Carlos Morales Gil, PEMEX E&P
Release Date: 0000-00-00
On Wednesday May 25 PEMEX announced a new deepwater natural gas discovery. How important is this discovery for PEMEX? Could this be the beginning of a new era for PEMEX signaling a shift from petroleum to natural gas and the true start of deepwater exploration and production for Mexico?This is of course a very important discovery, for two main reasons. First, it confirms the existence of a gas province in the deep waters of the Gulf of Mexico with significant production potential. Two years ago we discovered Lakach and now Piklis which together form part of the same sub-basin in the Gulf’s deep waters.Second, the discovery also means that PEMEX has entered into a challenging area of deep water operations. At 1,900 meters (6,000 feet) this is the deepest well that we have drilled. It leads us to work in a way that we foresaw several years ago when first projecting deep waters activities. As we developed our capacities we started shooting seismic, commenced drilling, and prepared our people to take on this challenge. We are now ready for development. Our first asset to be developed in deep waters is Lakach which, together with Piklis, has the potential to produce approximately 800 bcf which equates to 80 percent of the country’s current gas imports; it is very significant.Additionally, we are working to include new capacities in our drilling fleet. We will have three rigs in deep waters this year which we contracted in 2007. We have an assessment of approximately 28 billion barrels of oil equivalent of prospective resources and we are going to speed up the exploration process in deep waters to hopefully deliver expected results.
You have recently returned from the United States, Canada, and Argentina where you launched new incentive contracts. Why did you choose these three countries and what was your message to investors there?
We have an E&P strategy focused on reducing current production gaps – increasing production in order to replace the reserves that we are extracting. Part of this strategy includes the reactivation of mature fields. After discovering the Mesozoic basins in the south and the Gulf of Campeche in the early 1970s we essentially abandoned mature fields without enough activity to extract the reserves that were still in place. There is still great potential for those fields having only extracted 17 percent of their volume. We feel that we have the potential to extract at least twice as much. Increasing the production capacity of mature fields is one of our objectives for the short-term.This means that we need to bring additional capacities to the country to complement the capacities that PEMEX currently has. Most of our human and financial resources are concentrated in our highly productive large fields in the south and the Gulf of Campeche. We need to look at additional capacity for those mature fields which is why we are trying to bring in people through new contracts. The bidding has been going on for a little over two months and so far we have had very good responses from the interested parties. We have 45 bases and 22 companies for sale and overall we believe we have very strong offers on the table that are attractive to the industry.
Last year PEMEX announced a massive $267 billion plan to increase output. Can you explain to our readers how important this plan is for PEMEX and how the money will be divided? Will it be dedicated more to enhancing existing fields or new exploration efforts?
The key word that best describes our strategy is diversification. We are increasing our level of investment in exploration. Fourteen percent of our $22 billion annual budget is dedicated to exploration activity.A big part of the budget, of course, goes to development and production in the high productivity areas in the southwest and offshore shallow waters. Eight percent is dedicated to Chicontepec because we see it as a strategic resource. The remaining 78-80 percent goes to the big production areas – the development of onshore fields in the south and the new fields that we discovered in the last two years. Part of the budget also goes toward Burgos as part of PEMEX’s gas strategy. The multiple areas of investment indeed reflect our strategy to diversify.
Over the past 30 years the Cantarell field alone has generated over half a trillion dollars in revenue since it began production in 1979. The Chicontepec field which was deemed the possible successor of Cantarell proves to be far more challenging because of geological aspects. As a result not only have production results been far below expectations, but more worryingly, production costs have now doubled and are on par with bitumen sand oil in Canada at $17/barrel. Obviously this is far from being enough to replace Cantarell or KMZ. Is there still hope that Chicontepec will play a central role future production?
I do indeed believe that Chicontepec plays a big strategic role in the future of the Mexican oil industry. Given the fact that there are about 100 billion barrels of oil equivalent down there in the ground we cannot just let the field pass undeveloped like we did for the first 80 years since its discovery in 1926. More than a company or personal issue, it is country issue. We feel that we have the obligation to the country to develop the field. I think that everybody in the country, particularly those involved in developing policies, should be very interested in Chicontepec. It is a strategic issue and a resource which we have not dedicated enough human and financial capacities to properly develop and extract. This is not the same as exploration. The difference between exploration and Chicontepec is that with exploration we are still searching for oil. In this case, we know where the oil is but we have to find better ways to extract it.
