Mexico's hydrocarbons regulator approved an ambitious development plan presented by state oil company Pemex for one of its onshore blocks despite multiple concerns, including doubts about the profitability of the project and track record of the company in dealing with the asset.
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The National Hydrocarbons Commission or CNH on Sept. 23 approved a new development plan for Pemex's Coyula, an onshore block in the state of Veracruz, where Pemex is promising to drill 1,420 wells to recover 54 million barrels of crude.
Pemex had to present the new plan as it failed to complete the prior one where it had committed to drilling 1,229 wells, CNH said. In six years, Pemex has only drilled six wells at Coyula, CNH said.
"It is difficult to reject a plan that promises so much activity and so much production, but the company's non-compliance is a problem," said CNH commissioner Alma America Porres Luna, adding that the Commission must do more to ensure that this does not happen again.
Porres Luna also highlighted that in essence, the plan presented by Pemex this time is the same as originally presented.
CNH joint commissioner Hector Moreira agreed it was worrisome that Pemex did not conduct any activity at Coyula during six years, and mentioned the low profitability of the project due to the high taxes the company pays might explain the company's reluctance to invest in it.
According to CNH data, the net present value of the project after taxes is only $36 million for a total investment of over $4 billion.
"The total tax rate Pemex pays in this project is well above 90%," Moreira said adding that a new taxing system is needed that incentivizes production.
Finally, joint commissioner Nestor Martinez highlighted that, as is the case in many projects, the productive of the reservoir extends beyond the life of the contract and called on the energy Secretariat to re-evaluate the life of all contracts.