| | |  Editorials | Issues | October 2009 
Mexican Watchdog Wants to Halt Key Oil Project
 Mica Rosenberg - Reuters
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October 09, 2009
| | State oil company Pemex says cannot walk away from it. | |
Leon, Mexico - Mexico's new oil watchdog wants energy monopoly Pemex to ditch new contracts at its key Chicontepec oil field but the state-owned company said it could not abandon the project.
Juan Carlos Zepeda, head of the recently formed National Hydrocarbons Commission, told Reuters on Thursday the body was in the process of submitting its recommendations to Pemex, but the decision will ultimately be up to the company.
Pemex [PEMX.UL] has spent more than $3.4 billion on Chicontepec, whose large reserves promised to lift Mexico's oil output from near 20-year lows, but output has disappointed.
"Pemex has to stop and reflect if it wants to continue contracting before revising its technological development plan," Zepeda said in an interview.
Pemex Finance Director Esteban Levin said the project was too valuable to ditch any time soon.
"Chicontepec is Mexico's biggest hydrocarbons reserve so it is not a project we can suddenly turn our back on and say we are not going to do," Levin told reporters at a climate conference in the central Mexican city of Leon.
"We have to give it time," he said.
Zepeda said the regulator was recommending Pemex halt new contracts, and perhaps revise existing ones, at the sprawling and technologically complex field near the Gulf of Mexico.
"You can't stop contracts that are already in progress .... maybe they could be renegotiated," Zepeda said.
He said the commission was talking to Pemex about the issue and would present its recommendations by the end of the year.
A Pemex spokesman said the issue would very likely be discussed at the company's Oct. 15 board meeting.
EXPLORATION GOALS ON TRACK
Levin said that in general exploration work was going well and Pemex should meet a goal of lifting its replacement rate for proved, or 1P, oil and natural gas reserves to 100 percent in 2012 from around 75 percent at present.
On the production side Mexico's oil industry is in dire straits, however. Output has slid by a quarter since 2004 as yields at the aging Cantarell offshore field have waned.
Chicontepec, a sprawling onshore area where billions of barrels of crude are locked in complex rock formations, was meant to compensate for Cantarell's decline while Pemex searches for new oil deep in the Gulf of Mexico, but it is falling well short of expectations.
A potential suspension of contracts at Chicontepec could force the government to downgrade its oil production outlook, Eurasia Group analyst Allyson Benton wrote in a research note.
Benton said current projects at Chicontepec were likely to proceed normally but new plans could be scrapped. Without that output Mexico's medium- and long-term output forecasts could be cut by up to 500,000 barrels per day, she said.
She noted bureaucratic hurdles had delayed well-drilling.
"The high cost of production from this field has raised questions about the cost-efficiency of this project," she said, estimating Chicontepec's oil recovery rate at just 7 percent.
Shares in Weatherford Intl [WFT.N], a company with operations in Chicontepec, slid more than 7 percent on the news in early trade but later pared the loss to around 1 percent.
Pemex recently granted eight big Chicontepec contracts worth a combined $2 billion to private firms, including one owned by Mexican tycoon Carlos Slim, Mexican media reported.
(Additional reporting by Cyntia Barrera Diaz and Catherine Bremer in Mexico City; Editing by David Gregorio) |
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