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Pemex CEO Says Cantarell Decline by Average of 14% per Year

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MEXICO CITY, Nov 26, 2006 (Dow Jones Newswires)

The chief executive of Mexican state oil monopoly Petroleos Mexicanos, or Pemex, said Wednesday the company expects production at its Cantarell oil field to decline by an average of 14% a year between 2007 and 2015.

Speaking to members of the Senate Energy Committee, Luis Ramirez Corzo said the average annual decline is equivalent to about 150,000 barrels a day.

The offshore Cantarell, Mexico's largest source of crude oil, began declining in 2005 from a record 2.13 million b/d in 2004.

Output at Cantarell is expected to average 1.8 million b/d this year, and Pemex is aiming to substitute Cantarell's declining output with production from other projects under way.

The main problem confronting the state company, Ramirez Corzo said, is how to finance future projects without getting further into debt. He estimated that Pemex needs to invest from $18 billion to $20 billion a year in exploration and production as it aims to maintain crude production at around 3.3 million b/d between now and 2015, while producing 6.5 billion cubic feet a day of natural gas.

Pemex is currently producing around 3.2 million b/d in crude, of which it exports about 1.7 million b/d, and natural gas production is 5.6 billion cubic feet a day.

Pemex has been racking up record sales thanks to high crude oil prices, and expects sales to exceed $100 billion this year, but it pays nearly 60% of its income to the federal government in taxes and royalties.

Ramirez Corzo said that in the six years of the administration of President Vicente Fox, Pemex has managed to raise crude oil and natural gas production thanks to record investment, which averaged $10 billion a year. The company expects to have invested $14.1 billion this year, and is aiming for $16 billion in 2007.

The official again referred to a need for Pemex to form alliances with other oil companies to exploit potential deep-water reserves, which are seen as the key to Pemex's long-term sustainability. Mexico's Constitution bars private oil and gas concessions, and therefore keeps Pemex from forming exploration and production joint ventures.

Ramirez Corzo reiterated that the technology needed to exploit deep water isn't available on the market like other industrial technologies, but rather that companies that have the technology use it as a negotiating lever to participate in production.

Pemex is also stepping up development of the onshore Chicontepec oil and gas fields, which are estimated to contain half of the country's known reserves. Chicontepec requires 20,000 production wells to produce 1 million barrels a day, more wells than Pemex has drilled in its 68-year history, Ramirez Corzo added.

The complexity of future developments also means that the company's per-barrel production cost will rise substantially in the coming years, to between $10 and $12 in 2012 from $4.50 at present, he said. The cost of production at Cantarell is $2.80 a barrel, he added.

Copyright (c) 2006 Dow Jones & Company, Inc.

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