Mexico eyes risk contracts to offset Cantarell downturn

Eric Watkins
OGJ Oil Diplomacy Editor

LOS ANGELES, Nov. 20 -- Mexico’s state-owned Petroleos Mexicanos and the Secretaria de Energia (Sener) are preparing risk contracts that will be offered to oil companies—international and domestic—in order accelerate the search for oil and gas, according to local media.

Mexico’s daily El Universal reports that the contracts are the result of concern over output generally, but especially at Cantarell, which represents a loss of 272.425 billion pesos/year ($20.859 billion) in tax revenue for the country, or 2% of estimated gross domestic product for 2009, at current oil prices.

The paper cites official letters 400-455 and COFEMER/09/3988 (Federal Regulatory Improvement Commission), dated Nov. 3 in which Sener urges regulatory institutions to speed up the procedures in the new legal framework that was approved with the recent energy reform.

Sener explains that it is urgent "to speed up the discovery of new oil fields and the incorporation of reserves, as well as increase Pemex's execution capacity, particularly through new contracting schemes so that specialized companies can support its activities."

Sener adds that it is necessary "to reverse the decline in national hydrocarbon production and develop technology to extract the petroleum found in deposits, particularly those located in deep waters."

Sener said, "The situation with what used to be Mexico's main oil field is worrisome, because since 2005 we have seen its decline lead to a production drop of nearly 770,000 b/d."

In September, Sener calculated that loss at 230 billion pesos ($17.611 billion), based on a price of $60/bbl at that time.

Sener said Cantarell's contribution to national production is steadily shrinking, since it was producing 2.2 million b/d in 2005, or 60% of total oil production.

By December, Pemex and Sener expect Cantarell to produce 550,000 b/d, or 21% of national petroleum production.

According to El Universal, the official predictions indicate that between 2009-17 an average of 423,000 b/d of oil will be produced from this field, and that by the end of that period it will produce 255,000 b/d, or only 8.4% of national production.

This situation, the official letters add, presents a challenge to the national petroleum industry, since it means replacing the petroleum and gas extracted from this asset with extraction at a large number of small and medium deposits throughout the national territory.

In the short term, Pemex must be able to develop new oilfields, which involves enormous complexity in terms of technical issues and execution, as well as considerable time for their development.

Sener maintains that it is urgent that Pemex be given the right to explore in deep waters of the Gulf of Mexico and begin the procedures necessary to obtain deeds of assignment for petroleum and surface exploration permits.

Sener explains that Pemex's new legal framework will allow it to act quickly and reduce red tape.

For now, the awarding of risk contracts and the purchase of materials will be aimed at developing key suppliers for priority and support areas, in order to decrease costs and delays in constructing rigs, laying pipelines, and drilling.

Contact Eric Watkins at hippalus@yahoo.com.

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