UPDATE 2-Mexico's Pemex awards historic private oil contracts

Thu Aug 18, 2011 3:51pm EDT

Related Topics

 * Pemex announces private operators of mature oil fields
 * First incentive-based oil contracts in Mexico's history
 * Bigger companies eyeing potential deep water projects
 (Updates with quotes, size of Petrofac investment)
 By Mica Rosenberg and Luis Manuel Lopez
 MEXICO CITY/VILLAHERMOSA, Mexico, Aug 18 (Reuters) -
Mexico's state oil monopoly Pemex awarded its first-ever
private oil-field operating contracts on Thursday as the
company seeks to kick-start foreign investment in the
nationalized energy sector.
 British energy services firm Petrofac (PFC.L) won the right
to operate two of the three mature oil fields up for grabs, and
Mexico's Administradora en Proyectos de Campos (APC) won the
third.
 Petrofac, which designs, builds and maintains facilities
used in extracting and processing oil and gas, will be the
first foreign company to operate fields in the world's No. 7
oil producer in more than 70 years.
 The new contracts are the fruit of 2008 reforms aimed at
attracting more private investment into the lumbering oil
industry to bring new dynamism to the sector.
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 Factbox on contract auction           [ID:nN1E77H0JS]
 Story on Pemex's Q2 results           [ID:nN1E76S0D5]
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 The fields total only a small fraction of Mexico's proven
reserves of 13.8 billion barrels, but Pemex is hoping strong
interest in other areas, especially deep-water contracts off
the Gulf of Mexico planned for next year, will help reverse a
slide in production.
 "This is the beginning of a new phase. We want companies to
help us exploit this resource by working hand-in-hand with us,"
Pemex CEO Juan Jose Suarez Coppel said after the announcement.
 "With more flexible contracts ... the potential is huge,"
he added at the event held in the city of Villahermosa,
Tabasco, an oil-producing state on the Gulf coast.
 LESSONS LEARNED
 More than 50 companies bought information packets about the
Carrizo, Magallanes and Santuario fields in southern Mexico to
get a peak at Pemex plans, twenty-seven made bids but only 17
fulfilled all the requirements.
 Even companies that did not win the contracts said they
were pleased with the process.
 "This was a good start for Pemex ... we are hoping this
will open doors for more companies to exploit these reserves
that have been passed over," said Manuel del Villar, the
director of GPA Energy, which submitted a losing bid for the
Santuario area.
 "This is the first round, there will be others and we
learned lessons," he said.
 Mexican oil output has fallen 24 percent since a 2004 peak
of 3.4 million barrels per day and a renewed slide could one
day force it to become a net crude importer.
 Around a third of Mexico's budget is funded by oil revenues
so the decline in production has had serious implications for
the country's financial health and was one of the reasons
behind a ratings downgrade in 2009.
 Nationalized since 1938 and a large source of Mexican
pride, Pemex [PEMEX.UL] has managed to stabilize oil output at
around 2.6 million bpd and is aiming for 3 million bpd by
2015.
 Pemex has not yet discussed private involvement in its
largest oil fields, Cantarell and Ku Maloob Zaap, which make up
more than half the country's production. The company has sunk
billions of dollars in the complicated Chicontepec project, but
with disappointing results so far. [ID:nN1E77720E]
 The three mature fields are currently producing nearly
15,000 barrels of oil per day, up from output last year, and
the hope is to boost production to 55,000 bpd with the outside
help, Pemex said in a statement on Thursday.
 "We are sure that we will be able to significantly increase
the recovery of these reserves for the benefit of all
Mexicans," Carlos Morales, head of Pemex upstream operations,
said.
 Global players like Halliburton Co (HAL.N), Schlumberger
Ltd (SLB.N) and Repsol (REP.MC) had bid for the contracts, but
were out-priced. The contracts were won by the companies
offering to produce a barrel of oil at the lowest cost.
 Petrofac, a FTSE 100 group, offered to produce crude for
$5.01 per barrel in the Magallanes and Santuario fields, well
below Pemex's maximum. APC offered $5.03 per barrel for the
Carrizo field.
 Petrofac said it has committed to an investment of
approximately $500 million.
 Bank of America Merrill Lynch upgraded Petrofac stock to
"buy" on Thursday but did not mention the Mexico contracts in
its research note published before the announcement.
 (Additional reporting by Elinor Comlay and Tomas Sarmiento)


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