MEXICO CITY (Dow Jones Newswires), Jan. 16, 2009
While the U.S. has spent two decades scouring the deep waters of the Gulf of Mexico for oil, neighboring Mexico is just getting started.
Output from Mexico's traditional fields is in free fall, forcing state-run Petroleos Mexicanos to move into more difficult terrain in an effort to maintain its status as a major crude exporter.
Pemex is paying the price for the late start. It expects to see its first barrels from fields in waters deeper than 1,640 feet in 2015. By 2017 the company forecasts 92,000 barrels a day in deepwater output, a fraction of total production and not enough to offset the 500,000-barrel-a day decline it expects to see at the giant Cantarell oil field over the next nine years.
Mexican production was at 2.7 million barrels a day in November, down from peak output of 3.4 million barrels a day in 2004.
Mexico has two platforms carrying out exploration drilling in deep areas of the Gulf, and has ordered three more that will arrive in 2010. One, the SS Muralla III that arrives in late 2010, can drill in up to 10,000 feet of water.
This week Pemex said it plans to drill 27 wells in waters deeper than 1,640 feet from 2008 through 2012, compared with six from 2004 through 2007. Pemex planned to drill three last year but hasn't released any results.
Pemex Chief Executive Jesus Reyes Heroles said the company's exploration campaign could benefit from the downturn in oil prices. There was a huge backlog for deepwater platforms when Pemex placed its orders because record oil prices drove a boom in offshore oil development. Now some oil companies are slashing offshore budgets owing to the oil price drop and tight credit markets, and some platforms could free up.
"With what's happening now in the global economy, this type of equipment is available; we have to see if there are opportunities we can take advantage of," he told lawmakers at a Wednesday hearing.
Pemex says it has 53.8 billion barrels of potential oil reserves, of which 54.8% are in waters deeper than 1,640 feet.
Last year Congress made it easier for Pemex to afford deepwater development. It increased the cost deductions for deepwater to $16.50 a barrel compared with $6.50 at traditional fields.
An energy reform could potentially lure private oil companies to work with Pemex as service contractors in deep water. The reform allows Pemex to offer more business-friendly contracts that can be adjusted to include higher-than-expected costs and the implementation of new technology, as well as bonuses for completing work ahead of schedule.
Pemex has a monopoly on oil ownership and marketing, which prevents the country from selling development leases to private oil firms.
Deepwater Diplomacy With U.S. Moves Forward
U.S. exploration has pushed up against the maritime border with Mexico, putting Mexico at risk of losing oil in reservoirs that straddle the boundary line.
This means U.S. oil companies could pump Mexican oil if Mexico fails to develop its side of the reservoirs. Oil could gravitate from the Mexican side to wells in the U.S., a process known as drainage.
Mexico has begun diplomatic talks with U.S. officials to find a way to jointly develop cross-border reserves, and hopes to advance negotiations once the administration of President-elect Barack Obama is in office.
Luckily for Mexico, the Trident and Hammerhead fields are years away from commercial development. Stone Energy Corp. (SGY) acquired an exploration lease for the U.S. side of Hammerhead in its 2008 acquisition of Bois d'Arc Energy, a company that hadn't initiated an exploration program. Chevron Corp. (CVX) had lease for Trident, but relinquished it in 2008, the company said in an email.
It takes years for deepwater projects to move from exploration to commercial development.
Reyes Heroles said Mexico would have to drill wells on its side of the border to confirm if a single reservoir stretches from offshore Texas to Mexico. He also said Mexico would have to look at the fields among other exploration plays in the Gulf to see where Pemex's money will be most wisely spent.
"The definite decision will depend on the conditions that the government negotiates in an international treaty with the U.S. and the portfolio of exploration projects," said Reyes Heroles. "We have to look at profitability and [exploration] difficulties to set priorities."
At present Mexico has commercial production in waters up to only 295 feet, according to Pemex.
Copyright (c) 2008 Dow Jones & Company, Inc.
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