Oct. 26 (Bloomberg) -- Petroleos Mexicanos’s declining oil output and more than $10 billion of losses since 2008 may prompt Schlumberger Ltd. and Weatherford International Ltd. to accept less money for drilling contracts in Mexico, Cambridge Energy Research Associates said.

Pemex, as the Mexican state-owned oil company is known, may seek to renegotiate contracts to include performance-based incentives, Energy Minister Georgina Kessel said in an Oct. 21 interview in Mexico City. Since 2007, the company has awarded at least $3.8 billion of contracts for the Chicontepec field, betting it would help offset falling output elsewhere. Pemex had an original Chicontepec target of more than 100,000 barrels per day for 2009, while September output was 29,907 barrels.

“It’s possible for Pemex to get some kind of solidarity agreement from contractors,” Alejandra Leon, an analyst with CERA in Mexico City, said in an Oct. 23 telephone interview. “As long as the incentives for efficiencies compensate any price reduction, contractors may agree to lower unit prices.”

Investors fear a revision of contracts at Chicontepec will hurt Weatherford, the oilfield services company with the most contracts at the deposit, Mark Brown, an analyst at Pritchard Capital Partners, said today in an interview from New York.

Weatherford fell 60 cents, or 3 percent, to $19.33 as of 12:54 p.m. in New York, after earlier falling as much as 3.4 percent. Schlumberger fell 6 cents to $65.14, while Halliburton declined 10 cents to $30.11.

Record Spending

Pemex, which plans to spend a record $19.5 billion this year on production and exploration projects, said output last year fell at the fastest pace since World War II because of declines at its 30-year-old Cantarell field.

“The results those levels of spending have produced for the company do not make them sustainable from a public policy standpoint,” Jeremy Martin, an oil specialist at the Institute of the Americas in La Jolla, California, said in an interview.

Spokespeople for Houston-based Halliburton and Weatherford didn’t respond to telephone messages left Oct. 23 seeking comment on contract negotiations. Paris-and Houston-based Schlumberger expects changes in the contracts.

“There is absolutely no doubt that Pemex will come with a revised strategy,” Schlumberger Chief Executive Officer Andrew Gould said on an Oct. 23 conference call with investors.

Schlumberger’s third-quarter net income fell 48 percent to $787 million, or 65 cents a share, from $1.53 billion, or $1.25, a year earlier, it said Oct. 23. Halliburton posted net income for the three-month period of $262 million, or 29 cents a share, from $672 million, or 74 cents, a year earlier.

Contractor Gains

Schlumberger has gained about 58 percent this year, while Halliburton has risen 69 percent. That’s lower than the 15- member Philadelphia Oil Service Sector Index, which has surged 70 percent so far this year.

Mexican President Felipe Calderon is seeking to trim 218 billion pesos ($16.3 billion) from next year’s federal budget amid declining oil sales, which funded about 38 percent of last year’s government spending.

Pemex earlier this year requested 20 billion pesos in additional funding from the Mexican finance ministry to cover service provider payments with contracts in dollars, after the peso plunged.

Falling output and expensive gasoline imports have eroded profits at Pemex. The company has reported losses in five out of the last eight quarters, a period when major oil companies posted record profits as oil reached a record $147.27 a barrel in July 2008. Pemex reports third-quarter earnings Oct. 30.

‘Bang for Its Buck’

“Pemex is trying to get more bang for its buck,” Pritchard’s Brown said in an Oct. 23 telephone interview. “The service companies that are already there and committed would be open to an incentive model.”

Kessel said Pemex is working to reduce costs and improve profit in future quarters. She declined to say if she expects losses in the third quarter.

Improve Margins

“Pemex needs to increase production to improve its profit margins,” Lucia Martin Rivero, an analyst at Mexico City-based Ixe, said in a telephone interview from the city on Oct. 20.

Chicontepec, which stretches across Mexico’s Puebla and Veracruz states, will produce 60,000 barrels a day by the end of the year, Pemex has said. The company is “too optimistic” about the field, board member Fluvio Ruiz said in a May interview in Mexico City. Pemex hired companies such as Schlumberger, Halliburton and Weatherford for the $11.1 billion project.

Pemex ramped up Chicontepec drilling in 2007 with a $1.4 billion contract with Schlumberger. When Pemex awarded the 500- well project it expected Chicontepec to produce more than 100,000 barrels a day by the end of 2008. Production from Chicontepec, also known as the Tertiary Gulf Oil Project, fell for a second month in September.

Crude oil for December delivery rose 43 cents, or 0.5 percent, to $80.93 a barrel at 10:54 a.m. on the New York Mercantile Exchange. Prices have gained 82 percent this year.

“Right now the contract philosophy has been sort of drill the cheapest hole and really don’t worry about maximizing production,” said Halliburton Chief Executive Officer David Lesar in a Oct. 16 conference call. “I think that concept is being rethought within the upper reaches of Pemex.”

The following is a list of events in Mexico this week:

Event                              Date      Forecast
Global Economic YoY (AUG)          Oct. 28     -6.1%
Pemex Earnings                     Oct. 30       NA
Budget Balance      (SEP)          Oct. 30     100.20B

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 26, 2009 13:20 EDT