Evaluating PEMEX's Drilling Expansion To Combat Declining Oil Reserves

Mexico's Federal Government receives over 40% of its revenue from selling oil but faces an economic crisis if the country becomes a net importer of oil by 2020 as forecasted by the U.S. Energy Information Administration. Since 2000 the Mexican national oil company, PEMEX, has made a concerted effort to expand drilling in order to reverse the trend of declining oil reserves and improve the performance of Mexico's energy sector.

Statistical models and a cost-benefit analysis show the drilling expansion has been partially successful through 2008 but concerns exist over the sustainability of PEMEX’s current policy. Of particular concern are a steep decline in oil production since 2004 and a 300% increase in operating costs since 2000. Using correlations and econometric models, the analysis confirms a diminishing rate of return for each new well drilled and an increasing marginal cost per barrel of oil extracted. Reforms in operations and international partnerships can alleviate these problems to improve PEMEX's access to capital and ability to increase oil reserves in the long term.

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Evaluating PEMEX's Drilling Expansion To Combat Declining Oil Reserves

A Project Partnering The University of California at Berkeley and Global EESE, A Globally Collaborative, Distributed Foresight Network Initiated by the U.S. Department Of Energy

The author conducted this study as part of the program of professional education at the Goldman School of Public Policy, University of California at Berkeley. This paper is submitted in partial fulfillment of the course requirements for the Master of Public Policy degree. The judgments and conclusions are solely those of the author, and are not necessarily endorsed by the Goldman School of Public Policy, by the University of California or by any other agency.