Looks like time for an update. Notice that this will reduce exports, hence income for the Government of Mexico. With a growing narco-insurgency, interesting effects may develop.
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Mexico's Pemex struggles with oil decline
By Carola Hoyos
Published: March 30 2010 03:00 | Last updated: March 30 2010 03:00
The tongues of fire soaring into the sky high above the platforms dotting the horizon across Mexico's Cantarell oil field give away the problems plaguing Pemex, the national oil company
The flames, the product of burning unwanted gas, are a visible sign that Cantarell, once the world's third-biggest oilfield, is ageing and its oil production declining.
The severity of Cantarell's decline, which began accelerating dramatically in 2007, caught Pemex off-guard. In the past two years, the company has raced to catch up, installing equipment such as compressors and turbines to more than triple its capacity to reinject the gas into the rocks 2km beneath the surface of the Gulf of Mexico's azure sea.
But still, all around the Panuco drilling rig, Pemex continues to resort to environmentally unfriendly gas flaring.
Pemex says it is bringing Cantarell under control, noting that the decline had stabilised at 12 per cent a year - a number many analysts find hard to believe.
Cantarell's production peaked seven years ago at 2.2m barrels a day. Today the field struggles to produce a quarter of that.
Stemming Cantarell's decline would not be enough to revitalise Pemex; it has to find new sources of oil.
If it fails, Mexico's government faces having to cut its national budget dramatically.
That is because Pemex's revenue - a large part of which comes from the sale of Cantarell's oil - makes up 40 per cent of government income. For the government, broadening the country's tax base is not an easy option because so many Mexicans work in the informal economy and pay no taxes at all and politicians are loathe to introduce unpopular consumer taxes.
Realising Pemex's predicament, Congress in 2008 passed reforms to give Pemex the potential ability to reward a contractor for each barrel of oil it produced once legal hurdles were cleared while also giving it a little more freedom from political interference.
But many analysts and energy executives say those reforms are not enough to entice international oil companies to help Pemex find and produce more oil. Pemex needs that help especially badly to search for oil in its uncharted deep waters and to develop its tricky Chicontepec field, which in spite of huge drilling efforts still pumps only 30,000 barrels a day, far short of expectations.
David Shields, an independent energy analyst based in Mexico City, says: "The biggest challenge Pemex faces is finding more oil reserves and proving oil reserves that can guarantee production over the next 20 to 30 years."
He adds: "Pemex also has the problem that Mexican law does not allow for joint ventures. It does not allow for the kind of work that needs to be done and the kind of agreements and incentives that deep water production require. Recent reforms definitely have not gone far enough."
Carlos Morales, head of Pemex's exploration and production company, agrees that Pemex - and Mexico - would benefit from a tax regime attractive enough to persuade oil companies to accept the risk of exploring Mexico's deeper waters.
"It will benefit the country to bring in additional capacities to help Pemex, keeping Pemex as the one that has the mandate in maximising the value," he said in an interview, adding: "That certainly will help to speed up the process and maximise the value."
But he sees only a "possibility" that the government's reforms will attract international oil companies.
It would be up to the government to make additional reforms if Pemex were unable to improve its performance. "If they do not see any results from Pemex, people have the freedom and Congress will necessarily respond to the position of the people by making additional changes. But that's a decision for them. I am the operator."
Mr Shields sees little chance of political change. He paints a bleak picture of Mexico's future. "We are exporting more than about 1m barrels a day, which is much less than before, and that is a number that is going to slowly move down towards zero over the next 10 years," he says.