Halliburton, Four Mexican Firms Get Chicontepec Contracts

Chicontepec and Cantarell
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MEXICO CITY (Dow Jones Newswires), Jul. 22, 2009

Oilfield-services giant Halliburton Co. will make its debut in August at a large Mexican oil basin where its main competitors have already set up shop, said industry executives.

Halliburton has won a contract to drill 170 wells for Petroleos Mexicanos at Chicontepec starting in mid-August, said the executives, who are familiar with the contract.

Pemex, as the state oil company is known, has also awarded four contracts for about 140 wells each to local drillers, expanding its pool of suppliers for the expensive project.

The new contracts underscore Pemex's efforts to accelerate spending and stabilize falling oil production, down by a fifth since peaking in 2004. During the first half of this year, the company spent only 38% of its exploration and production investment budget.

The Chicontepec contracts were awarded directly to the companies after Pemex declared a tender for the 170 wells void in May. Halliburton was the only bidder that met the technical requirements for the 170-well contract.

Pemex negotiated with the Houston-based company to lower its price and awarded the contract directly without relaunching the tender to save time, said one of the executives, who declined to be named because he isn't authorized to speak to the media.

A Halliburton spokeswoman said the company had no comment. Pemex didn't immediately respond to questions.

Halliburton's main competitor, Schlumberger Ltd., has been working with Pemex at Chicontepec since mid-2007, and won a second contract to drill 500 wells in March.

Weatherford International Ltd. has been drilling wells for Pemex at Chicontepec for about a year. It expanded its work load in March when it won a 500-well contract, compensating for a slowdown in Venezuela, Argentina and Colombia where companies have cut spending because of low oil prices.

"Mexico will continue to grow as we ramp up new contracts throughout the year," said Weatherford President Bernard Duroc-Danner during a conference call Monday.

The executives didn't have the value of Halliburton's contract. Pemex is paying Weatherford and Schlumberger $1.3 million and $1.4 million per well, respectively, for the most recent drilling contracts. These rates would put the Halliburton contract at over $220 million.

Pemex designed the four 140-well contracts to include local companies. Mexico has a strong tradition of oil nationalism, and the heavy presence of foreign oil-service companies at Chicontepec has raised criticism from opposition lawmakers. Pemex officials have said they are making an effort to increase business with local suppliers.

Among the companies awarded the contracts is Servicios Integrales GSM, a unit of industrial conglomerate Grupo Carso SAB, which is owned by Mexican tycoon Carlos Slim.

Although Pemex is behind on its investment targets, the company has spent heavily on oil exploration and production this year.

"We saw higher activity in Mexico, but it wasn't sufficient to offset sequential reductions we experienced in Venezuela, Colombia and Argentina," Halliburton Chief Financial Officer Mark McCollum said on a conference call Monday.

Pemex plans to boost output at Chicontepec to help compensate for a collapse at Cantarell, the largest oil field ever discovered in Mexico where production has fallen to a third of peak levels. At the start of this year Pemex announced $2.3 billion in planned 2009 investments at Chicontepec.

The basin has expensive-to-produce pockets of oil on land in northern Mexico. The tricky geology offers opportunities to companies such as Halliburton, which market advanced drilling products and techniques to maximize production at difficult formations.

Pemex has consistently fallen short of production targets at the basin. The rock formations holding the oil have low pressure and flow rates, making extraction difficult.

Pemex expects Chicontepec to pump 40,000 barrels a day in August and 60,000 barrels a day by the end of the year. At the start of 2009 the company had higher expectations of 70,000 barrels a day on average.

Pemex has also been slow at building roads and preparing drilling sites in the area. Weatherford fell behind on two contracts for a total of 600 wells it won in mid-2008, highlighting the difficult nature of the formations.

Weatherford's Duroc-Danner said the company has improved drilling times at Chicontepec by 20%.  

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

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