November 8, 2010 / 5:51 PM / 9 years ago

Private oil cos to get first Mexico deals by summer

* Long-awaited contracts could help boost output

* Mexico looking to restore declining oil output

By Robert Campbell

MEXICO CITY, Nov 8 (Reuters) - Mexico will award private firms its first contracts to redevelop mature oil fields by the summer of 2011, a senior Mexican oil official said on Monday.

Sergio Guaso, the head of new business models for state oil monopoly Pemex’s [PEMX.UL] oil and gas production arm, said the company was close to approving the first round of contracts that would bring private companies back into Mexico’s oil patch for the first time since the sector was nationalized in the 1930s.

“We’re in the final stage of approvals,” Guaso said at the Platts Mexican Energy conference. “The first contracts can be expected by the summer of next year.”

Pemex has been hoping private firms will help it modernize production and boost crude output in older fields by up to 150,000 barrels per day.

But the state-run company has missed several self-imposed deadlines to unveil new contracts to be auctioned to firms and has scaled back its ambitions for an initial round of bidding.

Mexican President Felipe Calderon made cracking open the country’s oil sector to private capital a major focus of the first years of his presidency to help reverse a near 25 percent decline in national oil production between 2006 and 2009.

Experts warn Mexico, a top supplier of U.S. crude, may be a net oil importer within a decade due to falling crude output and rising refined fuel imports — an alarming prospect for a nation that relies on oil exports for a third of its budget.

But Mexico is unlikely to see the benefits of Calderon’s policy before he leaves office in 2012 due to the slow roll-out of the new contracts and the lengthy time required for most oil projects to bear fruit.

Carlos Morales, the head of Pemex’s oil and gas production unit, told Reuters last month the company would only offer three onshore areas in the first auction of operating contracts. [ID:nN20244578]

A slide in Guaso’s presentation showed a nine-month timetable for the award of the first contracts stretching from the approval of the scheme by Pemex’s board of directors, making it unlikely the first contracts will be awarded until the third quarter of 2011 at the earliest.

Legislation passed in late 2008 loosened the legal regime governing Pemex’s relationship with contractors, allowing it to offer new types of contracts with cash incentives based on performance.

However Pemex has been slow to release the new contracts amid shifts in its strategy away from deepwater oil exploration as well as an as yet unresolved challenge of the constitutionality of the scheme before Mexico’s Supreme Court.

Pemex, which has been struggling to keep Mexican oil output from falling below 2.5 million barrels per day, hopes to bring in foreign firms to work on a fee-per-barrel basis to reactivate aging oil fields and boost its exploration efforts in the deep waters of the Gulf of Mexico.

Private oil companies are anxious to get into Mexico amid limited opportunities elsewhere as many of the most promising areas in the world for oil exploration are off-limits to private companies. (Reporting by Robert Campbell; editing by Missy Ryan and Lisa Shumaker)

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