Mexico's oil production hits 14-year low

Jan 28, 2009 01:00 AM

Oil production by Mexican state-owned company Pemex fell by more than 9 % in 2008 because of depleted reserves, according to energy officials.
Energy officials said the slightly less than 2.8 mm barrel per day production average was the lowest level for Mexico in 14 years, raising concerns for the future of the country's leading reserve, the Cantarell oil field. By the end of 2007 Mexico was producing just over 2.9 mm bpd.

Pemex said that Cantarell was nearing the end of its lifespan, though it also blamed the 2008 hurricane season in the Gulf of Mexico for disrupting production. Exports were also down significantly in 2008 to 1.4 mm bpd average, a drop of 16.8 % from the previous year.
Hoping to put a positive spin on the decreased output, officials said the decrease in Mexican oil production was partly offset by increased production at the Ku-Maloob-Zaap field, which produced just over 700,000 bpd. Pemex also predicted the field would supplant Cantarell as the nation's top producer in 2009.

Mexican Energy Minister Georgina Kessel told lawmakers the country's energy fortunes should be reversed and back on course by the middle of the next decade.
"Beginning in 2011, a gradual increase in production will begin until we reach levels near or slightly superior to 3 mm bpd in 2015," said Kessel. Mexico's energy sector has been at the centre of an ongoing, and sometimes violent, debate regarding whether foreign investment could help bolster the sagging industry.

Though Mexican law prohibits Pemex from entering into profit-sharing ventures with other companies, the state agency is allowed to enter into some partnerships as long as they are considered production agreements for exploration and drilling. Mexican President Felipe Calderon would like nothing better than to open up the Mexican energy sector to outside investment but faces stiff opposition, despite assertions from experts that output most certainly would increase with the help of foreign energy giants.
Coupled with production shortfalls, reserves in Mexico -- a leading supplier of oil to the United States -- are running out, according to experts and Mexican energy officials. As it stands, Pemex does not have the expertise necessary to drill in deep water for the estimated 30 bn barrels or more believed to be beneath the floor of the Gulf of Mexico.

That means Calderon somehow must convince opponents that opening up the sector to foreign companies for exploration would benefit both Pemex and Mexicans in the long run, though intense opposition to foreign exploration will prevent that, said some experts.
"The (Pemex) company's exploration plans over the next several years are unlikely to lead to major new oil discoveries that can compensate for production losses in the near term," wrote Allyson Benton and Enrique Bravo, analysts with the New York-based Eurasia Group.

Partnership issues regarding Pemex are widely considered the "third rail" of Mexican energy law, as its profits account for a large portion of the country's budget and fund most of its social projects, prompting concerns that foreign oil companies will siphon off much-needed revenue.
Meanwhile, Mexico is still holding out hope that a new oil field discovered in 2006 will help Pemex bolster its production levels in the coming years. Extraction from the new field is unlikely for another decade, Pemex Chief Executive Luis Ramirez Corzo said. That would give officials plenty of time to ascertain the viability of the new field and determine whether its production levels could live up to expectations.

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