José Antonio Escalera
Subdirector of Exploration
View from the Top

PEMEX Exploration Strategy

Tue, 01/22/2013 - 09:15

Q: What were the strategic decisions that really turned around Pemex’s exploration strategy and established the foundations for the exploration success in 2012?

A: For several years, Pemex felt that it had enough hydrocarbon reserves to justify not exploring additional regions in Mexico. However, 10 years ago, we started to prepare for Cantarell’s production decline, which led us to reconsider our exploration strategy. During President Calderón’s administration, Pemex decided to change its budget allocation and increase investment in exploration. The results of this investment reinjection have been obvious: in 2000, we had a 14% 3P reserve replacement rate, which has increased over the years, reaching 100% in 2008. The strategy has been carefully aimed towards maintaining these numbers since: this will be our fifth consecutive year with a 3P reserves replacement rate that exceeds 100%.

However, this success was not only achieved through investment: the consistency of our strategy is crucial in addressing exploration challenges. It has also been critical to rank exploration projects across di†erent prospective regions according to investment, risk, and potential profitability. Our strategy is clear: 55% of the budget will be allocated to hydrocarbon exploration in the well-known prospective areas, such as the onshore and o†shore Cuencas del Sureste, 30% of it will be appointed to exploration projects in deepwater, and the rest will be dedicated to non-associated gas in Burgos and Veracruz, while starting to explore prospective shale oil and gas resources.

Another change is structural. Originally, the exploration division was in charge of technical tasks, ensuring the correct observance of regulations, without being in charge of the operation. During 2011, a change took place in our role, putting us in charge of all exploration activities, both of regulation observance and operation.

Q: What strategy is Pemex pursuing to maintain its 3P reserve replacement rate over 100%?

A: We expect onshore, shallow water, and deepwater fields to contribute equally to turning prospective resources into reserves. The portfolio will define the exact percentages, but we expect them to vary only slidely. We estimate that exploration will have a US$2.71 billion budget, from which we will assign US$1.16-1.24 billion to deepwater, around US$100 million to non-associated gas and wet gas in Burgos and Veracruz, and the rest to shallow water and onshore projects.

Q: What will be the pillars of Pemex’s exploration strategy in the coming years?

A: Today we have a better understanding of where the resource potential is located in Mexican territory. This was a long-term goal, reached through many years of experience that allowed us to determine a priority list for exploration. Secondly, authorities in the Mexican oil and gas industry, as well as most of the Mexican population, are convinced that exploration is an important part of the strategy for maintaining stable production for the future. Having understood the need to invest in exploration, it is easier for us to plan how to exploit our investment e·ciently. With extraction processes becoming more and more complicated, we need to invest in new production technologies – this is where the development division comes in – and better exploration techniques

An important part of our strategy is keeping at least three or four rigs dedicated to deepwater exploration; the number of rigs could, however, increase according to the country’s energy policy and the outcome of current deepwater exploration activity. Exploiting shale resources is not the most profitable activity for Pemex, so it is important to start thinking about bringing in additional investors to participate in this development. Whether we need to change the Constitution to achieve this should depend on what the circumstances call for and what is best for the country rather than discussing energy agendas. The transformation of the oil and gas industry happens by changing energy policy, and there are several di†erent paths towards accelerating the search for hydrocarbons and increasing production quickly. It should remain clear that the resources are there, and through intelligent, innovative ways we have to first transform them into reserves, and then into production.

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