Oilfield services provider Schlumberger (NYSE:SLB) was named one of the winners of an auction in Mexico to develop declining fields.  Schlumberger and its partner Petrofrac won the rights to develop the Panuco Field in Northern Mexico.
Panuco is one of the six fields put up for auction by state oil company Pemex in a plan to attract private capital to boost output from these fields from 13,000 barrels/day (b/d) to about 140,000 b/d.  The auction is part of a larger program to stem the declining oil production in Mexico. The technology to arrest field declines is expected to become a major revenue driver for oilfield services providers as major fields in countries such as Mexico and Norway are witnessing declining production.
We have a $93 price estimate for Schlumberger, which is at a 40% premium to its current market price.
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Based on the winning bid, Schlumberger will be awarded $7 per barrel in a performance-based contract that aims to raise output from the declining fields in Northern Mexico.  The Mexican government is making changes to its state-controlled oil sector to attract private investments.
The country’s oil output has seen a 25% decline between 2004 and 2009 because of a decline in production in some of its largest fields.  There are also worries that the country may see another round of decline as the Mexican government earns a significant chunk of its revenues from oil exports. The latest round of auctions looked to award 6 fields that could be sitting on about 1.7 billion barrels of oil equivalent, according to some estimates.
The declining fields in Mexico and other places such as the North Sea are a major opportunity for Schlumberger. Oilfield services providers are focusing on technology to increase yield from mature oilfields, in order to arrest decline rates. Investments in such efforts have picked up with rising oil prices and increasing cost of new exploration, which are pushing companies to increase recovery from the existing fields. We expect this trend to result in a long-term increase in revenue per rig for Schlumberger in Latin America as well as other geographies.
- Schlumberger Wins Field in Pemex Auction, Alfa Wins 2 Blocks, Bloomberg [↩] [↩]
- WRAPUP 4-Mexico awards 2nd round of mature oil field contracts, Reuters [↩] [↩]