Pemex, Petrobras Co-op Hinges On Oil Reform

CANCUN, Mexico, April 16, 2008 (Dow Jones Newswires)

The future of oil cooperation between the state companies of Mexico and Brazil -- Pemex and Petrobras (PBR) -- could hinge on the outcome of a controversial energy reform recently submitted to the Mexican Congress, officials said Tuesday.

Mexico has shown a keen interest in the performance of the Brazilian concern, since Mexico expects that much of its undiscovered reserves lie beneath deep waters of the Gulf of Mexico, an area in which Petrobras has a lot of expertise.

At a press conference during the World Economic Forum on Latin America, Pemex chief executive Jesus Reyes Heroles said Pemex had to decline an offer made last year by Petrobras for the Mexican company to join the Brazilian firm in a deep-water project on the U.S. side of the Gulf.

Reyes Heroles said Pemex preferred to wait until the energy reform proposal was made.

"In the future, obviously it will depend on the results of the reform," Reyes Heroles said. "Petrobras has acquired an enormous experience, and has become a leader in deep water, Pemex would be very interested in being able to benefit from the experience and know how that Petrobras has on the subject, but that depends on there being a reform."

Petrobras Chief Executive Sergio Gabrielli said Petrobras is waiting for Mexico to make its decisions, and then would evaluate the possibilities.

But any change in Mexican laws is up to Mexico. "We have no opinion on the internal situation of Mexico," he said.

Mexico nationalized its oil industry in 1938, and since then oil and gas concessions have been banned, with all foreign and private involvement in upstream activities limited to oil service companies under contract to Pemex.

The reform bill presented last week to Congress by Mexican President Felipe Calderon, which has generated a storm of protest by the left-wing opposition, doesn't seek to change the Constitution to allow Pemex to form production joint-ventures.

It would, however, give Pemex more flexibility in service contracts, allowing contractors to benefit from more successful work without Pemex ceding ownership of the oil.

It would also allow private and foreign companies to build and operate refineries in Mexico, while Pemex would maintain control of the oil and by-products.

Gabrielli said the payment of fees for oil field services - common everywhere in the industry - reduces the attractiveness for investment by oil companies such as Petrobras that prefer to take on the exploration risk.

While Petrobras has been boosting its oil output, reaching 2.3 million barrels a day, production at Pemex began declining from a high of 3.4 million barrels a day in 2004 and is currently around 3 million barrels a day.

And while Mexico is seeking ways to replace declining production from its giant Cantarell oil field, Gabrielli distanced himself from reports that Petrobras' deep water oil find in Brazil could be similar in size to Cantarell.

Haroldo Lima, the head of Brazil's National Petroleum Agency, or ANP, said Monday the deep-water find could contain up to 33 billion barrels of crude oil equivalent.

"It's not an official number, it may have less, it may have more, I don't know," Gabrielli told reporters. "As soon as we get the information, as always we'll announce it to the market. We cannot answer before we get the information," the official added.

The report caused the shares of Petrobras and its partners in the exploration block to rise sharply.

This is "another reason that we should be very careful what we say," Gabrielli said.

The official said he considered world oil supply and demand to be balanced at present, and sees no fundamental reason for a further spike in oil prices.

But the high levels of investment needed for new oil projects, and higher production costs "means we are facing a new floor for the price to fall in the future, which means we are going to have to be used to high prices in the long run," he added.

CANCUN, Mexico, April 16, 2008 (Dow Jones Newswires)