Changing of the Guard: Pemex Production to Come from New Fields

MEXICO CITY (Dow Jones Newswires), August 15, 2008

Mexican oil production will fall to 2.7 million to 2.8 million barrels a day next year as the country's main oil field continues to decline rapidly, Carlos Morales, the head of exploration and production at Petroleos Mexicanos, said Thursday.

Mexican output has slid by 20% since peaking in 2004, and officials warn that the country will see exports completely dry up over the next decade unless Pemex accelerates oil exploration in new areas such as the deep waters of the Gulf of Mexico.

The 2009 estimate is the latest in a series of downward revisions by Pemex. Last year the company planned to keep output above 3 million barrels a day for the next few years. Now Pemex expects average output of 2.85 million barrels a day this year, with more declines in 2009.

Morales, speaking to reporters following an event in Congress, said the decline is mainly due to lower output at the giant Cantarell oil field in the Gulf of Mexico.

Cantarell, one of the largest pools of oil ever found worldwide, is suffering from old age after nearly 30 years of heavy exploitation. Cantarell's oil sits on top of a layer of water and below a layer of natural gas.

In recent years, natural gas has seeped into wells that used to produce oil higher up in the reservoir, and water is seeping into wells lower down, often forcing Pemex to shut water-producing wells because it has not installed water-separation equipment.

"This is our main problem," he said.

Cantarell is producing just over 1 million barrels a day, and Pemex expects it to fall to around 600,000 barrels a day by end-2012. Mexico's second-largest oil field, Ku-Maloob-Zaap, will also head into retirement in 2010 after hitting peak production of 800,000 barrels a day.

"The age of easy oil has come to an end," Morales told lawmakers at a forum. "We don't expect to find another Cantarell or Ku-Maloob-Zaap."

Pemex expects production from fields currently in operation to fall by 1.8 million barrels a day by 2020. This means the company must find and develop new pools of oil, such as the Chicontepec basin in northern Mexico.

Pemex plans to boost output at Chicontepec to 600,000 barrels a day by 2020, up from a trickle at present. Chicontepec is a geologically challenging area where oil wells only produce 50 to 400 barrels a day, compared with wells at Cantarell that currently average 6,000 barrels a day.

"At Chicontepec we will need 70 wells just to replace one well at Cantarell," Morales said.

Apart from Chicontepec, Pemex plans to pump 500,000 barrels a day from deepwater fields by 2020, plus an additional 700,000 barrels a day from the Southeast region.

President Felipe Calderon is pushing for energy reform to expand private investment in exploration and production with incentive-based service contracts, helping to halt a persistent decline in output that's afflicted the industry since 2004.

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


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