Exploration and Production: Returning PEMEX to Splendor
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Exploration and Production: Returning PEMEX to Splendor

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José Escobedo By José Escobedo | Senior Editorial Manager - Tue, 01/21/2020 - 22:04

A mountain of challenges lies straight ahead in order to meet the president’s 2.6 MMb/d production goal. As PEMEX roars ahead with plans to substantially boost production, the road to success will be led by the NOC's exploration and production arm, PEP. To reach the production goal, the unit is prioritizing the development of over 20 new fields. But the first small signs of a turnaround are already on record. Alberto Velázquez, PEMEX’s Chief Financial Officer, says that after 14 years of decreasing production, PEMEX achieved not only production growth in 3Q19, when production rose 1.2 percent compared to the previous quarter, but also an increase in the processing level of its refineries, which in turn resulted in greater production of high-yield refined products. The caveat: production and processing improvements followed historical lows in recent quarters. 

To return to sustainable growth as outlined in the company’s new business plan, PEMEX is increasing its maintenance budget and improving production at existing wells, while optimizing the procurement of goods and services for production. “The strategy of the new business plan is yielding positive results and PEMEX is on the right path,” says Velázquez. According to the 3Q19 results announced by PEMEX, its average crude oil production (excluding production with partners) reached 1.694MMb/d during 3Q, a 1.2 percent increase compared to the 1.673MMb/d in the previous quarter. Although production in September reached 1.713MMb/d, it dropped again in October. Acting General Director of PEP Francisco Flamenco highlights the increase in liquid hydrocarbon production by 21Mb/d as compared to the 2Q19, an increase of 1.2 percent, while the quarterly increase exceeding 1 percent had not been seen since the 3Q15. This gain in crude oil production was primarily achieved by addressing operational challenges such as time reduction to reestablish electro-submersible centrifugal pumping failures in the marine areas, as well as investing more resources in well maintenance, workover, stimulation, cleaning and optimization.

Velázquez points out that another relevant operational achievement is the recovery in the crude oil processing levels in the National Refining System. PEMEX closed last year with a 492Mb/d processing level. “As a result of the maintenance actions and the repairs implemented this year, we ended this quarter with an average 657Mb/d processing level. This is a very significant increase,” he says. Crude oil processing levels at refineries increased by 10 percent, as compared to the previous quarter. And during 3Q19, the crude oil processing level was 62Mb/d higher than that in 2Q19 and 167Mb/d higher compared with 4Q18. 

Despite PEMEX’s increase in hydrocarbon production costs, which include operation and maintenance, the exploitation strategy that focuses on shallow waters has allowed the NOC to maintain competitive production costs compared to similar companies. It is important to highlight that a decrease in investment in exploration and production in recent years has resulted in a prominent reduction in the number of wells drilled. For example, in 2012 close to 1,200 wells were drilled compared to a mere 55 in 2017 and 143 in 2018. In 2019, an upward trend began to emerge when 319 wells were drilled, according to PEMEX. To offset rising production costs, PEMEX has achieved better contractual and fiscal conditions. This has in part been accomplished by the migration of the Ek-Balam assignment, the migration of Mision from a Contract of Public Financed Work (COPF), and the migration of Santuario-El Golpe, Ebano and Miquetla from Integral Contracts for Exploration and Production (CIEP). 

In recent years, PEMEX established three associations through farmouts: the deepwater Trion block that is in the exploration phase, as well as the Ogarrio and Cardenas-Mora onshore fields with an average crude oil production of 8.5Mb/d and 25.8Mcf/d of gas in 2018. The company also participated in bidding rounds for both deep and shallow-water blocks and was awarded 14 contracts, which are expected to represent approximate prospective resources totaling 2.4 billion boe in an area of close to 19,000km2. In August 2019, the Ministry of Energy awarded PEMEX 64 exploration and extraction allocations totaling 61,180km2.

According to PEMEX’s latest business plan, the total amount of investment in production totaled MX$4.24 trillion (US$220 billion) in the period between 2000-2019. Taking this entire time frame into account, the distribution of resources invested was approximately 58 percent for shallow-water fields, 22 percent for onshore fields, 1 percent for deepwater, 10 percent was destined to the exploitation of non-associated gas, while unconventionals represented 7 percent. Notably, investment in deepwater only took place during President Enrique Peña Nieto’s administration. In numbers, this translates to a total of MX$27 billion (US$1.42 billion) for deepwater, MX$2.47 trillion (US$130 billion) for shallow water, MX$932 billion (US$45 billion) for onshore, MX$422 billion (US$22 bilion) for unassociated gas, MX$286 billion (US$15.1 billion) for unconventionals and MX$100 billion (US$5.3 billion) for pre-investment and support.

The key to increasing oil and gas production is to accelerate the development of 23 recently discovered fields. Of the new fields PEMEX is seeking to develop, 18 are in shallow waters: Jaatsul, Suuk, Teekit, Koban, Hok, Mulach, Xikin, Esah, Cheek, Cahua, Uchbal, Manik, Tlacame, Tetl, Pokche, Octli, Onel and Yaxche. Of the four onshore fields, Ixachi, Chocol, Cibix and Valeriana, only Ixachi has an approved development plan. The recently discovered Quesqui field is the last of these 23 priority development areas. Quesqui, a flagship field discovered in May 2019, is expected to contribute 69Mb/d crude oil production in 2020 and 110Mb/d the following year. 

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