Mexico Oil & Gas Report Q3 2013 - New Market Research Report

Boston, MA -- (SBWire) -- 07/30/2013 --Never before has Mexican energy sector reform been both more critical and more attainable. The election of President Pena Nieto has generated renewed momentum behind reform. Indeed, the president has already succeeded in carrying out a set of substantive reforms in other sectors of the economy, including education and fiscal reform. However, it remains to be seen if Pena Nieto's legacy will include the revitalisation of Mexican oil production, or if he will instead preside over a failure to take the best chance of reversing what is now eight straight years of decline in the energy sector. Success is possible, although it will likely be a piecemeal process as Mexico edges towards a meaningful change to its production outlook over the next decade.

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- We are forecasting a steady decline in both Mexican proven oil reserves and production over the next decade, with the country likely to become a net importer rather than one of the world's largest net exporters - as is the case at the moment - by the end of our forecast period. This is on the back of several years of declining production, combined with the recognition that it will take a significant amount of time for any new production to come online. Furthermore, the country's most productive fields, including Ku Maloob Zaap and Cantarell, are maturing at a much faster rate than the country can add to existing reserves, resulting in a steady trend of reserve depletion. We estimate 2012 oil production of 2.95mn barrels per day (b/d) and forecast 2.94mn b/d in 2013, falling to 2.6mn b/d in 2017. Production will end our forecast period in 2022 at 2.2mn b/d.
- Our bearish view of Mexican oil production is reinforced by several interconnected fundamentals, including Pemex's relative inexperience in deepwater drilling, as well as ongoing financial troubles in the form of rising capital expenditures amid a 2013 budget that remains stagnant at US$25.6bn. The inability for the company to work with foreign partners also prevents it from spreading capital risk, while also not being able to capitalize on foreign expertise and technology. Indeed, the US-Mexico maritime border has seen an average of 100 wells a year drilled by more than 24 oil companies. For its part, Pemex has only been able to drill an average of two wells a year since 2006.

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