A JAR of crude oil, not much bigger than one of baby food, has pride of place in the office of Carlos Morales, the veteran oilman in charge of exploration and production at Pemex, Mexico’s state oil monolith. He handles it reverentially because it comes from Maximino, a deep-water field in the Gulf of Mexico, close to his country’s maritime border with the United States. Deep water is a territory that Pemex has only just started to explore.

Although privately owned oil majors such as Chevron have been drilling successfully in non-Mexican waters near Maximino for several years, Pemex has been left behind. After 23 failed attempts and billions of dollars of investment, it finally struck deep-water oil last year. But the amounts recovered so far are negligible. Mr Morales laughs weakly when asked if the jar on his desk is all there is.

The discoveries—none of which yet count as proven reserves—are emblematic of both Pemex’s problems and its potential if it were freed from one of the most restrictive oil regimes in the world, and able to partner with private firms with expertise it lacks. Its forte has been drilling oil in shallower waters of the Gulf of Mexico. But in the past decade production in its most bounteous shallow-water field, Cantarell, has plummeted from over 2m barrels a day to less than 400,000, and it has struggled to find new reserves to compensate.

Oil and gas production in America has soared thanks to shale deposits, some of which extend into Mexico but which Pemex has failed to develop. Pemex also looks south with envy at the deep-water prowess of Brazil’s Petrobras, another state-controlled but more entrepreneurial firm. Juan Carlos Boué of the Oxford Institute for Energy Studies estimates that Brazil has discovered as much deep-water oil in just the past five years as Mexico’s entire proven reserves.

Mexico’s government says it will shortly unveil big energy reforms. These may include changing the constitution to relax Pemex’s monopoly on oil production. As an indication of how politically sensitive this will be, the presidency let speculation grow that the reform would be announced on August 7th, only to admit the day before that it was not ready. Not only is it unclear how far the reforms will go, such is the state of Pemex that some doubt it is reformable at all. Bernardo Minkow, a former consultant at McKinsey, says it is so complex and poorly governed that it is “very hard if not impossible to fix”.

Its first problem is structural: it has never been treated as a profit-making company. Astonishingly for a monopoly that drills every barrel of oil in Mexico at an average cost of less than $7, and sells it for around $100, it lost an accumulated 360 billion pesos, or $29 billion, in the five years to 2012 (despite a small profit last year). This is partly because although its oil-and-gas-production side makes a fat profit, its refining business loses a fortune, and its petrochemicals division is also loss-making. Worse, the government sucks out cash to compensate for the lack of tax revenues it collects in the rest of the economy. Last year 55% of Pemex’s revenues went in royalties and taxes. This perpetual drain on its cashflow means its debt has soared to $60 billion. The hole in its pension reserve is a whopping $100 billion.

Besides siphoning off its profits, the government refuses to let it make its own decisions. Its boss is appointed by the president, the energy minister chairs its board of directors, and the finance ministry vets its budget, line by line. The board has no independent directors and lacks business expertise, says a former chief executive. He notes, for example, that more than 20 years ago the board began “benchmarking” Pemex’s refineries against international peers, but they have remained at the bottom of the league even as parts of Mexico’s manufacturing industry have become models of efficiency.