Energy Secretary Warns USA May Extract Oil From Gulf of Mexico

While expressing confidence that the Congress of the Union will approve the energy reform during the current period of sessions, Energy Secretary Georgina Kessel warned about the possibility that in two years the United States might extract hydrocarbons owned by Mexico at the maritime border in the Gulf of Mexico.

So, she considered it necessary to give Mexican Petroleum [Pemex] the power to use partnership contracts with other companies to explore and develop oil deposits in deep waters.

She said that in two years oil companies operating in the United States will begin to exploit oil deposits on the maritime border with Mexico, so they will be able to take advantage of part of the hydrocarbons in fields located in Mexican waters through the straw effect.

During a television interview, Kessel indicated that to prevent companies from taking advantage of being the first ones to initiate the extraction of hydrocarbons in cross-border oil deposits, international agreements are normally established to divide the resources.

To have access to those fields, however, the companies form partnerships so that they can share experience, technology, and management of the project. We need to give Pemex those kinds of tools, she said.

She asserted that it would not be necessary to establish joint production contracts, but she complained that today Pemex uses contracting models (Multiple Service Contracts for natural gas) that are inflexible because they imply that the parastate company assumes all of the financial risk in drilling wells and, if hydrocarbons are not found, the company loses money.

If the wells are successful, all of the resources will be for Pemex and, in the opposite case, if there are no resources, the oil company assumes the cost.

In oil deposits in shallow waters, a well costs 25m dollars, while the cost in deep waters is 125m dollars. With that, a barrel of oil costs between 4 dollars and 5 dollars in shallow waters and between 25 dollars and 30 dollars in deep waters.

Developing an oil project in deep waters -from exploration to extraction of the first barrel of oil -takes around 9.5 years, which means that "we could be a victim of the straw effect."

Pemex needs to increase its execution capacity. And she cited an example: at Cantarell, producing 2m barrels per day would require 200 wells because each well produced 10,000 barrels per day, but in deep waters each well produces around 1,000 barrels per day. This means that Pemex would have to increase its capacity tenfold and be 10 times bigger.

In addition, she reiterated that the reform bill that the federal executive branch is preparing, in agreement with the political forces, does not provide for a change in the Constitution. The bill will be ready in March.

She said that "with a constitutional change we could create greater legal certainty" because state ownership would be strengthened, since what can and cannot be done is not clear enough.

She denied that the executive branch gave the rough draft of the energy reform bill to the Business Coordinating Council. She explained that they are working to reach a consensus to be able to have a bill that is "ironed out, as they say."

The premises of the bill are: the oil belongs to the Mexican people; the executive branch seeks to strengthen Pemex so that it can compete in the international arena; and it also seeks to promote the growth of the industry.

Originally published by El Financiero website, Mexico City, in Spanish 15 Feb 08.

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