Mexico Proposes Tax Changes for Pemex

MEXICO CITY (Dow Jones Newswires), May 14, 2008

Mexican President Felipe Calderon submitted to Congress Wednesday proposed changes in tax rules for state oil monopoly Petroleos Mexicanos, or Pemex, to promote development of difficult-to-reach reserves in deep water and the Chicontepec basin.

The proposal would reduce the tax burden on projects in those two regions, where exploration and production costs are higher than in Pemex's traditional areas of production.

The proposed tax changes complement an energy reform bill that Calderon submitted to Congress in April aimed at helping Pemex reverse declining reserves and production.

Among other things, the reform bill would allow Pemex to include performance incentives in service contracts, and open some restricted downstream activities - such as refining and transport - to private involvement.

The reform is currently the subject of a broad series of public debates being organized by the Congress, although a number of the proposals face stiff political opposition.

The onshore Chicontepec fields, and potential offshore reserves in deep waters of the Gulf of Mexico, are seen as key to Pemex's medium- and long-term goals for reserve replacement and production, particularly considering the sharp decline at the giant Cantarell oilfield.

Pemex's crude oil output has fallen from a record 3.4 million barrels a day in 2004 to just under 3 million barrels a day so far this year. Its proven hydrocarbon reserves as of Jan. 1 were 14.7 billion barrels of crude oil equivalent, enough for 9.2 years of crude and 8.2 years of natural gas production.

A number of changes have been made in recent years to ease the tax burden at Pemex, freeing up more money for investment at the company, which has been taking on debt to develop projects despite record high oil prices.

The proposal sent in Wednesday considers that Pemex's current tax structure is adequate, except for the changes sought in those geologically challenging areas.

Oil and related taxes account for about a third of the Mexico's federal budgets.

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