Pemex recants on mega discovery
On 30 August, Mexico's state oil company, Petróleos Mexicanos, announced that it had found a vast new oil field in the Gulf of Mexico. The field could double the country's oil reserves, Pemex said. A week later, the company issued a clarification: it admitted that it had not actually found any oil: only that its seismic surveying had suggested that there was a high probability of a lot of oil lurking in the depths of the Gulf.
The raising of expectations over the phantom find was deliberate. Executives at Pemex know that there is probably a lot of oil in the Mexican part of the Gulf: geologically it is unlikely that the oil fields found in the US part of the Gulf give out when they reach the maritime frontier lines. The Pemex executives also know that the company simply does not have the technology to drill and produce oil from deepwater wells. The executives know that they will have to buy-in the technology in some way. What they are doing, by claiming to have found oil, is to soften up the government to relax the onerous rules under which Pemex operates. In particular the company wants to be able to offer attractive deals on production sharing to potential partners in the Gulf.
The politicians, from all parties, are unconvinced by Pemex's pleas to be given more operational freedom. The politicians may well have a point. The surge in international oil prices means that Pemex, which by law has a monopoly over oil and gas production in Mexican territory, is now a highly eligible partner, at least in the politicians' eyes. The Pemex executives simply see the company's weakness in lots of key areas.
Gallingly for Pemex executives, the world leader in deep-sea oil production is Petrobras, the Brazilian state-owned oil company. Petrobras had to develop the technology following the government's decision that the country had to find and develop its own oilfields. Petrobras is looking at going into partnership with Cuba's state oil company to look for oil in the Cuban part of the Gulf of Mexico.
The claim
Pemex said that the new fields it has detected could hold 54bn barrels of oil. This would mean that together with the country's proven reserves of 48bn barrels, Mexico would have reserves rivalling those of Kuwait, Iran, Iraq and the UAE. Luis Ramírez Corzo, the director of Pemex's exploration and production division, made the initial claim about the potential of the Mexican portion of the Gulf of Mexico. He clearly knew what he was doing since his briefing produced stories right across the Latin America press claiming that the Gulf of Mexico fields would make Mexico a new Saudi Arabia.
Currently, Mexico's proven reserves stand at 14.1bn barrels and its probable reserves amount to 34.4bn barrels. On 3 September, Pemex's clarification admitted that not one exploration well had been drilled and no reserves had been discovered. The company did stand by its claims that the seismic surveys were extremely promising.
Ramírez Corzo said that the find should mean that the country's oil output would rise from 4m bpd to 7m bpd pretty quickly. That would put Mexico back amongst the world's biggest oil producers, rivalling Saudi Arabia, which has been producing at between 8m and 9m bpd and Russia, which produces 7.4m bpd. Ramírez Corzo said that the most promising areas are the bloc known as Perdido, on the maritime border with the US and the Coatzacoalcos Profundo bloc. In both areas, seismic studies and computer modelling have indicated that they should hold 45bn barrels of oil. Ramírez Corzo was pretty blunt about the potential of the new fields. He said that their size was the good news. The bad news was that the company would need new and foreign technology to get the oil out. He said that this would mean that the company would have to draw up new contracts which would allow the oil to remain Mexican but be enticing enough to attract foreign investors.
Besides grumbling about not being able to cut its own deals with foreign oil companies, Pemex also complains about the financial restrictions under which it labours. Under the current system, Pemex is milked by the government: oil revenues provide the government with more than a third of its revenues. From Pemex's point of view, the government swipes 60% of Pemex's income. This means that the oil company has to borrow to fund new projects. This way of doing things has wrecked its balance sheet. Debt now towers over capital.
Despite its balance sheet problems, the effective government guarantee on its debts makes Pemex a prime borrower in the local capital markets. It is currently at the start of a debt issuance programme to raise M$10bn (US$870m) from the domestic capital markets. It has issued M$1.5bn in three tranches, the last, on 2 September was nine times oversubscribed. The company is paying just 0.15 of a percentage point more than the federal government for its money.
- Pemex did try to tempt foreign companies to help it develop new onshore dry gas fields (i.e. those which do not have any oil associated with them) in the Burgos Basin in northern Mexico but met with little success. International oil and gas companies were not enthusiastic about the much-hyped CSM contracts (multiple service contracts) which allowed Pemex to subcontract the development of gas fields to foreign companies. Until recently Pemex ignored gas: it still flares the stuff off in its main offshore oil field, Cantarell in the Sonda de Campeche. According to data in the Oil & Gas Journal, Mexico ranks 34th in the world in gas reserves with 14.8trillion cubic feet. The bulk of its gas is associated with oil. The government claims that the country has probable gas reserves of 83trillion cubic feet. As gas analysts point out, these figures need to be taken with a pinch of salt because a lot of gas is miles away from the infrastructure needed to exploit it. These analysts say that it is far from clear that it will be worth building out the infrastructure to these fields. Currently Mexico imports about 25% of the gas it uses from the US. Its gas imports are likely to increase as the country is building 20 new gas-fuelled power stations.
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Montemayor extradited
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| The US finally extradited Rogelio Montemayor, a former director of the state oil company, Petróleos Mexicanos, to Mexico on 2 September. He will face corruption charges. The arrival of Montemayor will complicate the government's relations with the biggest party in congress, the Partido Revolucionario Institucional (PRI). Montemayor is accused of sending Pemex money, via the oil workers' union, to support the last stages of the ill-fated presidential election campaign of the PRI candidate, Francisco Labastida, in 2000. Pemex is supposed to have supplied US$160m to the Labastida campaign. The government has been trying to extradite Montemayor from the US for two years. The issue is complicated by the fact that Labastida defeated the current leader of the PRI, Roberto Madrazo, for the PRI's presidential nomination in 2000. Madrazo may well be happy to see some of his enemies in the PRI enmeshed in the Montemayor scandal. Montemayor is likely to remain out on bail in Mexico since the charges he faces are not serious. Technically, the US did not extradite him to face charges of electoral malpractice, the only charge which could have put him in custody. The court in Houston, Texas which was hearing Montemayor's appeals against this charge did not complete its hearing before he was extradited. |