PEMEX Rolls Dice On "Fiendish" Difficulties Of Chicontepec Field As Output Plummets - Reuters

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Mexico's options for avoiding a dramatic decline in oil output are narrowing to a multibillion dollar gamble on the Chicontepec basin, where producing crude is so difficult it has been largely ignored since its discovery in the 1920s. Chicontepec, an onshore oil basin bigger than Luxembourg located in eastern Mexico, could hold more than 100 billion barrels of crude, but because of the area's fiendish geology only a fraction of this oil is believed to be recoverable.

State oil company Pemex thinks it can access up to 12 billion barrels of crude at Chicontepec, almost as much as its current proven reserves, and sees the project as a stopgap solution until hoped-for discoveries in the deep waters of the Gulf of Mexico can be brought online. But drilling efforts have so far been only marginally successful and there is widespread skepticism that the technology can be found to cheaply and quickly transform the area into a new giant oil-producing project.

As recently as 2002, Mexico forecast the 29 fields in the Chicontepec basin would pump nearly one million barrels per day by 2010. But after drilling more than 650 wells between 2002 and 2007, production today is only 35,000 bpd. Pemex now aims to boost the basin's output by 75,000 bpd a year until it reaches 580,000 bpd in 2021.

Production costs are significantly higher at Chicontepec than other fields in Mexico because wells drilled there produce very little oil. The area's dense rock and small oil pockets impede the underground flow of crude, meaning many more wells are needed than at a similar-sized conventional oilfield. Chicontepec's wells typically produce only 100 to 150 bpd and much of the output dries up a few months after production starts, according to longtime Mexico oil analyst George Baker.

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