UPDATE 5-Mexican government hands energy plan to Congress

(Adds Calderon quote)

By Catherine Bremer and Miguel Angel Gutierrez

MEXICO CITY, April 8 (Reuters) - Mexico's government handed Congress a compromise energy reform plan on Tuesday that could attract foreign companies to a hunt for new oil reserves to rescue falling output in the world's No. 5 crude producer.

It is President Felipe Calderon's most ambitious economic reform attempt yet but Mexico is wary of private involvement in the cherished oil sector, which has been in state hands since 1938.

The government plan omits controversial risk-sharing alliances but would let state oil monopoly Pemex sweeten service contracts with private companies by adding performance-based incentives, Deputy Energy Minister Jordy Herrera said.

"We must act now because time and oil is running out," Calderon said in a televised address to the nation. He said the overhaul would strengthen Pemex and give it greater autonomy.

"To strengthen Pemex is to strengthen Mexico," he said.

The reform, watered down to exclude risk-sharing contracts after months of wrangling with the opposition, should speed up new exploration and production projects and could also see new refineries built, Herrera told a briefing with foreign media.

"The central idea is to give Pemex more flexibility in working with outside companies," he said.

Mexico is a top supplier of U.S. crude, and oil exports provide some 40 percent of the government revenues.

But oil output and reserves are both declining and Pemex lacks the technology and resources to explore for more crude in the deep waters of Mexico's Gulf as fast as it needs to.

The reform has been diluted to ensure a smooth passage through the divided Congress, but the government sees it as far-reaching enough to shore up the flagging oil industry, Herrera said.

CALDERON NEEDS SUPPORT

Calderon needs the help of the Institutional Revolutionary Party, the third force in Congress which has backed earlier economic reforms but is more cautious this time around as changing oil statutes is extremely sensitive in Mexico.

Pemex blames its declining oil production and reserves on years of low spending under past governments and the fact Mexico has some of the tightest restrictions in the world on private investment in oil.

Although opposition parties would not back risk contracts to speed Mexico's entry to deep-sea oil fields, the compromise plan for incentive-based service contracts across Pemex's businesses might make it attractive and effective for private companies to work with Pemex in onshore and offshore oil.

Calderon said the plan also included letting Mexicans invest in "citizens' bonds" to be issued by Pemex.

Pemex says teaming up with experienced foreign partners could get it producing from wells more than 3,300 feet (1,000 metres) deep in half the time it would take if it went alone.

Risk contracts, as most oil-rich countries offer, would have been more attractive to private companies because they could win a share in crude deposits if oil were found in potentially huge deep-water fields.

"There is nothing to do with privatization but the idea is that it will help Pemex have bigger resources," said Sen. Gustavo Madero, a member of Calderon's conservative National Action Party, or PAN, and of the upper house energy committee.

Pemex's output has slid 12 percent from from peaks in 2004 of 3.4 million barrels per day as its huge Cantarell field begins to dry up. As things stand, it says its crude output could drop by more than half over the next 13 years.

Most oil majors are seen reluctant to share valuable know-how for less than a share in the oil discovered. The compromise oil reform could prompt small services companies to drill more wells rather than attract big deep-water players. (Additional reporting by Adriana Barrera, Michael O'Boyle and Jason Lange; editing by Mohammad Zargham)