New Mexican president allocates 464.4b pesos for state oil company to boost output next year

[MEXICO CITY] Mexican president Andres Manuel Lopez Obrador is boosting Petroleos Mexicanos' budget to 464.6 billion pesos (S$31.6 billion) next year to reverse flagging oil production and increase domestic fuel output.

Mr Lopez Obrador is proposing that Pemex invest 211 billion pesos in exploration and production in 2019. That's a 26 per cent 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 stabilise at 1.847 million barrels a day in 2019 with Mexico's oil mix estimated at US$55 a barrel, the ministry said.

The budget reflects Mr 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 US 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," Mr 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

Mr 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 US$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 per cent to 2.624 million barrels a day by the end of 2024, up from 1.730 million daily barrels today, the company's new chief executive officer, Octavio Romero, said at the event in Campeche alongside Mr 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, Mr 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 per cent 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 billion barrels of oil equivalent in proven, probable and possible, or "3P", reserves.

The plan to build an US$8 billion refinery in his home state of Tabasco and revitalise 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.

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