April 3, 2008 / 6:45 PM / 10 years ago

Mexico Pemex fears "crippled" oil reform

MEXICO CITY (Reuters) - A planned oil reform in Mexico will be “crippled” if opposition lawmakers water it down to exclude foreign partners from exploring in deep seas of the Gulf of Mexico, a top executive at monopoly Pemex said on Thursday.

Director of Exploration and Production of Petroleos Mexicanos (PEMEX) Carlos Morales speaks at the Reuters Summit in Mexico City April 3, 2008. REUTERS/Daniel Aguilar

Exploration and Production chief Carlos Morales said Pemex’s first deep-water exploration wells had not found oil, and if foreign joint ventures are kept out of a new oil law, it could be 20 years before it produces crude from deep waters.

“They might give us more financial resources and more legal capacity, but if they don’t give us the ability everybody else has to form partnerships, it will leave the process crippled,” Morales told the Reuters Latin American Investment Summit.

Mexico’s oil reserves are beginning to run out and Pemex lacks the technology to be able to look for more crude deeper in the Gulf.

Mexico is a top supplier of U.S. crude and oil exports provide some 40 percent of the government’s fiscal income.

President Felipe Calderon hoped to pass an energy law by the end of April that would allow Pemex to pair up with experienced oil majors.

But he has hit opposition in Congress, where leftists and many centrists oppose lowering barriers to private capital.

Pemex believes there may be 30 billion barrels of unconfirmed deep-sea oil in the Gulf of Mexico but will struggle to reach it as fast as it needs to given the high risks, elevated costs and technical challenges of drilling in water several kilometers deep, Morales said.

“The thing that tells you if there is oil or not is the drill. You have to get drilling,” Morales told Reuters.

Given only one in three deep-sea exploration wells tends to end up yielding oil, Morales said time was of the essence.

“We are talking about around 15 to 20 years if we are not able to form partnerships. Instead of it being a seven or eight-year process, which is the norm, it would be around double that,” he said.


Pemex has drilled six exploration wells up to 1,000 meters deep in the Gulf of Mexico over the last couple of years, but two were dry and four only found natural gas, Morales said.

Pemex has higher hopes for a seventh deep-water well, “Tamil”, which should produce results in four months, and it will go deeper in September when it starts drilling in a new part of the Gulf in water around 1.2 miles deep.

Yet Mexico has been dogged by a shortage of drilling gear.

With two deep-sea platforms today and three more coming in 2010, Mexico will still only be able to drill 15 deep-water wells a year whereas U.S. oil companies are at 170 a year.

    Pemex has only explored a tiny patch on the edge of its potential deep-water oil territory of some 500,000 square kilometers. Expanding that area fast is vital as yields drop at its huge but aging Cantarell offshore field.

    Energy Minister Georgina Kessel said on Sunday that without measures to boost Pemex’s exploration activities, the country’s daily oil output could drop by more than half by 2021.

    Morales agreed, saying other oil fields such as Ku Maloob Zaap would follow Cantarell into decline in the coming years.

    “The oil fields are practically all declining,” he said. “We have to be always looking for new sources of supply for this production, in other words new reserves.”

    Foreign oil majors who are ahead in deep-water technology, including Brazil’s state-owned Petrobras (PETR4.SA) which could be a less controversial partner for Pemex, say they would only share their know-how in a profit-sharing joint venture.

    Pemex in the past has sought to design fee-paying contracts offering partners cash incentives for striking oil, rather than a share in the crude, which would breach the constitution.

    Morales said Pemex had shelved that idea for now and was pinning its hopes on a comprehensive oil reform that allowed it to work with partners, even if in limited areas like deep-water fields that span the U.S. maritime border.

    “I hope it’s passed. I think it’s part of the recognition of (Pemex) coming of age,” Morales said.

    (For summit blog: summitnotebook.reuters.com/)

    Additional reporting by Luis Rojas, Cyntia Barrera, Robert Campbell in New York and Andrei Khalip in Rio de Janeiro; Editing by Braden Reddall

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