Mexico State Oil Co Optimistic on Two Largest Fields

Dow Jones Newswires

MEXICO CITY (Dow Jones Newswires), Jun. 12, 2009

Mexico's state oil company has a sunnier outlook for its two largest fields, thanks to remediation programs to squeeze as much oil as possible from the crude-laden waters of the Campeche Sound, Petroleos Mexicanos executives said at an oil conference Thursday.

At Cantarell, one of the largest oil fields ever found, output has slipped to around a third of peak levels, but Pemex executives see the rate of decline starting to stabilize. At Ku Maloob Zaap, which recently surpassed the aging Cantarell as Mexico's biggest producer, Pemex executives have a much more robust production outlook than what the company was expecting as recently as early this year.

Together the fields produce over half of Mexico's 2.7 million barrels a day in output, putting pressure on Pemex to improve project management in both areas. The fall in Cantarell was cited by industry experts as a factor that contributed to the oil-price rally in 2008, and if it continues declining at current rates, it will reduce Mexico's exports to the U.S.

At Cantarell, Pemex is starting to correct past negligence. Pemex production manager Miguel Angel Lozano said the company is reopening wells that produce significant volumes of water that were shut in recent years. Oil companies have separated water from oil for a century, but Pemex was blindsided by the problem a few years back.

This year Pemex started separating the water at facilities in Dos Bocas, an oil port near Cantarell.

"We are now opening up all the wells" that were shut due to the water at Cantarell, said Lozano. "We have a good dehydration system."

He said Cantarell produces 7% water on average and has some wells that produce up to 40% water. The water problem contributed to a 30% output decline in Cantarell in 2008.

"Now the idea is to get this decline back to 10%," he said.

Despite Lozano's optimism, the reopening of water-saturated wells hasn't yet registered in monthly production data. In April, Cantarell pumped 713,036 barrels a day, down from 754,063 barrels a day in March and over 2 million a day during peak production in 2004, when the country pumped 3.38 million barrels a day on average.

An industry executive who works at Cantarell said Pemex is still grappling with water and natural gas issues at the reservoir.

"The problem is still there," he said.

He said Pemex has improved management of water producing wells, but is still shutting in wells that produce more gas than can be processed with surface infrastructure.

Pemex learned from its mistakes at Cantarell and set up water-separation facilities for Ku Maloob Zaab, where water is seeping into areas of the giant field but not to the same degree as at Cantarell. Oil normally sits on top of a layer of water in reservoirs, and as the oil layer thins after years of production, water reaches wells that only pumped oil when they were first drilled.

"We have a water dehydration system set up now. It's ready for when the problem arises, so we won't have to close off production," said Hector Salgado Castro, a production engineer who gave a seminar on Ku Maloob Zaap Thursday.

Castro said Pemex also is injecting nitrogen and drilling more technically advanced horizontal wells at Ku Maloob Zaap to maintain production at 830,000 barrels a day for the next seven years, a significant improvement from the previous outlook. At the start of this year, Pemex published projections that had the field sliding to 600,000 barrels a day by 2016.

Pemex has ramped up exploration spending to find enough new oil fields to compensate for declines at Cantarell and elsewhere and avert a fiscal crisis. Oil accounts for around a third of government revenue in Mexico, and at current rates of decline, exports will disappear in about five or six years. Pemex is trying to stabilize production at 2.7 million barrels a day.  

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