Debate Over Deep-Water Oil Exploration Heats Up In Mexico

As Mexican oil production wanes, a heated debate is emerging over how to go about scouring deep areas of the Gulf of Mexico for new reserves.

The country only has nine years left of proven oil reserves, and the Energy Ministry has warned that exports could dry up in less than a decade unless the industry boosts investment in new areas. That would tighten world oil supplies and strip Mexico of its biggest cash cow - Mexico relies on oil for more than a third of state revenue.

State oil company Petroleos Mexicanos says deep water is the only solution.

"We need to start working on deep water so that in 10 years we have the reserves to replace the fields that are currently declining," Pemex Chief Executive Jesus Reyes Heroles said in a statement Thursday.

Pemex estimates that 55% of Mexico's prospective reserves lie in deep waters, where the company has only recently started to explore.

The company launched a television ad this week saying it needs to obtain technology from other oil majors to rapidly develop the hydrocarbon treasures lying dormant in the Gulf.

Not so fast, said Francisco Rojas Gutierrez, a former Pemex chief from the early 1990s.

"Its risky," he told lawmakers at a forum on Thursday. "We can't rule out deep water at some time, but the solution is near the coast, in shallow water and on land."

Rojas said there is no proof of the vast deep water reserves that Pemex anticipates, adding that it takes twice as long and 10 times as much money to develop in deep waters.

Pemex is currently drilling in waters up to 3,000 feet, where it made four oil and gas finds by the end of 2007. The company's 2008 deep-water plan includes $300 million for more than 28,000 square kilometers of seismic information, and two exploratory wells.

In the U.S., oil majors are drilling in waters three times as deep. Oil experts say Mexico risks watching its oil migrate into wells on the U.S. side of the border - in the case of cross-border deposits - unless it acts fast. Pemex has said two U.S. oil fields, Hammerhead and Trident, could easily overlap the maritime border.

The Mexican government has said it will deliver an energy reform proposal to Congress during the current session. Energy Minister Georgina Kessel has suggested that Pemex strike alliances with other oil majors to gain the technology needed to develop these fields.

Rojas, a prominent member of the country's largest opposition party, the Institutional Revolutionary Party, or PRI, told lawmakers this is a bad idea.

"It's ridiculous to say that we can only get deep-water technology through alliances, the technology is available in the market," he said.

Copyright (c) 2008 Dow Jones & Company, Inc.


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