Mexico looking at risky deep water oil

Story highlights

Mexico is looking at deep water drilling as a way of extracting more of its oil reserves

Some estimates say there may be up to 29 million barrels available

Some now want constitutional amendment allowing private investment in oil

But nationalized Pemex is popular with Mexicans, providing cheap gas and money for infrastructure

Ku Maloob Zaap, Mexico CNN  — 

Much of Mexico’s remaining oil wealth lies thousands of meters below the surface of the Gulf of Mexico. The question is: how to get at it.

When state monopoly Pemex discovered its ‘Supergiant’ oil fields in the 1970s, they were found in barely 100 meters of water. At the time, they were the envy of the world and made Pemex one of the biggest oil producers.

But since 2004, production has declined by nearly one million barrels a day as reservoirs dwindle.

To compensate for the aging Supergiants, Pemex must now exploit resources at depths of up to 3,000 meters – where they estimate there may be some 29 billion barrels of oil.

There’s a vast area of the Gulf of Mexico to explore and the size of the task is really brought into focus when you visit an exploration rig. After a 20-minute helicopter flight over an endless expanse of shimmering ocean, a lone platform can just be seen on the horizon.

Pemex has only three exploration rigs available to explore hundreds of thousands of square kilometers and to probe the subsoil they must drill wells which take around 100 days to complete.

Progress is painfully slow compared to the United States.

“The U.S. has a contract scheme which allows private investment, which allows concessions,” says Carlos Ramirez of the Eurasia Group, a risk assessment organization. “So there is a lot of activity coming from the big oil companies. In Mexico, that’s not the case so Pemex has to do it by itself, with its own resources. And the resources Pemex has are limited.”

This is the root of the Mexico’s dilemma.

When the government expropriated the country’s reserves in 1938, the principle of national ownership of oil was enshrined in the constitution.

Pemex is forbidden from entering into production sharing agreements (PSAs) with multinational companies, which would see a BP or ExxonMobil share the exploration risks in exchange for a stake in the oil discovered.

Private investment in the company is also prohibited, so a partial IPO – along the lines of Brazil’s Petrobras – is out of the question.

Pemex has so far invested some $3.8 billion in its Deep Water exploration, which many analysts say is not enough.

So now there is controversia