Mexico's Star Oil Field Cantarell to Continue Fading in 2009

MEXICO CITY (Dow Jones Newswires), Jan. 13, 2009

Output at Mexico's main oil field Cantarell will continue sliding this year despite new investments in drilling and well maintenance, putting Petroleos Mexicanos' 2009 production target at risk.

A combination of old age and poor long-term planning have frustrated state-run Pemex's efforts to stem the collapse at Cantarell. Production is down by more than half since peaking in 2004.

The woes at Cantarell and delays in getting new projects off the ground elsewhere threaten Mexico's overall target of 2.75 million barrels a day for this year. In November, Mexican output was the lowest since 1995 at 2.71 million barrels a day, partly due to port closures that forced Pemex to shut in some production.

Pemex officials expect rising production at other fields to compensate for Cantarell this year, but outside observers are skeptical. The International Energy Agency expects Mexican production to fall by 245,000 barrels a day in 2009.

Pemex expects Cantarell's average production to fall roughly 18% to 800,000 barrels a day this year. Industry executives blame the faster-than-expected decline on a lack of infrastructure, such as water-separation facilities and gas-injection units.

Mexico, traditionally one of the U.S.'s top three crude suppliers, will be unable to provide relief to the world's biggest oil consumer during the next global demand boom unless it reverses the trend. Mexican production has dropped by 18%, or 600,000 barrels a day, since 2004, which contributed to the crude-price rally that peaked near $150 a barrel in July.

Mexican exports will dry up in less than seven years if current decline rates continue.

Paying for Past Inaction

As oil fields mature, water and natural gas normally migrate into areas of reservoirs that once held oil. This means oil companies have to separate the water and gas from the crude after it is extracted, a process that dates back to the early 20th century.

For decades the wells at Cantarell produced no water, allowing Pemex to postpone investing in needed surface infrastructure. Pemex is now paying the price, shutting down water-producing wells due to a lack of separation plants. Pemex has installed some over the past year, but not enough.

"They're shutting in wells at the moment because of excess water," said a Mexico-based oil services executive, who requested anonymity due to his relationship with the state oil company. "Water separation plants are not all over the place; there's a lack of space on the platforms," he said.

Pemex is drilling new wells and fixing old ones to compensate for the water-related shutdowns. The company recently spent $150 million on four well-recovery rigs for Cantarell.

Despite these efforts, observers say the trend at Cantarell is probably irreversible.

"What they can do is explore deeper down," said another oil service executive who has worked at Cantarell.

Pemex is currently developing the Sihil field underneath Cantarell, and Ayatsil, a large field in the same area of Mexico's Campeche Sound.

Pemex expects Sihil to reach maximum production at 120,000 barrels a day in 2011, and Ayatsil to hit 150,000 barrels a day by 2012, only a fraction of what it has lost at Cantarell.  

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