Pemex Struggles to Meet $20B Investment Target

MEXICO CITY (Dow Jones Newswires), Jul. 16, 2009

Mexican oil giant Petroleos Mexicanos is struggling to meet an ambitious $20 billion investment plan for this year after it nearly quadrupled capital expenditures over the past decade.

Pemex, as the state-run company is known, needs to find new pools of oil to replace traditional fields that are running dry. Pemex said on Wednesday it spent 88 billion pesos ($6.4 billion) during the first half of the year, or 38% of its $16.9 billion exploration and production investment budget.

Pemex's output has fallen by a fifth since peaking in 2004, and tumbled 7.9% during the first five months of 2009 from the year-ago period.

The company invested $15 billion in exploration and production in 2008, the same as oil majors BP PLC (BP) and Petrobras (PBR), according to a recent Pemex presentation.

Pemex's total investments, including refining, reached $18 billion last year, up from just $5.1 billion in 1998. This year a combination of a weaker local currency and government revenue shortfalls make it difficult to keep up the pace.

"Given the weakened Mexican peso and lackluster crude prices, Pemex could indeed be challenged to meet its aggressive capital plan this year," said Gianna Bern of Brookshire Advisory and Research Inc., an energy economics research firm near Chicago.

"Very often, state-owned oil companies cannot meet capital plans as they struggle with their own internal budgetary challenges amid governmental revenue shortfalls."

Pemex calculated an exchange rate of MXN11.70 when it set its 2009 budget. On Wednesday the peso was quoted in Mexico City as trading at MXN13.54 to the U.S. dollar. The company has asked the Finance Ministry for additional pesos to compensate for the depreciation. Pemex officials recently said negotiations are continuing.

Still, Bern said national oil companies like Pemex often accelerate spending during the second half of the year as budgeted funds get released. Pemex postponed several large drilling tenders during the first half due to bureaucratic snags, and plans to offer them again in the coming months.

Spending Comes Too Late to Stabilize Output

The boost in spending is coming too late to increase production in the short term. Pemex consistently has fallen short of yearly production targets. Average output for this year is at 2.65 million barrels a day, well below the 2.7-million-barrel-a-day target.

With Cantarell, one of the largest oil fields ever discovered worldwide, declining at 35% a year, Pemex needs to spend more at smaller, less prolific oil fields to try to compensate.

One of the main targets is Chicontepec, an oil zone that spans three states in northern Mexico where it is expensive to get the oil out of the ground. Some lawmakers and analysts have criticized Pemex for investing heavily in an area where wells only produce a few hundred barrels a day at best, compared with up to 10,000 barrels a day at Cantarell wells.

Pemex also is investing heavily in seismic exploration as well to find more promising oil fields on land and offshore, but it takes years to bring production from new oil fields on line.  

Copyright (c) 2009 Dow Jones & Company, Inc.