Pemex Seeks Foreign Partners to Develop Offshore Oil Fields for First Time

Petroleos Mexicanos, Latin America’s largest oil producer, expects to hire foreign oil companies for the first time to explore and produce in the Gulf of Mexico as it seeks to arrest a five-year decline in output.

The Mexico City-based company plans to offer four exploration and production contracts as early as September and a further three contracts by the end of the year, Carlos Morales, chief of exploration and production, said in a telephone interview. Bonuses will be paid based on the volume and speed of oil recovered and the safety of the projects, he said.

Pemex expects Exxon Mobil Corp., Royal Dutch Shell Plc and Chevron Corp., to help develop reserves after changes to Mexico’s oil laws in 2008 allowed it to hire foreign companies. The contracts follow a moratorium on U.S. offshore deepwater drilling after the BP Plc spill, the worst in U.S. history.

“We expect that the projects for mature fields and probably for some developments in shallow waters will draw foreign companies,” Morales, 55, said. “We have attractive projects for them.”

The state-owned company will start performance-based contracts first at shallow water fields and at mature field projects as a prelude to more attractive deepwater contracts where Pemex estimates it may have 30 billion barrels of oil.

‘Seal of Approval’

The Mexican company previously relied on oil service companies for equipment or labor. The new contracts will allow Pemex to learn from companies with deepwater exploration experience, and will attract new financial sources for investments, the company’s chairwoman and Energy Minister, Georgina Kessel, has said.

Pemex needs the exploration and production proficiency for some fields more than the equipment, Morales said.

“Pemex’s goal is to attract an Exxon, a BP, a Statoil, that would be the good housekeeping seal of approval,” George Baker, a Houston-based energy consultant who publishes the Mexico Energy Intelligence newsletter, said in an interview from Houston. The new Pemex contracts “have everyone waiting to see how big and how far they go,” Baker said.

Pemex will spend about 138 billion pesos ($11 billion) on investments in the next five months, or about 60 percent of its total budget for the year, Chief Financial Officer Carlos Trevino, said last month on an earnings conference call.

Reluctant Partners

The company may exceed its exploration and production budget for this year through the performance contracts, Chief Executive Officer Juan Jose Suarez Coppel said in a March 30 interview.

International oil companies are reluctant to partner with Pemex because they still aren’t allowed to own the oil or book the reserves, according to Baker.

Spokesmen Shell didn’t respond to voice messages or e-mails seeking comment on the Pemex contracts. Exxon and Chevron declined to comment.

The outcome from these potential contracts is “much more about the psychological than the operational effect,” said John Padilla, managing director of IPD Latin America, an energy consulting firm. The contracts will need to have “a sufficient risk reward” to attract new participants.

With the performance-based contracts “Pemex is preparing the icing on the cake from the 2008 energy reform,” Baker said Aug. 13.

Luring Repsol, Petrobras

Pemex has tried to lure foreign companies in the past for gas projects onshore. Madrid-based Repsol YPF SA and Petroleo Brasileiro SA, the Brazilian state-controlled oil company known as Petrobras, won multiple service contracts to drill for natural gas about six years ago.

In 1938, Mexico seized the assets of companies that later became Chevron and Exxon Mobil, the world’s largest oil company. Mexico created Pemex later that year. It prohibited private and foreign companies from exploring or producing oil until the 2008 reforms.

The Mexican oil company is creating performance-based contracts to reward private contractors that produce the most at its fields after Congress rejected a proposal to allow Pemex to form drilling partnerships.

If the contracts are offered for “small blocks you’re not going to have the major bidders that want to go in there,” Padilla, 41, said yesterday. “It all depends on exactly what’s in the contracts.”

The proposed contracts will be reviewed by the subsidiary’s board in the next few weeks, Morales said.

Production Declines

Since peaking in December 2003, Mexico’s oil output has dropped by almost 1 million barrels to as low as 2.52 million barrels a day last year. Pemex’s production in August was 2.53 million barrels a day for the first half of the month.

Oil exports from Mexico, the second-largest oil supplier to the U.S. after Canada, climbed 6 percent to 1.4 million barrels a day in July after some June shipments were delayed because of Hurricane Alex, the company said on its website today.

The yield on Pemex’s 6 percent bonds due in 2020 rose 17 basis points, or 0.17 percentage point to 4.693 percent. The price fell 1.4 cents to 109.95 cents per dollar.

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

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