Mexican deepwater oil project: Big budget, small output

Pemex, the government-owned oil giant of Mexico, has reportedly exhausted a great portion of its budget for one of its oilfields despite its poor prospects.

The National Hydrocarbons Commission (NHC) issued a report revealing that last year alone, Pemex disbursed funds equivalent to $1.98 billion for its Chicontepec oil field. This amount already makes up more than 80 percent of budget for investing in oil exploration.  As a component of total exploration and production budget, said expenditure is about 12 percent of total 2011 budget.

Based on the NHC website “Chicontepec projects present the least profitability and highest uncertainty when they are compared to every other project.”

There is a pressing need to refurbish the company to step up production as well as cost effectiveness.  Also, some sectors are pressing for sufficient disclosure on how it is being managed, given that the country substantially depends on Pemex’ earnings for its state budgetary requirements.  In fact, both Mexico’s Revolutionary Party and the National Action Party are calling for big reforms, including changes in Pemex’ administration as well as additional oil investment from private sectors.

Meanwhile, reports disclose that Mexico’s oil output arising from key oil fields are on a decline.  As of the moment, it supplies the U.S. with its major oil needs, but some have commented that if the country fails to come up with new oil finds, it might end up being a net oil importer in the future.
Right now, the company lacks extra funds to invest in oil exploration technology that could have helped in upgrading existing oil exploration facilities especially for deepwater wells.

As a consequence, experts project that for Pemex, deepwater oil drilling projects may not be that feasible  and that exploration in shallow waters could be more viable at the moment. Despite the company’s substantial investments in Chicontepec, it has failed to reach targeted oil outputs.

In 2011, NHC disapproved the company’s growth plans for Chicontepec.  The commission noted that Pemex could be better off concentrating on more viable exploration projects and noted further that these promising projects were funded last year but only up to the extent of 22 percent.

In terms of exploration of new oil wells, Pemex was seen to have expended only a little above 13 percent of total budget.