Mexico will not produce 3 million b/d until 2020: Pemex official

Washington (Platts)--24 Jun 2014 202 pm EDT/1802 GMT

Delays in implementing Mexico's sweeping energy sector reforms will prevent the country from producing over 3 million b/d until at least 2020, an executive with the country's state oil company Pemex said Tuesday.

"We can increase, of course, but not enough to arrive at 3 million [b/d]," Fluvio Ruiz Alarcon, a professional and independent board member at Pemex, said on the sidelines of a Wilson Center event on Mexico's energy reform. "I'm sure we're going to produce over 3 million [b/d] but not by 2018. Maybe 2020, but not before."

Mexican President Enrique Pena Nieto set the 3 million b/d by 2018 production goal as the country's Congress passed a reform bill to end Mexico's 75-year state oil monopoly in December. But hurdles in finalizing the secondary legislation needed to implement the reforms, a process which includes modifying or creating 21 separate laws and faces significant opposition from the country's pro-business national action party (PAN), have already made this goal seem highly unrealistic.

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"A lot of us didn't understand how hard it would be to get the secondary legislation passed," said Duncan Wood, director of the Wilson Center's Mexico Institute. "This is far from being a done deal, this is far from over."

New technologies and partnerships with some foreign firms could boost production in the near term by roughly 200,000 b/d, largely in mature, established fields, according Marcelo Mereles, a partner at EnergeA and a former Pemex international affairs advisor.

But production in undeveloped fields, in the Gulf of Mexico or in fields abandoned by Pemex will likely not be close to development by 2018, Mereles said.

"Virtually no greenfield project can take off in three and a half years," Mereles said.

Still, Mereles said the delays in implementing the reforms are "not that substantial."

At the same time, he said Nieto's administration has political reasons to show the impact of the energy sector reform ahead of mid-term elections in July 2015. To do this, Mereles said he expects the first round of bidding for production rights to begin by December and to be wrapped up by May or June next year.

"I think that the government understands that there is a lot of pressure to show results here," Mereles said.

The reforms will give foreign oil and gas companies development rights to gas and oil plays through production-sharing contracts or licenses. Despite stagnant production levels since 2009, Mexico has potentially the world fourth largest non-conventional oil and gas resources, according to Jeffrey Eppink, president and founder of Enegis, an energy consulting firm.

"Mexico has extremely good potential," Eppink said in a presentation Tuesday.

Over the last 100 years, 41 billion barrels of oil and 72 Tcf of gas have been extracted, with about 160 billion barrels equivalent remaining, according to Pemex estimates.

--Brian Scheid,
--Edited by Derek Sands,

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