Mexico City (Platts)--27May2008

Production at the giant Cantarell complex in the Sound of Campeche --
long the mainstay of Mexico's crude output -- slumped by 33% year on year in
April, twice as fast as the decline forecast for this year by the state-owned
Pemex, Energy Ministry figures showed Monday.
Production of Cantarell in April was 1.074 million b/d, half of its
peak of four years ago and the lowest since secondary recovery by nitrogen
injection began at the turn of the millennium.
Cantarell's decline is only being partly offset by increased production
from other fields.
In April, Pemex produced 2.767 million b/d of crude, down 13% from the
same month of last year, while crude exports dropped by 14.3% year on year to
1.439 million b/d.
And production dropped year on year for every month of 2007 as it has now
for 2008.
Mexico's crude production peaked at 3.38 million b/d in 2004; this year
so far it has averaged just over 2.87 million b/d.
Crude exports have followed a similar pattern, falling by about 500,000
b/d between 2004 and this year.
More than 80% of crude exports go to the United States.
Late last year, the Energy Ministry published a document that warned
that Mexico's days as a major crude exporter were numbered unless
deregulation and fiscal reforms -- along with better management of
state-owned Pemex -- could release the nation's oil potential.
The ministry's 2007-2016 Prospectus for crude predicted that, if Pemex
continued to work under its present constraints, crude output would fall over
the period from 3.26 million b/d to 2.14 million b/d.
At the time, the ministry was criticized in some quarters for
scaremongering, but so far reality is proving worse than its forecasts.
The ministry predicted crude output of almost 3.1 million b/d for this
year; the decline to current levels was not supposed to happen till 2011.
Yet Pemex officials remain optimistic. In a recent conference call on
the company's first-quarter results, Carlos Morales, the director-
general of Pemex's upstream subsidiary, insisted that output of 3-3.1 million
b/d could still be achieved by the end of the year.
And, despite the fall in the volume of exports, they are currently
earning Pemex some $4 billion/month, at least twice as much as in 2004. That
is good news for the government, which depends on oil for a third of its
income. But it may have taken some of the steam out of President Felipe
Calderon's proposal for energy reform that aims to leave the door
slightly ajar for private-sector exploration in deep water -- the area
on which Pemex is pinning its hopes for the future, but where it lacks
the know-how and financial muscle to go it alone.
Calderon launched the proposal early in April in the hope that it
would be approved by Congress by the end of the month. But a vociferous
opposition movement persuaded legislators to hold a "national debate," similar
to US public hearings, on the issue in the Senate through July.