Pemex Prepares to Take Bids on Corindon Gas Block

MEXICO CITY (Dow Jones Newswires), Jul. 10, 2009

State-run Petroleos Mexicanos will receive bids in September for the Coridon natural gas project in northern Mexico, marking Pemex's latest effort to pay outside oil companies to increase gas production.

After companies submit bids, it will take Pemex around four months to pick a winner for the 15-year contract to develop the gas block. Pemex began offering Burgos gas blocks in 2003 under long-term service contracts, attracting local and foreign oil companies including Spanish-Argentine Repsol YPF, Brazil's Petrobras, Texas-based Lewis Energy and Argentina's Tecpetrol.

"Given that the licensing round takes four months, we expect bidding to conclude in February, 2010," said Pemex in an emailed response to questions about the project.

In June, Pemex exploration and production chief Carlos Morales announced the company will be offering a total of three new blocks in Burgos under the service model.

Each block is expected to produce 50 million to 100 million cubic feet a day of natural gas. The Burgos basin produces 22% of Mexico's natural gas.

Pemex is making an effort to attract investment from foreign oil companies to boost production. Pemex and the Energy Ministry are currently drafting incentive-based oil service contracts that were authorized under a 2008 energy reform.

Pemex hopes to accelerate the development of deepwater oil fields with help from international oil companies that have more experience. Mexican oil production fell 9% last year, and exports will dry up in about six years at the current rate of decline, putting Mexico's public finances at risk.

Mexico's nationalistic oil legislation blocks private ownership of oil and natural gas. This means Pemex must hire companies to work for a fee, instead of teaming up under joint-venture projects where each partner shares in the profits from oil sales.

The existing service contracts at Burgos have had mixed results. Repsol has halted any new drilling at a block it operates due to low production.

Oil executives say Petrobras and Lewis Energy have had better results at the blocks they operate. An oil executive with a company operating a Burgos contract said all three firms have attended project meetings and plan to bid for the Corindon block, along with some local companies.

Mexico's Industrial Perforadora de Campeche and Grupo Diavaz currently operate Burgos blocks.

Burgos covers 50,000 square kilometers in the states of Tamaulipas, Coahuila and Nuevo Leon and hit record production of 1.52 billion cubic feet a day in late May.  

Copyright (c) 2009 Dow Jones & Company, Inc.

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