http://dailynews.yahoo.com/h/nm/20000806/bs/energy_mexico_dc_1.html Sunday August 6 11:03 AM ET
Mexico's Oil Bet Begins to See the Light

By Susan Schneider

CAMPECHE SOUND, Mexico (Reuters) - Sprouting up from the cobalt seas of the southern Gulf of Mexico, orange flames leap into the sky amid a scattering of oil rigs -- the only surface evidence of Mexico's $10.5 billion oil gamble.

The web of platforms, some 10 stories high, dots the sea 48 miles north of the verdant Yucatan peninsula and makes up the core of the Cantarell project, which has pioneered an untried nitrogen-injection program to boost field pressure.

The underwater oil field, the world's sixth-largest, is not a new find. Discovered in 1976, the deposit has for decades supplied half or more of the overall oil output of Mexico, one of the top three crude exporters to the United States.

But a few years ago, internal well pressure levels began to slip at Cantarell, and along with them oil volumes and productivity per well. So in 1996, state oil monopoly Petroleos Mexicanos (Pemex) launched a study to determine how to recuperate output levels and keep the crucial field viable.

The resulting plan touched off an avalanche of criticism.

Some experts said the project's main plank -- the injection of massive amounts of nitrogen, chosen for its low cost -- had never been tried on such a scale before. And early reports from the field cataloged a host of delays, setbacks and financial irregularities.

Now, in the fourth year of the five-year infrastructure plan, the criticism seems to be relegated to history for Pemex officials.

Two of the four nitrogen modules at the project's $1 billion nitrogen plant came on line last month, piping 600 million cubic feet per day to the Cantarell platforms.

Oil production levels are now hovering at 1.56 million barrels per day (bpd) and are set to rise to an average of 1.65 million bpd by year's end, an increase from 1.0 million bpd in 1995, according to Pemex.

``There's been an increase of 700,000 bpd with Cantarell,'' Project Director Antonio Acuna told reporters on a tour of the complex. ``Output would've been around 900,000 bpd without it.''

While Cantarell's capacity, at 1.896 million bpd for this year, is set to climb in coming years, Acuna said it was not likely to alter Mexico's overall capacity greatly because other production fields are slowly declining in capacity.

Mexico produced an average 3.056 million bpd in June as it continued to participate in a pact with oil cartel OPEC that caps exports to help keep prices at profitable levels.

The nation, which helped broker the OPEC accords with oil powers Venezuela and Saudi Arabia, is seen with a capacity of between 3.3 million and 3.4 million bpd.

Nitrogen Link

The controversial Cantarell project hinges on the nitrogen complex, located on the Atasta peninsula, a 45-minute helicopter ride to the south of the main cluster of oil projects.

The facility was constructed by a five-firm consortium of Japan's Marubeni Corp. (8002.T), Canada's Westcoast Energy (Toronto:W.TO - news), Germany's Linde AG (LING.F) and ICA Flour Daniel and England's BOC Gases (BOC.L), which snagged the 15-year contract in an October 1997 auction.

The nitrogen is produced by four massive air separation units, which the group says are the largest ever built, and generated by four 75-megawatt power plants.

The first two modules came on line June 2 and June 29 and the other two are scheduled to begin operating in the first half of August, bringing the nitrogen stream to its capacity of 1.2 billion cfd, said Javier Hinojosa, a subdirector of Pemex's northeast marine region that includes Cantarell.

Than Just A Nitrogen Project

The Cantarell overhaul does not end with just the nitrogen operation. Pemex's goals for Cantarell, which groups Akal, Chac, Kutz, Nohoch and the recently discovered Sihil fields, also included reducing costly repairs, upping reserves and updating installations, Acuna said.

To meet these targets, Pemex is constructing 26 new platforms, including eight for drilling, six for processing, production and compression activities, and eight more -- some with saunas and gyms -- for employees' quarters.

There are also 205 new production wells and nine injection wells, which are all linked to the Cantarell complex through a string of interconnections and pipelines.

To the north of the platforms, Cantarell also counts on a sort of floating port -- the crimson, 427-yard FSO Ta'Kuntah -- that can store and offload oil in the event of weather emergencies at two key oil ports to the south, Dos Bocas and Cayo Arcas. The ship, whose name means storage in the indigenous language of the Mayan people native to Mexico, sits 72 miles from Cuidad del Carmen in Campeche state and 19 miles from the Akal oil field that pumps out the bulk of Cantarell's primarily heavy crude.

The Ta'Kuntah, which Pemex officials point out is the length of four bullrings, can store up to 2.342 million barrels of oil and offload 120,000 barrels per hour -- 80,000 side-to-side and 40,000 at the end.

``This means a great deal to the continuity of production in the region,'' Hinojosa said.

Cheap Drilling

Cantarell's oil boasts relatively cheap production costs, giving Mexico a convincing argument to overhaul the project.

Pemex says production costs ran at $2.83 a barrel between January and June, putting the world's fifth-largest oil company higher than the $1.50 a barrel cost to the world's cheapest producer, Saudi Arabia but well below some Gulf of Mexico companies that post costs in the double digits.

But in the end, the colossal size and high costs of the project that have been so scrutinized -- and which analysts say could have a price tag of $15-$20 billion by the project's end -- underscores just how powerful oil is to the North American nation.

``It's the pride of Mexico,'' Acuna said.

-- cpr (buytexas@swbell.net), August 06, 2000

Answers

I'm pleased that their capacity is now expanded. However (from the story)...

Mexico produced an average 3.056 million bpd in June as it continued to participate in a pact with oil cartel OPEC that caps exports to help keep prices at profitable levels...

...It's still yada, yada, yada -- until the results of all this wonderful increased capacity start showing up at the refineries. I'll hold my applause until then, if it's all the same.

-- I'm Here, I'm There (I'm Everywhere@so.beware), August 06, 2000.