VZCZCXRO2458
PP RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHME #2995/01 2892206
ZNR UUUUU ZZH
P 162206Z OCT 09
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC PRIORITY 8639
INFO RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE PRIORITY
RHMFISS/DEPT OF ENERGY WASHINGTON DC
RUEHC/DEPT OF INTERIOR WASHINGTON DC

UNCLAS SECTION 01 OF 02 MEXICO 002995 
 
SENSITIVE, SIPDIS 
 
STATE FOR WHA/MEX, WHA/EPSC 
STATE FOR EEB/ESC (MCMANUS AND DUGGAN) 
STATE FOR L/OES (MCDONALD) and OES/OPA 
D FOR LOURDES CUE 
DOE FOR A/S SANDALOW, G.WARD AND A.LOCKWOOD 
MMS FOR RENEE ORR 
 
E.O. 12958: N/A 
TAGS: ECON ENRG EINV PGOV SENV MX
SUBJECT: CHICONTEPEC - WHO IS IN CHARGE OF MEXICAN HYDROCARBONS 
POLICY? 
 
¶1.  (SBU) SUMMARY:  Juan Carlos Zepeda, head of Mexico's newly 
created National Hydrocarbons Commission (CNH), said that the press 
misquoted him last week as ordering PEMEX to stop drilling in 
Chicontepec.  However, Zepeda is clearly unhappy with Pemex's 
current production policy in Chicontepec and will recommend to 
Secretary Kessel that the parastatal change its strategy 
dramatically given dismal results to date.  Zepeda is outspoken and 
intent on influencing Pemex's exploration and production strategies. 
 We expect to see more tension between Pemex and the CNH as Zepeda 
asserts himself over the coming months.  END SUMMARY. 
 
¶2.  (SBU) ECONOFF met with Juan Carlos Zepeda October 15 to discuss 
recent press reports that he was ordering Pemex to halt production 
in Chicontepec given that production fell well below the 
parastatal's projections.   The CNH was created under the energy 
reform legislation passed by the Mexican Congress in November 2008 
to regulate the hydrocarbons sector and is responsible for 
conducting technical analysis and assessment of the country's 
hydrocarbons policy (including rates of extraction and rates of 
accruing reserves) and issuing regulations.  CNH is tasked with 
submitting recommendations based on its studies to the Secretariat 
of Energy (SENER)who makes binding decisions on hydrocarbons policy 
for the government.  Zepeda stressed that SENER, not PEMEX has legal 
responsibility for Mexico's hydrocarbons policy.  He added that the 
Pemex is still digesting the fact that CNH has a role in production 
strategies, and some Pemex Exploration and Production (PEP) staff 
are still in shock that they no longer control these decisions. 
 
 
¶3.  (SBU) Zepeda said the press misquoted him on Chicontepec. 
However, he will make a recommendation to Secretary Kessel on 
Chicontepec before December 15.  Zepeda noted that Pemex had not 
done sufficient geological advance work on the complex Chicontepec 
field.  Chicontepec was discovered in the 1920s and is estimated to 
hold 40% of Mexican reserves.  Pemex started exploiting the field in 
a limited manner in the 1970s, but held back due the complex geology 
of the reservoir (faulting, ground pressure) and the high costs of 
production.  According to Zepeda, Pemex panicked when production at 
Cantarell started to fall dramatically and the parastatal had no 
promising alternative source of production.  Pemex estimated that 
Chicontepec could produce 90,000 barrels of oil equivalent (BOE) per 
day in 2009 and 600,000-700,000 BOE per day at its peak.  Over the 
past 18 months, the parastatal made a significant investment and 
issued contracts worth approximately $2 billion to service companies 
to exploit the field.  Zepeda noted that in 2006, with 250 wells 
Chicontepec, production stood at 29,000 barrels a day.  Today, with 
1,000 wells the field's production is still around 29,000 barrels 
per day.  The productivity of each individual well has fallen 
dramatically. 
 
¶4.  (SBU) Zepeda stressed that Pemex needs to take time to further 
study the geology of the field and develop a better production plan. 
 He agreed that Mexico could not walk away from 40% of known 
reserves, but emphasized that the current policy is not workable. 
The CNH is responsible for making recommendations about the rate of 
extraction based on economic, technical and environmental standards, 
he added, and the current production plan does not meet CNH 
standards. 
 
¶5.  (SBU) Zepeda noted that the share prices of several service 
companies (he cited Weatherford) that operate in Chicontepec fell 
significantly in response to the comments he made last week.  He 
implied that PEMEX' response to his comments were in part an effort 
by the parastatal to shore up the share prices of these firms. 
 
¶6.  (SBU) Zepeda currently has a skeleton staff of 20 employees, but 
needs near 100 qualified personnel to fulfill the CNH mandate. 
Zepeda blames the Finance Secretariat for not submitting a 
sufficient budget proposal for CNH to Congress and has been lobbying 
Diputados for more money.  He will approach the World Bank and other 
organizations about a grant to build the Commission's database and 
is looking at other best practice models for the CNH.  Embassy 
Mexico is working with SENER and CNH on a potential Voluntary 
Visitors Program which would provide CNH officials an opportunity to 
look at the US model. 
 
¶7.  (SBU) Comment:  Zepeda is clearly pushing the envelope to test 
the CNH's authority over Pemex production strategies.  The CNH has a 
mandate to advise the Secretary of Energy on hydrocarbons policy but 
has not been given the necessary budget to fully staff its 
operations.  Some energy experts question whether Pemex and the 
Finance Ministry support CNH's efforts or are trying to undermine 
the CNH.  Zepeda is outspoken and committed to making his mark.  He 
 
MEXICO 00002995  002 OF 002 
 
 
served as Assistant Secretary for Exploration and Production in 
SENER before being named head of the CNH.  With him at the helm, we 
expect to see more sparks fly between the CNH and PEMEX in coming 
months. 
 
PASCUAL