Mexico oil output slide ending: minister

MEXICO CITY Tue Oct 20, 2009 11:58pm EDT

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MEXICO CITY (Reuters) - A dramatic slide in Mexico's oil production has come to an end and it can maintain output at 2.5 million barrels per day for the coming years, Energy Minister Georgina Kessel said on Tuesday.

Mexican crude output has plunged by nearly a quarter since peaking in 2004, straining public finances and spurring bond rating agencies to warn the country's debt could be downgraded.

However the government now believes the rate of decline at the giant Cantarell field has slowed and become more predictable.

"I am convinced this is a reasonable baseline and that we can work with it for the coming years," Kessel told Reuters in an interview, referring to the 2.5 million bpd level.

"I am confident that production at (Cantarell) has been stabilizing and this gives me confidence that we will not be seeing rates of decline that we experienced last year," she said.

The rapid decline in Mexican production and a dearth of promising new fields to offset Cantarell had led to fears the number four supplier of imported crude to the United States will soon be an importer itself.

It has also supported oil bulls' argument that higher prices are necessary to spur investment in new fields to offset the loss of output from decades-old reservoirs.

Mexican officials have long argued the rate of decline at Cantarell would eventually slow to more manageable levels, although state oil company Pemex's forecasts have often been overly optimistic.

Mexico pumped 2.542 million bpd in August, a decline of 7.9 percent from a year ago, according to Pemex PEMX.UL. Production at Cantarell was down 34 percent from August 2008 but actually edged higher from July.

CHICONTEPEC TROUBLES

Last month Mexico abandoned a forecast that oil production would rise to 3 million bpd by 2012 amid growing skepticism that the multibillion dollar Chicontepec project would be as successful as state oil monopoly Pemex has forecast.

Pemex has invested more than $3.4 billion in the technically challenging onshore oil complex, whose huge reserves made it a promising option to compensate for the decline at Cantarell, its aging jewel.

Results at Chicontepec have been disappointing, however, and the country's newly formed oil regulator has recommended that Pemex scrap planned new contracts there.

Jesus Reyes Heroles, Pemex's chief executive, was fired in September amid disappointment with Chicontepec and frustration over the continued declines in crude output.

Energy officials have acknowledged that Chicontepec has not progressed as well as expected but Kessel said the newfound confidence over future production levels at Cantarell meant Pemex had enough investment opportunities at hand to mitigate the anticipated future declines at the field.

"Pemex has been working in other areas and it is also forecasting that the decline (at Cantarell) can be covered by other fields," Kessel said.

Mexico has begun a massive exploration campaign in the unexplored deep waters of its share of the Gulf of Mexico where billions of barrels of crude are thought to lie.

Pemex has only so far announced one commercial discovery of crude oil in the deepwaters. The so-called Tamil field is currently being studied as a potential future anchor of a cluster of fields that would be produced from a huge 250,000 bpd production facility.

However crude from the deep waters will not go to market until at least 2015, Pemex acknowledges, in part due to the lack of infrastructure in the area and Mexico's limited experience in deepwater oil production.

Reforms to Mexico's energy legislation enacted in 2008 open the door to international oil majors working as contractors to Pemex but payouts are restricted to cash-based incentives as Mexican law bars private companies from controlling reserves or having ownership rights over oil.

A draft version of the proposed contract is expected to be ready by the end of the year, although Pemex has missed several self-imposed deadlines already to complete its work on the deal framework.

(Reporting by Robert Campbell; Editing by Michael Urquhart)

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