David Shields, Special Correspondent
Declining output from the supergiant Cantarell oil field in Campeche Bay is pulling down Mexico’s crude oil production and oil exports, causing deteriorating results overall at national oil company Petroleos Mexicanos (Pemex).
Nevertheless, there is no sign yet that Mexico might relax the prohibitions in the national constitution that prevent private companies from entering production-sharing agreements or upstream joint ventures with Pemex.
Pemex is working on expanding its technological alliances, according to Jesus Reyes-Heroles, the company’s general director. “We have been getting closer to the other NOCs (national oil companies), such as Petrobras and Statoil. We are also expanding our collaboration on technology with some IOCs (international oil companies),” he said at the recent Offshore Technology Conference in Houston.
It is not clear, however, that any significant progress has been made on this, given the restrictions. Also, Reyes-Heroles admitted, major structural reform in Mexico’s oil industry is unlikely before the end of the current administration in 2013. President Felipe Calderon is in favor of reform, but cannot muster the two-thirds majority in congress required for constitutional reforms to take place.
Plans
For now, Pemex is looking at how to complement its activities with more private investment in “non-core areas,” according to Reyes-Heroles. This is believed to refer to the downstream, not the upstream. Reform is also likely in Pemex’s corporate governance and its tax treatment, given the company’s financial problems and excessive fiscal burden.
In 1Q 2007, Pemex’s total sales fell by 6% and its tax contribution by 10% year on year, largely due to the Cantarell field’s decline. Crude oil output for the quarter was 3,158,000 b/d, down from 3,344,000 b/d a year earlier. Output averaged 3,256,000 b/d in 2006.
Cantarell, the world’s biggest offshore field, is expected to average 1,526,000 b/d this year, down from 1,788,000 b/d in 2006 and an all-time high of 2,136,000 b/d in 2004. Sharp decline is likely to continue, with the field foreseen to produce 1 MMb/d in 2010, 713,000 b/d in 2012 and 450,000 b/d in 2015, according to official estimates.
Pemex is boosting output on Ku-Maloob-Zaap, its other major offshore heavy-oil project in Campeche Bay. Output from KMZ jumped by over 100,000 b/d last year, reaching 500,000 b/d early in 2007. Pemex hopes the complex will produce 800,000 b/d before declining in 2009. The offshore light crude project on the Tabasco Littoral has reached output of about 250,000 b/d and is not expected to go much higher.
These two shallow-water projects are Pemex’s best hopes of compensating decline on Cantarell. The company has made its first forays into deepwater, with little success so far, despite minor discoveries at its Nab, Noxal, and Lacach wells.
There is concern about Pemex’s low reserves replacement rate. Mexico’s proven crude oil reserves, as of Jan. 1, 2007, stand at 12,849 MMbbl, down 7% from a year earlier. This places Mexico 15th among nations in global oil reserves rankings. However, reserves have been falling consistently for a quarter of a century now. Pemex achieved a replacement rate of only 41% of its crude oil reserves in 2006.
According to Vinicio Suro, planning chief at Pemex’s E&P division, the replacement rate will increase to 77% by the year 2012 if the company is allowed to make annual average investments of at least $2 billion in exploration. This figure contrasts with 2006 and 2007 investments of about $1.5 billion annually. Greater investment in offshore exploration and exploitation of deepwater fields and more complex, high-cost onshore areas are looked upon as urgent priorities.
Finding the money will be a problem for highly indebted Pemex, which will need at least $33 billion annually - an increase of 50% - for investments and operational outlays just to maintain a status quo in terms of output and results in the future, says Reyes-Heroles. A step in that direction may be achieved when the Calderon government pushes for major fiscal reform later this year.
Pemex currently invests close to $13 billion annually - with about $9 billion of that going to oil production, $1.5 billion to exploration and $2 billion to downstream priorities - while spending $9 billion on operations. According to Reyes-Heroles, Pemex would have to almost double the investment part of its budget to maintain crude oil output at 3.1 MMb/d, achieve a 100% replacement rate of its oil reserves, and continue to increase natural gas output.
The E&P investment budget will increase to $12.4 billion this year, up from $10.9 billion in 2006 and $10 billion in 2005, says Suro. As usual, almost all work will be contracted out to private companies.
Of the $12.4 billion E&P investment budget, $10.9 billion will go to production and field development activities. This figure includes $5.4 billion to drill 720 development wells, $2.6 billion for oilfield infrastructure, $1.9 billion for maintenance work, and $1 billion for other priorities. The remaining $1.5 billion of the E&P investment budget will go toward exploration, including $900 million to drill 71exploratory wells and $270 million for seismic surveys.
The $12.4 billion will be divided up among a large number of E&P projects. The ones receiving the biggest outlays will be Ku-Maloob-Zaap ($2.4 billion), Cantarell ($2.3 billion) and Tabasco Littoral ($1 billion). The two giant offshore heavy crude oil complexes, Cantarell and Ku-Maloob-Zaap, are together expected to provide 2,077,000 b/d of total output this year, down from 2,204,000 b/d in 2006.
