[A-List] Mexican Gov't Strives to Save Oil Field

[Macdonald Stainsby]

Gov´t strives to save oil field

In March 1971, a fisherman named Rudesindo Cantarell took a few 
geologists from state-run oil company Petróleos Mexicanos to this spot, 
where he had seen oil slicks
http://www.eluniversal.com.mx/miami/24064.html

El Universal
Viernes 06 de abril de 2007

AKAL C OIL PLATFORM, Gulf of Mexico - In March 1971, a fisherman named 
Rudesindo Cantarell took a few geologists from state-run oil company 
Petróleos Mexicanos to this spot, where he had seen oil slicks. 
Cantarell didn´t know it, but he had stumbled across one of the largest 
offshore oil fields ever found.

A few decades and 12 billion barrels of oil later, the field that bears 
Cantarell´s name is dying, and Pemex, as the state-owned company is 
known, is struggling to stave off the field´s demise.

 From January 2006 through February 2007, Cantarell lost a staggering 
one-fifth of its production, with daily output falling to 1.6 million 
barrels from 2 million.

The oil industry was stunned.

Cantarell, which currently produces one of every 50 barrels of oil on 
the world market, is fading so fast analysts believe Mexico may become 
an oil importer in eight years. That would batter Mexico´s economy, 
which depends on oil exports to fund 40 percent of its government spending.

The continued deterioration of the world´s second-biggest field by 
output would also put pressure on prices on the global oil market, where 
supplies are barely keeping up with growing demand as it is.

And it would leave the United States even more dependent on Middle 
Eastern supplies - and that much more vulnerable to political tumult in 
that region.

GLOBAL ISSUE

The demise of Cantarell highlights a global issue: Nearly one-quarter of 
the world´s daily oil output of 85 million barrels is pumped from the 
biggest 20 fields, according to estimates from Wood Mackenzie, a 
Scotland-based oil consulting firm.

And many of those fields, discovered decades ago, could soon follow in 
Cantarell´s footsteps.

It´s widely believed that the world´s biggest oil fields have already 
been found. In the decades leading up to the 1970s, the world discovered 
eight big fields that produced between 500,000 to 1 million barrels a 
day, according to Matthew Simmons, a veteran oil industry banker.

During the 1970s and 1980s, only two were found. Since then, only one - 
the Kashagan field in Kazakhstan - has the potential to easily top the 
500,000 barrel-a-day mark.

Two decades ago, about a dozen fields produced more than 1 million 
barrels a day. Now there are only four, one of which is Cantarell.

The future of two others, discovered more than 50 years ago, remains in 
question. Some analysts speculate Saudi Arabia´s Ghawar, the biggest 
field by far, could begin a gradual decline within a decade or so. 
Another, Kuwait´s Burgan, is showing signs of maturity. In November of 
2005, Kuwait Oil Co. lowered its estimate of the field´s sustainable 
production level to 1.7 million barrels a day from 1.9 million a day.

Replacing big gushers is difficult. Industrialized countries, which 
tapped out their big fields years earlier, haven´t been able to maintain 
output despite finding large numbers of smaller fields and investing 
heavily in technology. Alaska production, hurt by declines at the giant 
Prudhoe Bay field, dropped from 2 million barrels a day in 1988 to a 
current rate of about 900,000 a day.

"The world faces a situation where we have production from smaller and 
smaller fields trying to keep up with declines from the big fields like 
Cantarell," says Mike Rodgers, a partner at industry consulting firm PFC 
Energy in Houston.

"You´re on a treadmill trying to keep up, and you get to a point where 
you can´t make any more forward progress."

POLITICS GETS IN THE WAY

Some industry veterans are more sanguine. They argue that technology and 
high prices are helping tap vast sources of so-called "unconventional" 
crude oil, such as Canada´s tar sands.

Plus, they say technologies will also delay any decline in big fields by 
dislodging billions of barrels of additional oil that used to be too 
costly or difficult to reach.

In Texas and California, fields discovered in the late 19th century are 
still productive.

"The world has managed depending on giant oil fields for the last 
several decades," says Khalid Al-Roldan, a visiting fellow at the Center 
for Strategic and International Studies, based in Washington, D.C.

But even if there is enough oil under the ground, the politics above the 
ground get in the way. The vast majority of the world´s remaining big 
fields are in developing countries and run by government-owned oil 
companies, which are often less efficient than their investor-owned 
counterparts.

State-owned companies in many countries, like those in Venezuela and 
Iran, are milked by their government for taxes, which reduces their 
ability to invest in new oil technology.

Legal restrictions make it hard for national oil companies to work with 
foreign firms, cutting them off from techniques used in the rest of the 
industry.

Pemex suffers many of these limitations.

Its last two chief executives failed to persuade Congress to remove 
foreign investment restrictions, which are embedded in the Constitution 
and viewed as an embodiment of Mexican nationalism.

The new president, Felipe Calderón, is expected to try to end the 
investment restrictions, but he too faces long odds.

GEOLOGICAL HISTORY

Cantarell, like all giant oil fields, boasts an unusual geological history.

Geologists say it may have been formed thanks to the asteroid that 
slammed into the Yucatán Peninsula some 65 million years ago - the same 
event that is believed to have led to the extinction of the dinosaurs.

The impact caused giant cracks underground that allowed oil from 
previous millennia to accumulate in a single spot.

The field lay unnoticed until Cantarell, the fisherman, kept getting his 
nets smeared with oil as he trawled for shrimp in the 1960s.

Assuming that the oil came from Pemex operations, he regularly hauled 
his oil-stained nets hundreds of miles to the nearest Pemex offices in 
the neighboring state of Veracruz to seek compensation.

