Pemex reshuffles priorities for 2021 as part of budget changes

Mexico's state-owned oil company Pemex has made adjustments to several priority projects looking into 2021 and has slashed the budget for 21 projects by 108bn pesos (US$5bn) compared with the budgets for 2020.

Conversely, the company will focus more resources on its most productive block, Ku-Maloob-Zaap, which was assigned 10.5bn pesos more than last year, as well as other projects it is backing to help it lift production quickly 

These include Quesqui, where it plans to spud 19 rigs and build 12 pipelines and where the company will increase its spend by 8bn pesos and Ixachi, where Pemex increased its budget by 10.5bn pesos, according to the budget assigned to production and exploration arm PEP.

The blocks where Pemex plans to reduce investment include Cantarell, EEk-Balam, Aceite Terciario del Golfo, Chalabil Fase II, Xikin, Mulach, Antonio J. Bermúdez, Chuc, Yasché, Ogarrio-Sánchez Magallanes, Crudo Ligero Marino, Proyecto Integral Veracruz and Tsimin-Xux.

Meanwhile, investment in studies for new exploration areas will jump from 2.6bn pesos in 2020 to 20bn pesos in 2021, according to local press reports, consistent with a shift in the company’s priorities towards increasing proven reserves and finding new promising blocks.

In total, the government’s latest budget proposal for 2021 stipulates that Pemex will invest 305bn pesos next year, which is 56% of the company’s total budget for the year and is 1.2% higher than in 2020.

The total budget assigned to PEP, meanwhile, increased by 3.8% year-on-year discounting inflation, with 67.9% going on direct investments.

PEP’s investment budget was hiked by 24% between 2019 and 2020, but Pemex was unable to raise its production. Instead, output fell by 0.3% on average during the first seven months of 2020, affected by the international oil price rout and disappointing results from the company’s activities.

The government has not given up on increasing oil production, however, and it posted a target for the NOC of producing 1.86Mb/d (million barrels per day). In July, Pemex’s production reached 1.63Mb/d.

According to an analysis by Barclays, the government’s oil production expectation is optimistic, and it instead forecasts that production will reach 1.7Mb/d.

“The Pemex budget only increases 0.6% y/y in real terms, while no other explicit support is provided. Hence, the situation in Pemex will likely remain fragile and the government is likely to continue supporting the company in order to meet the financial goals,” Barclays said.