Mexico's 6th Deepwater Well Turns Up Dry - Pemex

MEXICO CITY, (Dow Jones Newswires), May 07, 2008

Mexico's state oil company suffered a setback this year with its deepwater exploration program, drilling a dry hole in 810 meters of water.

The Chelem-1 well was the second dry hole of six deepwater wells the company has drilled in the Gulf of Mexico since 2004, according to a presentation on the company's web site.

Pemex hired the Ocean Voyager rig from Diamond Offshore Drilling Inc. (DO) to drill the well. In September, Pemex will take on a second deepwater rig from Noble Corp. (NE) and three more similar rigs in 2010.

Pemex has said each well in waters deeper than 500 meters costs the company around $150 million.

Pemex officials have said the company needs to team up with more-experienced outside firms to boost oil and gas production in the Gulf of Mexico. But legal constraints forbid Pemex from sharing oil production with other oil companies, the standard model for deepwater drilling.

Instead, the company contracts oilfield service companies for needed technology and project management skills. President Felipe Calderon hopes to expand the range of oil contractors through a reform bill that allows for performance-based service contracts.

Pemex estimates that 55% of its prospective hydrocarbon resources lie in deep areas of the Gulf.

Pemex has only nine years of proven oil reserves left at current production rates, and the company is hoping to find new deposits in deeper waters of the Gulf to compensate for declining output at its traditional areas.

Pemex hopes to produce 500,000 barrels a day in oil from deepwater fields by 2021, or a sixth of total production.

The Lakach gas field, discovered last year after the completion of an exploratory well in 988 meters of water, is the most promising of the four deepwater finds that Pemex has reported since 2004.

Pemex and the energy ministry have said the company is behind the times in deepwater exploration. In a recent industry outlook, the ministry said companies drill 167 deepwater wells a year in the U.S. Gulf, with production close to a million barrels a day. Meantime, Pemex only has one commercially viable oil find after four years of exploration.

Over the next four years, Pemex plans to conduct deepwater seismic research over 65,736 square kilometers to identify new exploration opportunities.

Copyright (c) 2007 Dow Jones & Company, Inc.

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