Mexico’s Pemex Aims To Spend $1.5B A Yr On Exploration

Mexican state oil monopoly Petroleos Mexicanos (PEM.YY), or Pemex, said Wednesday it needs to spend at least $1.5 billion a year on exploration in order to reach its medium-term reserve replacement goals.

In a conference call with investors, Carlos Morales, head of Pemex exploration and production, said that with such investments the company should be able to reach its 100% replacement goal for total reserves by 2010.

Pemex produced 3.4 million barrels a day of crude last year, making it the world’s third-largest oil company. That output resulted in net sales of $69.1 billion, but taxes and royalties turned the revenue into a net loss of $1.26 billion.

Mexico’s Pemex Aims To Spend $1.5B A Yr On Exploration
by Amy Guthrie
Wed, Apr 13, 2005 20:34 GMT

MEXICO CITY – Mexican state oil monopoly Petroleos Mexicanos (PEM.YY), or Pemex, said Wednesday it needs to spend at least $1.5 billion a year on exploration in order to reach its medium-term reserve replacement goals.

In a conference call with investors, Carlos Morales, head of Pemex exploration and production, said that with such investments the company should be able to reach its 100% replacement goal for total reserves by 2010.

“These investment levels need to be maintained in order to reach our goals,” Morales said.

Throughout the 1990s, Pemex invested an average of $400 million a year on exploration as crude flowed freely from its profitable Cantarell field, which accounts for nearly two-thirds of the company’s production.

Production at Cantarell, though, is expected to start decling this year, with output dropping to 2.02 million barrels a day from 2.11 million b/d in 2004.

Pemex is developing nearby fields in an effort to compensate for Cantarell’s decline, Morales said, adding that the company may need to step up investment in the coming years to realize the full potential of other deposits.

Despite Pemex’s massive deposits and high output, maintaining or boosting investment is complicated by the company’s status as a state entity.

About three-fifths of Pemex’s revenue goes to the federal government to fund national expenses such as education and healthcare. Pemex’s budget, which this year is close to $10 billion, is also included in the federal budget.

Pemex produced 3.4 million barrels a day of crude last year, making it the world’s third-largest oil company. That output resulted in net sales of $69.1 billion, but taxes and royalties turned the revenue into a net loss of $1.26 billion.

As of the end of last year, Pemex had the crude equivalent of 46.9 billion barrels of total proven, probable and possible reserves.

The company hopes to have a replacement rate of 65% by 2008, which would be an improvement over the 57% rate in 2004.

Pemex also aims to boost its replacement rate for proven reserves – or that which has been extracted from the ground – to 77% by 2010 from 23% last year.

Last year the company’s proven hydrocarbon reserves fell to 17.7 billion barrels of crude equivalent from 18.9 billion barrels in 2003.

Efforts to boost proven reserves will likely coincide with increased production by 2008 of 4 million b/d in crude and 6 billion cubic feet a day in natural gas, up from 4.6 Bcf/d in 2004.