The Year in Review

Tue, 01/22/2013 - 14:22

2012 was arguably a good year for Pemex, in which it was able to consolidate the more positive achievements of 2011 - without losing much ground from the position it had reached by the end of the previous year - and adding to its successes in several areas. According to the company’s preliminary results for 2012, Pemex’s crude oil production actually dropped 0.2% in nominal terms, but the company has explained this by stating that in its move to diversify production, a year of stable production is a positive result. The company also made its first deepwater oil discoveries, a long-awaited achievement in the process towards deepwater oil production. Pemex also managed to make a net profit after tax for the first time in many years. This net income of US$400 million, although relatively small in comparison to its income before tax and duties of US$63 billion, looks rather impressive compared to 2011’s US$5.7 billion net loss after tax.


The Pemex board of directors is in the process of discussing an internal restructuring of the company, to move away from its current layout and embrace a new method of organization. Pemex is currently organized into four internal subdivisions, each with its own board, led by a corporate division that some in Pemex describe as acting as a ‘holding company’, also with its own board. Many have criticised this structure as being too bureaucratic, saying that it contributes to slow decision-making, and a lack of communication between the subdivisions. The new structure has not yet been announced, but is expected to re-integrate these four subdivisions into one entity. Carlos Murrieta, COO of Pemex, explains that the NOC wants “equal management within all business units. We want successful interaction between all business units, including PMI [Pemex’s fifth subdivision that works in international markets]. We hope that this will enable the subdivisions to achieve their objectives more easily,” he explains.


Preliminary results from 2012 show production remaining relatively stable year-on-year, dropping only slightly from 2011’s figure of 2.553 million b/d to 2.548 million b/d; 26% of Mexico’s production came from onshore fields and 74% from o†shore fields. The stabilization of Cantarell, once Pemex’s biggest producing field, is proving increasingly successful. Following a 10% drop from 449,000 b/d in 2011 to 404,000 b/d in 2012, Cantarell’s annualized production decline slowed to 2.4% between Q1 2012 and Q1 2013. At the same time, production at Mexico’s main field KuMaloob-Zaap increased from 842,000 b/d in 2011 to 855,000 b/d in 2012.

One of the lynchpins in Pemex’s exploration and production strategy, and one of the main factors in increasing production, has been sourcing the appropriate drilling equipment in order to drill the wells needed. Pemex increased the amount of drilling rigs in the country from a yearly average of 128 in 2011 to 136 in 2012, and this is reflected in the average number of wells drilled in 2012, which increased from 1,005 wells in 2011 (32 exploration wells and 973 development wells) to 1,296 wells in 2012 (36 exploration wells and 1,260 development oil wells).

Murrieta explains that Pemex’s biggest priority regarding its portfolio is to maintain its 100% 1P reserve rate, which the company achieved last year and hopes to retain this year. Pemex currently has enough 3P reserves to maintain around 30 years of production at current levels, according to Murrieta.



Perhaps Pemex’s greatest achievement of 2012 has been finding oil in deepwater, at its Trion and Supremus wells. Pemex now has a deepwater exploration success rate of 55%, which is much higher than the international average of 33%. Trion added at least 350 million barrels to Pemex’s 3P reserves; Supremus added around 125 million barrels. “It was between seven and 10 years ago that Pemex decided to make a huge investment in exploration, since deepwater is a very important part of the diversification strategy,” says Murrieta. “We have to recognize that our first deepwater oil discoveries are very significant, and the next step is to obtain more information so that we can put together a development program that is reasonable and reliable, from an economic, environmental, and safety perspective.” On December 6, 2012, Pemex started drilling the Maximino-1 well, which is the most promising exploratory well to be drilled in Perdido according to Pemex E&P’s management.

Pemex will have to balance deepwater development and production with its less expensive, low risk projects that can be put into production faster, in order to manage risk (make sure that its investments are not overly weighted towards high risk, high capex projects), and reach short term production targets.


Having identified 200 exploratory opportunities in shale formations, Pemex intends to drill 20 wells in BurroPicachos, 30 wells in Sabinas, 25 wells in Burgos-Mesozoic, and 100 wells in other regions by 2015. Nevertheless, exploration of Mexico’s shale gas potential advanced slowly in 2012 as only six wells were drilled, which resulted in the discovery of both a commercial producer of shale gas and shale oil, as well as two non-commercial producers of dry gas. It is expected that Pemex will not progress rapidly with the development of shale resources until the energy reform has been passed in the country, and will in the meantime only drill a few exploration wells each year.


2012 was the second year since Pemex had introduced integrated service contracts for private operators. The first contracts were awarded in 2011, and the winners, Schlumberger and Petrofac, spent much of 2012 on the development of their awarded fields which were Magallanes, Santuario and Carrizo. Pemex also awarded a second round of integrated service contracts in 2012 in its Northern region: six areas were o†ered for tender, and of these five blocks were awarded, which brought some new private operators to the country. While Schlumberger and Petrofac won the only o†shore block in the second round through their joint venture Petro-SPM Integrated Services, Pertrofac also won the onshore Pánuco field while new operators Cheiron Holdings and a consortium consisting of Monclova Pirineos Gas and Grupo Alfa also picked up contracts. The fact that the second round of contracts also featured two o†shore blocks, of which one was not awarded, marked an important progression from the first round, which only featured onshore blocks. The third round of contracts was announced in December 2012, this time at Chicontepec, and contracts are scheduled to be awarded in July 2013. The areas on o†er have 3.2 billion boe of 3P reserves, an enormous ramp-up in the size of the areas on o†er in previous rounds.


Pemex’s refining throughput remained fairly stable between 2011 and 2012, increasing from 1.17 million b/d in 2011 to 1.20 million b/d in 2012. Murrieta explains the di·culty of comparing Mexico’s refining capacity to that of other countries: “Refining is a downstream industry that is all about margins. So when Pemex talks of an improvement, it is usually in terms of a comparison between US Gulf coast and Mexican refining systems. Our target is to be in the first or second quartile of performance in the US Gulf refining system. Some of our targets to achieving this include producing less fuel oil and more gasoline at our refineries, and also removing the subsidies that a†ect the profitability of Mexico’s refineries.” Murrieta explains that improvements in Pemex’s refining e·ciency will have huge impacts on the bottom line of Pemex Refining, due to the sheer volume of crude that is processed each day.


With the explosion at the Pemex tower in Mexico City dominating headlines in February 2013, safety at the NOC has come to the forefront of national discussion. In 2012, Pemex furthered its goal of moving to a preventative maintenance cycle in order to improve safety at its facilities, and has developed its use of SSPA (safety, security and environmental protection) regulations with its employees in an attempt to improve its safety performance.


Financial figures presented in March by Pemex’s Board of Directors stand out as veritable achievements. Total sales registered a record high of US$129 billion, up 6% over 2011. In addition, the company’s EBITDA indicator also recorded a new high of US$88 billion; another 6% increase in comparison with 2011. Moreover, Pemex’s total investment also reached a record high of US$24 billion. On the other hand, the price of the Mexican crude oil basket only increased modestly, from US$101.09 in 2011 to US$101.86; this was just enough to o†set the 0.2% reduction in Pemex’s crude oil production.