North America: Mexico

NORTH AMERICA

Mexico

Although a non-OPEC country, Mexico’s agreement to abide by OPEC output cuts makes it a key player in world oil markets. Several projects to expand production capacity have failed to meet rising gas demand – and the corollary of importing increasing amounts of gas. However, other projects have improved the ability to export additional oil at will.

To ease the gas-supply problem, the country’s new president, Vicente Fox, said he would ask Congress to change laws that prohibit private upstream investment. Those comments were made in May 2001; it could take a year or more to change such laws and, perhaps, Mexico’s constitution. Such changes would allow E&P participation by foreign firms, but only in the non-associated gas sector. All upstream oil operations would remain state-owned. Speculating on contracts, Fox said they might take the form of service contracts, on a fee-per-unit basis for work performed.

The president appointed Ernesto Martens, former head of the Cintra airline, as the new, Mexican Energy Minister. Fox also appointed former DuPont CEO Raul Munoz to the top post at state monopoly Pemex. The company posted a 4% decline in proven oil reserves for 2000, although probable reserves rose slightly. Munoz said that Pemex will need to invest at least $6.7 billion/year in E&P. The company did some restructuring, as four new departments were created. Together with their directors, they are: Robert Osegueda, Strategic Planning; Jose Ceballos, Operations; Andres Moreno, Engineering and Project Design; and Othon Caneles, Innovation and Competitiveness.

Exploration. The amount of 2-D seismic acquired dropped to about one-third of 1999’s level, at 2,750 mi. Similarly, 3-D seismic activity fell about 50% – to 3,577 sq mi.

The 1999 Sihil discovery was confirmed last year. The field lies within the Cantarell-complex area, but is much deeper. Estimated reserves exceed 1.4 billion boe. While delineating the 1999 Sihil find, an unnamed well reportedly tested 10,000 bpd of light oil.

Pemex says undiscovered gas reserves in the Burgos basin could reach 18 Tcf. A recent GTI study claimed undiscovered reserves were between 21 and 75 Tcf. Burgos proved reserves (non-associated) stand at 4 Tcf.

Drilling / development. According to Pemex, Mexican drilling rose 5.5% last year. Due to the Burgos basin gas program, an impressive 54% increase in wells is forecast this year.

Nitrogen injection began in August 2000 in the $10.5-billion Cantarell field project. The project is months ahead of schedule, and early results are good – a 60% oil production increase versus 1996 levels.

As of year-end 2000, 124 producers had been drilled, plus eight drilling platforms installed, from which 38 new wells are hosted. Most of the two producing complexes are now complete. These include two riser platforms and two accommodations platforms, and startup on one of the complexes should begin in December 2001. At that time, Pemex expects production to reach 2 million bopd, via both pipeline and the 2.3-million-bbl FPSO Takuntah.

The gas-handling portion will begin operating by year-end 2001. Because of the project, better than 1 Bcfgd can now be handled, a 60% increase. Some 600 MMcfgd will be processed and compressed for gas-lift oil production. A 420-MMcfgd gas-compression platform is due online in August 2001. All of this will greatly reduce Pemex’s flaring of about 1 Bcfg a day.

Production. Crude output jumped 3.6% higher to 3.11 million bpd, while condensate production rose 5.4% to 98,000 bpd.

Gas demand is increasing about 10%/year, and gas imports are expected to double to 400 MMcfd this year. Daily gas output is currently 4.7 Bcf, but Mexico plans to add 5 to 7 Bcfgd within six years, requiring about $24 billion in investment. Several pipelines are being built as part of the country’s gas development plan.

In light of the hefty oil-production increase from Cantarell, combined with OPEC quotas (which Mexico has voluntarily agreed to for the past two years), it would seem that either domestic consumption or exports have to dramatically increase. A report in Platt’s Oilgram News said that February 2001 production averaged 3.136-million bopd, or 139,000 bopd higher than in February 2000. However, exports only edged up to 1.759 million bopd from 1.750-million bopd.