EconomyFinancialWhy Pemex is choking the production of one of...

Why Pemex is choking the production of one of its priority fields

Pemex is reducing the production possibilities of one of the fields that it placed at the beginning of the six-year term within its list of priority assets.

The oil company has not been able to uniformly take off production from Esah, a shallow water field located in Campeche, and has begun to report large levels of water production that, according to analysts and sources who have requested anonymity, are reducing the possibilities of extracting oil from the asset and the period remaining as a producing field.

The danger of high water production lies in the fact that, on many occasions, this causes the assets to be closed and the oil cannot be used.

The oil company reported its first production at the asset just last January and this has already declined rapidly so far this year.

Esah’s first report, from last January, shows a production of 7,502 barrels of oil per day and just 939 barrels of water. But towards the following months –and in a trend that lasted until last June– Pemex extracted more water than oil from the field.

The latest figures from the National Hydrocarbons Commission say that last August, Pemex produced 2,659 barrels of oil per day in Esah, a figure well below expectations. The growing production of water from the field, say analysts and sources consulted, is the main reason why Pemex has not been able to advance in extraction activities.

In March, the most alarming figure, 58% of the field’s liquid production was water. Esah’s report was 3,585 barrels of water per day and 1,474 barrels of oil.

Pemex has not managed to comply with any of the points established in the development plan that was approved by the regulator: this assumed that the state-owned company would begin to report production in Esah at the end of 2019 and that last year it would reach its production peak. of 27,500 barrels per day.

The deposits have a natural layer of water that is located below the fragment where the oil is. Crude oil producers typically extract small amounts of water as part of the process. But when it is higher – or above 30% – it is usually an indication of poor performance in production activities and a probable closure of the wells or the field. “It reaches a point of inflection where they can no longer process as much water, or they have to do something and change [the way they are producing], but it becomes very expensive,” explains Andrés Armijos, from the Welligence consultancy.

In Esah, water production has varied in recent months. After reaching a maximum of 58% in July, it has decreased to 28% last August, according to the latest data from the regulator. But Pemex has not managed to have the same luck in all the wells in the field. In the Esah-1 well – the first one drilled in 2014 – water production has remained above 55% since last February. In March it reached 70%.

“When you have a water level like that, what it tells you is that there is a good chance of an upcoming closure. Pemex has not informed us, but there is a great possibility that this well will have to be closed and everything related to production will have to be modified,” says a source from the regulator, who has requested anonymity.

Pemex has already invested 2.5 billion pesos in the field and for this year has a budget of 2.325 million pesos, according to the company’s financial statements.

Pemex’s communication office was consulted but did not offer comment.

The state company, public data shows, has chosen to drill new wells to continue with the exploitation of the oil field, but these new attempts have not been as productive as the first well – which has been practically flooded with water. The production of these is still lower and in one of these more water extraction is already reported.

The analysts consulted agree that the high levels of water production can be explained by a poor production design or by overexploitation of the field derived from pressures to increase the extraction of crude oil.

“The problem is that what Pemex does, and that happened to Xanab and apparently is also happening to Esah, is that they start producing a lot without having a good knowledge of the field,” explains one of the sources. “In the rush to produce more, this problem comes to them and they only start to produce water. If the water goes in too fast, you just start making more and more water.” The state company was sanctioned in 2018 for failing to comply with the approved plan for Xanab, accelerating the oil-water contact process, and resulting in a substantial reduction in Xanab production expectations.

The oil regulator had already recommended that the state company conclude the field evaluation programs before starting the production phase, in order to avoid any damage to the assets. “This gives the indication that they [Pemex] have not developed the plan correctly, that the plan is not robust enough or that they are pushing those fields to maximize production at any cost,” explains John Padilla, the director of the consultancy IPD Latam. “These things can happen, but within the sector it seems that it is much more common in Pemex.”

The state company has been under political pressure to report increases in oil extraction. In his strategy, presented at the beginning of the six-year term, the list of priority fields – of which Esah is a part – would be the basis for achieving the goal of 2.6 million barrels established by the president at the beginning of the six-year term. “In general that is the problem, without understanding the field well, they start trying to exploit the field without understanding the mechanics and these things happen and it becomes a problem. In many cases, the well is spoiled”, explains Armijos.

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