Mexican authorities slash 2010 budget for oil field development

Dec 04, 2009 01:00 AM

The Mexican government has stated its intention to reduce the funds allocated to state owned Petroleos Mexicanos for development of the Chicontepec oil field by 63 %.
The budgetary cut makes the future of the underperforming project increasingly bleak. Disillusioned with poor results, execution and technological limitations, lawmakers have reduced next year's budget for the project to $ 1.61 bn, down from $ 4.4 bn allocated for 2009.

The 2010 Budget Decree has been approved by both the Mexican finance ministry and congress. In addition, the decree calls for a cut in Chicontepec (otherwise known as the Tertiary Gulf Oil Project) spending in 2011 and 2012.
This additional reduction however, is not quite as steep. For 2011 and 2012 Pemex is set to receive only $ 4.8 bn for the Chicontepec project, some $ 919.2 mm less than it had originally planned for.

Significantly, the budget cut was supported by the opposition Partido Revolucionario Institucional (PRI), which has held the parliamentary majority since mid-2009. Having historically had close links with Pemex's management, the PRI's support is essential for the success of the ambitious shake-up of the state monopoly initiated by the incumbent reformist president, Felipe Calderon.
Although the budgetary cut for the Chicontepec project is likely to be opposed by PRI allies at Pemex, the leading opposition party had little option to veto it. In opposition, PRI has been a strong critic of Calderon's steep tax increases, owing to their view that they are an inefficient mechanism for stimulating a rebound in the wake of the country's economic downturn. Strong in opposition to higher taxes, this leaves the party little choice but to support spending cuts as the only credible policy alternative.

Following the reduction of the Chicontepec budget, Pemex has been forced to adjust its short-term plans for the project, which spans 29 fields over the states of Puebla and Veracruz. In 2010 the company plans to drill an additional 975 wells there, repair 371 large wells and 142 small wells and build 66 km of pipelines.
The company's upstream director, Carlos Morales Gil, commented that production in 2010 was now expected to average only 43,000 bpd, far below the 72,000 bpd that Chicontepec was expected to produce by the end of 2009. Average output at the project in January-November 2009 was only 29,000 bpd.

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