PAN Aims for Flexibility in Mature Well Taxes

Lawmakers from Mexico's ruling party PAN are seeking a more flexible approach to the proposed tax on mature fields in the reforms proposed for state oil company Pemex's fiscal regime.

The 20% unique tax rate for mature fields that have been closed for at least three years, which is included in the reform proposed for Pemex's fiscal regime, would be subject to distortions due to varying well conditions, the secretary of the senate's energy commission, Senator Ruben Camarillo (PAN), told BNamericas.

From 6,000-7,000 wells have been shut since the 1920s. The costs of redeveloping a well closed three years ago is very different from that of one shut 80 years ago, Camarillo said.

"Talking about a general 20% rate does not seem to us to be the best way to deal with the mature wells," Camarillo said.

Opposition parties PRI, PRD, Convergencia, PVEM and PT have proposed the reform to Pemex's fiscal regime.


George Baker, research director of Houston-based consultancy, said a lower tax rate for mature fields is "fundamentally a good idea," but questioned whether any lowered tax rate would actually motivate Pemex to invest in mature wells.

"Pemex has said in the past, 'we have a limited number of engineers, limited number of seismic crews, limited number of x, y and z, we need to put our resources where there's the biggest buck.' That's why all the money has been going to Cantarell, KMZ and other big-ticket items," Baker said.

It would be more effective to allow small private oil companies to pursue abandoned wells and fields, although this is prohibited under current Mexican law, Baker said.

"If you have a small operation, you need to have a small-scale enterprise taking care of it. The big enterprise has got huge overhead rates. You don't need a research department, law department, information department, labor relations department to deal with a small oilfield," he said.


Camarillo also said that before fixing any tax rate whatsoever for mature wells, congress needs to ask Pemex to provide information regarding the state of the wells and what potential they could have.

The reform proposal's main feature is the reduction of taxes paid on extracted hydrocarbons to 70% from 79%. It also includes increased contribution to research, particularly to assuring Pemex's long-term sustainability.

Although Mexico's natural gas production has been increasing moderately, its crude production has been falling steadily due primarily to the Cantarell field's natural decline. At current rates, the sixth-largest global oil producer has less than 10 years of output remaining.

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