PEMEX Upstream Production Report
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PEMEX Upstream Production Report

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Conal Quinn By Conal Quinn | Journalist & Industry Analyst - Wed, 10/05/2022 - 17:18

While oil production seems to be slowly increasing after the drop-off seen during the pandemic, the goal of 2MMb/d production still seems far off as mature fields continue to decline. Moreover, experts point out that without more exploration activities, depleting reserves put the country’s production efforts at risk.

PEMEX set production targets of 1.853MMb/d for crude oil and 5.120Bcf/d for natural gas in 2022. To meet these targets, the NOC has sought to focus on areas where it traditionally possesses greater experience and higher historical success rates, as well as those with the potential for near-term results. Onshore and shallow water projects, as well as secondary and tertiary recovery systems for older fields, have been prioritized at the expense of more expensive, long-term deepwater projects. PEMEX has also sought to expand its inventory reserves through new discoveries and reclassifications with a plan to develop 27 fields in 2022. Production from these priority fields, 21 in shallow waters and six onshore, is expected to add 521Mb/d of crude oil during 2022, putting the NOC on track to eventually reach 2MMb/d in 2024.

During 1Q22, the total number of PEMEX wells in operation sat at 6,656, a 4.45 percent decrease from 2021’s 6,959. However, the NOC did break a streak of three consecutive quarters of stagnation, recording an increase in the number of operating wells of 4.93 percent compared to 4Q21: from January to March, the number of wells producing crude oil and non-associated gas rose to 6,663. During 1Q22, 26 development wells were completed, six more than the same period in 2021. Furthermore, nine exploratory wells were completed, two more than last year.  From January to March, PEMEX’s Exploration and Production arm was actively operating a total of 48 drilling rigs, of which 34 were development wells and 14 exploration wells. This represented a drop of 7.69 percent compared to the 52 drilling rigs in operation last year. In terms of distribution between offshore and onshore operations, 48 percent of development wells were onshore and 52 percent offshore, while for exploration wells the rate was 60-40. 

Updates on Mexico’s 1P, 2P and 3P reserves were published during CNH’s 36th extraordinary session. A total of 20 oil companies sent the regulator reports of their reserves compared to last year, with 458 oil fields accounted for. According to the document made available by the CNH, the volume of certified reserves as of Jan. 1, 2022 amounted to 6.058Bboe in 1P reserves, 11.21Bboe in 2P reserves and 16.68Bboe in 3P reserves. The volume of 3P reserves fell by 2.7 percent since CNH’s last update. Meanwhile, the volume of certified gas reserves as of Jan. 1, 2022, amounted to 10Bcf in 1P reserves, 21.460Bcf in 2P reserves and 31Bcf in 3P reserves. CNH also showed that PEMEX controlled 82 percent of hydrocarbons reserves, with a further 12.59 percent coming from shared production fields and 2 percent from licensed fields. The rest remains unassigned. Of the reserves controlled by private contractors, Fieldwood possessed 37.91 percent, followed by Eni with 21.64 percent and Hokchi Energy with 9.43 percent. 

However, BBVA warned that, without further discoveries, meeting PEMEX's production goals will be a challenge. The bank indicated that, in keeping with current data, results will depend more on PEMEX than on its partners. Although the state oil company’s production has been increasing, BBVA has a cautious outlook on PEMEX, not only due to decreased investment levels but also due to the recent lack of important discoveries. PEMEXs total hydrocarbon production reached 903.1MMboe in 2021, with crude oil production averaging 1.735MMb/d. In its 2021 annual report, PEMEX explained that this 2.9 percent increase from 2020 came “primarily as a result of the increase in production of new offshore field projects Cheek, Itta, Koban, Mulach, Manik NW, Octli, Pokche, Tlacame,Tlamatini, Tetl, Xolotl, Yaxche and onshore field projects Tupilco Profundo, Quesqui, Cibix and Ixachi.”

Road to Self-Sufficiency, Production Targets

In December 2021, PEMEX announced a 10-point plan to support the government's efforts to achieve energy independence, with a key focus on improving operational efficiency, competitiveness, safety and labor conditions, environmental performance and social responsibility. In pursuit of this endeavor, PEMEX plans to:

  • Maintain proven hydrocarbon reserves above 7Bboe,

  • Fulfill the requirements of the National Refining Plan to provide sufficient refined fuels to meet domestic market demand, 

  • Produce 2MMb/d by 2024, 

  • Rehabilitate the Cangrejera petrochemical complex, 

  • Promote the production of fertilizers, 

  • Modernize its gas processing centers, 

  • Recover participation in the fuels market, 

  • Improve attention to critical risks, 

  • Reduce overall indebtedness with the support and contributions of the Mexican government and 

  • Provide permanent positions for temporary workers.

