Pemex to Award Its First Incentive Contracts Aug 18

MEXICO CITY (Dow Jones Newswires), July 29, 2011

Mexico's state-owned oil company Petroleos Mexicanos, or Pemex, said Friday it has set Aug. 18 as the date for the final awarding of its first incentive-based contracts allowed under a 2008 energy reform.

Pemex's first tender under the new contract mechanism is for six mature fields in three groupings in its southern region. Pemex said in a presentation on its website that 27 companies have participated in the tender process for the Magallanes, Santuario and Carrizo drilling areas.

Pemex hopes to use the flexible contracts, which pay bonuses for production above a certain level rather than a set per-barrel rate, to draw the best technology to reactivate about 40 mature fields in total. The flexible contracts will later be used to try and draw oil majors to the deep waters of the Gulf of Mexico, where Pemex has no production.

Under Mexican law, Pemex can't engage in shared-risk contracts, which is common in deep-water projects, and can't pay contractors with oil.

Carlos Morales, head of Pemex's exploration and production division, said during a conference call Friday that the re-opening of mature fields with new technology has great potential to compensate for the natural decline at other fields such as the super-giant Cantarell offshore complex.

Cantarell has fallen from a peak of about 2 million barrels a day in 2004 to about 460,000 barrels a day, according to Pemex figures. Morales said Cantarell has stabilized and will have significant production levels for a prolonged period of time.

Overall crude oil production in the second-quarter of this year was 2.558 million barrels a day on average, compared with the 2.578 million barrels a day in second-quarter 2010, Pemex said.

Pemex recorded a net profit in the most recent quarter of $769 million versus a net loss of $1.7 billion in the year-ago period. Total sales rose 25% compared to $33.22 billion, mostly on higher crude-oil prices. Cash flow as measured by earnings before interest, taxes, depreciation and amortization, or Ebitda, rose 31% to $24.1 billion, Pemex said.

Ignacio Quesada, director of corporate finances, said oil prices were affected by worries of availability due to events in the Middle East, among other factors, and that prices remained volatile along with other commodities.

Inline with the oil-price increase, Quesada added, Pemex had to pay higher prices for imported gasoline, which it sells at subsidized rates.

The oil monopoly, which funds about one-third of the federal budget, paid $18.6 billion in taxes and duties in the second-quarter, a 43% rise over the second-quarter of 2010.

Pemex said the economic impact of external and structural effects in the first half of the year included $1.2 billion for subsidies to liquefied petroleum gas sales, $900 million on price losses for gasoline imports, and $4.2 billion in labor obligations.

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