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Mexico Finds Huge Oil Deposits

The deep-water discoveries could double the country's reserves, Pemex says. But extraction will be costly.

August 31, 2004|From Reuters

MEXICO CITY — Pemex, Mexico's state oil monopoly, said Monday that it had detected vast oil deposits in the Gulf of Mexico that could double the country's total reserves and boost its oil output to rival levels produced by Saudi Arabia.

The deposits of oil and natural gas could equal the equivalent of about 54 billion barrels of crude, which would boost Mexico's reserves to 102 billion barrels. But the deposits are mainly in deep waters, and Pemex will need hefty investments and technology-sharing agreements to access them.

"This is what exploration and prospecting studies have found," Pemex communications head Sergio Uzeta said. "It's important to be clear that we are talking about the probability of finding large quantities of oil and gas. The existence of this oil wealth is very probable, but we have to confirm it so that it will be a proven matter."

Luis Ramirez, head of exploration and production at Pemex, was quoted in the newspaper El Universal on Monday as saying that after three years of exploration at a cost of $4.55 billion, Pemex had mapped seven new offshore blocks where it hopes to extract oil and natural gas.

"This will put us on a par with reserves levels of the big players like Iraq, United Arab Emirates, Kuwait or Iran," Ramirez said.

"What's more, we would be in a position to reach production levels like those of Saudi Arabia, which produces 7.5 million barrels per day, or Russia, which produces 7.4 million."

Mexico's hydrocarbon reserves currently total 48 billion barrels of oil equivalent, including possible, probable and proven reserves. Proven reserves are 18.9 billion barrels, and proven plus probable reserves are 34.9 billion barrels.

Mexico's crude oil production averaged 3.36 million barrels a day in July. Exports averaged 1.81 million barrels per day.

The potential new reserves were detected using three-dimensional seismic studies. Further studies to confirm the reserves will require technology that Pemex lacks.

Mexico is one of the top three suppliers of oil to the United States and is dependent on oil exports for a third of government revenue. It is counting on deep-water production to keep oil reserves from dwindling in the years ahead.

But analysts worry about how Pemex, which hands over 61% of its revenue to the state in taxes, will afford the investment needed to drill wells 1.3 miles deep.

Oil from deep-water reserves could cost $4 a barrel to extract, nearly double the cost of oil from shallow water.

Pemex is in talks to secure joint ventures with foreign oil companies with deep-water know-how, but it could face problems from lawmakers who oppose letting foreign groups into Mexico's energy sector on constitutional grounds.

Uzeta said Pemex was hopeful that the government could adopt legal changes to enable the technology alliances. The opposition-dominated Congress has blocked any attempts to let more foreign investment into the energy sector.

"The next step is to be able to determine with more certainty the existence of these resources," Uzeta said.

"To extract this oil, Mexico needs to establish a technology alliance with countries that have experience. First we need to determine and quantify what we have, and then we can begin the process of installing the first deep-sea wells."

Ramirez said the planned contracts would make Pemex the owner of any oil extracted, in line with Mexican law, while ensuring an attractive return on investment for any partner.

Pemex expects output from its biggest oil field, Cantarell, to start falling 14% a year in 2006.

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