Mexico is aggressively developing the country's oil resources in an attempt to keep its production of crude oil from declining over the next few years as the country's largest field continues to decline. Mexico has also turned to foreign and private oil companies for the first time as part of this plan.


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Petroleos Mexicanos (PEMEX), the Mexican National oil company, has set a goal of keeping oil production level at 2.5 million barrels per day through 2012, and then increase production to as high as 2.8 million barrels per day in 2013. PEMEX plans to award more than a dozen contracts by the end of 2010 to meet these goals.

Overview
Mexico's proven oil reserves are approximately 14 billion barrels. The country produced 2.6 million barrels per day of crude oil in May 2010, with condensate and natural gas liquids production bringing the total up to 3 million barrels per day.

Mexico exported 1.23 million barrels per day of crude oil in 2009, with the United States as the largest customer due to the two countries' proximity to each other. Mexico is dependent on these exports, and they represent 15% of the country's total export earnings. Also, approximately 40% of government revenues are directly or indirectly dependent on oil revenues.

The Cantarell oil field, located in the Gulf of Campeche, is the world's poster child for peak oil. This field's oil production peaked at 2.12 million barrels per day in 2004, and has fallen off steadily since then. In 2009, Cantarell produced only 630,000 barrels per day, down 38% from the previous year.

The Plan
PEMEX believes that it has large prospective reserves of oil and gas in the country, and has estimated this potential at 52 billion barrels, both onshore and offshore.

One area that PEMEX is focusing on is the Chicontepec area, north of Mexico City. Chicontepec is comprised of more than a dozen fields spread over several thousand square miles and already produces approximately 30,000 barrels per day. The reserves here are heavy crude oil and are difficult to develop.

PEMEX has awarded contracts to several foreign companies to work here. In 2009, Halliburton (NYSE:HAL) was given a $159 million contract to drill 170 wells. Schlumberger (NYSE:SLB) and Weatherford International (NYSE:WFT) received contracts here as well.

The effort to develop Chicontepec has been sluggish as PEMEX cut back some activity due to budget cuts

Key Energy Services (NYSE:KEG) is providing workover rigs at Chicontepec and reported 14 idle rigs as of July 2010. Halliburton also reported continued cutbacks in activity during its second quarter conference call held last week.

The Bottom Line
Mexico is using whatever means necessary to offset the dramatic declines at the Cantarell field, and is aggressively exploring the country's oil and gas basins with foreign help to make this happen. (Learn more about oil markets in our article, What Determines Oil Prices?)

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Tickers in this Article: KEG, HAL, SLB, WFT

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