Pemex Forecasts Production Recovery to Snap Slump

Pemex CEO Juan Jose Suarez Coppel
Juan Jose Suarez Coppel, chief executive officer of Petroleos Mexicanos speaks during an interview in New York on July 20, 2012. Photographer: Peter Foley/Bloomberg

Petroleos Mexicanos, the world’s fourth-largest oil producer, said it expects to turn around declining output in the first half to post its first annual increase in eight years.

Pemex, as the state-owned company is known, is set to meet its annual target of averaging more than last year’s 2.55 million barrels a day and have “significantly larger numbers” by the end of 2012, Chief Executive Officer Juan Jose Suarez Coppel said today in an interview at Bloomberg’s New York headquarters. The first-half average was 2.54 million barrels.

Mexico is seeking to reverse seven years of crude output declines, including the lowest daily average since 1990 last year, after output from its Cantarell field, the world’s third-largest deposit when it was discovered in 1976, slid more than 75 percent since 2006. Pemex missed its goal of increasing output for the past two years.

The state oil producer has “several wells coming online in the second half,” Suarez Coppel said. Pemex has faced a shortage of shallow-water drilling rigs, known as jack-ups, delaying the output increase. “We couldn’t get the 21 rigs we wanted,” he said.

Suarez Coppel maintained the company’s medium-term forecasts. At current investment levels, Pemex will reach daily production of 3 million barrels by about 2017, he said in a separate interview today with Bloomberg Television.

Refinery Investments

Mexico is betting on deepwater Gulf of Mexico deposits to increase production by a third in the next dozen years. Pemex’s output peaked in 2004 at 3.4 million barrels a day.

The company’s international plans are focused on finding partners for deepwater projects in the U.S. coast of the Gulf of Mexico and for shale in the U.S., Suarez Coppel, 53, said. Mexican regulatory delays prevented one possible deal for deepwater exploration in the U.S., he said, without elaborating.

Pemex is increasing refinery investments by 24 percent this year to replace aging equipment and improve efficiencies after it processed 27 percent less crude than its capacity last year and output slid 1.5 percent to 1.2 million barrels of oil equivalent a day.

The Mexican oil producer estimates it has 27 billion barrels of untapped crude in the deepwater Gulf, and is relying on limited in-house experience to search for it. It hasn’t found any commercially viable crude in 20 attempts.

U.S. Plans

Plans to acquire a refinery in the U.S. are not “frankly on top of our list” of international priorities, he said.

The Mexico City-based company has looked into several U.S. refineries such as BP Plc’s Texas City “but if people feel we have to pay a premium for those, no way,” Suarez Coppel said.

Yields on Pemex’s $2.96 billion of notes due in 2021 are trading at a record-low 3.22 percent, down from 4.22 percent at the end of last year, according to data compiled by Bloomberg.

While Pemex is “pretty much set” in terms of financing needs for this year, the company may bring forward some bond sales planned for 2013 depending on market conditions, he said.

“We’re always opportunistic,” Suarez Coppel said.

Pemex may also look at selling for the first time so-called citizen bonds, hybrid securities created by a 2008 oil reform that could play the role of preferred stock, he said.

The securities could be offered “as preferred shares, without corporate rights so you don’t have to change the constitution, and a very long maturity and senior in terms of dividends,” Suarez Coppel said.

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