Strategic Direction of the Mexican Oil and Gas IndustryTue, 01/22/2013 - 10:17
2012 marked the 75th anniversary of Mexico’s petroleum expropriation, a day of great historic and political importance in Mexico. To honor the occasion, President Enrique Peña Nieto led a ceremony in which he affirmed that the country is facing an unprecedented opportunity to transform its oil and gas industry. “The energy sector is facing challenges that must be heeded with the same boldness and determination with which Lázaro Cárdenas nationalized the hydrocarbon industry,” he said in his speech.
As stated in the 2013-2027 Energy Strategy, approved by the Senate in March 2013, Mexico will become a net energy importer by 2020 unless Pemex increases its production significantly. Despite the three-fold increase in E&P investment that the NOC made between 2000 and 2012, Pemex’s crude oil production (2.548 billion b/d) is still 26% below the maximum production attained in December 2003 (3.455 billion b/d). Approximately 80% of the oil assets that are currently being exploited by the NOC have reached an advanced production stage: 90% of the company’s oil production in 2012 came from fields that were discovered at least 20 years ago. Pemex is well aware that the phase of easy oil production in Mexico has come to an end. Pemex’s most promising projects for the future are far more complex than Cantarell or Ku-Maloob-Zaap ever were, and none of them will deliver output at the scale that these giant oilfields did in their prime. Nevertheless, Pemex hopes to make 2013 a turning point, putting the company in a position from which production growth will be both possible and feasible in coming years. The NOC is aiming to expand the life of its mature assets by increasing their recovery rate, while at the same time continuing an aggressive exploration and development strategy to further diversify its production portfolio and maximize yields in complex assets with the help of new technical advancements.
Despite the challenges presented by the growing complexity of its assets, Pemex is planning to mark 2013 as the first year of production growth since 2004, while at the same time accomplishing the feat of maintaining its reserve replacement rate of 100% for the third consecutive year. Pemex CEO, Emilio Lozoya Austin, affirmed in March that Pemex reached a 104.3% 1P reserves replacement rate in to 2012, and that 3P reserves held by the company equal 32.9 years of production at current rates. “Production is now stable and we estimate that, by 2018, crude oil production will have grown 15% to reach 3 million b/d,” Lozoya Austin asserted.
In response to decreasing oil demand in the US, Pemex is also betting on the Asian markets as an export destination. During an official visit to China and Japan, President Enrique Peña Nieto was accompanied by Lozoya Austin, who signed commercial agreements with various public and private companies in the sector. As part of these contracts, Pemex committed to increase its oil exports to Chinese company Sinopec to 30,000 b/d. The sales margin that Pemex will receive from these exports is high in comparison to those resulting from crude oil exports to other regions. In addition to this sales contract, Pemex signed a series of cooperation agreements and service contracts with Japanese and Chinese firms involved in the oil sector. Pemex is also planning to open an office in Hong Kong in order to further pursue its expansion strategy in Asia. Considering that, as a result of the decline of Cantarell and a decreasing petroleum demand in the US, Mexico’s exports to the US have fallen 39% since 2004, finding export partners in other countries is a necessity for Pemex. The high yields for crude oil, as well as the technical and commercial advantages of partnering with Chinese companies in E&P projects, signal a possible path of growth for Pemex over the coming years.
Further changes that Lozoya Austin expects to achieve during his period as head of Pemex are the restructuring of the company, centralizing administrative processes and aligning priorities within Pemex in order to eliminate the inefficiencies caused by its current subsidiary-based structure; reducing the high cost of the sector’s pension system, which has not been changed in decades and still grants retirement at the age of 55 with the right to receive a pension of 100% of salary; and finally, making the sector’s subsidies structure more transparent, in order to reduce government spending on gasoline subsidies. All of these measures would support the transformation of Pemex into a more efficient, productive company.