June 27 (Bloomberg) -- Petroleos Mexicanos, the third- biggest oil supplier to the U.S., set a goal of producing an average of 3.1 million barrels of crude oil per day until 2012, even as output at its largest oil field declines.

Pemex, as Mexico's oil monopoly is known, won't spare any expense to optimize the production of Cantarell, the offshore oil field where output declined by 12 percent last year, to help keep production from slipping under 3.1 million barrels per day, said Chief Executive Officer Jesus Reyes Heroles.

``We want to make Cantarell a true example in terms of technical optimization of its exploitation,'' Reyes Heroles said at a conference in the Gulf of Mexico port city of Veracruz. ``We won't skimp on economic nor human resources.''

Production at Cantarell, the world's third-largest oil field, declined 17 percent in the first five months of 2007 from the same period a year ago, driving down Mexico's overall crude production to 3.15 million barrels. In May, production dropped to 3.11 million barrels per day, the lowest this year.

Pemex last year produced 3.26 million barrels of oil per day and saw daily production peak at 3.38 million barrels in 2004. Cantarell's rate of decline so far this year has outpaced a Pemex forecast of a 15 percent average drop for 2007.

Ghawar in Saudi Arabia is the world's largest oil field, followed by Burgan in Kuwait.

Reserves

At the conference, Reyes Heroles also set as goals boosting the replacement of proven reserves to more than 100 percent by 2012 or 2013 and raising natural gas production by more than the increase in local demand to eventually eliminate the need for gas imports.

In 2006, Pemex replaced only 41 percent of its proven oil and gas reserves, leaving the company with reserves that will last 9.3 years at current production rates. Pemex in March reported proven oil and gas reserves of 15.5 billion barrels as of Jan. 1, down from 16.5 billion a year earlier.

Natural gas production has been one of the bright spots for Pemex. Daily production for the first five months of the year averaged 5.87 billion cubic feet, a 10 percent increase from last year's average of 5.36 billion cubic feet.

Reyes Heroles said one of Pemex's biggest challenges is to learn how to manage multiple, large drilling projects to tap reserves in Gulf of Mexico waters more than 600 meters deep and in Chicontepec, a large field in the rugged terrain of southeastern Mexico.

Tax Reform

Reyes Heroles also called on the audience of oil industry professionals to support a tax bill that President Felipe Calderon introduced into Congress last week. Reyes Heroles dropped his stance that Pemex needs further reduction in taxes to free up resources for exploration and production after Mexican Finance Minister Agustin Carstens said last week Pemex could receive more funding from Congress instead of lower duties.

``The success of the tax reform is a priority for everyone,'' Reyes Heroles said. ``As the finance minister pointed out, the possibility for Pemex to receive more funds won't be solved by changing the company's tax law, but by improving the government's finances.''

Congress in 2005 approved a tax law that reduced Pemex's tax rate in 2006 to 55 percent of revenue from 63 percent in 2005. Pemex is still one of the most heavily taxed oil companies in the world. Pemex last year paid 584.4 billion ($53.7 billion) in taxes, or 93 percent of its pretax income, compared with 604.2 billion pesos in 2005, or 115 percent of pretax income.

To contact the reporters on this story: Thomas Black in Monterrey at tblack@bloomberg.net

Last Updated: June 27, 2007 22:27 EDT