The Year in Review

Wed, 01/25/2012 - 09:25

2011 marked a transition period for Pemex as it awarded the first incentive-based integrated service contracts, initiated the internal restructuring of its exploration and production division, reached its 2012 reserves replacement target one year early, intensified its focus on the exploration and development of country’s deepwater and shale gas resources, and positioned its legacy project Cantarell for production growth in 2012 after years of decline. Hopefully, decisions taken in 2011 have set the company, and the industry as a whole, on track for a successful 2012.


Last year was the beginning of a new contracting era for Pemex. For the first time in its history, the national oil company awarded and signed incentive-based integrated service contracts to private companies, made possible under the 2008 Energy Reform. This change to give more operating power to private companies marked a significant shift for the shape of the oil and gas industry in Mexico, and proved controversial among the Mexican public. In 2011, British company Petrofac and international service provider Dowell Schlumberger signed the first three incentive-based contracts, which will last for 25 years. Two onshore fields in the southern state of Tabasco, Magallanes and Sanctuario, were awarded to Petrofac while the Carrizo field went to Dowell Schlumberger. Both companies will receive a fixed fee per barrel produced: Petrofac US$ 5.01/bbl and Schlumberger US$9.40/bbl. Pemex has scheduled a second contracting round for 2012, including both onshore and oshore fields in the northern region. The number of fields on oer in the second round increased from three to six, and the total area on oer increased from 199.8km2 to 6691km2, according to Pemex figures.


The highlight of the year for Pemex was undoubtedly the fact that the company achieved its aim of increasing its 1P reserve replacement rate above 100%, a target that was set for 2012, achieving a 101.1% replacement rate one year ahead of schedule. This was achieved both by targeting new regions and increasing reserves at existing production locations. The impressive figure was mainly achieved through revisions and delineations of existing reserves, which yielded 1.22 billion Boe in reserves, with new discoveries only accounting for 153 million Boe.

Overall, Pemex’s 2011 crude oil production changed very little from 2010, declining to an average of 2.550 million bbl/day from 2010’s figure of 2.576 million bbl/day. Ku-Maloob-Zaap continued to be Pemex’s largest producing field throughout 2011, accounting for 33% of 2011 production at an average of 841,818 bbl/day, according to CNH production figures. The geologically complex Chicontepec field improved its oil production level to 63,900 bbl/day in December 2011 from 44,700 bbl/day in January. The company’s new strategy regarding this field – setting up field labs to better understand the geology and improve drilling performance - is starting to bear fruit. Pemex’s goal is to obtain between 550,000 bbl/ day to 600,000 bbl/day from Chicontepec by 2021, which would mark a tenfold increase from current levels. Pemex also saw success at Cantarell, slowing the decline of the field to such an extent that the NOC hopes to increase production in 2012 to around 480,000 bbl/day from its 2011 production average of 449,000 bbl/day. 

Oil production 2011

In 2011, Pemex’s gas production declined to 5,913 Bcf/ day from 6,337 Bcf/day in 2010. However, gas utilization rates went up as the NOC curbed its flaring activities. An average of 4.2% of gas was flared in 2011, with the rate decreasing rapidly as the year went on. In Q4 2011, Pemex only flared 3% of its gas production, setting an impressive precedent as the company moved into 2012.

In September, Pemex announced that it had approved the structural reorganization of the Exploration and Production subsidiary (PEP), which attempted to move from a project-based organizational structure to one based around processes, creating new exploration, development and production units that would be responsible for these processes across every Pemex project.


Pemex spent an unprecedented 14.976 billion pesos (US$1.18 billion) on deepwater activities in 2011, including the starting of drilling activities at five deepwater wells, the completion of one well at Piklis, and a major push to gather seismic data on the NOC’s prospective deepwater resources. The deepwater discovery of 2011 at Piklis-1 was found at a total drilled depth of 5,431m, in a water depth of 1,928m, and showed condensed gas. In 2012, Pemex will use the seismic data collected in 2011 in order to drill five deepwater wells, as well as completing the four wells from 2011 that were still being drilled at the beginning of the year. Pemex’s deepwater plans were further advanced by the signing of the Transboundary Hydrocarbons Agreement in February 2012 between the US and Mexico, defining policy over shared hydrocarbon fields in deepwater and developing a joint safety strategy between the two countries for deepwater operations.


The NOC’s first production of shale gas in 2011 was a milestone in Pemex’s history. The EIA estimates Mexico to have 681 Tcf of technically recoverable shale gas resources, significantly more than Canada or Australia. Pemex itself has more conservative estimates of its shale gas resources: between 150 and 459 Tcf. The Emergente-1 shale gas discovery well in Coahuila, a state in northeast Mexico, represents the first step in Pemex’s strategy to evaluate Mexico’s shale gas potential, which the company believes to be located in five geological provinces. If shale gas production is successful in the long-term, Mexico may be able to transition from net gas importer to exporter, according to the Mexican Energy Ministry. Even if shale gas production is not large enough for export, there is still the potential to develop domestic consumption of gas. However, there are still challenges ahead in terms of exploration, technology and regulations. It still remains to be seen whether it will be Pemex or private contractors that develop Mexico’s shale gas resources, but the current legislation says that it will only be Pemex that has the right to exploit shale gas in the country.


Pemex increased its positive commercial balance in crude oil by 28% last year, recording a trade surplus of US$24.9 billion. However, due to its usual heavy tax burden and depreciation of the peso against the dollar, the NOC’s 2011 results showed a net loss of roughly MX$91.5 billion (US$7.2 billion); that compares to a net loss of US$3.5 billion in 2010.


Pemex increased its positive commercial balance in crude oil by 28% last year, recording a trade surplus of US$24.9 billion. However, due to its usual heavy tax burden and depreciation of the peso against the dollar, the NOC’s 2011 results showed a net loss of roughly MX$91.5 billion (US$7.2 billion); that compares to a net loss of US$3.5 billion in 2010.


The year 2011 was record breaking for Pemex in terms of safety, with the company achieving its best safety performance with 0.39 injuries per million man-hours worked with risk-exposure. The year was also marked by tropical Storm Nate, in which four oil workers from the company Geokinetics died after evacuating a rig in the Gulf of Mexico.

Pemex announced in 2011 that it had met the goals that the CNH put forward in terms of gas flaring, which included a 96.5% gas utilization rate at Cantarell.

In terms of fuel theft, which continually plagues Pemex, last year seems to have been particularly disastrous: the NOC estimated that the volume stolen was almost 3 million bbl as of November 2011, which represents a 52% increase compared to the previous year. The most aected states were Sinaloa, Veracruz and Tamaulipas, all of which are also ridden with violence associated with Mexico’s ongoing drug cartel problem.

2011 Highlights

  • Exceeded 100% 1P and 3P reserves replacement.
  • Less than 1% drop in oil production
  • Reorganzation of PEP, to be completed in March 2012
  • Increased Chicontepec oil production by 43% to 63,900 bbl/day between January and December 2011
  • First Round of integrated service contracts awarded
  • Safety performance  of 0.39 injuries per million man-hours worked with risk-exposure