Mexico’s state oil company Pemex, with nearly 3.3 million barrels per day of crude output, is the largest of the region’s NOCs and is the ultimate cash cow for its government, which receives some 37 percent of its budget from the oil industry.

But Pemex faces a host of problems including the decline of its giant Cantarell field and rapidly mounting debt. President Felipe Calderón served a stint as energy minister under his predecessor, Vicente Fox, and is committed to correcting the problems. Calderón has shown the political dexterity to avoid a Pemex strike this year and is cooperating with Mexico’s Congress to present a fiscal reform package that would reduce the state’s dependence on oil.

But the real challenge for Calderón lies in convincing his left-leaning opposition to open the oil sector to private participation. Fox was unable to strike a deal on the issue with Congress, where opposition parties argued the effort smacked of privatization. Pemex needs to attract foreigners with the know-how to exploit promising regions – especially deepwater fields where it has little experience.

Meanwhile, it’s no secret that Pemex’s Venezuelan counterpart PDVSA is the economic engine that is driving President Hugo Chávez’s socialist agenda. Rising oil prices have translated into increased profits and influence for PDVSA, which this year was given operational control of all the country’s oilfields. As a result the country’s oil fund, Fonden, is able to spend more than ever on domestic social programs. But PDVSA’s new roles are straining its finances and distracting it from its core business, which is suffering from reduced oil production and dilapidated refining infrastructure.

Despite its problems, PDVSA’s influence in the region is indisputable, especially among the left-wing governments of Bolivia and Ecuador. Although the two neighboring countries have vast natural gas and oil reserves, recent political instability has left their respective NOCs, YPFB and Petroecuador, in dire need of reform.

This year, Bolivian president Evo Morales took the radical approach of nationalizing the industry, giving YPFB a larger take of E&P projects and a monopoly in refining and downstream activities. Although industry experts feared the move would frighten off foreign investors, twelve companies agreed to continue operating in the country and invest $3 billion in E&P. Brazil and Argentina can be reassured that Bolivia likely is capable of meeting future natural gas supply commitments. However, problems remain, as YPFB must expand refining capacity and attract talent. The country suffered fuel shortages this year and YPFB salary caps are driving industry talent to the private sector.

Petroecuador faces similar problems but is just starting to recover. Left-wing President Rafael Correa believes the company could help develop his country’s economy. Correa has given the company a year-end goal of upping production to 185,000 barrels per day, from 170,000 bpd. Although Ecuador scared off investors after canceling Occidental’s rights to a block following a contract dispute, Petroecuador is working successfully with international partners such as PDVSA and Brazil’s Petrobras to upgrade the country’s E&P and refining capacity.

Petroecuador and Petrobras have obviously benefited from the foresight and savvy of their countries’ leaders, while Pemex and PDVSA simply cannot fail with sky-high oil prices. The NOCs, however, are building their success upon volatile factors such as country leadership and commodity prices. When economic and political realities change, these NOCs may not have sufficiently strong foundations to remain successful.

The Supply Group

On the other end of the spectrum are the NOCs that – rather than serving as the economic engine of their developing economies – focus on supplying their countries with the oil and gas they need to keep factories, mines, and automobiles running.

With nearly 3 million bpd of production and more than $12 billion in 2006 profits, Brazil’s Petrobras is the fastest growing and most profitable NOC in Latin America. Thanks to its management, technical expertise, and financial clout, Petrobras competes effectively against private companies for oilfields at home and abroad. The company has become a star in Latin America’s energy industry and an example that some are following.

Like Petrobras, Colombia’s Ecopetrol is focused on sustaining self-sufficiency, and for the last four years has been forced to compete with private companies to develop domestic oilfields. Ecopetrol aims to increase production by 200,000 barrels of oil equivalent per day to 500,000 boepd by 2011 – the year Colombia’s self-sufficiency is forecast to end if output fails to increase.

It therefore is no surprise that Ecopetrol is emulating Petrobras as it focuses on developing extraction technologies for mature and heavy-crude fields, and seeks E&P opportunities abroad, including in Brazil. Most important, Ecopetrol is working to free its corporate management from government control by selling 20 percent of its shares in Colombia this year and possibly listing in New York in 2008. The sales would go a long way toward separating Ecopetrol’s management from the country’s often-volatile political climate.

Farther down the continent, Argentina’s Enarsa and Chile’s Enap lack the reserves and capital to reach the stature of Petrobras or even Ecopetrol. But they are both scrambling to end the energy crises that have hit their countries and are teaming up with larger companies to boost hydrocarbon supplies. The two countries have recently suffered natural gas cuts and are working on behalf of their governments to negotiate gas and diesel imports.

Created in 2004, Enarsa has compensated for its inexperience and lack of financing by tagging along with bigger companies to develop oil and gas fields in Argentina. The company has signed exploration deals with Spain’s Repsol-YPF and is teaming up with Petrobras on deepwater exploration. Most recently, Enarsa and PDVSA formed a joint venture to develop everything from E&P to refining to an LNG import terminal in Argentina.

Chile’s Enap, like Enarsa, is turning its limited size to advantage to relieve pressure on the country during its energy crisis. The country’s weak reserves have forced Enap to perform efficiently and competitively. Enap is profitable, and runs E&P operations in Argentina, Ecuador, North Africa, and the Middle East. Further, its refining business allows it to export fuels to distributors in Latin America for a nice profit.

In addition, the company has a new strategy to exploit reserves with E&P companies in its Magallanes basin down south. This could introduce needed gas reserves and invite welcome exploration technologies into the country. Enap is also working in Venezuela’s Orinoco crude belt to certify reserves and possibly develop them.

When prices drop, Enap and Enarsa will actually welcome the news, as the drive to find cheap oil and gas will ease considerably. The profitability of Petrobras and Ecopetrol will decline, but they will have the cash reserves and technical know-how to sustain self-sufficiency. Of course, all NOCs would love to have the reserves of Pemex and PDVSA, but the ones who have had to fight harder to sustain supply at home have best adapted in the industry and are the best equipped to face the future.