Pemex's Exit From `Drill, Baby, Drill' May Hurt Cicsa, Tenaris

Petroleos Mexicanos’s plans to scale back drilling by 60 percent next year at its $11 billion Chicontepec oil field will hurt Mexican oil services providers as they lose contracts to companies such as Halliburton Co. and Schlumberger Ltd., analysts said.

Pemex, as Latin America’s biggest oil producer is known, is shifting its strategy on Chicontepec and earmarking the majority of the field’s 2011 budget of 21 billion pesos ($1.7 billion) for research after output missed forecasts, Chief Executive Officer Juan Jose Suarez Coppel said Oct. 1 in an interview.

The move may squeeze out local contractors lacking technological experience such as billionaire Carlos Slim’s Carso Infraestructura & Construccion SAB, known as Cicsa, and Empresas ICA SAB, Mexico’s largest construction company, in favor of Halliburton and Schlumberger, said Carlos Hermosillo, an analyst at Mexico City-based brokerage Vector Casa de Bolsa SA.

Chicontepec’s domestic contractors “don’t have a great deal of technological innovation that they can offer Pemex,” Hermosillo said Oct. 4 in a telephone interview. “They’re more about executing whatever Pemex orders.”

Executives of Cicsa, based in Mexico City, declined to comment, according to Slim’s press office. Spokeswomen for ICA, Schlumberger and Halliburton didn’t respond to messages seeking comment.

Slashing Drilling

Pemex said Sept. 29 it will cut drilling next year at Chicontepec to 499 wells from 1,250. The company, based in Mexico City, is seeking ways to improve production after the field missed output targets in the past three years.

The strategy “had to be re-gauged to focus on field labs,” Suarez Coppel said. “If we had more budget flexibility, we would have higher drilling activity for next year.”

Pemex hired Schlumberger, Halliburton, Tecpetrol SA, Baker Hughes Inc. and Weatherford International Ltd. to run five field research labs to determine the most productive techniques before expanding drilling at Chicontepec. Pemex doesn’t plan to hire more contractors for additional field research, Suarez Coppel said.

“I don’t see Pemex returning anytime soon to the ‘drill, baby, drill’ strategy at Chicontepec,” Jeremy Martin, an oil specialist at the Institute of the Americas in La Jolla, California, said Oct. 4 in a telephone interview.

Cicsa, Ica

Before today, Cicsa and Ica dropped 11 percent and 1.9 percent, respectively, in the past six months, while Mexico’s benchmark index has gained 2.7 percent. Halliburton rose 9.7 percent in the same period.

Ica gained 41 centavos, or 1.3 percent, to 31.81 pesos in Mexico City trading at 4:01 p.m. local time. Cicsa fell 5 centavos to 7.7. Halliburton fell 0.5 percent to $34.56 in New York Stock Exchange composite trading.

Schlumberger and Halliburton, both based in Houston, are the world’s biggest and second-largest oilfield-services companies, respectively.

Chicontepec, also known as the Tertiary Gulf Oil Project, is a field with small pockets of oil and low pressure spread across the states of Puebla, Hidalgo and Veracruz near the Gulf of Mexico.

Production Shortfall

Three years ago, Pemex forecast output of 660,000 barrels a day by 2015 for the project in central and eastern Mexico. Two weeks ago, Suarez Coppel said 2015 production is expected to be 150,000 barrels. Chicontepec produced 29,637 barrels of oil a day in December, below an original target of 100,000 barrels.

The project’s “budget continues to be very large,” said John Padilla, managing director of IPD Latin America, an energy consulting firm. Most of the budget will go into “investigative efforts,” he said in a phone interview Oct. 1.

“Those are probably the most expensive barrels that have ever been produced in Mexican history,” said George Baker, a Houston-based energy consultant.

Weatherford, which operates Chicontepec’s Presidente Aleman field lab, sees Mexico as one of its revenue drivers for the coming 18 months, Chief Executive Officer Bernard Duroc-Danner told investors Sept. 15 at a conference in New York.

‘Domino Effect’

The strategy shift will also affect oil equipment suppliers such as Tenaris SA, the world’s largest maker of steel pipes for the oil and gas industry, said Baker in a phone interview.

Reduced drilling “will create a domino effect that will impact companies ranging from big suppliers to tortilla shops,” Baker, who publishes the Mexico Energy Intelligence newsletter, said in an interview from Houston.

Tenaris has fallen 7.2 percent in the past six months. Today, the company controlled by Paolo Rocca, fell 12 cents to $41.05 at 5:15 p.m. in New York.

Gerardo Cardenas, a spokesman for Tenaris, said the company didn’t immediately have a comment about Chicontepec’s 2011 oil pipeline demand.

To contact the reporter on this story: Carlos M. Rodriguez in Mexico City at carlosmr@bloomberg.net.

To contact the editor responsible for this story: Jessica Brice at jbrice1@bloomberg.net

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