Pemex failure at 17 priority fields a 'major setback' – experts

“Incompetent management” and overly ambitious development plans at Pemex’s E&P division (PEP) have stymied Pemex's efforts to get 17 priority O&G developments off the ground, according to Mexico energy sector experts.  

“The failure to produce at the priority wells represents a major setback to Pemex’s plans,” said Fausto Álvarez, who headed regulator CNH’s technical administration and compliance unit for E&P contracts and leases for over three years until November 2019. 

“It means that their strategy simply isn't working,” he said, adding that Pemex will now not meet its stated goal of putting 20 new fields into production each year, at least for 2020, as it has currently added none, as was shown in a recent presentation to hydrocarbons commission CNH.  

David Shields, a private consultant specializing in analysis of the oil and energy industries in Mexico, told BNamericas, “It's a sign of incompetent management at Pemex.” 

“It was clear that they couldn't be successful on these fields because of their minuscule size and the lack of prior exploration and appraisal wells. So, it's now back to the drawing board,” added Shields, the editor of Mexican energy news outlet Energía a Debate. 

SOURCE: CNH

The developments were essential to President Andrés Manuel López Obrador’s (AMLO) plans to boost oil production at Pemex from 1.7Mboe/d (million barrels oil equivalent per day) to 2.7Mboe/d in 2024, with production at the priority fields reaching 100,000boe/d by 2020 and 318,000boe/d by 2024, according to Pemex's 2019-2023 business plan released last July.

But PEP, providing an update to the CNH on Thursday afternoon, confirmed it did not reach its production targets under the terms of CNH-approved development plans for the priority fields, producing at only seven of the 17 blocks (a number whittled down from an original 20 developments listed this time last year) and at an average of just 21,800boe/d in the first quarter. 

Pemex had originally wanted to incorporate 1Mboe/d from new E&P, but will have to find a new route to reach that goal now, Álvarez told BNamericas after the session.  

“The approved plans were too ambitious from the start... a lot of assumptions were in place... meaning that, in order to achieve those goals, everything has to run smoothly (access roads, permits, well pads construction, having the right equipment on time, etc.), and this was not the case,” said the former CNH official. 

But operational issues aren't the issue, said Álvarez. “The real problem is not that they are differing activity and production due to these operational issues... the real problem is that in some fields they will not only have to reduce their production forecast, but also the volume that they estimated was in place. This due to a poor evaluation of these fields."

The CNH's governing body, during its analysis of the results, noted that during the first three months of the year, the oil company had only invested about 56% of the amount approved by the regulatory body, and so far it was producing 75% less than projected under approved plans.

The largest producer was the Ixachi land field, with a contribution of 5,900boe/d, the CNH reported in an extraordinary session. 

“The results are disappointing, they actually leave you speechless,” said CNH commissioner Alma América Porres during the review of the results.

Asked where Pemex might look to boost production now, Shields said, “It’s not really a question of where, but of drawing up a good, detailed long-term plan, probably seeking joint ventures with other operators.” 

In the short-term, Shields said, “They will not increase production, l am afraid to say.”