Pemex scales back upstream goals
The strained producer downgrades its 2021 forecast as rapid economic recovery looks doubtful
Mexican state-owned oil firm Pemex has been forced to revise down its crude upstream target for 2021. The producer cut c.170,000bl/d from an earlier projection of 2.03mn bl/d after the government reforecast its near-term oil price.
Before the Covid-19 pandemic, Pemex had predicted an average price for a Mexican crude oil mix of $49/bl for 2020. But as global energy demand reeled, the realised price slumped to just above $31.80/bl over the first six months of the year.
And the government predicts only a slow recovery in prices next year. The finance ministry expects oil to rebound to an average of just $42.10/bl for 2021. “Due to low expected oil prices during 2021, Pemex has decided to focus on low cost fields,” says Edgar Cruz Borges, head of credit research at Spanish bank BBVA. “That would mean that high cost wells would be cut.”
The economic impact of Covid-19 had already seriously winded Pemex. The Mexican NOC suffered a $26.4bn net income loss over the first six months of 2020 as the value of its Maya crude blend plummeted and the country entered recession.
$26.4bn – Net income loss in 2020
And a production drop at one of Mexico’s largest oilfields is particularly concerning for Pemex. Output from its offshore Maloob field has fallen by 28pc since the start of the year, and in July sent Pemex’s production into freefall.
Mexico’s national hydrocarbon commission (CNH) recorded output of just 1.55mn bl/d for Pemex in July, its lowest since 1979, although the company’s statistics reported a slightly better 1.63mn bl/d and Mexican president Andres Lopez Obrador rejected the initial figure.
“Given the relatively large share of the Maloob field in total crude oil production over the past years, it is a cause of great concern because the output reduction was expected to be gradual up to 2030,” says Arnulfo Rodriguez, principal economist at BBVA.
Overexploitation of the field resulted in water entering and a rapid decline in pressure. Pemex had previously tried to pump too fast, too soon at its Xanab offshore field. The CNH fined the Mexican firm in 2019 for overexploiting the field when output declined sharply.
New priority fields funded by Pemex may not be enough to even reach the downgraded government target. The CNH forecasts a total of just over 300,000bl/d from the fields in 2021, driven mainly by the onshore Ixachi field.
But the additions represent only 118,000bl/d above previous projections for 2020, and many of the projects have struggled to stay on schedule. “It is unlikely that the new fields will be enough to meet the new production target because they have proved to fall short of production goals in previous months and will have to make up for the natural decline in output from other fields,” says Rodriguez.
The gloomy outlook will make the result of the unitisation of the offshore Zama discovery even more crucial for Pemex. The field overlaps two blocks in the Gulf of Mexico, one operated by Pemex and the other by a consortium led by US operator Talos Energy. “Zama is important since it would be an option to increase reserves and, once developed, increase production,” adds Cruz Borges.
“It is unlikely that the new fields will be enough to meet the new production target” Rodriguez
An independent assessment of the field released in January estimated total recoverable resources of around 670mn bl oe, with 60pc held within Talos’ block 7. Pemex has since rejected the claim and has until January to settle the unitisation and operatorship before the decision is turned over to the Mexican regulators.
But there are concerns the decision could be biased in favour of the Mexican NOC, especially considering the importance of the find. Unlike Talos, Pemex has failed to drill anything on its side of the border, and the Mexican company’s recent track record at its new fields suggest that it gaining operatorship could yet introduce further delays in efforts to move towards first oil.