GULF OF MEXICO: Despite potential, Pemex remains cautious on exploration spending

Expanding output from existing fields

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North American offshore oil production will rise around 5.5% annually over the next four years, outstripping increases anticipated for the world as a whole, according to the latest global offshore industry forecast by Mackay Consultants.

Of the three main offshore producers in this region, Mexico will continue to set the pace, and appears set to extend its lead over the United States by generating 150.5 million tons in 2004, against a predicted 125.4 million tons this year. That compares with figures of 80.8 metric tons (2000), rising to 92.8 metric tons (2004) for the US, posted by the Inverness, Scotland-based consultants.

Currently, Mexico's offshore oil comes from 20 fields in the Northeastern Marine and Southwestern Marine regions. Cantarell in the Bay of Campeche remains the largest producer, followed by the Ku field and four others in the southwest sector, all of which have lately contributed over 100,000 b/d.

The country's sole-operator Pemex remains focused on expanding output from existing offshore fields, rather than finding and developing new ones. The producer's main priority is to raise output from Cantarell from 1.3 million b/d to 2 million b/d. To that end, nitrogen is being injected via a nitrogen plant at Atasta, Campeche.

Overall cost of redeveloping Cantarell is an estimated $5 billion over five years. The investment includes a contract to the Enron/Cigsa joint venture to build and install at least 20 new platforms. Additionally, the Commisa-Bufets joint venture has a $520 million contract for the EPC-22 project, which includes one production and two gas compression platforms. Another contract, worth $250 million, was issued to a consortium led by Vancouver-based Westcoast Energy for a gas compression and liquids recovery platform.

Exploration constraint

Falling oil prices in 1998 forced Pemex, like most other companies, to cut exploration and development activity. It has since raised expenditure, but this remains below originally planned levels, according to Mackay. Activity has also been hit by Mexico's agreement as part of OPEC to cut production by 125,000 b/d from March 1999.

Nevertheless, recent exploration has been fruitful, led by the Sihil Field discovery in the Bay of Campeche, with estimated recoverable reserves of 1.4 billion bbl. Pemex believes there are three other similar-sized deposits waiting to be discovered in this area. Mackay estimates that 15 exploratory wells were drilled in 1999, compared to 13 in 1998, and forecasts a leveling out at around 15 new wells per year through to 2004.

Once redevelopment of Cantarell has concluded, Mexico will be in a position to produce over 3 million b/d from its offshore fields, although the timing of that increase will depend on OPEC's future strategy. Mexican offshore gas production also will rise sharply as mainland power generation demand increases. The analysts foresee output of 24.3 bcm in 2004, a 43% jump on the 1998 figure of 17 bcm.

Development spending variable

Mexico's total offshore Mexican expenditure could increase by 18% from $5.2 billion in 1998 to just below $6.4 billion in 2004, Mackay claims, representing an annual average increase of 3%. However, there may be a slight blip this year following completion of much of the Cantarell work. Exploration spending should average $100 million per year over the forecast period, but development spending will be much more variable, probably declining to $460 million in 2004. In contrast, production expenditure should rise steadily to reach just over $5.6 billion in 2004.

Mackay foresees offshore exploration spending across North and Central America peaking at $877 million next year, declining to $807 million in 2004. Development spending for the two regions is forecast to dip slightly to $6.5 billion in 2002, before recovering slightly. However, Mackay's analysis may not have taken into account recent projects in US waters unveiled by BP, TotalFinaElf and others.

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