Oil company Pemex has biggest exploration success in 5 years

Financial Times ^ | June 11, 2015 | Jude Webber

[thackney]

Mexican state oil company Pemex announced five new shallow­water discoveries in the Gulf of Mexico in what it said was its biggest exploration success in five years.

Emilio Lozoya, Pemex chief, made the announcement at the inauguration of a national oil and gas conference one month before Mexico’s historic first oil and gas tender. The July 15 auction, of 14 shallow­water exploration blocks in the same area as the new discoveries, is expected to signal the start of billions of dollars in private investment flowing into the sector.

“The certain prospect of 200,000 extra barrels of production is very good news for Pemex, for the industry and for our country,” Mr Lozoya told the congress.

Pemex would soon show a “clear reversal” of its downward trend, he said, but added: “We are happy but not satisfied.”

Pemex said it had found four new fields, off the coast of the state of Tabasco, and another structure off the coast of the state of Campeche that is close to the once mighty Cantarell field. Cantarell — a game­changer for Pemex — was discovered by accident by a fisherman in 1976, but has been in decline for the past 10 years, and Pemex’s biggest challenge is to turn around its ailing production speedily.

Pemex reckons the new discoveries could start production within 16 months, and could achieve output of at least 200,000 barrels of oil and 170m cubic feet of gas a day within 20 months after that.

It was the company’s most exciting discoveries since the Tsimin-Xux and Ayatsil fields, and was the fruit of recent exploration work using new technology and better seismic information, Pemex said in a statement. According to its studies, total reserves in the new discoveries could reach 350m barrels of oil equivalent.

The four fields in the Litoral de Tabasco could add 100,000 barrels of light crude per day and 90m cubic feet of gas a day.

The discovery in the Sonda de Campeche could add 100,000 barrels of crude a day and 80m cubic feet of gas.

Pemex believes production has finally touched bottom and glimmers of hope emerged in May: output last month, according to newly published data, edged up to 2.23m barrels of oil per day, compared with 2.20m in April.

The trend may tentatively be in the right direction, but production has been sinking inexorably since 2004 when Cantarell was at its height. Pemex, the main contributor to the federal budget, is now aiming for 2.29m barrels of crude a day this year, down from the initially hoped-for 2.4m bpd this year and a far cry from the peak of more than 3.38m bpd in 2004.

That lower production, plus the crash in world oil prices, have proved a double blow for a company that has been Mexico’s sole hydrocarbons producer for nearly 80 years.

Already forced into cuts of more than $4bn because the oil price has sparked a government austerity drive, Pemex’s first-quarter net loss almost tripled to more than 100.6bn pesos ($6.5bn) compared with a year ago.

In 2012, Pemex discovered three fields in the Perdido Fold Belt in the Gulf of Mexico, near the maritime border with the US. Perdido is near the Great White field being developed on the US side by Chevron, Royal Dutch Shell and BP.

Mexico is betting that energy reforms, which will open the sector to competition, will boost oil production and the sluggish economy. The authorities have pre-qualified 36 companies to take part in the July 15 tender, and hopes that recent tax sweeteners and contract terms will ensure a good turnout.

Pemex — which lacks the resources to develop all of Mexico’s potential alone — was stripped of some fields which had been in its portfolio and which are being offered to private investors in the so-called Round One tenders.

Besides the 14 exploration blocks, Mexico has already announced other auctions for shallow-water development fields, to be awarded in September, and onshore fields, to be awarded in December. It expects soon to launch the long-awaited tender for deepwater prospects, considered the big prize.

In a 20-F filing to the US stock exchange at the end of last year, Pemex said it had discovered 19 oilfields and 28 gasfields between 2010 and 2014, bringing to 428 the total number of producing fields by the end of last year.

[thackney]