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PEMEX struggles to replace production

Mexico’s proven oil and gas reserves fell by 3.1% last year to 13.02 billion BOE as national oil-major Petroleos Mexicanos (PEMEX) was unable to find enough new reserves to replace production last year, the National Hydrocarbons Commission said.

Proved reserves in 1990 stood at 55 billion BOE, but have since been in  sharp decline, reports Reuters. Reserves were relatively stable in recent years, with PEMEX replacing 100% of production in 2012 and 2013, but have slipped in the last two years, according to the Commission.

PEMEX replaced 89% of its oil production, while the recovery rate for gas was just 47%, reports The Wall Street Journal. That means Mexico’s overall recovery rate was 67% in 2014.

Reserves of crude oil stood at 9.71 billion barrels as of January 1, versus 9.81 billion a year earlier. Natural gas reserves were 15.29 trillion cubic feet (Tcf), compared with 16.55 Tcf in 2014. This represents about 10 years of production at its current rate.

Mexico’s exploration efforts have moved from shallow waters out to deeper parts of the Gulf of Mexico as the easier to reach shallow production runs out. Deepwater production has proved challenging as costs are substantially higher and require new technologies to reach. Pemex, up until last year, was nationalized since 1938 and received no foreign investment. In turn, the country is behind the learning curve in unconventional resource development.

PEMEX struggling to compete

PEMEX recently approved budget cuts of $4.16 billion, 11.5% of the previous year’s budget, and postponement of major projects due to the sharp drop in oil prices.  The Mexican export crude oil blend traded at an average of $86/bbl in 2014, but is currently trading around $50/bbl.

The company will also be competing with private companies for the first time in decades following the energy policy overhaul in Mexico. Emilio Lozoya, Chief Executive of PEMEX, said the company will be renegotiating service contracts and cutting jobs in order to remain competitive.

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Important disclosures: The information provided herein is believed to be reliable; however, EnerCom, Inc. makes no representation or warranty as to its completeness or accuracy. EnerCom’s conclusions are based upon information gathered from sources deemed to be reliable. This note is not intended as an offer or solicitation for the purchase or sale of any security or financial instrument of any company mentioned in this note. This note was prepared for general circulation and does not provide investment recommendations specific to individual investors. All readers of the note must make their own investment decisions based upon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Investors should consider a company’s entire financial and operational structure in making any investment decisions. Past performance of any company discussed in this note should not be taken as an indication or guarantee of future results. EnerCom is a multi-disciplined management consulting services firm that regularly intends to seek business, or currently may be undertaking business, with companies covered on Oil & Gas 360®, and thereby seeks to receive compensation from these companies for its services. In addition, EnerCom, or its principals or employees, may have an economic interest in any of these companies. As a result, readers of EnerCom’s Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this note. EnerCom, or its principals or employees, may have an economic interest in any of the companies covered in this report or on Oil & Gas 360®. As a result, readers of EnerCom’s reports or Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.