Pemex to review, not suspend work in Chicontepec oil region

Responding to earlier media reports, Mexico's state-owned Petroleos Mexicanos (Pemex) confirmed it is reviewing performance in the Chicontepec oil region, but is not suspending work there.

Oct 9th, 2009

Eric Watkins
OGJ Oil Diplomacy Editor

LOS ANGELES, Oct. 9 -- Responding to earlier media reports, Mexico's state-owned Petroleos Mexicanos (Pemex) confirmed it is reviewing performance in the Chicontepec oil region, but is not suspending work there.

"Chicontepec is Mexico's largest hydrocarbon reserve, so it's not a project that we can suddenly turn around and say, 'Hey, I'm not going to do it,'" said Pemex corporate finance director Esteban Levin Balcells.

Energy Minister Jordy Herrera echoed those remarks saying that while Mexico is concerned about oil production levels at Chicontepec, “rash decisions” should not be taken on drilling projects there.

The remarks by Herrera and Balcells followed earlier media reports citing Juan Carlos Zepeda, president of the Comision Nacional de Hidrocarburos (CNH), as saying, "The project should be halted until Pemex has a proper development plan."

Zepeda said CNH, which sets standards for Mexico’s oil and gas fields, would renegotiate the issue of halting work with Pemex by yearend.

CNH was set up earlier this year under the 2008 sector reforms to oversee Mexico's oil and gas exploration and production and make recommendations to the state company.

Analyst IHS Global Insight suggested that the difference of opinion between CNH and Pemex came down to a test of strength between the two bodies.

“At the moment the commission's recommendations are not mandatory, which means that Pemex could indeed chose to reject a future call for it to suspend investments in Chicontepec, raising the prospect of the point of the new body existing at all being questioned just months after its creation,” IHS Global Insight said.

Zepeda’s comments follow earlier reports of mounting concerns among Mexican government officials that the Chicontepec reservoir is failing to deliver as much oil as expected, despite the large financial investment already made in the project.

Pemex is reported to have spent more than $3.4 billion on the Chicontepec project in a bid to increase its falling crude oil output but has failed to achieve the initially targeted results.

In the process, Pemex has awarded contracts valued at several billions of dollars for work at Chicontepec to Schlumberger Ltd., Weatherford International Ltd., Halliburton Co., and a unit of Mexican billionaire Carlos Slim's industrial and retail conglomerate Grupo Carso SAB.

However, Mexico’s hopes for Chicontepec have not yet been borne out as production stood at just 31,000 b/d in August, with reports saying that output there will likely end the year far below the early expectations of 70,000 b/d.

Chicontepec, which covers an area of 3,785 sq km in Veracruz and Puebla states, has total reserves estimated at 18 billion boe and embodies the hopes of the nation for improved output.

Pemex's overall crude production has fallen to less than 2.6 million b/d from a record 3.4 million b/d in 2004, largely due to the decline at Cantarell field.

Herrera, in charge of planning and technical development at the energy ministry, said the government sees the decline in output at Cantarell stabilizing, although it will never regain its peak levels of the past.

Contact Eric Watkins at hippalus@yahoo.com.

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