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Mexico PRI Open to Oil Sharing in Energy Bill, Senator Says

Mexico’s ruling Institutional Revolutionary Party is willing to expand a congressional energy bill and allow risk-sharing contracts with payments in oil production and not only cash, PRI Senator Francisco Yunes said.

“Risk-sharing contracts are on the table,” said Yunes, who also heads the senate’s finance committee, in a Mexico City interview yesterday. “There is support and consensus for risk-sharing contracts to a certain point.”

President Enrique Pena Nieto’s original energy bill presented to congress Aug. 12 proposed profit-sharing contracts to private companies and fell short of further reaching legislative changes hoped for by the opposition National Action Party, or PAN. The model proposed by the PAN would grant concessions to private companies and offer broader operational control of oil.

The energy bill seeks to end Petroleos Mexicanos 75-year state monopoly on pumping crude to attract investment from companies like Exxon Mobil Corp. and Chevron Corp. Mexico has the biggest proven oil reserves in Latin America after Venezuela and Brazil, with 13.87 billion barrels, and shale-gas resources that may be as high as 460 trillion cubic feet, according to data compiled by Pemex.

PRI and PAN lawmakers reached a preliminary agreement to support a measure that would allow the state to decide the type of contracts to be offered for each project, including service contracts, profit and production sharing and licenses, according to three people with direct knowledge of the matter who asked not to be identified as talks are private.

Customary Model

Product-sharing agreements and concessions are the customary model for attracting foreign oil investment, according to Pavel Molchanov, an energy analyst with Raymond James & Associates Inc. in Houston.

“Most of the international energy companies are comfortable with a production-sharing arrangement because they are accustomed to it from work in other countries,” Molchanov said. “If it is profit-sharing rather than production-sharing, it’s not a deal breaker, but its not as easy for companies.”

Lawmakers from the PRI and PAN are continuing to debate concessions as well as licenses that would allow for the exploration and production of certain hydrocarbons, such as shale gas, according to PAN Senator Roberto Gil. Pemex said last year that it found shale gas in wells on the Mexican side of the Eagle Ford region. Mexico currently does not produce shale gas.

“The central element of the party consensus is to provide investor certainty, particularly in the area of gas,” Gil said. “We are still discussing the idea of introducing licenses that assure the rights of the country but that also allow the private company to invest and assume the risk.”

The energy bill in congress is likely to pass this year, Gil said. Senator Armando Rios of the Democratic Revolution Party, which has opposed constitutional amendments to energy policy, said the party is seeking to delay the vote on the bill until next year.

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