Director General of Navix

Wed, 01/25/2012 - 09:13

If 2011 was a turning point for the Mexican oil and gas industry, then 2012 is the year that Pemex must prove that its previous successes were not a chance occurrence. Many strategies have been set in place over the last few months that must be successfully executed in 2012 in order for Pemex to reach its long-term goals.

Cantarell has been a problem for Pemex since it reached peak production in 2004. After dropping from 2.21 million bbl/day down to only 449,000 bbl/day in 2011, Pemex believes 2012 will be the year that the company manages to turn around the decline and once again raise production levels at Cantarell. Carlos Morales Gil, Director General of Pemex E&P, believes that Pemex would have already been able to turn around the decline at Cantarell in 2011 if it had not been for a shortage of jack-up rigs in the Mexican market, which meant that the NOC was unable to complete its planned drilling programme for the year. With a full complement of jack-up rigs, Pemex hopes to increase production at Cantarell to around 480,000 bbl/ day in 2012. It is a relatively small increase compared to the massive production levels Cantarell recorded last decade, but shows that Pemex understands how to manage the decline gracefully, and utilize its assets to their fullest extent.

Pemex’s most productive field is currently Ku-Maloob- Zaap (KMZ), producing 860,000 bbl/day in December 2011. While the field is not producing as much as Cantarell was in its prime, Pemex’s strategy for 2012 is to maintain a steady production plateau of around 850,000 bbl/day. It is expected that KMZ will reach its natural peak in the coming decade, and being able to provide steady production both before and after the peak will ensure that Pemex does not face the dramatic overall loss of production that it saw after Cantarell declined. Pemex will have to make sure that it has the rigs required to fulfil the development programmes it has for Cantarell and Ku-Maloob-Zaap, but after relaxing the drilling rig requirements the NOC increased in 2010, it should be possible to find the infrastructure it needs to succeed.

Pemex is keen to see its overall production levels raised, and the country’s largest but most challenging oil producing region, Chicontepec, may yet prove to be the key to the NOC’s production worries. Pemex has grand ambitions for Chicontepec, and after a few years where it seemed as if Pemex would never truly overcome the region’s challenging geology, the company’s efforts were rewarded in 2011, with production increasing from 44,700 bbl/day in January 2011 to 63,900 bbl/day in December. By 2026, Pemex hopes Chicontepec will be producing as much as 1 million bbl/day, but this will have to happen incrementally. In 2012, Pemex says it will launch a round of integrated service contracts at Chicontepec, which will bring private operators to the field for the first time, and expects that this will contribute to eventual production growth at the field.

Chicontepec is not the only area where integrated service contracts will be introduced in 2012; on June 19th, the second round of ISCs will be awarded for areas in Pemex’s northern production region. Six areas are open for bidding, of which four are onshore and two offshore. Pemex is hoping to attract more foreign contractors to these blocks, and later this year it will become clear if they have been successful. However, the blocks are being awarded only a few days before the 2012 Mexican general election; it remains to be seen whether this will have an impact on investor appetite. Moreover, the Magallanes, Carrizo and Santuario fields, awarded in the first ISC round, are expected to start making an increasing contribution to Mexico’s oil production.

Deepwater exploration will be high on the list of priorities for Pemex in 2012, as the company plans to drill six deepwater wells during the year. Until now, Pemex has only found gas, and a significant oil discovery could make further exploitation of deepwater a much more attractive prospect for the NOC. Gustavo Hernández García, Subdirector of Planning and Evaluation at Pemex E&P, indicated that the Kaxan-1 exploratory well, which will be completed by July or August 2012, has a high probability of being commercially producing. This year, the company is also planning to drill the Supremus-1 and Trión-1 wells in the Perdido folded belt, a region that Pemex believes will be oil producing.

Shale gas will be another area of focus for Pemex in 2012, although exploration for unconventional resources is at a much earlier stage than Pemex’s activities in deepwater. In 2011, Pemex drilled its first shale gas well in 2011, and in 2012 plans to drill three more: Montañes-1, Nomada-1 and Navajo-1.

The election will be one of the major events of the year in Mexico, with the elections taking place on July 1st, and the new President taking office at the beginning of December. Whoever wins has the chance to shape the future of Mexico’s oil and gas industry, for better or worse.