Replies to post #671 on The Rising Influence of Rising Affluence

[DewDiligence]

Pemex to Big Oil: “We Need You”

http://www.businessweek.com/news/2010-08-20/pemex-to-offer-1st-gulf-contracts-after-bp-oil-spill.html

›August 20, 2010, 12:07 PM EDT
By Carlos Manuel Rodriguez

Aug. 20 (Bloomberg) -- 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.

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.

‘Seal of Approval’

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,” [it’s strange to see BP mentioned in this manner] 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. [I find it a bid odd that oil companies care a lot about the project accounting per se as opposed to how much money they will actually make from a project.]

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.”

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.‹

[DewDiligence]

Mexico Supreme Court Allows Oil-Service Contracts

[#msg-53556571 and #msg-47619110 are good companion reads.]

http://online.wsj.com/article/SB10001424052748703493504576007781863133572.html

›DECEMBER 8, 2010, 4:25 P.M. ET
By AMY GUTHRIE

MEXICO CITY--Mexico's Supreme Court has given state oil monopoly Petroleos Mexicanos [a/k/a Pemex] the green light to continue with plans to award incentive-based service contracts to private companies that want to drill for oil in the country.

At the same time, the court reiterated Mexico's exclusive obligation and right to develop its oil wealth, reinforcing the understanding that any reserves and hydrocarbons produced remain the property of the state.

The court issued a statement late Tuesday saying reforms to Mexico's restrictive energy laws in 2008 are in line with the country's Constitution, which bars Mexico from granting oil concessions or property rights in the energy sector to private oil companies, foreign or domestic.

Its decision clears the way for Pemex, as the state firm is called, to offer more incentives in service contracts with private firms. Tenders for service contracts could be called before the end of the month, and awarded over the course of next year.

Some members of Congress had questioned the legality of the 2008 reforms, which allow Pemex to subcontract oil services providers to produce oil.

The ruling supports Pemex's intentions to broaden its collaboration with private firms, while offering the company legal cover in case of future legal challenges, says George Baker, of Houston-based consulting firm Energia.com.

A source within Pemex echoed Mr. Baker's assertion, saying the ruling "removes obstacles" that may have prevented Pemex from hiring private firms to drill.

Mexico expropriated foreign oil assets in 1938 and has since kept foreign participation in the industry to a minimum. But with oil production sliding, the state company, which is extremely short on funds and technology, has been searching for ways to work with foreign energy companies that can offer both.

Pemex turns over the majority of its revenues to the federal government.

Beyond the threat of falling oil output to the federal budget, oil- and gas-rich Mexico faces the risk of becoming a net oil importer not too far down the road if its precipitous decline in oil output isn't reversed. Mexico already imports natural gas and some refined oil products from the U.S.

Pemex's crude production has fallen from close to 3.4 million barrels a day in 2004 to just under 2.6 million barrels a day in the first nine months of this year, largely as a result of the decline at offshore super-giant Cantarell oilfields.

In a bid to boost energy exploration and production, Pemex has been issuing "multiple service contracts" for a number of years that enable it to hire private contractors such as Halliburton Co. (HAL) and Schlumberger Ltd. (SLB). The planned "integrated service contracts," however, offer greater financial incentives and guarantees to private contractors because of their promise of flat per-barrel fees and reimbursement of a percentage of recovery costs.‹