The Oil Drum

Euan,

This is not doomer journalism. They were reporting on a leaked internal Pemex report, which outlined five scenarios. When they talk about the worst two scenarios, they are talking about internal Pemex scenarios.

Dante posted this article at PO.com. He translated it from the Spanish, I think:

Mexico: Energy Consultant Shields Says Cantarell's Reserves To Last One Decade

Commentary by energy expert David Shields: "Pemex in Its Death Throes"

The directors of Mexican Petroleum (Pemex) have kindly decided not to worry Mexicans with bad news about Cantarell, whose decline is turning out to be worse than in the most pessimistic scenarios. They are keeping a low profile and downplaying the problem. They are not explaining it, not proposing solutions, and not implementing changes in the company. Business as usual, but until when?

Total crude oil production dropped to 2.978 million barrels a day (b/d) this past December, 400,000 b/d less than in the same month of the year before that.00A0, Some time ago, there was a warning that, according to an internal analysis by Pemex Exploration and Production (PEP), production at Cantarell would fall from 1.938 million b/d in December 2005 to 1.54 million in December 2006 because of the presence of water in the wells. In fact, it fell 100,000 b/d more, ending the year at 1.439 million b/d.

That same internal analysis anticipated that production at Cantarell would fall another 665,000 b/d in 2007, based on a 30% recovery factor. Since it will be hard to exceed that recovery factor, it is predictable that the decline this year will be of that magnitude, in other words, worsening in 2007 before moderating in 2008.

Not everything is negative. PEP's expectations for other projects have been fulfilled, for the most part. The Ku-Maloob-Zaap project is already producing 400,000 b/d, and new production will be added in the short term. It could reach 600,000 b/d soon, perhaps exceeding 700,000 b/d within two or three years, thanks to new works projects. Small volumes will be added at a few other projects. But these good results will not do much good given the drop at Cantarell.

The performance in exploration has been poor. It would be healthy to accept that failure and explain it. In the 2002-2005 period, there was an addition to proven oil reserves equivalent to just 6% of the volume extracted. The numbers are better in gas, but that is not much consolation. We can see that there is a shortage of technological skills and tools at PEP. Contracting instead of developing technologies of its own has not been the right way to go. Many wells are not adding proven reserves, and we have not managed to drill at the most suitable locations. Only one ship is working on exploring in deep waters, and it is not achieving success, but it does cost a lot of money. At the same time, there are good geological prospects that could be the oil industry's strength in the future, but the industrial and financial models that will allow them to be developed optimally need to be found.

Cantarell's decline changes everything. Costs will be higher at other oilfields. Now a much greater part of PEP's investments will be allocated to activities that involve high-risk, uncertain work and, therefore, unpredictable profitability, like exploration work in general and the development of the Chicontepec region. Gone are the days when we could obtain safe, easy revenue for the state.

Pemex is in its death throes today because there is a risk that it might end up without reserves of its raw material in a decade. But it is also in its death throes due to other problems: fiscal milking, over-indebtedness, lags in maintenance, an unsustainable collective work contract, theft from pipelines, an obsolete oil fleet, etc. It is unjustifiable for there to be no investments in refining and petrochemicals, by either the state or the private sector. Apparently, the heap of problems is exceeding the ability of its directors and the political system to solve them.

The challenge should be to ensure that Cantarell's decline turns into a driving force for profound changes - that are positive and agreed on by consensus, even if they are painful - in the Mexican oil industry and that those changes cause neither the collapse of Cantarell nor political and ideological confrontations. For that, we need leadership and intellectual honesty from those who manage that industry. We still do not know the Calderon administration's diagnosis and proposal for Pemex, or the vision of its director general, Jesus Reyes-Heroles, or of Energy Secretary Georgina Kessel, or the solutions that they are considering, if, by any chance, they have something to propose.

No one in the government has been able to communicate the vision of a more viable model for the Mexican oil industry. No one has convinced society to join together to find solutions. Neither do we perceive urgency on the part of the executive or legislative branches. The unions have not been proactive in agreeing to cut personnel and slash the collective contract. Now is when we need political will and unity of goals, beyond ideologies and group interests, for a real change in Pemex.

It's from here: http://www.reforma.com/

Dante has been finding a lot of Cantarell articles in the Mexican press, in Spanish only, unfortunately. They are reporting that Mexico expects to become a net importer by 2012.