Feb. 24 (Bloomberg) -- Exxon Mobil Corp., BP Plc and other international oil producers say they will shun Mexico's offer to bid on contracts to drill for oil in the Gulf of Mexico because the proposal isn't profitable enough.

The contracts ``do not recognize the high cost and high risk of deep water and so really don't provide us with the ability to do that,'' said Tim Cejka, president of Irving, Texas-based Exxon Mobil's exploration unit, in an interview Feb. 22 at a conference in Veracruz, Mexico. ``We've been looking forward to reforms that may provide opportunities.''

The foreign companies said one reason the contracts weren't appealing was because state-owned Petroleos Mexicanos would own any oil obtained from drilling in water deeper than 500 meters (1,640 feet). Mexico is the world's fifth-largest oil producer.

The nation's failure to generate enthusiasm among international companies may hamper its ability to expand reserves as production declines, said Andrew Latham, vice president for energy consulting at Edinburgh, U.K.-based Wood MacKenzie. Six decades of restrictions on direct foreign investment in Mexico's oil industry have contributed to falling reserves.

``The contracts don't really compare very well with other opportunities out there,'' Latham said in an interview yesterday at the conference. ``Something's got to change.''

$6 Billion Business

Chief Executive Luis Ramirez, 56, said in December Pemex would start allowing private companies to bid on contracts to drill for oil for the first time in 2005, offering $6 billion of business, under similar terms that the country has offered for natural-gas drilling.

Private companies, including Brazil's state-controlled Petroleo Brasileiro SA and Spanish producer Repsol YPF SA, have drilled 17 natural gas wells in northern Mexico since Pemex began awarding contracts at the end of 2003. Under the multiple service contracts, the companies have to drill in designated areas and are paid a fee to meet a minimum production level set by Pemex.

Mexico's constitution bars Pemex from forming partnerships with private companies to produce oil and gas, and Congress has rejected proposals made by President Vicente Fox shortly after taking office in December 2000 to open the energy industry to more private investment.

Mexico City-based Pemex pays 60 percent of its more than $60 billion of revenue in taxes to the government, which accounts for about a third of federal spending. The company has doubled its debt to $45 billion since 2001 to help finance the expansion.

Oil Rises

Crude oil rose to a four-month high in New York today. Crude for April delivery rose as much as 13 cents, or 0.3 percent, to $51.30 a barrel on the New York Mercantile Exchange as of 11:57 a.m., the highest since Oct. 26.

Pemex said on Feb. 2 it plans to draft a contract by the middle of this year that allows it to invite international oil companies to help drill in deep waters while still complying with the law barring foreign companies from producing oil and gas in Mexico. Pemex would receive the oil produced for a set fee and then sell it on international markets or refine it for sale as fuel.

``We think we can prepare a contract format that's good for everyone,'' said Guillermo Perez, who's in charge of Pemex's deep water drilling project, in a Feb. 21 interview at the conference. ``Hopefully with this new scheme, we can attract the interest of both majors and the independents.''

Gas Contracts

The natural gas contracts were challenged in court last year by lawmakers including Senator Manuel Bartlett, who say opening up Mexico's oil industry to more private investment would undermine the nation's sovereignty.

Roberto de Toledo, director of Rio de Janeiro-based Petrobras's operations in Mexico, said the country needs to change its laws to allow Pemex to take on partners before the Brazilian company would consider drilling for deep-water deposits.

``The legal security for this kind of investment, which is very high, is important for us,'' Toledo said Feb. 22 in an interview at the conference. ``Everybody has a different point of view of the existing law and what Pemex is allowed to do.''

Pemex has had difficulties attracting companies to bid on natural gas contracts to tap the Burgos Basin, said Ramirez in a radio interview today, an extension of a gas field in South Texas that has been drilled for years.

`Other Opportunities'

``These companies have other opportunities to invest in other parts of the world,'' said Ramirez about the lawsuit in an interview Mexico City's Radio Formula. ``While this atmosphere exists, it causes a deterioration in their interest to continue participating.''

Pemex canceled a gas drilling contract on Feb. 8 because it received no offers from five companies that paid to begin the bidding process. The gas contracts, offered since 2003, failed to attract the largest oil and gas companies such as Exxon Mobil, ChevronTexaco Corp. and BP.

Mexico's oil monopoly has relied on oil service companies such as Schlumberger Ltd. and Halliburton Co. to help drill in shallow water and map the sea floor for deposits. For deep- water drilling, Pemex needs the technology and experience that international oil companies have to avoid cost and time overruns and poor production results, Perez said.

``We don't want to suffer the learning curve that other companies have suffered,'' he said. ``The only way to do that is going with some advice from operators.

International oil companies usually take on several partners to share the risk and investment in deep-water projects, said Carlos Fraga, executive manager of Petrobras's research and development center.

After the Brazilian government sold shares of Petrobras to the public more than a dozen years ago, the company formed partnerships with 40 oil companies for deep-water production and now has technology to drill in water as deep as 3,000 meters, he said.

BP and Exxon Mobil teamed up to build Thunder Horse, one of the companies' largest offshore oil platforms, said Chris Sladen, chief of BP's Mexican operations.

``It's a truly collaborative effort,'' Sladen said Feb. 21 at the conference. ``The most effective way is a joint effort.''

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