March 27, 2008 / 5:33 PM / in 10 years

Brazil Lula says backs Petrobras-Pemex tie-up

RECIFE, Brazil (Reuters) - Brazilian President Luiz Inacio Lula da Silva on Thursday backed a tie-up between state-run oil company Petrobras (PETR4.SA)(PBR.N) and Mexico’s Pemex, whose crude output is in decline, for new oil field exploration.

Lula told a meeting of Brazilian and Mexican businessmen in Brazil’s northeastern city of Recife that he had pitched the idea to Mexican President Felipe Calderon, but provided no clues about his reaction.

“I told Calderon once — it is known and notorious that Pemex’s output is falling, so why don’t we set up a third company between Pemex and Petrobras for new fields, why don’t we make big investment in biodiesel in Mexico?” Lula said.

He said Mexico treated Pemex, the oil sector monopoly, “as an untouchable goddess,” while the company could not invest in technological development as the government was using too much of the company’s funds.

Lula said creating a third company should prevent talk in Mexico of attempts to privatize Pemex.

Pemex is under pressure to speed up exploration of deepwater oil deposits where preliminary seismic tests indicate there could be some 30 billion barrels of oil. But the company says progress will be slow unless the law is changed to allow it to form partnerships with experienced foreign oil majors.

    Mexican lawmakers are debating a reform of the energy sector. The ruling conservatives want to lower barriers to private joint ventures in the state-run oil sector, but left-wingers strongly oppose the idea.

    Petrobras is a leading deepwater oil exploration and production company.

    Reporting by Mair Pena, writing by Andrei Khalip, editing by Matthew Lewis

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