Operational Review of 2013

Q: What were the highlights of PEMEX’s upstream performance during 2013?

A: The final results did not conform to what had been expected. Regardless, exploration was quite successful as 66% of exploration wells drilled were producing wells while 58% were commercial producers, which are great numbers. Although exploration results may vary, we need to make sure that our three-year average exploration performance meets our targets. Therefore, we compile all relevant information from less successful years and analyze it carefully to focus on those exploration projects that will enable us to increase our reserves.

Production remained stable with a minimum negative variation of approximately 1%. Clearly, we would have preferred to increase production, but we face a hefty challenge given that several prominent fields are experiencing production declines. We need to extend the producing life of those fields while simultaneously minimizing the rate at which the production decline is occurring. At the same time, we need to take the necessary measures to stabilize Mexico’s overall production with additional production from other fields. Accordingly, we need to be more active in incorporating production from the new fields. It is amazing how much additional production from fields other than Cantarell we have incorporated in recent years.

Q: What is PEMEX’s strategy for fields such as Cantarell where current production is no longer proportional to the share of PEMEX’s investment budget they receive?

A: Cantarell receives a large proportion of our investment but other fields are in the same situation. We need to focus on those fields that provide the best results, which also means that we have to build business cases for companies to help us with the other fields. PEMEX cannot simply keep all the good assets, as we are going to be competing in the international market of opportunities. We need to be very smart about which fields to operate and which to share. Cantarell is an example of a field that we need to keep in our portfolio, but we have to be clear as to the potential upside of opening such fields to private participants with complementary technologies and expertise.

Q: How will PEMEX and private operators collaborate to raise production to 3 million b/d?

A: We are in the process of defining the answers to these questions. New companies will participate in the development stage of projects, particularly in areas such as Chicontepec. We hope that private participation is limited in the blocks in which we are successful, while PEMEX will reduce its presence in the blocks where expected results have not been achieved, opening up opportunities for private companies. There may not be any overwhelming changes in the following years as even if the government transfers the operation of some fields to private companies, this transition will take some time. Moreover, we need to keep track of the fields that will be transferred to private companies to make sure that there will be no reduction in production or destruction of the value that we have created in our time operating there. The industry needs to maintain a concrete and disciplined plan, while PEMEX needs to continue working and increasing production in its fields, even those that may then be tendered to new operators.

Q: What is PEMEX’s approach to the Round Zero process?

A: PEMEX wants to hold on to the fields where production is underway or where it has already invested, as well as areas where we have spent money to reduce geological risk. At the same time, it is befitting that the government wants to keep some of the attractive fields in reserve to promote additional private investment to the country. Depending on the rules that the government defines, we could also reach a middle point where they authorize us to keep some fields for partnerships with the international oil companies. We still lack a clear definition on what restrictions the government will impose on those partnerships. These are public policy decisions that revolve around how the government wants to use PEMEX to promote the energy sector’s development. The point of contention is to have a bigger cake, instead of everyone trying to claim the same pieces. If all our efforts are not helping us increase the size of the opportunity, then the reforms will fail. The changes seek to increase production levels, not keep them steady. Cost might be relevant, but not as much as incremental production. The production margin becomes the main parameter to be judged.