Despite announcing a $6.2 billion USD loss at its earnings call today, its largest loss since 2008, Pemex could not have said it better in its investor presentation today when it announced that “the technological and operational efforts carried out in the ATG Project [have] generated positive results.” ATG, more commonly known as the Chicontepec project, has arguably been Pemex’s greatest burden over the last few years, as it first hailed the project as the company’s answer to Cantarell, only to be disappointed by much lower production results than predicted. Duncan Wood, Director of the International Relations programme at ITAM, last week offered us his opinion on the misplaced emphasis given to Chicontepec by Pemex, saying that “it was erroneous on the part of the government to put so much emphasis on Chicontepec. Chicontepec is such a complicated field: there is no way you could rapidly ramp up production there, and to set a target of 176,000 bbl/d was ridiculous – there was no way to reach that target in such a small amount of time. You could work that out just by looking at the mathematics of how many wells needed to be drilled.”
In April 2010, the CNH publically slammed Pemex for its handling of the Chicontepec project, calling it rushed and “decades away from profitability.” At this point, Pemex had pumped over $4.5 billion USD into the development of the project, and results were poor; after all this investment, thousands of wells drilled and the participation of international service companies at localised field labs distributed throughout the region, Chicontepec was only producing 35,000 bbl/d, far away from the planned 176,000 bbl/d. At this rate, Pemex would not recover its capital outlays on the project until 2030. The field labs and the number of wells being drilled were another focus for the criticism of the CNH; rather than focusing on understanding the complex geology of the Chicontepec field, Pemex had prioritised production targets and expended too much capital on these goals, the regulator argued.
The criticism was embarrassing for Pemex, not least because it was clear that the company was caught in the middle of an argument between the new oil and gas regulator and Mexico’s Secretariat of Energy. “The CNH became an important participant in this debate over where to put Mexico’s resources, and Pemex came out of it looking as though it was making a stupid mistake, but of course it was being told to do that by SENER. And SENER was the one that betrayed Pemex at that point and left them hanging,” said Wood.
In reaction to the criticism from the CNH, Pemex scaled back its drilling programme at Chicontepec and decided to take a longer-term approach to the project. Today, the results show that this was far from being a mistake. Q1 results showed Chicontepec producing at 40,000 bbl/d; today Pemex was clearly pleased to announce that this had increased to 61,000 bbl/d in Q3. Speaking a week before these results were announced, Wood said: “If in five years time, it turns out that Pemex’s field laboratories in Chicontepec have discovered new ways of getting complicated oil out of the ground, we will all change our mind on this. And that is a realistic possibility, although I am not holding my breath. It has also given us an idea of how to work in complicated fields. We have learned something about how to deal with having to drill an enormous number of wells in a populated rural area. The environmental and social spillovers of this project will be very important when we look towards shale gas in the north.
“Overall, I think it was a bad use of resources, but there could be some good things that come out of it.” Now producing 61,000 barrels per day, Chicontepec might be even more useful than anyone imagined back in 2010.