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Pemex May Need to Invest More Than $25 Billion Yearly

Georgina Kessel, Mexico's energy minister
Georgina Kessel, Mexico's energy minister, speaks during an interview in New York on April 29, 2010. Photographer: Daniel Acker/Bloomberg

Petroleos Mexicanos, Latin America’s largest crude producer, may need to boost spending by about a third to more than $25 billion a year as it seeks to meet long-term output targets, Mexico’s Energy Minister said.

Higher investment in the state-owned company will help ensure “gradual growth” in production to a goal of 3.3 million barrels a day by 2024, Energy Minister Georgina Kessel said yesterday in an interview at Bloomberg’s headquarters in New York. She’s also chairwoman of the Mexico City-based company, which currently produces about 2.6 million barrels a day.

Chief Executive Officer Juan Jose Suarez Coppel is seeking Pemex’s first production gains in six years as he arrests slumping output at the Cantarell field and spends about $19 billion on projects such as the onshore Chicontepec field. The company’s board expects to complete a review within two months of the “appropriate” level of spending, Kessel said.

“It’s in our best interest to increase investment,” she said. “As long as we have the right project, Pemex will be getting the money that is necessary for investment. We have to maximize the value of Pemex.”

Mexico’s finance ministry last year cut its output forecast for Pemex to 2.5 million barrels a day in 2010. Agustin Carstens, the finance minister then, said output would fall through 2012. Pemex had about $49 billion of debt last year.

Fiscal Load

Pemex “cannot afford an investment increase with the current level of oil prices and the current fiscal load,” Enrique Gomez, a Standard & Poor’s analyst in Mexico City, said yesterday in a telephone interview. “For us it would be an area of concern if the government doesn’t cut Pemex’s taxes.”

Oil provides about 30 percent of the Mexican government’s revenue.

Pemex reported its first quarterly profit in three quarters today. The company posted net income of 1.4 billion pesos ($114 million), compared with a loss of 27 billion pesos in the year-earlier period, Pemex said in a statement to the Mexican Stock Exchange. Sales climbed 36 percent to 308 billion pesos.

Pemex is creating performance-based contracts to reward private contractors that produce the most at its fields after failing to meet production targets at fields such as Chicontepec. Suarez Coppel, 50, last month met executives from companies including Exxon Mobil Corp., Total SA and Statoil ASA to discuss how the company can maximize its oil production and is seeking about $6 billion in external financing this year.

Pemex needs to increase deepwater exploration, Kessel said. Mexico has the possibility “through the new system of contracts of getting not only technology but also the possibility of new financial sources” to increase investments, she said.

Debt Leverage

“So far, Pemex has no problems to raise money in the markets,” S&P’s Gomez said. “However, the company debt leverage is high and its labor liabilities are high.”

Pemex’s board is considering raising a cap on the company’s debt if necessary, the chairwoman said. After the company defines where and how much to invest “we can see the way to finance those projects,” Kessel said.

Suarez Coppel, in a March 31 interview, said that he expects production at Cantarell, the largest oilfield in the Americas when it was discovered in 1976, to be “stable” at between 590,000 and 620,000 barrels a day for at least the next two years. Pemex is injecting gas and using other recovery methods to stabilize the field, he said.

Production at the Ku-Maloop-Zaap project “has probably reached its peak” after output of 856,120 barrels in February, he said.

Bond Sale

Mexico will increase investment at Ku-Maloop-Zaap by 28 percent to 38 billion pesos, according to a document posted earlier this week on Mexico’s Hydrocarbons Commission website.

Pemex plans to sell peso-denominated bonds on May 12 in a reopening of a debt offering from earlier this year. The company has registered with the Mexican stock exchange to sell as much as 140 billion pesos in bonds during the next five years.

Crude oil for June delivery rose 98 cents to $86.15 a barrel today on the New York Mercantile Exchange, the highest settlement price since April 6. Futures have gained 69 percent in the past year.

“If the world economy recovers as everyone seems to be expecting, you can expect the price of oil to be in the ranges that we have seen lately,” Kessel said.

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