2019 A Pivotal Year for Mexico

Q: How can Rystad Energy’s data services help achieve López Obrador's ambitious production goals and what is a feasible production number for 2024?

A: Assuming PEMEX has no CAPEX dedicated to building the Dos Bocas refinery, we still see Mexico’s production declining by 1.4MMb/d out to 2024. Without the correct investment, the government’s target of 2.6MMb/d from today’s level of 1.8MMb/d by 2024 will not be reached. From a data perspective, the Mexican government, including CNH and PEMEX, should be looking at how to allocate capital in the most effective manner for PEMEX. That capital allocation needs to be managed correctly from an upstream perspective, as we see downstream being a significant downside risk for PEMEX. It will take everyone working together and having some incredible results in the exploration space and being able to move quickly to first oil. That will come down to regulators too, so there must be an environment where regulators work in a timely and efficiently manner to approve licenses. 

Q: Which Rystad Energy products could best help PEMEX reach 1.8MMb/d?

A: Using a mixture of Rystad Energy databases and consulting would be the most effective use of our company as an information partner. Our upstream database covers 65,000 fields worldwide and offers information on reserves, production and cost of development. The ability to look at analogous developments across the world and understand how companies have allocated capital to different developments to raise production would be extremely useful. We have another database in which we cover the oil field service segment and we analyze E&P expenditure in 56 service categories. PEMEX would benefit significantly from understanding its cost structure versus other players’ cost structures related to the amount it pays for services. When there has been a long-term monopoly and long-term 
partnerships, efficiency in contracts can be lost. For PEMEX to be able to review those costs using empirical data from a global view would allow the company to question whether it is paying the right price for services. Rystad Energy offers consulting that delivers a bespoke perspective that employs raw data to draw up a strategy that can be used for the next several years. 

Q: What does PEMEX have to deliver today to get to 2.4MMb/d or more?

A: It is more about other operators than about PEMEX. Twelve offshore exploration wells are set to be spudded in 2019. The success or failure of these wells is going to determine the attractiveness of investing in Mexico going forward. If we see some success with a less demanding regulatory environment, we could start to see a ramp-up of production by 2021 or 2022, with first oil from Amoca, which Eni had on track for 2019. Pan American is trying to bring first oil by 2020.

PEMEX needs to be very judicious in its allocation of capital and focus on its shallow-water portfolio because that is where it has done its best work. PEMEX should focus on arresting those declining outputs. Around 40 percent of Mexico’s production comes from two fields, Cantarell and Ku-Maloob-Zaap, and 60 percent of PEMEX’s production comes from just four fields. This is ominous because so much production is tied up in so few assets. Arresting that decline is, therefore, the first thing that needs to happen – whether that is through infill drilling, satellite exploration and/or application of some EOR. PEMEX is set to receive an additional boost of US$4 billion in upstream CAPEX and then US$8 billion for greenfield refinery development at Dos Bocas. We think that the US$8 billion allocated for greenfield development and refineries would be better utilized in the upstream sector of the business.

We need to know if that money will be used correctly. Rystad Energy can consult on a PEMEX perspective about capital allocation and the most profitable investment value per dollar PEMEX can make to reach that goal. I certainly do not think we see PEMEX being able to raise production by 1MMb/d by in the next six years by itself.  

Rystad Energy is an independent energy consulting services and business intelligence data firm offering global databases, strategy advisory and research products for E&P and oil service companies, investors, investment banks and governments.