CORRECTED - Mexico oil, gas exploratory drilling at decade low

Thu Jul 29, 2010 8:49pm BST

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(Corrects to 2009 in para 9)

* New exploratory wells down 45 pct in first half

* Pemex attributes fall to reduced gas exploration

* Only 18 of 34 wells planned for first half completed

By Robert Campbell

MEXICO CITY, July 29 (Reuters) - Mexico's state oil company Pemex has this year drilled the fewest wells in search of new crude and natural gas reservoirs since 2001, raising doubts over its drive to sustain production as major fields age.

The world's No.7 oil producer neglected exploration for years but has been forced to step up efforts since 2004 as the natural decline of its aging giant oil fields threatens the stability of government finances.

Pemex [PEMX.UL] has been improving exploration in recent years but still does not yet find enough new oil and gas deposits to replace what it produces every year.

But in the first six months of this year, drilling has fallen sharply, ending a three-year increase.

The company started 19 probes over the first six months of 2010, down from 34 a year ago, and it has only completed 18 wells, far short of the 34 called for in its official 2010 operating plan, according to government data.

Pemex told Reuters the decline in exploratory drilling was due in part to a decision, rooted in lower prices, to reduce the number of probes dug in search of natural gas, as well as a new focus on drilling in its traditional operating areas.

But industry observers note that the number of oil discoveries has declined this year, putting at risk Pemex's goal of bringing online new production to offset declines elsewhere and helping the company's bottom line.

"It's no surprise they're finding less. Fewer wells equals fewer discoveries. They need to drill more if they are going to meet their goals," said an industry source who declined to be identified due to an ongoing working relationship with Pemex.

Six wells have found oil this year, down from 10 discoveries in the first half of 2009, according to government data.

STRATEGY SHAKE-UP?

The decline in exploratory drilling comes as Pemex's overall strategy appears to be in flux.

A member of the company's board of directors told Reuters earlier this month that efforts were being refocused back to parts of Mexico were Pemex had the most experience: the shallow waters of the Gulf of Mexico and onshore areas nearby. [ID:nN23176167]

Pemex said increased exploration in these traditional areas would mean slower, but more certain results, with significant finds such as Ayatsil and Tsimin breathing new life into what was thought to be mature basins.

"Drilling and completing wells in these areas can take and cost 10 to 20 times as much as wells in the gas basins of Burgos and Veracruz," Pemex said in a statement.

The slowdown in exploration comes as Pemex is also sharply reducing the number of rigs digging production wells at existing fields amid a broad strategic rethink.

The company is not renewing the contracts of rigs drilling at its controversial multibillion-dollar Chicontepec project, where poor results have forced Pemex to back down from its previously ambitious goals for the area.

The number of rigs operating in Mexico fell to 130 in June, the most recent month of data available, down from a peak of 184 achieved as recently as September. The bulk of the decline has been in Pemex's northern region, where both Chicontepec and its major onshore gas fields are located. (Reporting by Robert Campbell; Editing by Marguerita Choy)

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