North America: Mexico

NORTH AMERICA

Mexico

The PRI party’s 71 years of rule ended on July 2 when PAN party candidate Vicente Fox became Mexico’s president-elect. The impact on the upstream industry is unclear, but most believe he represents increased economic freedom and privatization.

Fox praised Argentina’s privatization of state-run YPF; but he was politically coy, saying that he would never attempt to privatize state-monopoly Pemex without full backing from congress and the public. Fox used the term "re-nationalize," explaining that Pemex should be run by oilfield professionals, not politicians. Pemex paid $22 billion in taxes last year, 31% of all federal income.

The past year saw several shake-ups in Pemex management. In June 1999, Mauricio Toussaint replaced Leopoldo Gomez as undersecretary for energy with responsibility for operations. Last January, Coahuila state governor Rogelio Montemayor replaced Adrian Lajous as director general. Lajous resigned after citing unspecified energy-policy differences with the Zedillo administration. Montemayor wants to eliminate some of Pemex’s bureaucracy to allow more flexibility in decision making.

Last August, Mexico and Venezuela renewed the San Jose Accord for the 19th year Cuba was excluded. The accord supplies 11 developing Central American / Caribbean countries with oil under very favorable credit terms. Also in August, Mexico abolished its 4% gas-import duty, but only after U.S. independents’ oil-dumping lawsuit was dismissed.

Mexico’s plan is to dramatically increase crude production capacity and rapidly expand gas output. Domestic gas demand is expected to grow at 9% per year through 2010. The government’s $14.7-billion energy budget for 2000, which includes $8.7 billion for Pemex, represents 62% of all public-sector spending. Including the gas program, Pemex says upstream spending will be $6.7 billion in 2000.

Exploration. About $400 million will be spent this year for exploration and development of non-associated gas. This is in addition to $800 million budgeted for the Burgos basin near Texas.

The much-touted discovery in spring 1999 of a super-giant field in the Bay of Campeche finally has a name: Sihil. Reserves estimates – based on a single discovery well – vary wildly, but the low end is roughly 1 billion boe.

The U.S. and Mexico signed a treaty this June that established jurisdiction over a long-disputed area in the Gulf of Mexico known as the "doughnut hole," or Western Gap. It gives Mexico about 62% of the roughly 7,000-mi² area. The treaty establishes a 3.2-mi-wide buffer zone along the offshore border. Both countries have agreed not to drill within that buffer for a 10-year period, allowing both sides to determine the extent of any boundary-crossing reservoirs. Both countries need to ratify the treaty.

An eastern doughnut hole also exists, where Cuba has a potential claim, but no negotiations are planned.

Drilling / development. According to the secretary of energy, Mexico drilled 234 wells in 1999 – 31 more than in 1998. Of these, 34 were oil wells, while 168 were gas producing.

The $10-billion, nitrogen-injection project at Cantarell field in the Bay of Campeche continues to dominate all others; it will cost another $3 billion this year. Since 1995, when redevelopment began, Cantarell’s production capacity has increased to 1.6 million from 1.1 million bopd; it will further increase to 2.2 million bopd and 875 MMcfgd during the next two years. This will give Pemex perhaps 700,000 bopd more production capacity than it can use, depending on the project’s progress, domestic demand and export quotas. Despite the state-owned upstream sector, private companies have won 82 transportation and distribution concessions in the past four years, primarily for gas. However, a storage project has not been planned.

Several gas-development projects include: Grijalva Delta basin in southeastern Mexico; Burgos basin near Texas; Macuspana gas field in southern Tabasco state; and development of facilities and wells for associated and non-associated gas in the Bay of Campeche. A gas compression platform is being completed in the bay. It will have a 250-MMcfd capacity and should come online this year.

Production. Crude and condensate production averaged 2.53 million bpd in 1999, a 38% decrease from 1998. Crude output this May was 3.04 million bpd, but production may rise further depending on the most recent OPEC / other-producers’ agreement.

Gas production in Burgos basin has quadrupled in the last five years to 1.2 Bcfgd. To reach the government’s goal of 8 Bcfgd by 2010, gas output will have to nearly double 1999’s record of 4.8 Bcfgd, which was flat with 1998’s production. However, May 2000 figures showed that gas production fell to 4.67 Bcfgd.

At year-end, proved crude and condensate reserves stood at 28.3 billion bbl, about flat with 1998. Proved gas reserves were 30.4 Tcf, up 1% for the same period. Mexico reported 2,991 oil wells and 1,278 gas wells on production at year-end 1999.