OilVoice - Mexico's State-Run Pemex Successfully Stemming Production Loses

Mexico's State-Run Pemex Successfully Stemming Production Loses

Tuesday, March 30, 2010

Petroleos Mexicanos (Pemex), Mexico's state-run oil enterprise has announced that its February crude oil output was better-than-expected, recording only a 2% drop year-on-year to 2.61 million barrels per day (bpd). Against the backdrop of production declines that have plagued the central American nation's oil industry over the past few years, Pemex's announcement is all the more remarkable.

Although Mexico is the largest oil producer in Latin America, producing around 3 billion barrels per day (bpd), the local industry it has suffered from severe underinvestment in recent years. The market holds, however, holds the lucrative position of being one of only four crude oil exporters to the energy-hungry US market.

The current slump which produces are attempting to moderate has been ongoing for the past six years. Back in 2004 things were altogether different, and the nation's oil production levels were at their peak.

The country's oil production peaked in 2004 at around 3.82 million bpd, but has fallen steadily south ever since.

One of the key problems has been that the lion's share of the country's output is from a single oil field. The Cantarell field represents just under two-thirds of Mexico's output during the 'golden days' of 2004. By the end of 2008 that figure has fallen to only 37%.

This has subsequently put pressure on other fields to shoulder the burden, but they seemingly failed to rise to the challenge and have not risen enough to compensate for this decline. The Chicontepec field upon which high hopes were pinned, but despite a high level of investment, the field has bitterly disappointed. Having said all this, the fact that Mexico's production fell at a slower rate last month year-on-year, can only be a good thing.

On a broader level, efforts to maintain production in light of Cantarell's falling output have been strangled by a lack of investment and of access to the most up-to-date technology and skills available in the private sector.

As a major contributor to Mexico's federal budget, via its export revenues, Pemex has consistently found itself with funding problems.

Aware of such problems in the industry, the Mexican government has implemented steps towards oil sector reform. Recent legislative changes granted Pemex the right to deal with overseas oil firms first the first time on a contractual basis. This will certainly allow the firm to benefit from the influence of overseas expertise. However, without the introduction of further legislation, Mexico's status as an oil exporter on the world stage is set to continue falling.