At a speech in Mexico City this week, CEO of Pemex Juan José Suarez Coppel reiterated the three main aims of Pemex in taking steps towards becoming a competitive oil and gas company: increasing the NOC’s reserve replacement ratio, whilst simultaneously increasing production and making all the company’s business lines profitable. However, he also made the point that the company would need an average annual investment in excess of 320 billion pesos – around US$25.2 billion – in order to do this.

The fact that Pemex only receives a percentage of the budget it requests from the Mexican government each year seems to be enough of an issue for Suarez Coppel to want to talk about the problem openly. Last year, for example, Pemex presented a budget of 376 billion pesos (US$29.38 billion) to Congress, but only received 286.3 billion pesos (US$22.2 billion) at the end of the day.

If Pemex wants to transform its fortunes, it will need the money in order to do so. The three aims of the company will require significant investment in order to move from boardroom plans to annual report results.

Take the first aim of increasing the NOC’s reserve replacement ratio. Back in 2004, Pemex’s 1P reserve replacement ratio was a measly 23%. Since then, the company has made efforts to ramp up exploration activities, and the results have paid off – in 2010, Pemex reported a 1P reserve replacement ratio of 86%. However, the company aims to reach 100% in 2012. One of the reasons that Pemex has managed to achieve such impressive increases in its reserve levels is that over the last 7 years production has declined as a result of Cantarell reaching the end of its peak and challenges in other regions like Chicontepec. If the company wishes to simultaneously improve its reserve replacement ratio while also ramping up production to a stated target of 3 million bbl/day, from the current production level of 2.56 million bbl/day, it will take a significant effort.

The company says that it has already taken steps to streamline processes and shave money off wasteful processes. As examples, Suarez Coppel mentioned US$138 million in savings on services to offshore platforms, and US$38 million saved through the acquisition of six new tankers last year. However, in order to reach its targets, these savings are small beer. If Pemex wishes to reach 100% reserve replacement and 3 million bbl/day of production, it will need to receive more support and understanding from the Mexican government in terms of its financial needs, and at the same time make a greater effort to focus on the projects and technologies that will reap the greatest rewards.

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