Yesterday, I found myself contemplating the ultimate question on life, the universe, and everything.
And as you might know from personal experience, one cannot find a better place to do so than the corner bar.
In Baltimore, there’s always at least one within walking distance.
Yet it wasn’t the number forty-two that was on the table for debate that night…
After only a few pints into my night, a heated debate broke out about immigration. It started with two people bickering over their individual stances on the topic.
At first, I wanted nothing to do with it; it’s difficult enough to argue with thick-headed people when they’re sober.
Unfortunately, one of them happened to be the bartender.
And since he was so focused on the issue, I had no choice — it was either join in the bickering, or move to another pub in order to get a drink.
The moment someone asked why anyone would want to leave Mexico in the first place, I chimed in, “Wouldn’t you? The whole country is ready to collapse.”
I received nothing but blank stares.
“How do you figure?” the bartender asked, a confused look on his face.
I responded casually, “Pour me another pint and I’ll tell you.”
Mexico throws in the towel
I tried to start from the beginning with an explanation of Mexican oil production.
Take your pick: The death of Cantarell; the inevitable point Mexico becomes a net oil importer; or the fact that 40% of the country’s budget is dependent on oil revenues.
And things only get worse from here on out…
Mexico’s state-run oil company recently announced it will be cutting back drilling by 60% at the Chicontepec oil field in 2011.
In case you’ve never heard of the Chicontepec basin, it happens to be Mexico’s largest hydrocarbon reserve, with approximately 139 billion boe of original oil in place.
Now, before you start hitting your caps-locks button and spamming my e-mail, remember that we’re talking about original oil in place — a far cry from being considered proven reserves.
Still, it’s a nice chunk of oil…
I remember back in 2006, when Pemex said they would shell out $37.5 billion USD during the next two decades in order to develop the Chicontepec oil fields. It was their backup plan for when Cantarell failed them.
So much for that idea.
Unfortunately, most of the oil in the Chicontepec basin is extra heavy, which means it won’t be as cheap to extract as the light stuff.
But hey, it was worth a shot. After all, Canada can successfully refine its oil sands, and Venezuela can extract oil from the Orinoco Belt (although for how much longer is another question altogether).
Now, if Mexico is scaling back that much, what’s their backup backup plan?
Instead of drilling, they’ll be spending more money on research.
But let’s give Mexico some credit. At least they’ll admit their energy production is circling the drain.
Oil reserve roulette: Let the games begin
This news comes at a time when the Middle East oil producers are seemingly having a grand old time.
But are they?
I told you before how Iraq’s oil reserves were recently increased to 143 billion barrels. That was a 24% increase over previous estimates.
Iraq’s oil production is only around 2.5 million barrels per day. Over the next five years, the country’s production is expected to skyrocket to 12 million barrels per day.
Not to be outdone, Iran decided to one-up its fellow OPEC member.
According to oil minister Massoud Mirkazemi, Iran now has 150 billion barrels of the black crude. Mirkazemi was also quick to point out that the country’s reserve number will increase again before the year is out.
Let’s not fool ourselves. We know we can’t trust the OPEC’s reserve estimates. Their shady reserve increases in the past were suspicious enough.
Fool me once, shame on them; fool me twice, shame on me.
Don’t play their game
If OPEC wants $100 oil, they’ll get it.
I think that much is an inevitability.
Remember that they still control more than one-third of the world’s oil production — even if cheating on their quotas is a regular occurrence.
One thing remains certain, no matter how much you love or hate the oil market…
It’s the common ground that helps investors in the energy sector sleep at night…
The backside of peak oil will be infinitely more profitable for investors.
It’s the very reason my readers are up 524% on just one oil stock — and their success is about more than just being in the right place at the right time…
The best part?
There are even more lucrative opportunities out there.
You just need to know how to find them — especially in the places you’d least expect.
Until next time,
Editor, Energy and Capital