AMLO allocates $23 billion for Pemex to boost output in 2019

Category : News

By Amy Stillman on 12/16/2018

MEXICO CITY (Bloomberg) — Mexican President Andres Manuel Lopez Obrador is boosting Petroleos Mexicanos’ budget to $23 billion (464.6 billion pesos) next year to reverse flagging oil production and increase domestic fuel output.

Lopez Obrador is proposing that Pemex invest $10.4 billion (211 billion pesos) in exploration and production in 2019. That’s a 26% increase compared to last year, when Pemex planned to invest 168 billion pesos in the unit, according to the finance ministry. Oil production is expected to stabilize at 1.847 MMbpd in 2019 with Mexico’s oil mix estimated at $55/bbl, the ministry said.

The budget reflects Lopez Obrador’s ambition to wean Mexico from foreign fuel imports, which have been rising due to growing demand and lack of investment in refineries. To do that, the president plans to build a new refinery and refurbish the run-down existing ones, while increasing domestic oil production to feed the plants. Pemex is importing light oil from the U.S. for the first time to make up for the crude shortfall at its refineries.

“It’s an embarrassment that we are buying light oil for our refineries. If we don’t have the primary material, we can’t do anything,” Lopez Obrador told a crowd of oil workers on Saturday morning at the port of Ciudad del Carmen, Campeche, an oil hub that the president has promised will be the new Pemex headquarters. “We are going to rescue our dear Mexico and the national oil industry.”

‘Reduce costs’

Lopez Obrador has shrugged off investor concerns that his government will worsen Pemex’s fiscal situation. The beleaguered Mexican driller is the largest Latin American corporate borrower, with $106 billion in financial debt. “We are going to invest where we know there’s oil and where it costs less to extract it,” he said. “We are going to reduce costs.”

Under a new six-year business plan, Pemex’s oil production will rise 52% to 2.624 MMbopd by the end of 2024, up from 1.730 MMbpd, the company’s new chief executive officer, Octavio Romero, said at the event in Campeche alongside Lopez Obrador. Pemex’s output has declined every year since 2004, almost halving in that time.

The plan will focus on onshore and shallow water areas in the southeast basins as well as conventional areas in the northern basins, Romero said. As many as 20 fields will have new drilling and infrastructure contracts awarded by the end of January. Exploration investment will be increased by 10% each year, he added.

Ixachi field

The boost in funds could help Pemex expand its major Ixachi field in Veracruz, which is believed to contain 1.3 Bboe in proven, probable and possible, or “3P,” reserves.

The plan to build an $8 billion refinery in his home state of Tabasco and revitalize Mexico’s existing six plants could divert Pemex’s resources away from drilling. The president has also called for a hiatus on new oil auctions for at least three years. This week, Mexico’s oil regulator CNH postponed a Pemex farm-out tender and canceled the country’s next two bid rounds planned for Feb. 14 so the government could review oil contracts and energy policy.

U.S. oil surge makes Bank of Russia skeptical on OPEC+ success

Category : News

By Olga Tanas on 12/16/2018

MOSCOW (Bloomberg) — Russia’s central bank is not convinced that OPEC and its allies’ supply cuts can revive the oil market as it’s being countered by surging U.S. production.

The Bank of Russia cut its crude price outlook for next year to $55/bbl from $63 on higher supply risks, mainly related to “fast output increase” in America, according to Governor Elvira Nabiullina. Just a week ago the country’s Energy Minister Alexander Novak brokered a deal that led to the so-called OPEC+ group agreeing to cut production by 1.2 MMbopd in an effort to boost prices.

Crude remains stuck in a bear market, trading around $60/bbl in London, despite the larger-than-expected output reduction. While most, including the International Energy Agency, expect the curbs to reduce global stockpiles in the first half of 2019, resultant higher prices could help American drillers boost production. Legendary oil trader Andy Hall said the U.S. shale boom has made it far harder to predict global supplies.

“The OPEC+ deal allows to limit these risks, but doesn’t remove them,” Nabiullina said at a news conference on Friday. “Events of this year clearly show how fast producers can increase shale-oil production when prices remain high.”

OPEC kept 2019 forecasts for global oil supply and demand mostly unchanged in its most recent monthly report this week. However, it said production from outside the group, powered by U.S. shale drillers, is poised to expand 2.16 MMbpd next year, faster than the 1.29 MMbpd increase in demand, the report showed.

U.S. oil production is expected to top 12 MMbpd next year, up from 10.88 MMbpd in 2018, according to the Energy Information Administration.

Though the Bank of Russia is traditionally cautious in its outlook, it cited crude market risks as a key factor in raising the benchmark interest rate for the second time this year on Friday. Besides shale output exceeding “expectations of many,” softening global demand is also a concern, Nabiullina said.

“We see risks of oil-price reduction related to demand and supply factors,” she said. “We see how outlooks for global economic growth are gradually being revised down.”

Occidental CEO wants to keep rigs running even after oil’s slump

Category : News

By Stephen Cunningham on 12/16/2018

WASHINGTON (Bloomberg) — Occidental Petroleum Corp. will look for ways to cut costs other than dropping rigs, in response to the recent slump in oil prices, according to CEO Vicki Hollub.

“We’re going to keep our rigs running and we’re going to figure out how to reduce costs in some other way that’s not impacting people who are depending on that job for their sustenance,” especially in the run-up to Christmas, Hollub told the Bipartisan Policy Center in Washington on Friday.

Other U.S. shale explorers have dialed back drilling as oilfield costs rise. Working oil rigs fell by 4 this week to 873, dropping for the third time in four weeks, according to oilfield-services provider Baker Hughes.

Occidental has so far avoided being pressured by short-term investors, Hollub said. Oil prices have retreated into a bear market after reaching a four-year high in October. While the company’s stock price remains vulnerable to changes in oil prices, the CEO said that three of its top four shareholders increased their positions in the third quarter.

“What that tells us is that we’re doing the right thing,” she said. “We are going to invest in our business.”

The rapid growth of American shale production has complicated efforts by OPEC and its allies to trim supply and support prices. Hollub said she expects U.S. energy exports to keep growing.

Government data earlier this month showed the U.S. becoming, briefly, a net exporter of oil for the first time in seven decades. Gas shipments are also set to rocket as soon as extra capacity for liquefied natural gas exports is built.

“For the next at least 3 to 5 years, I believe we’re going to be in export mode on oil and I believe even longer than that in export mode on gas,” Hollub said.