Mexico Preparing 68 New Drilling Sites at Chicontepec Basin

Chicontepec and Cantarell
(Click to Enlarge)

MEXICO CITY (Dow Jones Newswires), November 18, 2008

Mexico is preparing 68 new drilling sites at a geologically challenging oil basin that state-run Petroleos Mexicanos hopes will offset declining production at the country's traditional oil fields.

Pemex, as the company is known, has launched tenders to build access roads and the initial infrastructure needed to place drilling rigs at 68 sites in the Chicontepec basin, said the company on its Web site.

Pemex is already behind schedule at Chicontepec, which spans three states in northern Mexico. The company hoped to be pumping 65,000 barrels a day by the end of this year, but delays with a major drilling contract have pushed some of this new production into 2009. Pemex eventually plans to produce more than 600,000 barrels a day at Chicontepec by 2021.

The project underscores the changing business environment at Pemex. The company has to spend more money and drill more wells just to slow the 10%-a- year rate of decline at its oil wells.

For the past 30 years Pemex has lived off highly prolific fields in the shallow waters of the Gulf of Mexico, where individual wells can produce more than 6,000 barrels a day. With these fields running dry after decades of heavy exploitation, Pemex has to move into less-attractive oil fields.

Chicontepec was discovered in the 1920s, but because each well produces only a few hundred barrels a day, the company largely ignored the area until overall production began to slide four years ago.

To guarantee that Pemex can make money at Chicontepec, Congress approved last month tax incentives for the basin, allowing Pemex to deduct $11 a barrel in costs at Chicontepec.

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


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