- Private entrepreneurs participate in the development of 20 new oil fields
- In only six months, the new administration has boosted new developments in a number equivalent to the achievements of other administrations in a decade
- The oil company has reduced the cost of new service contracts by an average of 26% and saved 23.308 billion pesos by eradicating corruption, applying innovative hiring processes and receiving the support of the private sector
As part of its new business strategy, Petróleos Mexicanos (Pemex) defined stopping and reversing the drop in oil production as its priority, and the company has achieved a historical record in investment for the development of 20 new oil fields.
Pemex has suffered a steady drop in production over the last 14 years, since it recorded 3.4 billion barrels per day (Bbpd) as its highest production levels in 2004 and between 2015 and 2018, the drop in production amounted to almost half a million barrels per day, because the company did not invest in new field development during this three-year period.
Throughout the last decade, Pemex only developed 23 new fields. This contrasts with the approach of the new administration, which has set a plan in motion to invest in 20 new developments this year, 16 in shallow waters and four onshore fields, which are now being executed and have become a reality. In only six months, this new administration has developed almost the same number of new fields as past administrations developed in a decade.
Regarding the 20 new fields to be developed, Pemex has concluded the contracting process for the maritime infrastructure, which consists of 13 platform, 14 marine pipelines spanning 175 km, interconnections on 7 existing platforms, the construction of 3 perforation areas and the expansion of 9 existing perforation areas, 13 onshore pipelines that will span 88 km, as well as the installation of a separation battery and the optimization of existing infrastructure. Furthermore, the contracting process for the drilling and commissioning services of 128 wells associated with these 20 new fields will conclude shortly, and the contracting process is underway, for two existing developments that are being expanded, which in turn will require two additional platforms and pipelines.
With previous administrations, the average time that Pemex required to perform the preparation work for the development of a new oil field exceeded 2.5 years. Now, Pemex has reduced the time required for this preparation work, to begin the execution of oil field development activities much sooner. A clear example is the Ixachi field, the most important oil reserve out of the 20 new developments, which was discovered in November 2017 and it is expected that the development plan will be approved by June (that is to say, the process has been completed in 19 months). To date, the first two wells are producing almost 4,000 barrels per day (Tbd) of crude oil, as part of the assessment activities. This field will produce up to 80 Tbd of crude oil. It is estimated that the periods of time between the discovery and the start of the development of less complex onshore fields will be reduced to less than one year.
This summer, the installation of the contracted offshore platforms will begin, in addition to the facilities for onshore drilling for the new developments. Therefore, it is anticipated that the platform Xikin-A platform will be commissioned by the end of August this year. The developments Xikin and Esah will be commissioned in November and December, and the rest will follow, to assure production with at least one well in each field.
Thus, by the end of December 2019, a combined production of these fields of approximately 70,000 barrels per day (Tbpd) of crude oil is being forecast. The production of these 20 new fields and the two developments of existing fields will grow gradually until an estimated production of 267 Tbpd is reached by 2020 and a production of 320 Tbpd will be obtained by the end of 2021.
Besides the achievement of reducing execution time, without corruption, using innovative processes and the backing of the private sector, Pemex has also achieved a weighted average reduction of 26 per cent in the cost of new service contracts. To calculate the amount saved, the unit price of the same services contracted in previous years is used for reference. The following table shows an example of the price comparison of new services being hired.
Example: Price comparison chart of Cluster 5 Type wells vs. Individually priced wells
To date, Pemex has saved an estimated amount of 23.308 billion pesos in this infrastructure and service contracting process for all 20 new developments.
Furthermore, in addition to savings in contracted prices, there are increased savings because infrastructure built by Pemex in previous years is being used, as the new developments are located in close proximity of existing pipelines, separation batteries, and/or processing centers that are being underused due to the 40% drop in production of crude oil over the past few years. This combination of factors will significantly reduce production costs per barrel of crude oil, and therefore also reduce cash flow requirements of the company.
On the other hand, Pemex has modified the management process in order to contract these new developments, innovating by integrating services and the required infrastructure vertically and horizontally as required by the development of an oil field of these characteristics, again achieving economy of scale.
Under the previous system, the process was fragmented into dozens of contracts that extended execution times and considerably increased costs. Now, they are divided into clusters with a defined number of fields to be developed, with a single integrated service contract per cluster.
Additionally, in the case of drilling services, the innovation came in the form of the incorporation of an incentives model aimed at the companies, so they would optimize their own processes and reduce the periods needed for the execution of their contracts. The model assigns 70% of the wells to be drilled in the first stage and leaves the remaining 30% to be assigned in a second stage, which will be assigned to the consortiums that obtain the best results during stage 1.
With this scheme, from the moment the contracts are signed, a record of the real execution times per well will be kept, and performance measurement will be based on two key assessment concepts per project: compliance level (services) and process efficiency assessment based on the construction index.
The new management of Petróleos Mexicanos thus demonstrates that a different business management model is indeed possible, based on innovation, efficiency, and, above all, no corruption, which also has the active participation of the private sector.