However, BBVA pointed out that despite the significant quarterly increase of around 42Mb/d in the production of the 30 new fields during January-March 2022, the quarterly advance of only 3.3Mb/d in the production of liquid hydrocarbons suggests that the strong natural decline in production of mature fields will continue as PEMEXs RRR fell from 119.7 percent in 2020 to 105.1 percent in 2021.

Rystad recently ranked Mexico last among oil-producing countries with fewer than five years of proven reserves, while BBVA suggested that this context likely influenced the decision to revise downward the 2022 oil production target from 1.9 to 1.83MMb/d. "Although this new goal could be reached with an average annual contribution of 366Mb/d from new fields and a stabilization in the production of other fields, the production goals of 1.971 and 2.06MMb/d for 2023 and 2024 (respectively) are even more challenging without important discoveries," said the bank in a statement. 

BBVA Mexico points out that the increase in oil production planned for the following years will require a larger investment for exploration and production. This could also see additional pressure placed on public finances to fund investment for the National Refining System, as well as a return to unconditional government support to PEMEX’s debt amortization. For reference, 2021 saw PEMEX’s capital expenditures in exploration and production activities increase by 25.4 percent in nominal peso terms, with PEMEX’s primary budget objectives aiming to produce crude oil at sufficient levels to satisfy domestic demand while maintaining a surplus available for export. The 10 projects that received the most capital expenditure in 2021 were Ku-Maloob-Zaap, Integral Yaxché, Ek-Balam, Chuc, Cantarell, Cuenca de Veracruz, Ogarrio-Sánchez Magallanes, Cactus-Sitio Grande, El Golpe-Puerto Ceiba and Delta del Grijalva. 

Oil production from new developments averaged 369Mb/d in 2Q22 against 330Mb/d in the previous quarter. However, under the assumption that production from mature fields stabilizes, “new fields will have to produce an average of 428Mb/d in the second half of 2022 for PEMEX to reach its annual production target of 1.83MMb/d,” detailed BBVA. Such a contribution from new fields would increase PEMEX´s annual average by 168Mb/d to a figure of 389Mb/d. Given that BBVA also expects total oil production to increase by 74Mb/d during 2022, new oil fields would offset a 93Mb/d drop-off from mature fields.

In 2021, PEMEXs success rate for exploratory wells was 53.1 percent, more than double the 2020 figure. Meanwhile, the NOCs average success rate for development wells increased 4.2 percent, from 95.2 percent in 2020 to 99.2. Between 2017 and 2019, PEMEX discovered a total of 19 new fields, with seven of these discoveries (the Tekuani, Tlakati, Chawila, Kuun, Racemosa and Tupilco Profundo crude oil fields and the Tum natural gas and condensate field) coming in 2021 alone. These, in addition to an extension from the drilling of one appraisal well at the existing Camatl field, added 68MMboe of proven reserves. As a result of reclassifications, development, revisions and new discoveries, PEMEX’s proven reserves increased by 43MMboe in 2021, with total proved developed and undeveloped reserves of crude oil, condensates and liquefiable hydrocarbons recoverable from field processing plants increasing 0.5 percent in 2021, from 6.041Bb in 2020 to 6.073Bb in 2021 and proven developed reserves of crude oil, condensates and hydrocarbons recoverable from processing plants increasing by 1.3 percent from 3.6034Bb in 2020 to 3.6489Bb in 2021. 

PEMEX cited its new fields strategy to shorten the time to develop new fields and bring them into production earlier as a major contributing factor to the 322Mb/d produced at the end of 2021, coming from the Southwest, Southern and Northern Marine regions with increased activity in fields such as Madrefil, Teotleco, Arroyo Zanapa, Juspí, Tupilco Profundo, Castarrical and Sini in the South region; Ek-Balam and Zaap in the Northeast Marine region and Ixtal and Yaxché in the Southwest Marine region. 

Meanwhile, from Dec. 31, 2020 to that same date in 2021, total proven developed and undeveloped dry gas reserves saw an increase of 0.8 percent, from 6.9842Tcf to 7.0395Tcf, while proven developed dry gas reserves increased by 0.3 percent from 3,922.3Tcf to 3,933.7Tcf. These additions were enough to offset 2021 production levels, which amounted to 750.9Bcf of dry gas.

PEMEX has stated that its primary objectives for 2022 are to align hydrocarbon reserves incorporation rates with production targets, optimizing its exploration and production portfolio, improving the reliability, safety and operational efficiency of facilities, as well as reducing HSE concerns. PEMEX will continue to prioritize exploration activities in conventional onshore, and shallow water blocks, while also enhancing field recovery processes for hydrocarbon reserves in mature fields, expediting the development of newly discovered fields, developing activities to improve the restitution rate of proved reserves, mitigating production decline and reducing costs and boosting efficiency of operations through industrial transformation.

Photo by:   Catmoz, Pixabay

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