Chicontepec production for 2011 is forecasted at 70,000 barrels per day. Do you confirm that figure and what do you hope to produce from Chicontepec in the coming years?
We have a target forecast to reach 70,000 barrels per day in December of this year. Chicontepec currently represents two percent of our total oil output and we expect it to continually increase production. Over the next two years we expect Chicontepec to account for four percent of production, and 8-10 percent of production within five years.Chicontepec is not like Cantarell which is a mistake that people commonly make. Chicontepec is bigger than Cantarell. But it is also tougher than Cantarell so we have to very clearly bear in mind that it needs a different pace for execution, technological development, and reservoir management. Chicontepec is a completely different animal than Cantarell and we should not compare the two.
Since peaking in 2004 oil production has steadily declined. Production in 2009 was 25% lower than 2004 levels. By some assessments the life of estimated oil reserves is only nine more years. Nevertheless April and May of this year have shown positive signs with one new oil discovery and an important deepwater gas find. What is the E&P outlook for 2011 and how hopeful you are that this will be yet another good year for Pemex?
We have stated as a goal for our programs this year production of 2,570,000 barrels per day, which is very similar to last year’s output. We do face some internal challenges, all of which we expect to ultimately overcome. Next year we expect production to surpass 2.6 million barrels per day.
Regarding the internal challenges that you reference, there have been efforts in the past to make this company more efficient and transparent. As a state-owned company Pemex is often the target of much criticism. I understand that Pemex has a very special position for Mexico, but do you think it is time Pemex to be much more independent?
No doubt about it. Greater independence is in fact one of our aims.I agree that we should let Pemex be a more independent company and give it a more flexible legal framework without so many restrictions in order to perform better. But on the other side I understand the point of view about Pemex and the issues that come with Pemex being a state owned company. Having an executive that manages a state owned company who changes every six years and who belongs to a certain political party – sometimes to one side, sometimes to the other – makes the company a target for politicians and a target for criticism. It is also a target for releasing the pent-up frustrations of not achieving a better standard of living for the Mexican people. Pemex is huge company which makes a lot of money and develops large-scale projects. It is very contrasting with the poverty that we have in some areas which makes Pemex the subject of much criticism.That is why we applaud the initiatives of the president to make Pemex more flexible and grant it more budgetary independence. In the end the recipe is to leave Pemex out of the political arena.
Obviously the status of natural resources and oil in particular is an extremely hot topic in Mexico, as it is fixed by the constitution. Nevertheless however you might look at it – whether for enhanced oil recovery (EOR) or developing deep water fields – Mexico might need the expertise of foreign companies. Some of them have been present in Mexico for many years but have yet to receive a clear sign that their presence is welcome. What is your message to those companies?
We have been working with service companies for a long time: consulting companies, universities – foreign as well as Mexican universities – and research institutes. The limitations that we have here in Mexico are related to property, which is not negotiable like it is in many other countries.We think that we need new technology to perform better and enhance reservoir recovery. For instance we are working with a consortium of universities in the US and France to implement EOR projects in Mexico. We also have consulting companies helping us define exploration strategies and the effectiveness of current prospects. We are now going a step ahead by having service contracts with operating companies in mature fields. But here in Mexico, just like everywhere else, the owner of the resource has to receive the rights and the royalties that the operating companies, including Pemex, have to pay. The message for the majors is something that may attract them. Not only in Mexico, but in the United States and other parts of the world, majors are focusing on challenging projects such as deep water field developments. They have released small reservoirs and are looking for big risks, big rewards, which is the focus of every major company. Ultimately, I do not see why the ownership question should change in each country. The property of the resources belongs to the nation whether it is in Russia, China, South Africa, or here in Mexico
What is your final message to our readers?
My hope is that we have been able to transmit our focus and strategies to make this company more efficient. We have created opportunities for other players through consulting contracts, advising contracts, service contracts, and integrated E&P contracts.I think we have a good amount of resources, prospective and already discovered, that we need to further develop. We are focused in increasing our execution capacities and we feel that we have good assets to attract those capacities to Mexico.Having worked with Pemex for a considerable time, what continually drives you on the job here?This is work that truly satisfies me. It is work that I enjoy and my recommendation to everyone is that whatever field you are working in, you better like what you do!
| Company: | PEMEX E&P |
| Position: | General Director of Pemex E&P |
| Country: | 墨西哥 |