March 6 (Bloomberg) -- Mexican energy laws put a ``straitjacket'' on Petroleos Mexicanos, the state-owned oil company, and changes must be made before the company can successfully drill in deep water, said Chief Executive Officer Jesus Reyes Heroles in a radio interview.

Most of Mexico's prospective oil resources are located in Gulf of Mexico waters that are more than 1,000 meters deep (3,281 feet). The company known as Pemex doesn't have enough flexibility to operate in deepwater under laws that are the same for buying pencils or petrochemicals, Reyes Heroles said today in an interview with Grupo Imagen.

``The combination of all these regulations puts a true straitjacket on Pemex's ability to operate,'' he said.

Pemex began running a TV and radio advertising campaign this week to explain it needs outside help to be able to reach oil in deep waters. The company is trying to overcome a Mexican political party's opposition to a plan that loosens the state's control of the industry and allows Pemex to form alliances with foreign, private companies.

``We don't have the adequate organization for Petroleos Mexicanos to face the challenge successfully to extract these hydrocarbons and bring them to the surface,'' Reyes Heroles said.

Pemex needs to step up activity in deepwater exploration so that in 10 years production from there can replace output from fields that are beginning to decline, Reyes Heroles said in an e-mailed statement today. The company has drilled five exploratory wells in deepwater since it began in 2005.

Declines at Cantarell

Last year, Pemex's daily oil production fell 5.3 percent to 3.08 million barrels and production at its flagship Cantarell offshore oil field dropped 18 percent to 1.47 million barrels per day.

The law changes need to include giving Pemex more autonomy from the government, Reyes Heroles said. The Finance Ministry, Energy Ministry, Federal Auditor and Energy Regulation Commission all exert control over Pemex, he said.

One of the biggest obstacles is the law that guides government procurement and bids for public works, Reyes Heroles said. The same regulations needed to build a school for the Education Ministry apply for building a refinery, he said.

``Pemex is subject to many regulations, too many measures of control, supervision and interventions in its management,'' Reyes Heroles said.

Legislative Changes

Reyes Heroles said he didn't know the content of proposals to change laws governing Pemex or when legislation may be introduced in Congress.

``Pemex can't stay the way it is,'' Reyes Heroles said. ``Something needs to be done.''

Andres Manuel Lopez Obrador, who claims he lost the July 2006 presidential election because of fraud, has threatened to hold protests at Congressional buildings, airports and financial institutions if legislators back a bill that opens Pemex to private investment.

Lopez Obrador is a member of the Party of the Democratic Revolution, which is the second-largest party in the lower house of Congress and third largest in the Senate.

Opposition to changes at Pemex is based on an ``erroneous concept of sovereignty,'' Reyes Heroles said. Pemex doesn't have the technology and experience to drill in deep water, which prevents the company from tapping oil there.

The Energy Ministry estimates Mexico has 30 billion barrels of oil in deep water in the Gulf of Mexico that aren't included as the state oil company's reserves.

``The sovereignty of a country isn't based on the amount of hydrocarbons it has underground,'' Reyes Heroles said. ``The sovereignty of a country is based on the amount of hydrocarbons that it can produce and sell in the market.''

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

Last Updated: March 6, 2008 17:17 EST