Monthly Archives : January 2016

Pemex: What to Watch for in 2016

Some of the 153,000 employees of Mexico’s state petroleum interest will be looking for new jobs in 2016. Hoping to closer match up with some of the international firms now competing to profit from remaining Mexican oil resources, Pemex announced in December that job cuts in 2016 would be a part of the ongoing changes at all levels of the petroleum stream. Pemex has also been partnering with private companies and opening bidding on exploration, and construction projects to firms beyond the nation’s borders.

Falling international oil prices have left the petroleum monopoly with the lowest budget it’s had since 2007 and the process of “farming out” more contracts is well under way. 2016 will see the first ground-breakings on many of these projects.

Production of the company’s premier product is also expected to the lowest in a quarter century as Pemex continues to struggle to re-organize in the wake of accidents, lower yields on existing wells, and as already mentioned, a glut in global supply that’s left prices hovering below US$40 a barrel.

One of the biggest downstream contracts awarded went to the engineering unit at South Korean firm, Samsung Group. Their US$550m contract is for extensive engineering for the second phase of the Antonio M. Amor Refinery in Salamanca, Mexico. This is also one of the most closely watched of the private contracts being awarded, in part because refineries history and stature. The contract calls for an expansion of the plant capacity by some 53,000 barrels and it’s to be completed by the end of 2018. Samsung also completed the first phase of the project which was awarded in 2014.

Finally, after increasing interest in Mexico’s deep-water oil-field auctions, a fourth auction has been announced for ten more deep sea oil fields. This auction follows three previous auctions that stumbled out of the gate in 2015, but which picked up in interest and terms before the end of the year. But importantly, these contracts are under a license contract model something like a concession model.

The ten fields are very near to the US maritime boundary where Royal Dutch Shell is already operating a project in partnership with Chevron and BP. Oil or gas discovered in the Mexico side of the Perdido Fold in the Gulf of Mexico would still fall under the auspices of the Mexican regulators.

Pemex is expected to continue making major changes as it struggles to get back on its feet, after the worst fiscal year in the company’s history. To do that, it’s relying on partnerships, both domestic and international at all levels of the petroleum production stream.

Another important aspect of protecting a national oil industry for some 70+ years is that very few foreign engineers are familiar enough with the country’s technical and official standards for engineering and normas de referencia. This particular problem is easily remedied though as most Mexican standards and technical documents are translated and available for download online.

Mexico Refinery Upgrades to Continue in 2016

After fits and starts and multiple cancellations of plans, Pemex has issued an investment plan worth some US$23 billion for much needed upgrades to Mexico’s aging oil refineries. The new plan replaces much more ambitious plans that had been released prior to the worst fiscal year in a quarter century for the former Mexican state oil monopoly.

The new investment plan was announced in December nearly simultaneously with announcements of job cuts that are also to be part of the 2016 Pemex budget. The oil giant has been struggling to bring its workforce down from the nearly 153,000 employees to a level closer to the numbers of similar private companies in the world market.

Pemex and the energy regulatory agency of the Mexican government had previously outlined goals for increasing refinement capacity as well as for upgrading its capacity for producing cleaner burning fuels.

The current proposals are something of a refinement to earlier and more expensive projects, the contracts for some of which had already been granted. Among the most notable was a two-phase upgrade project to the Salamanca Refinery, both parts of which were awarded to South Korean firm Samsung.

Many similar projects were actually cancelled or seriously revised prior to opening to bidding. This was in part due to lower global oil prices, but also in response to several expensive accidents that dampened the company’s near-term prospects. Total budget cuts were some $4 billion prior to budgetary 2015, which necessitated the disappointing revisions to plans.

The newer projects include a US$5 billion retrofitting of the petroleum refinery in Tula, in the Mexico State which borders Mexico City. This upgrade will increase the plant’s refining capacity to some 340,000 barrels a day.

The Salina Cruz refinery, the third of Mexico’s big-three of refineries, is also part of the revised investment plan. All of the refinery upgrades are intended to decrease sulfur in the gasoline being produced, but they range in complexity in part due to the varying ages of the refineries.

Still, exploration has led to announcements of new oil fields, rights for which will also be on the auction block in the coming year. 2015 saw the first ever auctioning of oil extraction rights to private and international firms in the Mexican oil giant’s history. Reserves of some 180 million barrels of crude oil could provide Pemex with an additional 40,000 barrels a day of crude oil in addition to extensive natural gas resources. Rights to similar oil fields sold with great interest toward the end of 2015, and in the government’s favor, though the first auction was met with very mixed interest.

Interest in Pemex’s technological and engineering standards and documents are expected to peak as increasing numbers of international and private firms compete for these lucrative contracts. And an increasing number of the documents themselves are being prepared and translated for the use of those interested in presenting contract bids over the coming years.