater and ultra-deepwater exploration require specialized technology, long project timelines and substantial upfront capital. Petrobras brings credibility in precisely that space, particularly through its experience in complex offshore operations and Brazil’s pre-salt development.

That is the positive angle. The MoU opens a formal channel for Pemex to access technical knowledge, reassess mature fields and explore offshore potential that Mexico has not fully developed. It also helps Pemex tell a more credible operational story at a time when rating agencies are giving the company the benefit of the doubt due to government support, even as they remain focused on its structural weaknesses.

Still Mostly PR

We believe investors should not overread the announcement. The agreement is explicitly non-binding. It does not create a partnership, consortium or joint venture, and it does not commit either company to invest.

An MoU creates a process, not a project. The path from here is sequential: identify opportunities, run technical and financial analysis, negotiate project-specific instruments, obtain approvals and then move to execution. Each step can slow, dilute or ultimately block the deal.

The agreement appears to be a watered-down version of the more ambitious cooperation required to materially change Pemex’s production outlook. It is a positive sign, but not yet a commercial breakthrough.

From Upstream to Refining & Petrochems

There are reasons to expect the two NOCs to act on the accord. Petrobras Engineering, Technology and Procurement Director Renata Baruzzi draws on substantial experience in Houston, where much of the focus has been on the Gulf of Mexico/America. She is aware of the E&P opportunities and the drawbacks of working with Pemex, given its fiscal and operational challenges in recent years.

For her part, E&P Director Sylvia dos Anjos is an internationalist who recently pushed Petrobras to expand its international portfolio into West Africa and Colombia. She believes the Brazilian NOC can strengthen its position by carefully selecting offshore projects with Pemex.

In the downstream sector, Petrobras has broadened its activities into biorefineries and increased its focus on gas output and processing. If the two companies achieve success in upstream, it could build the Lula administration’s support for expanding cooperation into refining — including the development of biorefineries — and petrochemicals, with assistance from Braskem, in which Petrobras holds a minority but highly influential stake.

Nevertheless, the clock is ticking. Sheinbaum has time, but Lula must win re-election to advance the MOU toward joint ventures. Given Brazil’s political polarization and disputed presidential election later this year, it is doubtful that any of the more conservative contenders — whether Sen. Flavio Bolsonaro or former Goiás Gov. Ronaldo Caiado — have any appetite to work with Pemex and Mexico’s left-leaning president.

Follow the Money

The key question is capital. Deepwater exploration is expensive, technically risky and slow to monetize. Wildcat offshore wells can require tens of millions to hundreds of millions of dollars before any production case is established.

Pemex is not in a position to fund a large share of that risk on its own. Its financial position has improved at the margin because of government support, but the company remains constrained by debt, supplier obligations, investment needs and weak cash generation.

If Petrobras is expected to carry most of the risk, it will likely want strong contractual protections, governance rights and economic upside. If Mexico rejects those terms, the MoU will not result in an investment vehicle.

Two Corporate Models

Pemex and Petrobras operate very differently. Pemex is fully state-owned and directly tied to Mexico’s political energy agenda. Petrobras is state-controlled but also publicly listed in Brazil and New York. That means private shareholders, market disclosure obligations, financial discipline and internal governance constraints matter.

This difference will shape any future project. Pemex may prioritize sovereignty, production targets and political optics. Petrobras will have to justify capital allocation, risk exposure and expected returns. Actual investment will require a much more precise commercial structure than an MoU and a much firmer commitment than a handshake.

Beyond Deepwater

Deepwater gets the headlines, but other areas may offer a more realistic path for early cooperation. Mature-field revitalization and seismic reprocessing are lower-risk entry points. Industrial processes may also be easier to advance because they align with Pemex’s existing priorities in refining, gas processing and petrochemicals.

Fertilizers deserve particular attention. Fertilizer production links energy, industrial policy and food security, areas where both governments have political incentives to show progress.