PEMEX Casting Large Shadow Over Round One

Q: How will PEMEX’s participation in the initial shallow water phases of Round One affect the international perception of the competitiveness of this round?

A: In Round Zero, where only PEMEX was allowed to participate, the allocation of fields was designed to guarantee that PEMEX would continue meeting its goal of 2.5 million b/d in the long run. Growth beyond that level will depend on PEMEX’s ability to compete in the open market in successive rounds. Round One is currently under way and is open to PEMEX and other oil companies, both domestic and foreign. The interest aroused by Round One for the allocation of exploration and production blocks, despite the recent fall in prices, shows that the Energy Reform is beginning to materialize. PEMEX is a reliable and knowledgeable partner for international oil companies and for the international capital markets to invest in. We have also had the support of several bond issuances that reassure us that PEMEX’s stability and efficiency is wellrecognized by the international markets.

Q: Do you expect new operators to be able to match PEMEX’s average production costs of around US$23 per barrel?

A: All IOCs have diminished their budget between 10-20% since many of them have production costs of US$70-90 per barrel. Our production costs are far below that mark, which makes oil production very profitable. Nevertheless, we did need to adjust our budget, especially concerning expenses. We did what any other firm would have done, which helped us to greatly benefit from the transformation we have already begun following the Energy Reform. In spite of the low international oil prices, business in Mexico is still very profitable and many firms have shown interest in associating with PEMEX. We have the expertise and nobody knows the geography and the Mexican fields better than PEMEX’s engineers. We are a natural ally for international oil companies, with such partnerships proving highly beneficial to all, and we will compensate the decrease in investments through joint ventures with other companies.

Q: How has the PEMEX budget cut increased your need to look for partners before advancing your planned deepwater exploration activities?

A: We are facing a severe budget cut but we have found creative solutions to this problem. One of the solutions we found was to diminish the rhythm of investment we already had planned for projects in 2015. Investments in some of the deepest fields presenting the most risk will be delayed if we have not started exploring. However, we are seeking to cut our investment in current and future production by the least possible. Moreover, we will seek for joint ventures with IOCs to invest in deepwaters in the Gulf of Mexico, which will be one of our priorities as a company. We are very confident that the Energy Reform is making it very attractive for international oil companies to come and invest, either with PEMEX or by themselves, in Mexico’s oil fields. The Mexican reservoirs and our geological potential offer an incredible opportunity for Mexican and international companies.

Q: Which roles should PEMEX and new operators play in delivering the 500,000b/d of new production by 2018?

A: In the last years, PEMEX’s oil production has been stagnant. In the last few months, it has suffered from certain adjustments, mainly because of differences in measuring of production and distribution due to the movement of inventories, evaporation, and other eventualities. Nevertheless, with a better management of the fields, the trend of increasing distribution, and PEMEX’s new capacity to enter into alliances, we will achieve the production goal that has been set. It is true that PEMEX will become just another player in the sector. However, it is our firm intent to remain the largest and most important oil company in Mexico. Opening the energy sector to the international market will lead to a substantial increase in investment for the industry as a whole, adding to the approximately US$25 billion that PEMEX has invested annually. We estimate that the industry could profitably absorb close to twice that amount of investment in the following years.