Schlumberger, Weatherford Defend Mexico Turf with Low Bids

Chicontepec and Cantarell
(Click to Enlarge)

MEXICO CITY (Dow Jones Newswires), Mar. 2, 2009

Oil field service companies Weatherford International Ltd. and Schlumberger Ltd. are defending their market share in Mexico by submitting the most competitive bids for two recent drilling contracts, according to people familiar with the situation.

Mexico is one of the few oil countries that plans to boost spending on oil exploration and production this year despite the oil price crash, in an effort to shore up declining production.

Both drilling contracts are for the Chicontepec area in northern Mexico, where Schlumberger has been drilling since mid-2007 and Weatherford since mid-2008. This means they have already learned the ropes in an area industry experts describe as one of the most difficult oil projects on land worldwide.

One industry executive who participated in the drilling tender said Schlumberger submitted the lowest bid, $689 million, for the first 500-well contract. The highest bid came from Baker Hughes Inc. at $1.2 billion.

Weatherford submitted the lowest bid of $650 million for the second 500-well tender.

"Weatherford and Schlumberger are already involved in the (Chicontepec) business," said the industry executive, who asked not to be named because he is not authorized to speak to the media. "They are defending their market with low prices."

He said his company would like to test out some of its drilling technologies at Chicontepec, but only with an adequate return on its investment.

"We're trying to get involved, but without working for free."

Weatherford has run into some problems at Chicontepec, with Mexican state oil monopoly Petroleos Mexicanos, or Pemex, fining the company this year for an undisclosed amount for drilling delays in 2008.

Weatherford and Schlumberger were not immediately available for comment Monday. A Pemex spokeswoman said the company will announce the official winners by March 20.

Chicontepec, an area slightly larger than Delaware that spans three Mexican states, is a main pillar in Pemex's strategy to get oil production back above 3 million barrels a day by 2015.

Pemex only expects to be producing 72,000 barrels a day at the basin this year despite two years of aggressive drilling. But by 2015 Pemex says it will be producing 511,000 barrels a day, or a sixth of total output.

Observers see that target as hard to meet. A well at Chicontepec only pumps a few hundred barrels a day, compared with a few thousand barrels at Mexico's prolific oil fields in the Gulf of Mexico.

But these traditional fields are in steep decline and Pemex has few other options where it can make up for lost ground. The company is just beginning to explore in deep waters of the Gulf, for example, where it takes around a decade to get a project running.  

Copyright (c) 2009 Dow Jones & Company, Inc.

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