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Analysis

Perspectives on Pemex's Exploration Strategy

Wed, 01/22/2014 - 10:02

The reactions to PEMEX’s 2013 exploration results have been quite varied. Even within PEMEX and CNH, these reactions fluctuated between cautious optimism and grave concern. As PEMEX moves forward toward becoming a productive enterprise of the state that is no longer responsible for the execution of all exploration work within Mexico’s territory, we can expect that its exploration strategy is going to be reshaped. Edgar Rangel Germán, one of CNH’s five commissioners, points out one of the 2013’s main shortcomings. “It was one of the worst years for reserve restitution. Shockingly, PEMEX achieved a 7% 1P reserve replacement rate (RRR) from new discoveries.” It is important to take stock of CNH’s methodology used to arrive at this result. “PEMEX and CNH always use different numbers. We focus on the 1P RRR from new discoveries, while the overall figure that PEMEX usually publishes for 1P RRR will be closer to 70% for 2013. CNH calls this number the integrated RRR, since it includes all possible ways to replace reserves,” says Rangel Germán. Regardless of the methodology involved, the facts remain the same. “It is not that we just missed our goal of having a 100% integrated RRR, but that it will be closer to 70%,” says Rangel Germán. The deepwater exploration successes of 2011 and 2012 were the result of an exploration strategy that emphasized deepwater exploration over other areas of opportunity. “The truth is that, by directing the majority of exploratory efforts and investment towards deepwater and concentrating on those discoveries, PEMEX got distracted from other exploration prospects that are richer in reserves, like the Southeast Basins which alone have reserves to satisfy the energy demands of a small country. Now that it has had an unsuccessful year in deepwaters, the overall numbers look bad and constitute a hard lesson for PEMEX’s E&P division.”

“Reservoir engineers have added more reserves in the planet than any geologist or geophysicist,” says Rangel Germán, quoting energy expert Daniel Yergin. “Roughly 15% of PEMEX’s investment budget goes towards exploration, which is roughly aligned with international best practices. Investing a large proportion of these resources in deepwater is unrealistic since the production of deepwater oil is expected to come within seven to ten years after its discovery. At the same time, Mexico still has a lot of oil in the Tampico-Misantla Basin and the Southeast Basins, but PEMEX is not showing the aggressive attitude needed in those areas to at least maintain that 100% integrated RRR.” Rangel Germán is now hopeful that the Energy Reform will have a positive impact on Mexico’s exploration results. “I believe that the Reform will help to bring companies that are a lot more experienced in carrying out frontier exploration, which will help PEMEX learn a lot on this matter. PEMEX has its experts, but a lot of Dutch, British, Americans and Canadians will soon flock here. This is good as we want to learn from the people who have set the industry’s best practices. PEMEX will receive a lot of benefits if it farms out its contracts: this will bring in experts in geosciences, exploration, drilling, and subsea production facilities. It will also lead to PEMEX having additional investment capabilities available to use on prospects that can yield faster production or higher value.”

Jose Antonio Escalera Alcocer, Subdirector of Exploration of PEMEX E&P sheds a more positive light on PEMEX’s exploration results and opportunities to improve its return on exploration investment. As the person responsible for charting PEMEX’s exploration strategy, he explains that through the use of multi-annual contracts PEMEX accumulated 40% of savings on its exploration costs. PEMEX COO Carlos Murrieta and independent board member Fluvio Ruiz Alarcón also mirrored Escalera’s call for patience when evaluating the exploration results.

3D SEISMIC ACQUISITION IN 2013

Throughout 2013, 3D seismic acquisition reached 15,062.9km2, which is 43.2% less than in 2012. However, 2013’s targets were exceeded in 32.2%, mainly due to the acquisition of surveys additional to the ones planned for the year. Those surveys were Veracruz Marino 3D and Centauro 3D. The Southwest Marine region had a notable 9,463.6km2 of seismic acquisition done – 90.3% corresponding to exploration and 9.7% to development. In the North region, 5,060.6km2 were acquired, while an additional 538.7km2 were acquired in the South region.

2D SEISMIC ACQUISITION IN 2013

In 2013, 3,646km of 2D seismic information were obtained, which was 4% more than what was reported during 2012. The targets were exceeded by 118.3%, since the Sur de Burgos 2D and Salsomera 2D surveys were carried out, even though they were not originally programmed for 2013. Of the total 2D seismic acquisition program, 57.7% was carried out in the North region, while the remaining 42.3% to place in the South region. All the 2D seismic surveys were executed as part of PEMEX’s exploration program.