Oil Find in Mexico Far From Success

About 60 miles from shore and three miles down through seawater and earth lies Mexico’s best hope to replenish its slipping oil fortunes.

Mexican President Vicente Fox announced Tuesday that state-owned oil giant Pemex had hit serious pay dirt in the Gulf of Mexico: A deep-water exploration known as Noxal had tapped a field off the coast of the southern state of Veracruz that could contain as many as 10 billion barrels of oil. If the field pans out, it would be one of the largest in the nation’s history and go a long way toward bolstering Mexico’s rapidly declining petroleum reserves, which some experts have warned could run out in as little as 11 years.

“Noxal begins a new stage of petroleum exploration in our country,” said Fox, speaking in the Veracruz city of Coatzacoalcos after visiting the drilling rig.

But the undersea riches won’t come quickly, easily or cheaply. Not only could it take a decade for the new field to begin producing, but officials also acknowledge that the undertaking could push Mexico’s engineering and financial capabilities to the limit.

The world’s fifth-largest oil producer has little experience drilling in deep water, a technically challenging and expensive endeavor. Mexico’s inefficient oil monopoly, Pemex, is indebted to the hilt. And the nation’s constitution forbids equity investments by foreigners, which prevents Mexico from teaming up with major oil companies to find and extract more crude.

Despite high oil prices, Pemex lost about $4 billion in 2005, the eighth straight year that the company has bled red ink. It’s a consequence of interest payments on its $50 billion in debt and staggering taxes. About 60% of Pemex’s revenue goes to the treasury to finance one-third of federal spending on such things as schools and sewers.

That has left little for even basic maintenance, much less the big bucks needed for exploration and development. Privatization remains an anathema in Mexico, where the 1938 nationalization of the oil industry is celebrated as a federal holiday. Still, Pemex officials hinted Tuesday that they were looking for wiggle room to get Noxal pumping.

“We recognize that we should establish new mechanisms of collaboration with other petroleum companies with experience in deep waters,” said Luis Ramirez Corzo, director general of Pemex.

Industry analysts reacted cautiously to the news.

“Certainly it’s going to be welcomed if, in fact, it turns out to be true,” said William Herbert, co-head of research at Simmons & Co. International, a Houston-based energy investment bank. Herbert said that among the challenges Mexico faced was obtaining technical talent and equipment to get the Noxal project underway quickly.

A major find by Mexico, the fourth-largest U.S. oil supplier, would be welcome news.

Herbert said the world’s two biggest fields -- Saudi Arabia’s Ghawar and Mexico’s Cantarell -- were on the decline.

Located off the coast of Campeche state, Cantarell accounted for about 60% of the 3.3 million barrels a day that Mexico produced last year. The field’s production peaked in 2004 at about 2.2 million barrels daily, and analysts say its output could begin falling by 10% or more annually within a few years.

“Replacing that much production is going to be a huge challenge” for Mexico, said Jed Bailey, senior director of Latin American research at Cambridge Energy Research Associates in Massachusetts.

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Times researchers Cecilia Sanchez and Carlos Martinez contributed to this report.