Finally, local Pemex officials say, the oil giant grew so exasperated 
with Cantarell that it went to check out his story.

The find was spectacular.

UNDERGROUND VOLCANO

Unlike most oil fields, which have a thin band of oil-rich rock that 
stretches for miles in every direction, Cantarell is shaped like a 
massive underground volcano, with huge amounts of oil in a relatively 
small place.

While Saudi Arabia´s Ghawar takes up about 2,700 square miles, Cantarell 
is just 70 square miles. From one platform, one can see the entire field.

Cantarell´s formation made the field easy to exploit.

It had so much initial pressure that Pemex´s first well at the field 
produced 36,000 barrels of oil a day, compared with a few hundred 
barrels at most wells.

The field is also in relatively shallow waters - it is 50 yards deep.

The water is so calm one can spot barracuda swimming between the 
platforms and there is no need for expensive deep-sea platforms.

BATTLING COMPLACENCY

Today, Cantarell needs just 208 wells to produce the equivalent of 
one-fourth the entire U.S. oil output, while the United States needs 
hundreds of thousands of wells for a similar haul.

But the field´s abundance also bred a sense of complacency. As is the 
case in many oil-rich countries, Mexico relied on oil to foot its 
current spending but gave little thought to what happens when the oil 
runs out.

Last year, Cantarell was responsible for some US$25 billion of the US$53 
billion that Pemex handed over to the government.

The steep tax bill has left Pemex chronically short of cash to invest in 
finding new fields to replace its aging giant.

Cantarell produced about 1 million barrels a day from 1980 to the 
mid-1990s, when the field began to slowly lose pressure.

This happens to all fields: They begin with enormous natural pressure 
because they are buried deeply beneath layers of heavy rock.

But from the moment a well pricks a field and the oil is taken out, the 
pressure eases, like letting air out of a balloon.

So in 1998, Pemex began injecting massive amounts of nitrogen into the 
field, which was the oil-field equivalent of squeezing a balloon from 
the bottom.

Output more than doubled to a peak of 2.3 million barrels a day in 2004.

TECHNICAL SUCCESS

That decision was hailed as a technical success, but it was just a 
temporary fix: It only sucked the field dry faster and set the stage for 
a steeper decline.

Now, Pemex´s lack of money and technology is a handicap in managing the 
decline.

The company didn´t have any machinery on its Cantarell platforms to 
separate water from oil - standard equipment for most of the rest of the 
industry.

So when water from an underground aquifer began to creep into wells, a 
common occurrence in an older field, Pemex had to shut down the wells.

The company closed any well where the water content rose to between 3 
percent and 5 percent of the oil. By contrast, there are wells in Texas 
that are able to produce with 99 percent water.

"The water problem took us by surprise, but we are handling it," says 
Gustavo Hernández, Pemex´s head of planning at the field.

HORIZONTAL DRILLING

Standing atop an oil platform in the Gulf, Hernández says the company 
has overhauled platforms to handle water content of between 8 percent 
and 9 percent and is installing an additional water separation plant 
this year, allowing it to reopen more wells.

Last year, Pemex drilled its first horizontal wells at the field, 
something investor-owned oil companies have been using since the early 
1980s.

Horizontal wells bore down into a field like a traditional vertical 
well, but then spread out horizontally, extending for miles and allowing 
a single platform to suck up oil from a much larger area. Pemex plans to 
drill more such wells this year.

Pemex says steps like these, part of US$2.4 billion in investment in the 
field this year, will slow the field´s decline by about half of last 
year´s pace.

Instead of a decrease of 400,000 barrels a day, Pemex hopes Cantarell 
will lose some 200,000 barrels of daily output by year´s end.

After that, the company says Cantarell will probably continue to decline 
by roughly 10 percent a year, down to a daily average of 600,000 in 2013.

NITROGEN INJECTION

Pemex hopes to largely offset Cantarell´s decline in the next three 
years by doing the same kind of nitrogen injection at its second-biggest 
producer, Ku-Maloob-Zaap, a collection of three fields within eyeshot of 
Cantarell´s platform. (Its Mayan names translate to "nest," "good," and 
"charcoal.")

But Ku-Maloob-Zaap, which is also ranked in the world´s top 20 fields, 
will start its own decline in 2011, according to Pemex.

That leaves Chicontepec, a massive onshore field in eastern Mexico that 
was discovered in the 1920s, but hasn´t been fully developed because it 
is broken up into tiny pockets of oil that spread out over thousands of 
square miles in rocky terrain.

Pemex says it will need more than 15,000 wells to fully tap the field - 
a big stretch for a company that has drilled about 23,000 wells since it 
was formed in 1938. Developing Chicontepec is also difficult 
politically; there are scores of nearby towns that may take a dim view 
of oil production in their backyard.

CONSTANT ADJUSTMENT

For now, Pemex is doing what it can to keep Cantarell going as long as 
possible.

A narrowing band of oil means that wells that are drilled at lesser 
depths have started to hit gas, which is less valuable than oil. Wells 
that are too deep hit greater amounts of water, which must be extracted 
from the oil before sale.

"It´s a constant game of adjustment," says Hernández, the field´s top 
planner.

In most cases, Pemex tries to replace the production by re-drilling the 
same well either higher or lower. Still, Hernández expects to lose 30 
wells this year.

Benjamín Melo, manager of the Akal C platform, tries to assess the 
future by looking out across the field: "This has been a generous field. 
And there is still a lot of oil down there. But it won´t last forever."


-- 
Macdonald Stainsby
http://independentmedia.ca/survivingcanada
http://lists.econ.utah.edu/mailman/listinfo/rad-green
In the contradiction lies the hope
    --Bertholt Brecht.