MrBillM - 7-26-2006 at 09:42 AM
Excerpted from the Los Angeles Times, Monday, 24 July, Business C-1.
Will Mexico Soon Be Tapped Out ?
A rapid demise of Cantarell, the country's chief oit field, could pose a serious economic threat.
Mexico City - Output at Mexico's most important oil field has fallen steeply this year, raising fears that wells there that generate 60 % of the
country's petroleum are in the throes of a major decline.
Production at Cantarell, the world's second-largest oil complex, in the shallow gulf waters off the shore of Mexio's southern Campeche state, averaged
just over 1.8 million barrels a day in May, according to the most recent government figures. That's a 7 % drop from the first of the year and the
lowest monthly output since July 2005, when Hurricane Emily forced the evacuation of thousands of oil worker from the region.
Though analysts have long forecast the withering of this mature field, a rapid demise would pose serious challenges for the world's No. 5 oil
producer. The oil field has supplied the bulk of Mexico's oil riches for the last quarter of a century, and petroleum revenue funds more than a third
of federal spending.
"Cantarell is going to fall a lot, and quickly," said independent consultant Guillermo Cruz Dominguez Vargas, a former executive with Mexico's
state-owned oil monopoly, Petroleos Mexicanos, known as Pemex. "I can't imagine the strain on this society if there is nothing to replace it."
It would also be bad news for the United States, for which Mexico is the No. 2 petroleum supplier, behind Canada. And it would exacerbate tight
global supplies that have kept oil at record prices.
.............Exceeded in size only by Saudi Arabia's leviathan Ghawar field, Cantarelll is a prolific giant that is past its prime. Monthly
production peaked in late 2004 at just over 2.1 million barrels a day and has fallen more than 15 % since then. Experts agree it has nowhere to go
but down.
The multibillion-dollar question is just how quickly Cantarell will lose its productive capacity, and whether Pemex will be able to coax more oil out
of existing fields to take up the slack while it searches for new deposits.
...................Seawater is threatening to swamp the wells of Cantarelll as the field's pressure diminishes, a debilitating symptom of old age that
makes it tougher to extract the remaining oil. Leaked internal reports of Pemex's own worst-case scenarios published in Mexican newspapers show
production plummeting to about 520,000 barrels a day by the end of 2008 - a 71 % free-fall from May levels in less than three years.
..................Whether Cantarell's slide prompts changes in Mexico's oil sector remains to be seen. Critics have long lambasted state-owned Pemex
as a hotbed of inefficiency and corruption that officials have treated more like an ATM than Latin America's largest company. But record oil prices
have lessened the urgency to overhaul the company..........Federal officiials last year siphoned $ 54 billion from Pemex to fund government spending
that included a baseball stadium in Chihuahua and a gigantic flagpole in Nuevo Leon.
The trouble, analysts say, is that the governments' take is so large that it has left little to reinvest in Pemex to keep the black gold flowing.
Despite record sales of $86.2 billion last year, the company lost $7.1 billion after taxes. It's the most indebted oil firm in the world, carrring a
staggering $50 billion in loans on its books. Pipeline leaks and explosions are commonplace, in part because the monopoly lacks sufficient funds for
basic maintenance of equipment. Proven reserves have tumbled by more than a third since 2000,. Mexico buys a quarter of it gasoline from foreigners
for want of refining capacity.
..............Some of the most promising potential reserves lie in the deep waters of the Gulf of Mexico. But that's an expensive undertaking for
which Pemex lacks the technical expertise, funding and , perhaps most important - time - to bring new production along fast enough to offset
Cantarell's descent.
"Once Cantarell rolls, conventional wisdom has it that it would roll hard and that the declines would be steep," analyst Herbert said. "It looks like
that may be what we're seeing."
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thebajarunner - 7-26-2006 at 10:30 AM
I don't profess to know much about petroleum, but I do know that any company that grosses $86b in a rapidly rising market and loses nearly 10% on that
number does not deserve to continue in existence.
Didn't Fox want to privatize Pemex?
Wow, if Obrador prevails this one will be real interesting, for sure.
(Can you spell "Come on in, US oil companies, and figure out how to get this stuff outta the ground?")
Osprey - 7-26-2006 at 10:47 AM
It might have been on this board. I read somewhere that last year a billion dollars went south from theft of Pemex oil from storage places -- it's
aledged the criminals worked with/for members of Pemex board and shared the loot with them. Foreign companies like the U.S. wouldn't do it that way.
We have better, subtler ways to get more as board directors, senator, representatives, owners of the stolen goods.
Taco de Baja - 7-26-2006 at 11:10 AM
Makes you wonder what will Ol' Mexico do for $$ when the oil runs out, and if and when ( 
) the US cracks down on US employers hiring Illegals who remit Billions of $$ back to the folks at home.....
Does Mexico have a plan B on how to make money when the #1 and #2 $$ producers stop producing?
comitan - 7-26-2006 at 11:26 AM
Good read on Mexican oil, and economy.
http://www.worldpress.org/print_article.cfm?article_id=2446&...
bajajudy - 7-26-2006 at 11:40 AM
Interesting article, Comitan.
Thanks. Never thought about how close these two issues were.
MrBill
Cute dog
thebajarunner - 7-26-2006 at 12:49 PM
Very interesting article.
Let's see if I got this straight....
The government owns Pemex.
The government taxes Pemex.
How do you tax yourself...???
Only in Mexico.... sigh.....
What that really means is, instead of reinvesting in exploration and technology, 60% of revenue gets siphoned off to support bureaucracy.
"That dog don't hunt!!"
And the article, quoting a 19 year old student - what was she, 12 years old when Fox made his promises.
That's pretty lame journalism, in my view.
again, only in Mexico...
The 800 lb Gorilla
MrBillM - 7-26-2006 at 01:13 PM
Would be a good description of this problem. With all of the passionate debate regarding the Presdential Election, anything that Obrador would do if
he'd been elected, would pale in comparison to the oil revenues eroding significantly. Also mentioned in the referenced article was the fact that
none of the three Presidential candidates during their debates would approach the Pemex "reform" question.The degree to which everyone concerned have
colluded in siphoning off the revenues is staggering. Systemic corruption is endemic in the Mexican bureaucracy and it doesn't seem that is likely to
change no matter who is elected. All of the corruption "cleansing" has been done at the lower (cop on the street) levels, none in the upper reaches.
The earlier article on the rampant theft of Pemex product including organized crime and Pemex insiders was discussed on this forum awhile back.
Granting that Corporate and Governmental corruption occurs on a regular basis in the U.S. , it is notable that those corruption issues are constantly
being routed out, prosecuted and punished on a regular basis.
There are now two issues that concern me above all others regarding my future in Baja. The first is the rampant building boom that will bring greater
density and the higher costs that will occur as a result. The oil question, if accurate, is now firmly in place at number two since it brings with it
the possibility of total chaos in the economy, affecting millions of people already barely scratching by.
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My newest pooch: She is the one we picked up in San Felipe the third week of March. Weighing 3.5 lbs at six weeks, we were told the mother was a
Doxie, father unknown. Luckily, she turned out to likely favor the mom. She stopped growing about six weeks back at 18lbs. A good thing since it
gets crowded travelling with three dogs. The other two are 55 and 65 lbs. She is a cutie, thanks.
Yes, Virginia, there is a Ma?ana
Dave - 7-26-2006 at 06:29 PM
In 2000, I read an industry report that concluded Mexico would become a net importer of petroleum by 2015. Looks like they just might beat
the clock.
<Which would be the first time that anything happened ahead of schedule.> 