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Analysis

Highlight of PEMEX Business Plan 2013-2017

Tue, 01/22/2013 - 17:03

Pemex’s board of directors approved the current Business Plan almost six months before the President Peña Nieto’s government took o·ce. The document is a continuation of past development strategy, with objectives such as maintaining and increasing current levels of hydrocarbon production, keeping the proven reserve replacement rate over 100%, and increasing operating e·ciency, among many other targets set by the NOC.

INCREASING RESERVES

One of Pemex’s main goals is to increase the proven, probable and possible hydrocarbon reserves through new discoveries, delineation and reclassification, particularly by accelerating the evaluation of potential deepwater reserves in the Gulf of Mexico, without neglecting onshore and shallow waters. Pemex estimates that Mexico’s prospective resources stand at 54.7 billion bbl, of which 52% are located onshore and in shallow water, concentrated in the Southeastern Basins, Tampico-Misantla, and Veracruz. The business plan emphasizes the importance of increasing exploration and development activities in these areas using Pemex’s existing capabilities and technologies. The total of these prospective resources is 90% oil and gas condensate, and 10% non-associated gas. For 2013, Pemex plans to acquire AVO analysis and seismic inversion, as well as available seismic PSDM seismic processing. Furthermore, for the 2013-2017 period, 14,083km2 of 3D seismic will be acquired and 274 exploratory wells will be drilled. Deepwater comprises 48% of Mexico’s prospective resources. In order to transform these prospective resources into proven reserves, significant investment and technological resources are required. Pemex will focus on carrying out the necessary activities in order to have a better understanding of the location and characteristics of potential reserves, and then be able to develop the required capabilities and infrastructure for the exploration and exploitation of such areas. This strategy is being applied on new exploratory projects such as Han, Holok, Perdido, and Tlancanan, known as Gulf of Mexico B, and Gulf of Mexico C. Pemex is looking to acquire 25,581 km2 of 3D seismic, seismic processing including areas of complicated geology and/or a†ected by salt tectonics, and is planning to drill 32 exploratory wells during this five year period. As for natural gas, the main producing basins for non-associated gas are Burgos and Veracruz. Of the 3P reserves added in the past nine years, 17% come from these gas basins. According to the analysis done by Pemex Exploration and Exploitation, the country’s potential shale gas resources have been estimated at between 150 and 459 tcf, which would represent 2.5 to 7 times the volume of Mexico’s conventional gas 3P reserves. The Business Plan considers the need to evaluate the potential of non-conventional reservoirs of shale oil and shale gas, which in mid-term are expected to contribute to maintaining and/or increasing hydrocarbon production. In order to achieve this growth, Pemex plans to perform multiple shale plays studies during 2013 and 2014; acquire 10,350 km2 of 3D seismic in 2015, and by 2017 complete the perforation of 274 exploratory wells.

INCREASING PRODUCTION

Increasing hydrocarbon production has been one of Pemex main concerns, and is an essential component of the business plan, if the company is to revert the downward production trend after production peaked in 2004. 80% of the producing fields are currently mature and at an advanced exploitation stage. As a result, the NOC is focused on optimizing production through the implementation of best practices and new technologies, such as secondary and enhanced oil recovery techniques, in order to increase the oil recovery factor by between 3-8%. Furthermore, Pemex is aiming to increase e·ciency levels above the international standards of oil production costs. During 2011, its oil production cost was US$6.12/boe, which made it one of the lowest among the world’s major oil companies. However, production costs rose after 2010 due to expenses related to the shift from relatively cheap production at fields such as Cantarell, to fields with higher production costs, as well as the 1.9% decrease in total oil production.

BOOSTING OIL REFINING AND PETROCHEMICALS

One of the Business Plan’s main goals is for Pemex to raise its operational performance above the industry average in refining and petrochemical activities. The first step towards achieving this goal is to narrow the technology gap that the NOC faces in its aging infrastructure. Pemex aims to improve the e·ciency and operating performance of the National Refining System (NFS) in the short term by identifying the gaps that do not require a large amount of investment. The NOC is aware that fuel demand in the country will increase by 4.6% between 20011-2017, which translates in 246 thousand b/d. Furthermore, fuel imports represented 51% of the national demand during 2011. The business plan acknowledges that in the coming years domestic oil refining should be favored over fuel importation to guarantee supply. The reconfiguration of the Salamanca Refinery, which should be operating by 2017, and the construction of the Tula Refinery, as well as the construction of new petrochemical capacity that uses the residuals produced by the NFS are all crucial advancements, as is the construction of infrastructure for producing gasoline and diesel with ultra-low sulfur content.

The Pemex Business Plan recognizes the need to boost domestic petrochemical production in response to Mexico’s need a stable raw material supply for the manufacturing and agricultural industries in the coming years. The strategy focuses on three chains: methane, ethane, and aromatics; and four products: ammonia, ethylene oxide, styrene, and xylene.