Mexico oil production edges up but still far from AMLO’s expectations

Mexico saw its hydrocarbons production rise month-on-month in August, but output remained way below the government's high expectations.

The country produced 1.63Mb/d (million barrels a day) of crude oil and 3.91Bf3/d (billion cubic feet a day) of natural gas, with state-owned Pemex making up 96% of the oil production and 94% of the natural gas total, according to hydrocarbons regulator CNH.

Last month’s production increased 2% compared to July, which had seen the lowest monthly output since 1979, and was 3.5% below August 2019. Natural gas production rose 1.4% m-o-m and by 2% year-on-year.

The August figure was below the 2020 average of 1.67Mb/d.

The numbers show that Pemex has been unable to return to pre-pandemic production levels despite efforts by the administration of President Andrés Manuel López Obrador (AMLO) to support the company.

Pemex had been able to stabilize production at the beginning of this year after years of declining output but it soon fell again due to the oil price crash in March and the COVID-19 outbreak.

In July, production hit a nadir of 1.60Mb/d. 

At its output height in 2004, Pemex was producing almost 3.5Mb/d and it was a major revenue generator for the Mexican government.

Pemex’s plan to boost production is betting on rapid gains from a series of priority fields in a strategy outlined by the company last year, as well as recovery plans to slow the decline of some of its oldest and most productive assets.

The priority fields were expected to increase oil production by 307,000b/d by 2022. At the end of Q2, they were adding only 89,000b/d, which Pemex attributed to infrastructure delays, bad weather and operational problems.

At the same time, key fields such as Cantarell in Campeche state do not product as much as they once did. Cantarell’s successor, Ku-Maloob-Zaap, is Pemex’s most productive field today, although significant declines have affected its once most productive block, Ku, in recent years.

This year’s oil price implosion significantly affected the NOC, which posted losses of US$23bn in Q1 and US$2bn in Q2, leading Moody’s Investor Service and Fitch Ratings to downgrade their ratings on the company’s bonds to below investment grade in April.

As large oil companies around the world have unveiled massive budget cuts and a leaner and greener business focus - with Shell making a major shift towards renewable investments - Pemex has maintained its focus on higher crude oil production. 

Mexico’s 2021 budget plan includes a 0.6% increase for Pemex’s budget, with direct investment rising by 1.2%. Roughly 45bn pesos of the 47bn pesos listed in next year’s budget proposal of extraordinary financial support for Pemex will be channeled to the ambitious US$8bn Dos Bocas refinery.

The latest projections from Pemex include a production target of 1.8Mb/d for the end of this year with an expectation of adding 100,000b/d each year to reach 2.2Mb/d in 2024, which is the last year of the López Obrador presidency. In the budget proposal, the government said it expects the NOC to produce 1.85Mb/d in 2021.