As Mexico Ramps Up Oil Exploration, High-Tech Firms Line Up

Chicontepec and Cantarell
(Click to Enlarge)

MEXICO CITY (Dow Jones Newswires), May 20, 2009

For decades, Mexico's deep waters have represented a sort of El Dorado for oil explorers. Rumors of oil riches stoked the imagination, but the high exploration costs kept it off limits.

Until now. State-run Petroleos Mexicanos, better known as Pemex, is starting to move into deep water to try and shore up plummeting output. A recent rise in exploration has specialized firms lining up for contract work with the state oil company.

One of them is Concentra Tek. Jesus Saldana, its general director, says his reservoir analysis can steer Petroleos Mexicanos to virgin fields in the Gulf of Mexico and elsewhere. His company has spent the past decade rooting through Mexican oil well data to map out the subsurface and identify prospective plays.

Since 2004, Pemex has drilled eight wells in waters deeper than 500 meters. Only one, Tamil, has the potential for commercial oil production.

Concentra Tek's Saldana says he can improve Pemex's success rate. Armed with research on the locations of geologic structures similar to Mexico's most prolific oil fields, he has started jockeying for an active role in Pemex's exploration campaign as a contractor.

"We've given Pemex information for free to demonstrate that the technology works," he said in an interview.

Pemex needs all the help it can get. Proven oil and natural gas reserves have fallen 43% since 1999, and will only last a decade at current production rates.

Mexico clearly has untapped oil potential despite the ugly reserve figures. In the southern Gulf of Mexico oil seeps to the surface from untapped fields to form oil slicks. Similar seepages unveiled Mexico's star field, Cantarell, when a fisherman complained about oil contaminating his catch back in the 1970s.

Saldana says he has identified a structure similar to Cantarell in waters 1,300 meters deep in the Gulf of Mexico. To put pressure on Pemex, he published the coordinates this week in Energia A Debate, a Mexico City-based industry publication.

"Before they run seismic all over the place, they should do it here," he said.

Saldana's firm has developed proprietary software that uses molecular and geological data on existing oil reservoirs to find nearly identical structures elsewhere in Mexico. A Pemex spokesman said Concentra Tek's technology is based heavily on statistics and only works well where there is a lot of geological information.

"At Pemex, we are always open to applying and using new technologies, but always aware that no single one is the solution to all of our challenges," he said.

Pemex is focusing on gathering seismic research, instead of hiring people like Saldana to interpret existing data.

Saldana says Pemex's corporate culture should be more open.

Most major oil projects worldwide include several large oil companies. This means separate management teams are forced to exchange ideas and reach a consensus on where to drill and how to develop a field.

In Mexico, Pemex calls all the shots under a constitutionally backed monopoly, which means Pemex exploration managers are not accustomed to outside opinions. It also means Pemex is the only show in town for contractors like Concentra Tek.

Saldana has had some minor successes with Pemex. Last year, Pemex agreed to test two locations Concentra Tek identified on land in the Samaria-Luna basin, a traditional production zone where Pemex already had equipment in place. One struck oil, and the other found traces of light crude before a difficult rock formation forced Pemex to abandon drilling.

Pemex is planning a second well for the same spot.

Considering Pemex's lackluster record in exploration, Saldana says it will eventually tap more outside technology such as his Single Well 2.0 software for reservoir modeling and identifying oil fractures.

"If your house is burning down, you need to call for help no matter what," he said.

Seismic Oil Exploration Up

With production off by a fifth since 2004 and still falling, Pemex earmarked $2.6 billion for exploration projects in 2009. This is more than Pemex's total yearly investment budget as recently as 1996.

Pemex is blanketing offshore areas with inexpensive two-dimensional seismic research to identify potential deposits. During the first quarter of 2009 Pemex gathered 8,638 square kilometers of 2D seismic, up from just 711 square kilometers in the year-ago quarter.

More expensive and precise three-dimensional seismic rose at a slower pace of 7% to 3,858 square kilometers in the first quarter. Pemex is saving the more costly 3D studies for areas where oil has been found to pinpoint drilling sites.

The rise in exploration has benefitted seismic research firms such as ION (IO).

"Pemex is starting to embrace some of the outside technology providers," said ION Corporate Marketing Vice President Chris Friedemann.

He likened Mexico to Libya after it opened its oil industry to outsiders five years ago - large swaths of potential oil acreage where little or no research has been done. "There are a lot of opportunities both onshore and offshore to apply new technologies and approaches," Friedemann said.

ION recently won its first large Pemex contract through Comesa, a joint-venture between Pemex and Schlumberger (SLB), an oil services provider. Comesa will rent wireless seismic equipment from ION for three-dimensional seismic studies on land and will be working with ION geoscientists to design the surveys and study the data.  

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

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