TBY talks to Juan José Suárez Coppel, Director General of PEMEX, on increases in extraction rates, new E&P opportunities, and the growing international interest in the local energy industry.
TBY What factors are leading to increases in overall production?
JUAN JOSÉ SUÁREZ COPPEL A very important step toward increasing PEMEX’s production is the operation of new exploration and production (E&P) integral contracts. The first bidding round has concluded, and there has been a lot of interest from potential bidders for the second round for the Southern Region. The companies that won the first bidding round are already working and are now forecasting an increase in production. Another important factor has been the development of the Ku Maloob Zaap Field, which is producing around 850,000 barrels per day (bbl/d). As for the future, we are confident that we will be able to continue to improve production at the Chicontepec Field, so that in the short term we’ll be able to extract around 80,000 bbl/d.
What annual level of investment will Pemex maintain during the next five years to finance upstream operations?
During President Calderón’s term, there has been an historical investment in PEMEX. We have built new platforms, such as the Centenario and Bicentenario, and we have continued with the reconfiguration of other assets such as the Minatitlán Refinery. We are also advancing according to plan on the construction of a new refinery in Tula. We have invested more than ever before. As a result, we have achieved the stabilization of our oil production at around 2.6 million bbl/d. In 2012, PEMEX will invest Ps249.15 billion ($19.84 billion) in the exploration, production, and development of Mexico’s hydrocarbon fields. This means that we will be investing 2.8% more than in 2011. We are fully engaged in downstream development and are envisioning that we will achieve the energy independence that the country needs in the medium term. Around the world, the refining business is going through a difficult phase. In other parts of the world, several refineries have closed or are planning to close. To avoid such a dramatic outcome, we have been taking the right steps to achieve the more efficient production of gasoline.
What is on PEMEX’s agenda with regard to deepwater exploration and production?
We are planning to develop three deep-water wells in the Perdido area in 2012: Trion, Supremos, and Maximino. For the development of these wells, we are estimating an investment of between $600 million and $800 million, or about $150 million to $200 million per well. With these projects, PEMEX will become the second most important oil company with drilling equipment in the Gulf of Mexico. We will continue with our deepwater exploration operations, and we will do so in compliance with the regulatory framework in place and with a particular emphasis on safety and environmental protection. In this regard, we have established measures that will strengthen our procedures and guarantee that the operations will take place in the safest possible way.
How is PEMEX leveraging technology and infrastructure to minimize any negative impacts on the environment?
We have been making our refineries more efficient and we are investing in the reconfiguration and construction of new refineries. We recently finished the reconfiguration of the Minatitlán Refinery, which is a new project in view of the technological improvements that we have developed. We have also taken a leap forward by investing in the reconfiguration of the Salamanca Refinery, and, moreover, we have started the construction of a new refinery in Tula, Hidalgo. We are confident that these steps will help reduce the gap between national consumption and production. One of the top priorities of the company is to operate in a safe and sustainable manner. In this respect, our Safety Health and Environmental Protection System (SSPA) has yielded very good results in recent years and has been key in curbing accidents. For example, we have been able to keep the index of accident frequency at 0.42 accidents per million work hours, the lowest in the history of the company, and lower than the international benchmark of 0.5. Also, in 2010, we achieved a reduction of 22.1% in the emission of polluting agents to the atmosphere, a 0.5% reduction in the use of crude water, and a 21% reduction in our inventory of hazardous materials. With regards to CO2, we have also had very encouraging results. During 2010, we were able to reduce our emissions by 4.8 million tons. To put this in perspective, this is the equivalent of taking 1 million cars off the road. Finally, we continue to support biodiversity conservation programs in places as diverse as the Lancandona rainforest in Chiapas, the Jaguaroundi natural reserve in Veracruz, the Centla Marshes, as well as ecosystems in Alvadaro, Tuxpan, and Tampamachoco. These are the figures for 2010. The figures for 2011 will be available shortly.
What major challenges does the Chicontepec Field present?
The development of the Chicontepec Field is going through a very strong phase. In January of 2012 we achieved an average production of 63,000 bbl/d, and also accomplished a historical maximum of 65,300 barrels in one day. This is the result of technological innovations and initiatives targeted to reduce costs, as well as the implementation of better operating practices. It is well known that Chicontepec is a very challenging field from a technical perspective. That is why we have installed field laboratories in different locations in order to grasp a better sense of the oil pockets and develop them accordingly. The new exploitation models used in “Presidente Alemán,” for example, have yielded very positive results. This well has been subject to many technical innovations that have determined its success. It was designed to be drilled horizontally, and therefore have better contact with the productive sands, and, with this, an increased flow of oil. I think our biggest challenge at Chicontepec is finding the right technologies to increase the recovery rate from hydrocarbon pockets. I am confident that with work now in progress and the different laboratories throughout the region, we will be able to find the best techniques to make the most of this very important field.
In your view, what role can foreign investment and expertise play in the development of Mexico’s offshore oil assets?
The oil industry is one in which learning from other experiences and collaborating in challenging projects is vital. That’s why, in April 2008, President Calderón presented an energy reform proposal that was widely discussed and later approved by Congress. The reform included important changes to the legal framework of the industry and strengthened PEMEX’s corporate governance, granting it greater flexibility to determine its internal structure, and provide a specific contractual scheme to face upcoming challenges. This regime is now part of the new PEMEX Law. A fundamental part of the reform was the approval of integral contracts for E&P activities. These contracts seek to expand and strengthen the operations of PEMEX through a competitive model that opens the door for new areas of collaboration between PEMEX and the national and international players of the oil industry. Through this new contractual scheme, we will be able to complement PEMEX’s efforts to reactivate mature fields and develop complex projects. The first bidding round for the reactivation of mature fields was very successful. The second round is currently underway and we expect it to be as successful as the first one. Another important area for collaboration is in deep-water activities in the Gulf of Mexico. The exploitation of hydrocarbons in the Gulf is a great opportunity for PEMEX and for Mexico. We have estimated that from a total of 54 billion barrels of oil equivalent (boe) of prospective resources in the country, at least 30 billion are in deepwater fields. We are confident that these projects will also open the door for greater collaboration opportunities with other players in the industry.
What substantial results has the 2008 legislative reform package produced in the energy sector?
In November of 2008 several new laws were decreed, including the new Law for Petróleos Mexicanos, the Law on Renewable Energies, and the Law for the National Hydrocarbons Commission (CNH). These new regulations gave more strength to the Secretariat of Energy in its role of defining the country’s energy policy, and also created the National Hydrocarbons Commission (CNH) to regulate and supervise the exploitation and extraction of hydrocarbons. The reforms also gave PEMEX greater independence with regards to its organization and decision-making processes as well as budget management. The reform also included a transformation of our tax regime that allows us, in the present day, to exploit the most complex and costly oilfields on land and deep water in a more profitable way. We also established new schemes to promote national contractors and suppliers. The 2008 reform was very beneficial for the company’s development. Nevertheless, there are still many efforts to be made in order to take advantage of the great opportunities that the oil industry offers.
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