Pemex could lose oil fields awarded in round zero

Mexico's state oil firm Pemex says it may be forced to cede some of the oil and gas fields it was assigned during round zero due to financial constraints.

The warning is contained in an annual report for 2014 submitted to the senate and congress energy commissions by Pemex. Round zero defined the oil and gas fields to be developed by Pemex, while the remaining fields are being put out to tender in round one.

The company has been adversely affected by the drop in oil prices since 4Q14, which provoked the company to make an 11.5%, or 62bn peso (US$4bn), budget cut in February, which will impact investment in E&P.

A third of the budget was to be channeled to operations, salaries and pensions; and two thirds, or 366bn pesos (US$24bn), to investments.

The increase in competition in the Mexican oil and gas sector could increase the cost of obtaining additional fields in bidding processes for new reserves, the report states.

Pemex's capacity to carry out those investments is limited by, among other factors, the amount of tax and royalty payments made to the federal government and the firm's decreased revenues due to falling oil prices, higher interest rates and the depreciation of the Mexican peso, given that much of the company's debt is in US dollars.

In round zero, the energy ministry (Sener) awarded Pemex 83% of the country's proven and probable (2P) reserves and 21% of its prospective reserves.

Pemex was also granted 67% of the prospective reserves it requested. Much of Mexico's unproven reserves are located in deep water, which is not an area of expertise for Pemex.

The company was awarded acreage covering nearly 90,000km2, with the potential to produce 20.6Bboe, equivalent to 15 years of production and five years of exploration at an output rate of 2.5Mb/d.

Some of those projects awarded in Round Zero are Maximino 1, Trion 1, Supremus 1 and Pep-1.

In August, Gustavo Hernández, director of the firm's E&P unit PEP claimed that Sener owed Pemex an explanation as to why it did not grant the state oil firm 100% of the reserves it requested in round zero.

"We asked for 31% of [the country's] prospective reserves, but were only granted 21%," he was quoted as saying by local media.

The decision was based on an evaluation of Pemex's financial, technical and execution capabilities for areas already in development and production.

The energy reform legislation stipulates that Pemex's right to develop oil and gas fields is subject to it being capable of doing so.

"Pemex cannot guarantee that it has or will have sufficient resources to explore and extract the reserves that it was assigned or, as the case may be, those that it is assigned in the future," the report states.

"Pemex could lose the right to extract those resources if it does not comply with the established exploration plan."

The report has been submitted for revision to the energy commissions of the congress and senate.