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Analysis

Why Were Many Onshore Fields Underdeveloped?

Wed, 01/25/2012 - 15:56

Historically, Mexico’s onshore fields were of great importance to Pemex, before Cantarell was discovered and the majority of Mexico’s oil production moved offshore. From the company’s incorporation, it was onshore fields in locations such as the Golden Lane that helped provide fuel for Mexico’s energy demand. By the 1960s, production was coming solely from Mexico’s northern region, where production peaked in the early 1970s. When the ChiapasTabasco basin was discovered in 1972 in the southern region, and was found to be more productive than fields in the north, Pemex took the decision to allocate more resources to this region, and less to the north. As a result, production jumped to 711,000 bbl/day in the south, but dropped in the northern region.

As the graph below shows, Pemex’s production profile changed dramatically following the discovery of Cantarell. Pemex once again shifted the focus of its investment to an area where production was easier to obtain in large volume and at a lower cost per barrel, and neglected those areas it had previously relied on. As a result, when production at these shallow water areas peaked, production onshore was unable to replace it. Mexico’s overall production declined from 3.38 million bbl/day in 2001 to 2.55 million bbl/day in 2011, as a result of Mexico’s main production source, Cantarell, beginning to decline.

Currently, most of Pemex’s main oil fields are located in the marine regions in southeastern Mexico, and both onshore and offshore oil fields are abundant. Most of Mexico’s top-producing oil fields are located in or near the states of Veracruz, Tabasco and Campeche. Of Mexico’s total probable oil reserves, 57% are located at the Aceite Terciario del Golfo project, also known as Chicontepec, 11% are located in other various onshore projects, and 32% are located in offshore regions, primarily in the KuMaloob-Zaap, Akal, Ayatsil, Pit and Tsimin complexes. In addition, deepwater exploration holds the promise of eventually boosting Mexico’s overall production and reserves base.

“Every time we have a better opportunity, we put the money where we have the fastest return, biggest production, and most value,” says Gustavo Hernández García, Subdirector of Planning and Evaluation at Pemex Exploration and Production. “This is the way that Pemex has always done things, and this is the reason why today we have lots of onshore fields with low activity and low production.”

Hernández García goes on to say that in order to turn this around, Pemex is aiming to increase its execution capacity as part of its strategic plan. Part of this will come as a result of the integrated service contracts in both the northern and southern onshore region – indeed, Pemex forecasts that the incremental production increase at the nine fields auctioned in the first and second bidding round will be between 50,000 and 60,000 bbl/day by 2014. Although Pemex forecasts an incremental production increase of between 15,000 and 20,000 bbl/day at Chicontepec by 2014, Hernández García says that finding funding for the onshore fields with low production rates will prove challenging: “Mexico’s Finance Ministry will never give us the money to develop or to continue producing at those older fields that only produce small amounts, because the Finance Ministry cares mainly about the return on investment and how fast they can get the return.”