June 12, 2020 / 6:27 PM / 22 days ago

Exclusive: Pemex proposal would sharply cut drilling rigs from private service firms

MEXICO CITY (Reuters) - Mexican national oil company Pemex has proposed slashing the number of privately owned drilling rigs used this year and next in an internal planning document seen by Reuters.

The document also details 76 separate rig suspensions this year, with 14 planned for the company’s most productive field – Ku Maloob Zaap – responsible for about half of Pemex’s current oil output.

The cost-cutting measures detailed in the plan mirror cutbacks made by other global producers in the wake of collapsing demand and crashing prices this year. But they run counter to President Andres Manuel Lopez Obrador oft-repeated pledge to grow, not cut, oil production. They would directly affect 10 private oilfield service companies that Pemex contracts with for use of their offshore and onshore rigs.

It was unclear if the proposal was actively being considered, but it offers insight into how some Pemex planners are seeking to execute a 40 billion peso (1.44 billion pounds) cut announced in late April, about 15% of its investment budget this year.

Pemex’s press office did not respond to repeated requests for comment about the proposal dated May 20 titled “Movement of Rigs, Quarterly Operational Program.”

The document, from the Planning and Operational Evaluation unit, provides more details than previously reported of discussions within Pemex about how to weather deep oil market disruptions during the coronavirus pandemic.

Labeled “preliminary,” the proposal details a reduction in offshore drilling rigs from 42 currently to 20 in December, while onshore rigs would go down from 43 to 29. Proposed reductions next year are steeper, with offshore rigs falling to 14 and onshore rigs down to just one by the end of 2021.

The proposal does not appear to affect plans for some 20 priority Pemex development projects unveiled last year.

The private firms named in the document include London-based Seadrill SDRL.N, as well as prominent Mexican service providers Grupo R, owned by billionaire Ramiro Garza, and Perforadora Mexico, the oilfield service company of major miner and rail company Grupo Mexico (GMEXICOB.MX).

None of these firms immediately replied to requests for comment.

Even before oil prices slumped this year causing Pemex revenue to plummet, the state-run company suffered a series of credit downgrades. Its crude production has fallen every year since 2004.

Lopez Obrador has pledged to revive the ailing Mexican giant, the world’s most indebted oil company, calling its health key to Mexico’s energy self-sufficiency and development.

Rig suspensions at Ku Maloob Zaap would effectively scrap drilling new wells and repairing existing wells for the rest of this year, which would likely reduce output and cost some 5,000 lost jobs spread across several contractors, according to a source with knowledge of the proposal who requested anonymity to speak candidly.

Earlier this week, Mexican newspaper Reforma reported that as many as 8,000 workers had lost jobs due to Pemex budget cuts stemming from cancellation of 45 contracts valued at $160 million.

The drilling rig suspensions detailed in the Pemex planning document do not amount to outright contract cancellations.

The proposal calls for two of Seadrill’s offshore rigs, West Courageous and West Intrepid, to be suspended from Ku Maloob Zaap for the remainder of this year. Three of the firm’s other rigs are listed as suspended during the second half of 2021.

Two of Grupo R’s offshore rigs, Cantarell I and Cantarell II, are listed as suspended next year from August-December, and March-December, respectively.

Meanwhile, four of Perforadora Mexico’s six rigs would be affected by the proposed suspensions later this year or next year, with each rig idled for at least 10 months.

Reporting by David Alire Garcia; Additional reporting by Adriana Barrera; Editing by David Gregorio

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