MEXICO
Mexico oil output to decline, analysts sayOil production in Mexico may have peaked in 2004, according to Raymond James & Associates.
BY AMY STRAHAN
Bloomberg News
Oil output has peaked; major field in decline.
Mexico's oil output will probably decline in the next two years if the country doesn't allow foreign investment to boost drilling, according to Raymond James & Associates.
Production in Mexico may have peaked in 2004, analysts J. Marshall Adkins and Pavel Molchanov wrote in a July 10 report, because the 30-year-old Cantarell field, the world's second-largest, has reached maximum output, they said. Petróleos Mexicanos, the state oil company, said Aug. 2 that Cantarell production will decline 8 percent this year.
''The country's oil production looks like it already might have peaked -- quite possibly for good,'' they said in the report. ``At the very least, production appears stagnant. Following a decline in 2005, we project that Mexican production will again show modest year-over-year declines in 2006 and 2007.''
Foreign investment to boost production in Mexico is unlikely because of prohibitions in place since Petróleos Mexicanos, the government oil company, was formed in 1938. Felipe Calderón, who won a narrow victory as president of Mexico last month, said he does not favor privatization, although he supports allowing Pemex to form joint ventures with foreign operators, Molchanov said.
Pemex is so heavily taxed it has no capital for re-investment in exploration and production, Molchanov said in an interview. ``After paying its operating and labor costs, Pemex may have to borrow to fund its capital spending, despite record oil prices.''
Crude oil output at Cantarell fell faster than expected in June to a four-year low, according to data from Mexico's energy ministry. The decline signals the government will miss production targets.
The field, which accounts for about half of Mexico's crude production, yielded 1.74 million barrels a day in June, the most recent month for which information is available. That's 13 percent less than a year ago and the least since November 2001, according the ministry.
The drop worsens the outlook for Mexico's crude exports, about 80 percent of which go to the United States. The decline comes as BP Plc announced Sunday it is temporarily closing its Prudhoe Bay oil field because of pipeline corrosion. Prudhoe Bay is the largest field in the United States. About 400,000 barrels a day of production is being shut, possibly for months.
Crude oil prices have increased 23 percent this year on concern that supplies won't be able to meet increases in global demand. Violence in Nigeria cut output by 20 percent this year, and efforts to curtail Iran's nuclear program have increased the risk of a reduction in shipments from the Islamic republic.
Oil futures in New York rose to a record $78.40 a barrel on July 14.
Mexico, the third-largest oil producer outside of the 11-member Organization of Petroleum Exporting Countries, pumps 4 percent of the world's oil. Estimates from the Mexican government have suggested that the Cantarell field won't begin declining until 2008, Molchanov, Adkins and Wayne Andrews wrote in the note to investors.
In 2004, Mexico's production rose less than 0.4 percent, and by 2005 it fell 1.4 percent, according to the analysts. Mexico currently produces 3.78 million barrels a day, Molchanov said.
The current stagnant production figures suggest oil prices could continue to rise, according to the report.
