Halliburton to Drill 170 Chicontepec Wells for $159MM

MEXICO CITY (Dow Jones Newswires), Jul. 23, 2009

Petroleos Mexicanos has awarded Halliburton Co. a $159 million contract to drill 170 wells in Mexico's Chicontepec region, marking the Houston-based company's debut in an area where its main competitors have an established presence.

Pemex, as Mexico's state oil company is known, said the contract will last three years and involve four drilling rigs. Mexico is ramping up activity at Chicontepec to compensate for declining production at the country's traditional oil fields.

Halliburton's competitors Schlumberger Ltd. and Weatherford International Ltd. each won 500-well contracts for Chicontepec in March.

"Mexico is a pretty important market for all oil service companies, including Halliburton," said Jeff Tillery, an analyst with Tudor Pickering Holt & Co. Securities Inc.

He said the contract will represent a "healthy chunk" of Halliburton's Latin America revenue.

Pemex didn't say who will provide Halliburton with the rigs. Canada's Savanna Energy Services Corp. is moving four land rigs to Mexico and will have them operating in Chicontepec by mid-August, said company spokesman Dwayne LaMontagne on Thursday.

"It is very busy there and a good place to be for a drilling company," said LaMontagne.

He said the company's client in Mexico asked not to be named. A Mexico-based industry executive said the Savanna rigs will be deployed at the Halliburton project.

Pemex's spending spree at the geologically-difficult basin hasn't yet added significant volumes of production. Still, Pemex expects the area to produce a quarter of Mexican output, or 737,000 barrels a day, by 2017.

The state oil company has ramped up exploration and production investments in recent years to compensate for plummeting output at Cantarell, the largest field ever discovered in Mexico, where production has fallen to a third of peak levels.

Pemex said Halliburton won the contract through a direct award after a May tender was declared void. Pemex is also finalizing a series of smaller drilling contracts with domestic oilfield services firms, said a Pemex spokesman.

Industry executives told Dow Jones Newswires that Pemex has chosen four local companies for contracts of about 140 wells each. Servicios Integrales GSM, a unit of Mexican billionaire Carlos Slim's industrial conglomerate Grupo Carso SAB, is said to have won one of the contracts.

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.

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.

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