Pemex Awards US$148mn Of Chicontepec Contracts

Mexico - Upstream, Development - Jan 06 2009

Mexico's state-controlled Petróleos Mexicanos (Pemex) has awarded MXN2bn (US$148mn) worth of construction contracts at the Chicontepec field development project. The contracts provide for the construction of access roads and site preparation work at 344 well sites. Pemex is hoping higher output from the Chicontepec field will replace falling production from other fields, particularly the giant Cantarell field, where output declined 31% between January and November 2008. The energy ministry is aiming to boost output at Chicontepec from under 40,000 barrels per day (b/d) at present to up to at least 550,000b/d by 2021. With the field containing many small pockets of oil with low pressure and low permeability, Chicontepec will need around 1,000 wells to be drilled per annum to achieve this output target.

Chicontepec Hope

Pemex Crude Oil Output

Source: Company Data

Drilling at Chicontepec is technically challenging and requires the application of sophisticated horizontal drilling techniques to access small pockets of oil in densely populated rural areas. During 2008 Pemex drilled 500 development wells and aims to drill thousands more over the next 15 years. Pemex has previously said that development of the various Chicontepec projects could cost up to US$30bn, which is a major financial burden for Pemex to bear alone. The field holds estimated reserves of 6.5bn barrels (bbl), according to Pemex.

Pemex is targeting crude oil production in 2009 of 2.7mn-2.8mn b/d, according to the head of the company's exploration and production (E&P) unit Carlos Morales. In September 2008, Mexican crude output fell to its lowest level since November 1995. Production averaged 2.722mn b/d over the month, a year-on-year (y-o-y) decline of 14%. Output recovered slightly in October 2008 to 2.757mn b/d but then fell back to 2.711mn b/d in November. We see Pemex struggling to achieve its 2009 production target, which suggest downside risks to our 2009 output forecast of 3.05mn b/d.

As well as announcing the Chicontepec contracts, Pemex has said it plans to explore for oil and gas in deepwater for the first time. Pemex Exploration and Production will use Noble Energy's Max Smith semi-submersible platform to drill the Catamat-1 well off the port of Tuxpan in Veracruz. The cost of the programme is expected to be US$73mn and the well will be drilled to a depth of 5,200 metres (m), according to a report in Universal newspaper. Ultimately the key to Mexico's future output growth prospects lies in the deepwater Gulf of Mexico. The progress of Pemex's first deepwater venture will be keenly watched.