June 17 (Bloomberg) -- Mexico may increase crude production to 3 million barrels a day next year as state-owned Petroleos Mexicanos pumps more oil to make up for the biggest drop in output in a dozen years at its largest field, the country's energy minister said.

``Petroleos Mexicanos is taking measures internally to raise production to 3 million barrels a day by the end of this year or the start of next year,'' Energy Minister Georgina Kessel said in an interview in Mexico City today.

The government needs to raise Pemex's budget 66 percent to $30 billion annually to help it maintain production goals of 3 million to 3.1 million barrels a day of crude through 2012, Kessel said. The Finance Ministry, which manages Pemex's budget, set aside about $18 billion this year for the company.

The 2009 increase would mean a 4.3 percent jump in output from this year's average of 2.875 million barrels a day.

Pemex's production has been falling for four years as its largest field, Cantarell, led a decline in output. Cantarell, the world's third-largest oil field, represented 63 percent of Pemex's output at its peak in December 2003.

Pemex's output is ``at risk'' of falling more this year, leading to further cuts in exports, Kessel said.

Mexico, the third-largest supplier of crude to the U.S., exported 1.439 million barrels of crude in April, 14 percent fewer barrels than a year earlier as production declined.

Overall output fell 13 percent to 2.767 million barrels a day in April, the largest drop in 12 years. Cantarell's output fell 33 percent to 1.07 million barrels a day.

Largest Discovery

Cantarell, discovered in 1976, was the largest find in the Americas until last year's 5-billion to 8-billion-barrel Tupi field announced by Petroleo Brasileiro SA, Brazil's state- controlled oil company. The world's largest oil field is Ghawar in Saudi Arabia, followed by Burgan in Kuwait.

Saudi Arabia and Canada are the first- and second-largest suppliers of oil to the U.S.

Mexico's Congress is debating through July 22 a bill from President Felipe Calderon that would allow Pemex to have more freedom to hire foreign and private companies to explore, produce, refine and transport oil.

The legislation aims to free up funds to allow the company to explore for more oil and compensate for Cantarell's decline.

The bill may pass by September in a form similar to what Calderon submitted, Kessel said.

``I think we are very close to what the President proposed,'' she said. ``Lawmakers have all the tools necessary to make the changes.''

Lowering Taxes

Calderon also proposed a bill to reduce Pemex's taxes. Pemex paid about 70 percent of its oil revenue last year to the government. Those funds accounted for 40 percent of the budget.

``I am convinced that what we are doing in Mexico has been done in other countries and successfully,'' she said.

Mexico's constitution bans outside investment in exploration or production. The country nationalized the oil industry in 1938 and expelled U.S. and U.K. producers.

Calderon aims to change Pemex's by-laws to open the industry.

Brazil's Petroleo Brasileiro and Chevron Corp., the second-biggest U.S. oil company, have said they are not interested in working for Pemex as a service company under the new rules proposed by Calderon.

Mexico, which imports 40 percent of its gasoline consumption, will build a new refinery as soon as possible, Kessel said. The Energy Ministry and Pemex are studying where a refinery would be built and its capacity. A location and capacity will be chosen based on the lowest costs, she said.

Mexico must build a new refinery every three to four years until 2021 to end imports of gasoline. The country has six refineries with a capacity of processing about 1.3 million barrels of crude a day.

To contact the reporter on this story: Andres R. Martinez in Mexico City at amartinez28@bloomberg.net; Carlos Rodriguez in New York crodriguez17@bloomberg.net.

Last Updated: June 17, 2008 17:04 EDT