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Latin America Energy Advisor: Does Pemex’s
recent gulf oil discovery herald a new era?


FEATURED Q&A

Q Mexican state oil company Pemex announced June 10 that
it had found “significant” deposits of oil in shallow waters in
the Gulf of Mexico, with expectations for a fairly quick rampup to extract an estimated 200,000 barrels of crude oil a day. For years, Mexico’s monopoly oil producer has faced dire forecasts of falling production and criticisms for not being proactive enough in making new discoveries. Does the new find show that Pemex has turned a corner on production? What has the company been doing right and wrong under the leadership of CEO Emilio Lozoya? How well have Mexico’s energy sector reforms been progressing this year, and what have they meant for Pemex?


A David Shields, independent energy consultant based in Mexico City and editor of Energía a Debate: “Exploration is
an ongoing task at any major oil company. Pemex has long
underinvested in exploration, and that is refl ected in results.
There are always some new discoveries to announce—at least once in each six-year government term—but nothing to suggest that Pemex is about to turn the corner yet on oil production, which has declined from 3.4 million barrels per day a decade ago to under 2.3 million bpd today. The four fields announced by Lozoya may help stem the decline—which is ‘significant’ in itself—but they are in the mature basin of the Campeche
Bay, where the giant and supergiant fields are now largely depleted, with no reason to believe that they might be replaced by anything of similar size. Pemex is stumbling along in a slow restructuring as part of Mexico’s energy reform, but remains a vast bureaucracy. It is still stuck in a fiscal trap, accounting for over a quarter of fiscal revenues, is overstaffed and cannot raise equity. The collapse in oil prices has hit sales and export revenues hard, but Pemex has not yet streamlined to reduce costs and make profits. The outlook for Mexico’s oil industry now rests on the Round One bidding process, which will take time to play out and add new output. The jury is still out on
how successful it might be. The first awards on July 15 will be an indicator. Another key issue is whether Pemex can soon enter into major joint ventures as part of the energy reform.

A Jeremy M. Martin, member of the Energy Advisor board and director of the energy program at the Institute of the Americas: “There was no fisherman involved this time.
But the catch appears worth hanging on the wall. And hang it on the international energy wall Pemex and Mexico’s energy authorities have done in recent days. Announcement timing aside, anyone with an interest in Pemex and Mexico’s energy future surely rejoiced over the discovery off the coast of Campeche and Tabasco. Touted as the most important discovery in the last five years, psychologically it feels like the most significant since Mr. Cantarell, the fisherman who reported an oil slick leading to the discovery of the Cantarell field in the 1970s, insisted that Pemex do something about his ruined nets. Indeed, Pemex could not have chosen better timing. The company has been hammered over the last few months by a slew of horrific offshore accidents, as well as by accusations
of an excessively deliberate pace with its corporate restructuring outlined by the reform. The motivational effect of the discoveries hopefully will translate to the projections of reserves and timing for much needed new production. At the same time, the estimated boost in oil output still leaves Mexico far below its peak production hit in 2004. But worse, the 200,000 barrels per day falls short of half the energy reform target of 500,000 bpd of new production by 2018. Yet the news should aid a more positive narrative for Mexico and Pemex. The discovery is an important notch on Pemex’s shallow-water belt and proves it retains a relevant role in Mexico’s new energy landscape. In March, Pemex announced an important partnership for the Las Ramones II pipeline project. Some have called it the tip of the iceberg or such deals, but observers remain eager for further announcements and particularly in the upstream. Delivering on all of these expectations is critical in the next 12-18 months for Mexico and Pemex alike.”

A George Baker, publisher of Mexico Energy Intelligence: “As
a result of the fire on the production platform Abkatún-A on April
1, Pemex lost 200,000 bpd of output, so any new field brought into production anytime soon would help make up for that loss. As for it being a new discovery, since Pemex has been drilling in this area for 30 years, it is more likely that the structure had been identified decades ago and that an appraisal well recently showed it to be commercial. In more than 30 years, Pemex has not made a significant oil discovery in areas where it has the capability to produce, so its strategy of seeking farm-out relationships with top-tier IOCs to develop its discoveries along the U.S.-Mexico maritime border makes sense. Pemex has not yet faced up to the need for global hiring or to the need for an upstream office in Houston and the imperative to compete
outside Mexico. The benefits from the centralization of procurement are likely more attractive in PowerPoint than in practice. The plans to develop shale gas in the northern basins have been upset by the injunctive relief given on Jan. 6, in favor of AHMSA, the steel conglomerate, that prevents the government from auctioning onshore fields and that prevents Pemex from ‘migrating’ existing risk-service contracts to one of the new contract models. The federal court ruling calls into question the legal authority of the government to carry out lease auctions in areas where there are coal concessions. It may be the Supreme Court that will decide on the course of energy policy in Mexico.”

 

 

 

Latin America Energy Advisor is published weekly by the Inter-American Dialogue. Petroleumworld does not necessarily share these views.

Editor's Note: This commentary was originally published by the Inter-American Dialogue, 06/26/2015. Petroleumworld reprint this article in the interest of our readers.

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Petroleumworld News 06/29/2015

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