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Pemex strategy has failed to speed up process of drilling new wells

Experts say contracts went to small companies, some of which lacked expertise

A state oil company strategy to speed up the process of drilling new wells has not worked as planned, according to two energy experts who spoke with the news agency Bloomberg and data from the National Hydrocarbons Commission (CNH).

Pemex used a closed bidding process with pre-selected companies to contract out the drilling of new wells at 20 priority oil fields.

But most of the contracts went to small, local companies, many of which are in “survival mode” and made low bids just to get the work, the vice president of Welligence Energy Analytics told Bloomberg.

Pablo Medina said that in some cases the contractors lacked drilling expertise and were unable to obtain the equipment they needed to complete the job.

Jorge Sierra, a senior analyst at Wood Mackenzie, told Bloomberg that “they were supposing that they could bring these fields online quicker, but they haven’t.”

CNH data shows that just two of the 20 fields were yielding oil by the end of November even though the bidding process concluded in May.

“The contractors that won the packages for drilling the priority fields haven’t had the experience of managing integrated service contracts, like the big international ones such as Schlumberger and Halliburton,” Sierra said.

Pemex is now expected to open a new bidding process for nine of the fields, according to Borr Drilling, an international company consolidating its presence in Mexico.

Bloomberg said the state oil company declined to respond to its questions about the tenders or its well-drilling schedule.

The news agency noted that Pemex’s crude production in November 2019 was 1.7 million barrels per day (bpd) or approximately one million barrels short of its output target by the end of President López Obrador’s six-year term in 2024.

The failure of the strategy to speed up drilling of new wells was just one of several setbacks last year for Pemex, which has debt in excess of US $100 billion and has seen its oil output decline for more than a decade.

Fitch Ratings downgraded the company’s credit rating to junk status in June, a cyber-attack in November crippled many of Pemex’s systems and the head of exploration was dismissed in mid-December due to alleged involvement in the government embezzlement scheme known as the “Master Fraud.”

Pemex has also seen a brain drain as a result of the public servants’ salary cap enforced by the federal government and has months of unpaid bills, Bloomberg said, even though the López Obrador administration has poured additional resources into the company.

Welligence’s Medina predicted that the state-owned company will face a “reality check” in 2020 as oil production “will likely keep declining.”

López Obrador has repeatedly pledged to “rescue” Pemex and reduce Mexico’s dependency on gasoline imports by upgrading the country’s six existing refineries and building a new one on the Tabasco coast.

He has also taken steps to reduce the role of international companies in Mexico’s energy market by suspending new oil field auctions and blocking Pemex from entering into new joint ventures to develop existing projects.

Source: Bloomberg (en) 

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