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GDF Suez and Codelco to merge all SING operations into Edelnor - Chile
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Apco sees Q3 net rise to US$6.3mn - Argentina
Export basket down to US$72.82/b - Venezuela
Ministry, Angola pen five-year E&P agreement - Ecuador
ANP to host biodiesel auction November 17 - Brazil
IN BRIEF Canacol completes Takutu farmout with Sagres - Guyana
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CNH to issue Chicontepec recommendation next month, says commissioner - Mexico

Saturday, November 7, 2009

(BNamericas.com) - Mexico's upstream watchdog CNH will send its recommendation for the Chicontepec oil project in Puebla and Veracruz states to state oil firm Pemex's board in December, CNH commissioner Javier Estrada told BNamericas.

The recommendation will also be submitted to Mexico's congress.

CNH last month sparked a flurry of headlines criticizing Chicontepec's failure to generate results after its president, Juan Carlos Zepeda, said the project should be reevaluated.

Pemex has thus far signed drilling contracts worth billions of dollars, but production has continued to hover at just 30,000b/d. The company has said the field is its main hope for offsetting the precipitous decline from the Cantarell field and could produce 737,000b/d by 2017.

"Chicontepec is within Pemex's reach, but it requires much more study. It also first requires a different approach to know which areas are the sweet spots," Estrada said.

"We have to start in the places that already have demonstrated productivity, such as Agua Fria. We have to start with greater productivity, bring in the water that is needed, have gas collection systems and produce oil with the minimum installations necessary. That will provide sufficient capital to continue exploiting Chicontepec," he added.

There has been speculation as to whether a reevaluation of Chicontepec could mean the renegotiation or cancellation of the drilling contracts held by service providers such as Schlumberger (NYSE: SLB) and Weatherford International (NYSE: WFT).

The recommendations made by CNH would not oblige any action by Pemex, Estrada said, though it could be in the service companies' interest to redefine the scope of their contracts before their brand names are tarnished due to association with the struggling project.

"I think it is possible at this time to negotiate with the companies so they themselves facilitate the adaptation to new objectives and also so they have greater participation in defining the way to exploit the field's different areas. That could shine a new light on the project," Estrada said.

The so-called performance-based contracts Pemex can now sign under the terms of last year's energy reform could also greatly assist in ramping up Chicontepec output. They would provide bonuses to companies for exceeding contractual expectations.

Pemex's new CEO, Juan José Suárez, said in October that the company aimed to begin tendering the contracts in the first quarter of 2010.

However, a constitutional objection to the contracts was recently sent by the lower congressional house to the supreme court. Neither Pemex nor service companies would be likely to sign contracts with such incentives until their constitutionality has been upheld.

Estrada said it would be "tremendously optimistic" to expect the supreme court to issue its ruling in three months and that a seven-month timeline is a more realistic scenario.

He expressed hope, however, that the delay in signing incentivized contracts will provide the time to improve the oil sector.

"It gives us time to perfect several things: the regulation, energy policy, Pemex itself, the terms and conditions of the contracts. In a way, I think that within the disadvantage there are certain advantages," Estrada said.

Chicontepec holds 39% of total possible hydrocarbons reserves in the country, or 17.7Bboe. Due to the field's low porosity and small pockets of reserves, Pemex has said more than 1,000 wells will need to be drilled annually over the next 15 years....