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Technology Said Key to Unlocking Mexico's Energy Reserves

Mexico has plenty of oil and natural gas reserves, but it will take an infusion of technology and expertise to fully unlock them, energy officials said last week.

Speaking at the Offshore Technology Conference in Houston, Mexican Petroleum Institute CEO Heber Cinco Ley said the country's oil and gas sector suffers from the lack of its investment in new technology and a lack of expertise. An infusion of both would extend the life of its fractured subsalt reservoirs and expand its exploration horizons onshore and offshore, Ley said.

"We need a new generation of reservoir simulators," Ley said to a packed room. And he added, "We need to develop efficient drilling at lower costs."

Petroleos Mexicanos (Pemex) chief Jesus Reyes Heroles told a luncheon crowd that Mexico's production will average 3 million boe/d at the end of 2008, which is what the state-run oil monopoly had forecast.

Pemex plans to drill 5,421 development wells in the promising onshore Chicontepec field by 2012. To develop the field will cost around $14.5 billion, and production is expected to average around 1 million boe/d once the facility begins operations. However, the field's primary recovery rate factor is only 5-7%, which has to be extended through technology and efficiency control, Ley said.

Mexico's deepwater also holds substantial oil and gas reserves, but Pemex has only just begun to invest in the expertise and technology needed for its massive offshore efforts. Pemex's first deepwater asset team has been assembled for the promising Coatzacoalcos Profundo region offshore. Pemex plans to invest $40-70 billion there to develop four gas fields: Noxal, Lakach, Lalai and Nab. Estimated production from the four fields is expected to average 400 MMcf/d.

If Pemex could attract outside investments for its exploration, it would "give oxygen to the industry," said Ley. Pemex has handled the technical challenges in the shallow waters and onshore. Now it has to ready for deeper and broader exploration and development, according to Ley.

"Mexico has to go to the deep waters," he said. "We have reserves. The problem is production capacity. Deepwater production will be used to complement to Mexico's diverse fields." Ley noted that Mexico's largest oilfield, Cantarell, is in decline, and without a move to deepwater exploration, the country would have a difficult time in maintaining its production levels.

In related news, Mexican President Felipe Calderon's challenge to reform Pemex gained support among the citizens in April, but it still faces considerable resistance in Congress. Calderon launched a publicity campaign to encourage reforming the state-controlled energy sector, arguing that Pemex has to share technology and expertise with private firms to explore and develop offshore oil and gas fields and to improve efficiency.

Mexican pollster Parametria telephoned 600 residents April 29-30 and found that 47% supported Calderon's energy reforms, while 38% of those surveyed were opposed. In March a Parametria poll of 600 found support for energy reforms at 38%, with 41% of respondents opposed. The surveys had a 4% margin of error.

By party affiliation, 62% of Mexico's ruling National Action Party were in favor of the reforms; 42% of the Institutional Revolutionary Party, or PRI, back the reform; and only 8% of the left-wing Democratic Revolutionary Party, or PRD, are in favor. Calderon has to have the support of PRI lawmakers to obtain a simple majority needed in Congress for approval of his proposed legislation.

In April Pemex, which is the No. 2 oil supplier to the United States, reported that its 1Q2008 average crude oil production was 2.91 million b/d, which was 7.8% low than in 2007. The decline was blamed on the natural decline of the Cantarell field, where output has fallen for the past three years. Natural gas production, however, reached a historic quarterly record of 6.59 MMcf/d, which was 13.2% higher than in 1Q2007.

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