Oct. 22 (Bloomberg) -- Petroleos Mexicanos, Latin America’s largest oil producer, may seek to renegotiate oilfield-service contracts with companies such as Halliburton Co., Schlumberger Ltd. and Weatherford International Ltd. to try and boost output.

Mexico is looking to bring existing contracts into line with an energy reform approved in 2008 that allows for performance incentives to lower costs and improve production, Mexican Energy Minister Georgina Kessel said yesterday in an interview in Mexico City. She declined to comment on whether Pemex was in talks on specific contracts.

Mexico’s constitution prohibited foreign companies from exploring or producing oil in the country for more than seven decades. The energy reform allows Mexico City-based Pemex to pay foreign companies incentives if they find more oil than expected or complete projects under budget. The company hasn’t yet awarded any contracts under the new incentive-based model.

“It will be up to Pemex to decide under which circumstances and when it may be convenient to renegotiate,” said Kessel, who’s also chairwoman of Pemex.

Weatherford and Houston-based Halliburton provide drilling and related services at Pemex’s Chicontepec field, an $11.1 billion onshore oil development. Halliburton is the world’s second-largest oil-services provider after Schlumberger.

Incentive Contracts

Mexico’s Hydrocarbons Commission will recommend Pemex renegotiate drilling contracts to pay with incentives that depend on results, Juan Carlos Zepeda, head of the commission, said in an Oct. 8 interview.

Contractors may have the last word if they want to renegotiate, said George Baker, a Houston-based energy consultant who publishes the newsletter Mexico Energy Intelligence.

“I do believe they will be willing to renegotiate current contracts with Pemex,” Baker said. “The last thing these companies want to do is to offend Pemex or be labeled as rebellious.”

“I think that there clearly is a rethink going on within Pemex on the contracting philosophy around Chicontepec,” Halliburton Chief Executive Officer David Lesar said in a Oct. 16 conference call with investors.

Pemex is reviewing the profitability of all its projects, including Chicontepec, Kessel said. Pemex will look at “profitability” to decide how to move forward with these projects, she said.

Missed Targets

Pemex hasn’t yet decided whether it should halt investing in Chicontepec after the project missed its production targets, board member Hector Moreira said yesterday in an interview. A decision may be reached once the business plan is approved by year-end, he said.

Weatherford fell as much as 7.5 percent in New York trading on Oct. 8 after El Universal reported that Mexico ordered Pemex to suspend Chicontepec drilling.

Mexico needs to reevaluate how to proceed with Chicontepec, Zepeda said. The commission’s recommendations will be sent to Pemex by year-end, he said.

In 2008 and 2009, Mexico, along with Brazil, was one of the few countries to increase oil investments even after prices fell. Lower production and prices are costing Mexico 300 billion pesos ($23.2 billion) in lost revenue this year and will likely lead to a federal deficit again next year, the Finance Ministry said last month.

Crude oil futures traded in New York are down 45 percent from a record $147.27 a barrel in July 2008. Crude traded at $80.89 a barrel at 11:16 a.m. New York time.

It costs Pemex $12.27 a barrel to pump oil at Chicontepec, Carlos Morales, head of the exploration and production unit, said in a March board meeting. The assembly minutes were obtained by Bloomberg News through an access to information request. The average production cost for Pemex is $4.50 a barrel.

To contact the reporter on this story: Carlos M. Rodriguez in Mexico City at carlosmr@bloomberg.netPeter Millard in Mexico City at Pmillard1@bloomberg.net.

Last Updated: October 22, 2009 12:29 EDT