IMF: Sustainability of Pemex Output 'Potential Concern'

The sustainability of Mexican state oil company Pemex's production is a "potential concern" as output has grown little in recent years, according to an IMF Mexico country report.

Future oil output will depend largely on Pemex's success in developing and exploiting new oil fields.

Pemex expects production from the Cantarell field, which accounts for roughly 60% of total output, to fall nearly 50% by 2010, said the report.

"Finding adequate replacements for this relatively accessible field will be a challenge," according to the report.

Pemex believes declining Cantarell output can be more than compensated for over the next few years by developing existing fields, particularly KMZ, and exploring new oil sources.

But oil production forecasts are subject to uncertainty, particularly for new fields. Analysts do not rule out the possibility that total production could begin to decline in the next few years, according to IMF.

"Significant investment expenditure and new technology will be required to exploit geologically challenging terrain and deep-sea sources," IMF said.

Moreover, proven oil reserves have declined to 14Bb in 2005 from about 17Bb in 2002, the report said.


Proposals to reform Pemex's governance and to allow risk sharing with the private sector deserve new consideration, according to IMF.

Pemex governance reform would be a critical step in helping the oil industry to operate efficiently, the report said. Mexico could follow other countries that have put national oil companies on a more commercial footing.

Planners also must reconsider the existing constraints on Pemex financing, in which sector investments require fiscal tightening or the issue of public debt. Existing methods may put too much strain on the public sector, IMF said.

In addition, other oil companies enjoy technologies and advantages through joint ventures that Pemex cannot.

Pemex's liquid hydrocarbons output second quarter this year dipped 3% to 3.78Mb/d compared to April-June 2005. Crude production was off 3% to 3.33Mb/d and output of NGLs fell 1% to 449Mb/d.

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