Mexico Trying to Attract Foreign Investment

Mexico is hoping to recruit international oil firms to boost output in its bountiful natural gas reserves, but foreigners may be put off by heavy restrictions in the nationalized industry. With third-party participation, Mexico hopes to double gas output at Burgos field - the nation's largest source of dry gas, or gas found without crude oil - to 2 billion cubic feet per day (cfd) by around 2006 from around 1.03 billion cfd currently.

Alfredo Guzman, deputy director exploration and production for the northern region at Pemex, said that at least 10 foreign companies have shown interest in the multiple-service contracts being drafted to allow private involvement in Mexico's energy sector. "Once the final contract models are ready, Pemex will present them to the authorities to get a final draft (agreed) so the tenders should be out around November," he said. However, there is widespread concern the terms Pemex will be forced to offer under Mexican law will not be attractive to international firms.

Under the Mexican constitution, Pemex cannot sell off any of its assets to a third party. So while oil majors normally demand a percentage of what oil or gas they produce - a potential windfall when prices rise - in Mexico they will not be able to own any of the resources they exploit.

Guzman said he did not know how the contracts would deal with the issue of payment but that they would be mainly for production rather than exploration and that Pemex would continue producing alongside the contractors at Burgos. "The contracts are mostly for production, based on reserves already identified, with whatever additional reserve 'growth' might be associated with those," said Guzman.