Can Mexico Keep Its Oil Reserves from Dwindling?

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Low oil prices around the world since 2014 and uncertainty about the future of Mexico’s oil sector are to blame for the country’s decline in proven crude reserves, R. Kirk Sherr says below. Pictured is a Pemex offshore oil compression platform. // File Photo: Pemex.

Mexico’s oil reserves are depleting so quickly that the country could completely run out of oil within nine years if it does not make any new discoveries, according to the commissioner of the National Hydrocarbons Commission, or CNH. How likely is it that the projected scenario will occur? What steps has Mexico taken to mitigate this risk, and will they be enough? Why did Mexico’s oil sector end up in this situation to begin with, and is there a risk of depleted reserves being a recurring issue for the country?

George Baker, publisher of Mexico Energy Intelligence: “A country with petroleum deposits never ‘runs out of oil’ in a literal sense. What it may run out of is oil that can be produced at a profit at existing prices for oil and oilfield services. A second consideration is that the métier of an oil company not only concerns the discovery of oil in commercial deposits and its subsequent production and sale, but also technological advances that allow for the additional barrel to be produced that, otherwise, under today’s technology, would have stayed in the ground. Said differently, all oil companies are keenly interested in increasing not only production but also the recovery factor of the reservoir. This last element is not properly understood in Mexico, as evidenced by the existence of fixed time limits in the contracts issued by CNH. A contractor is allowed 35 or 40 years with five-year extensions. However, what will happen at year 30 is that a contractor who could implement a new technology to extend the commercial life of the field by 20 years will not invest in that technology. Why? It would take 10 years to recover the investment completely, and the company would not risk the possibility that its contract could be terminated in five years. We may consider…”

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