WSJ: Mexico Pemex Aims To Boost Investment In Coming Years

MEXICO CITY (Dow Jones)–Mexico’s state oil company Petroleos Mexicanos, or Pemex, wants more capital expenditure money for 2012 as it seeks to control declining production at offshore deposits, squeeze more crude out of new and mature onshore fields, and move forward with plans to dip into the deep waters of the Gulf of Mexico despite the BP oil spill, officials said Friday.

While Pemex’s investment budget for exploration, production and processing plants for next year is still being negotiated, it should be similar to what the company expects to spend this year, said Chief Financial Officer Carlos Trevino during a conference call with analysts on second-quarter results.

“We could expect a little bit less than 250 billion pesos ($19.8 billion) for the next year,” he said, adding “it’s too soon to have a better projection.”

For 2012, however, Pemex is in discussions with the Finance Ministry to review how the company’s earnings are distributed, as well as to meet new efficiency goals so that the oil firm will have a capital expenditure budget of “something like 300 billion pesos,” or about $23.7 billion at the current exchange rate.

Pemex’s investment funds have been rising steadily over the last several years, doubling in dollar terms since 2003 when the company neared its peak oil output.

Its supergiant offshore field Cantarell started declining in 2005, and crude output has fallen from an average of 3.4 million barrels a day in 2004 to about 2.6 million barrels a day over the last 18 months.

On the production side, which has concerned debt ratings agencies since Pemex supplies a significant chunk of the federal budget, Pemex’s director of exploration and production, Carlos Morales, said that its top producing field, Ku-Maloob-Zaap, has reached its expected peak production of 850,000 barrels a day.

Morales said, however, that “the projections we have is that we can keep that level of production for the next three years or so.”

Meanwhile, the company is using new methods to tap the onshore Chicontepec basin and will drill 400 wells this year, he said. Next year’s drill rate will depend on productivity of the new wells. New techniques being used at Chicontepec include non-conventional drilling and fracturing, or fluid injection, according to a presentation shown during the conference call.

Critics of the project, including the National Hydrocarbons Commission oversight body, have said Pemex has invested far too much money–several billion dollars–in a project that is barely producing 42,000 barrels a day.

Morales defended Chicontepec as an “unconventional source play,” and said the investment is worth the results at current crude oil prices. “In this case, the crude oil price is favorable.”

He also said that the BP oil spill hasn’t changed Pemex’s plans to drill on the Mexican side of the Gulf of Mexico, where it has no production currently.

“We have not seen any change in the market of rigs or other equipment,” Morales said, adding that Mexico already has strict “zero discharge” standards for its drilling operations.

He added, however, that new incentive-based contracts allowed under a 2008 energy reform would go first to mature fields, such as the re-activation of previously shut onshore and offshore fields, followed by Chicontepec, and then thirdly for exploration and production in the deep waters of the Gulf.

Another priority for Pemex has been increasing refinery capacity as gasoline imports from the U.S. reach record levels. The firm’s corporate director of operations, Carlos Murrieta, said that a long-term upgrade of the Minatitlan refinery should be completed by the end of this year, with “everything running and stable around March” of next year.

-By Laurence Iliff, Dow Jones Newswires; (52-55) 5980-5184, laurence.iliff@dowjones.com WSJ