Deep-water drilling is a test for Mexican oil company Pemex

ABOARD THE CENTENARIO OIL PLATFORM, Gulf of Mexico — More than 3,000 feet below these waves, with a drill bit wider than a human thigh, Mexico is digging for its future.

The gulf is one of the world’s great largely unexplored reservoirs of oil and gas, industry experts say, but the state-run oil monopoly Pemex so far has lacked the money and technical capacity to extract from its deeper waters.

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Now that the country has passed legislation opening up its beleaguered oil industry to outsiders for the first time in 75 years, the government is hoping that future partnerships with foreign companies to drill for hard-to-access undersea oil will mean billions of dollars of new revenue.

“The easy oil is all gone,” said José Luis Sánchez Mosqueda, a well engineer on the Centenario platform. “We need to get unconventional oil.”

Mexican oil production has fallen by nearly a quarter in the past decade as the easy targets dry up, and Pemex has struggled with inefficiency and mismanagement.

“We’re facing a pretty serious crisis,” said Miriam Grunstein, an oil specialist at CIDE, a public research university in Mexico City.

Pemex officials estimate that 50 billion barrels of oil may reside in the depths of the gulf, more than all their proven reserves on land and in shallower waters. In the gulf’s American waters, oil companies have been pumping oil for years from deep waters, defined as anything below 500 meters (1,640 feet).

Centenario is one of four rigs Pemex is renting to make its first exploratory wells in deep water. Of the 28 wells associated with those rigs, Pemex officials say they have found evidence of oil or gas at 15. The company’s head of exploration and production, Carlos Morales, predicted that deep-water oil could one day account for as much as 30 percent of Mexico’s production.

But to go from exploration to production requires years of planning and a fortune in investment to build the machinery and piping to start delivering oil — infrastructure that energy analyst George Baker described as “a small city on the seafloor.” Disasters such as BP’s Deepwater Horizon oil spill in 2010 are vivid reminders of the risks of offshore drilling.

The technical expertise needed for such operations has been demonstrated only by the largest oil companies, the Exxon Mobils and Shells of the world. Energy analysts predict that Pemex might focus on its onshore and shallow-water resources and let these foreign firms take the lead in this riskier drilling.

“I don’t think Pemex is going to put a claim on the deep-water fields,” said Luis Miguel Labardini, a partner at a Mexico City energy consultancy. “Deep-water is going to be mostly an [international oil company] play, with some participation of Pemex as a member of a consortium, but not as the operator of the fields, and not as the main investor.”

At the Centenario platform, which floats over a gas field known as Lakach, workers have been drilling down into the murk for months. Pemex rents the rig at a cost of half a million dollars per day, and much of the work is done by foreign contractors: Scots, Germans, Canadians. The 160 men in the crew live and work in cramped quarters on 12-hour shifts for up to a month before rotating out by helicopter. At times they get buffeted by giant waves and 60 mph winds.

“The only way to know with certainty if there is oil or gas is to drill,” said Sánchez Mosqueda, the well engineer. “You can do all sorts of studies, but the only way to know for sure is to drill.”

Mexican President Enrique Peña Nieto wagered his first-year political capital on overhauling the country’s oil sector, the most important effort of his young administration. Despite polls showing that a majority of Mexicans were against the reform, leftist political parties could not muster opposition to block its passage in the National Congress last month.

The next step on the political calendar is for Mexico to pass secondary legislation that would spell out the fine print of how contracts would work and the structure of Mexican institutions that would administer them. Some predict that the government could begin issuing tenders and assigning prospective oil fields to foreign firms by the end of this year.

“I think the government has all the incentives to move this reform ahead as fast as possible,” Labardini said. “If they can show numbers of figures of investment, employment, infrastructure being developed, they will be able to counter the claims of the left about how bad this reform would be for Mexico in the long run.”

 
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