Oil and Gas

Oil majors muted on Mexico energy reform plan

MEXICO CITY (Reuters) - A plan to shake up Mexico’s flagging state-run oil sector met with muted reaction on Wednesday, with most seeing it as positive but not enough to restore declining output and reserves overnight.

The government’s proposal, which was diluted to give it the best chance of passing through Congress, proposes more hiring of private companies across the oil industry through “incentive contracts” that offer bonuses for work well done.

Foreign oil majors, who want Mexico to join the rest of the world in offering risk-sharing joint ventures, especially in the huge deep-sea sector, mostly declined to comment as they huddled in meetings over the plan.

But analysts see the sweetened service contracts doing little more than drumming up more business for oilfield service companies such as Schlumberger SLB.N, which state oil monopoly Pemex hires to help with engineering work.

“My initial impression is that it’s relatively modest,” said RoseAnne Franco at PFC Energy. “For the international oil companies it comes down to being able to book reserves.”

Pemex, a top U.S. oil supplier, has long complained about Mexico’s barriers to private oil investment and says it needs partners to help it unlock huge deepwater reserves as yields decline at its shallow water and onshore fields.

But many question whether the proposed contracts will attract big players like BP BP.L and Petrobras PETR4.SA into deep-sea exploration, given such costly and risky ventures are repaid in other countries by giving the partner a share in reserves.

“The important aspect of any contract is the incentive part. If someone is doing a really good job they should be paid for it. But there are different types of incentive around the world so we’ll have to wait and see what they are offering,” said a Mexico-based executive for a foreign oil major.

“You always want more, but I wouldn’t say no to a contract like this,” he added, asking not to be identified.

BP, Exxon Mobil XOM.N, Petrobras, Shell RDSa.L and StatoilHydro STL.OL all have representatives in Mexico lobbying for a sector opening, but none would comment on the reform, most saying they preferred to wait and see whether it becomes law.


President Felipe Calderon’s proposal is seen with a good chance of getting the 50 percent backing in Congress it needs to pass, given a centrist opposition party broadly backs it.

If approved, it will give Pemex more operational autonomy, trim its taxes, and let it hire private firms in everything from refinery building to oil drilling under fee-paying contracts with performance-related bonuses.

“It’s a bit more attractive,” said analyst Alejandra Leon at Cambridge Energy Research Associates in Mexico City. “But we need to analyze in a bit more detail what they are offering in these contracts.”

Pemex says foreign partners could slash the time it needs to reach oil in Mexican Gulf waters over a kilometer deep.

But oil majors have plenty of exploration opportunities in other countries that let them book a share in oil reserves.

“It’s not as if there is a surplus of rigs sitting around with nothing to do,” said Kevin Book, senior energy analyst with Friedman Billings Ramsey and Co in Washington.

Yet oil companies are unlikely to complain about anything that gives them a firmer foothold in Mexico -- the world’s No. 5 oil producer -- and Book noted that what may seem a tentative reform was still a politically brave step for Mexico.

“It might have been watered down already but this is Mexico reaching out to the market,” he said.

Pemex Chief Jesus Reyes Heroles said he was “very satisfied” with the reform proposal, which was the furthest Mexico could go without changing the Constitution.

Additional reporting by Robert Campbell in New York and Michael O’Boyle in Mexico City; Editing by Christian Wiessner