The sudden and severe drop in global oil prices has led to difficulties for a vast majority of oil companies, and PEMEX is far from being spared from disaster. Production at the parastatal is at its lowest level in six years, and adding to its intrinsic challenges comes a decline in drilling activities.

In 2014, only 535 oil wells were completed, 34.9% less than the previous year, which saw the flourishing of 823 wells. Of those 535 units, 24 were exploratory wells, while the remaining 511 were production ones. Not only did drilling figures drop, but so did the success rate of these activities, and in fact, the year 2015 saw hydrocarbon extraction at its lowest level since 1980. The rate for exploratory drilling fell to 33% in 2015 from 61% just one year earlier, while that of developmental drilling experienced a slight drop to 94.9% from 95.9%. According to José Antonio Escalera, subdirector of exploration at PEMEX, 33% is a standard success rate given international standards, lessening the seriousness of the drop to a certain extent. Moreover, he explains that success in exploration should be measured over a period of three years because of the risks implied and the different speeds at which projects are completed. SENER claims the reasons for the notable drop in exploration activities are twofold: first of all, fewer exploration wells were programmed for the year, and secondly, PEMEX’s new strategy reduced activities in certain assets across the country. Consequently, the NOC made the decision to part with some of its drilling equipment, reducing figures from 139 to 106.5 over the 2013-2014 period, with exploration drilling machinery hit the hardest. This decision has ramifications far beyond the parastatal, directly impacting the economies of various Mexican states. Tabasco will be losing 150 of its 180 drilling rigs.

The decrease in drilling activities is diametrically opposed to the parastatal’s aim to increase its hydrocarbons reserves, which have been dropping for far longer than the oil price. Nonetheless, Escalera explains that the drop was not anodyne, as SENER and CNH blocked certain PEMEX projects in order to focus on other areas deemed more important. The NOC also suffered from budget cuts that prevented it to carry out as many drilling operations as planned.

Furthermore, PEMEX’s restitution rates have also been declining. This measurement refers to the ability of a company to replace the oil removed from its reserve for production by oil from new discoveries. In 2012, each barrel produced was replaced at a rate of 127.9% in 3P reserves (denomination for reserves that have a probability of success superior to 5%) and 104.3% in 1P reserves (those with a success rate above 90%). These figures dropped to 64.8% and 67.40% respectively in 2014. PEMEX’s investments projected for 2029 are expected to raise restitution rates to levels of 150% for 1P reserves, and 222% for 3P.

The year 2015 did not improve the situation, with oil production levels at their lowest in six years. While 2014 produced 2.43 million b/d, the following year was only responsible for 2.27 million b/d. Exploration and production fared no better, dropping by 50% as a consequence of harsh budget cuts.

It is expected that 2016 will bring a slight relief to the challenges experienced by PEMEX. In early December 2015, Enrique Peña Nieto announced that the NOC was to receive an investment of US$23 billion. Furthermore, PEMEX will be much sought after as a partner for joint ventures by the winning companies of phase three and the upcoming phase four of Round One. While the investment may not be a solution for the long term prosperity of the parastatal, increased participation in and support of the market could possibly revive the company.



Sources: Reforma, NorteDigital, CNN Expansion

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