Energy Reform to Help Tap Deepwater Oil in GOM

MEXICO CITY (Dow Jones Newswires), October 30, 2008

A recently-approved energy reform will help Petroleos Mexicanos march into untapped oil fields in the Gulf of Mexico by giving Mexico's state oil company more flexibility to hire outside oil companies, a company executive said Thursday.

The legal changes allow Pemex to offer incentives to outside oil companies under cash-based service contracts. A separate fiscal reform increases tax deductions for high-cost projects, including those in deep waters of the Gulf of Mexico.

"With the reform, we expect to increase our capacity to carry out projects in deep waters," Pemex exploration and production chief Carlos Morales said during a conference call.

He said exploration programs will be completed at a faster pace. Mexico has only drilled seven wells in waters more than 500 feet deep, and has no commercial production at any of them.

Pemex Chief Financial Officer Esteban Levin, also speaking during the conference call, cautioned the energy reform won't immediately resolve Pemex's production woes.

"The use of these laws will not generate any immediate change," he said.

It will take Mexico a while just to draft contracts in line with the new legal framework. On Wednesday, Energy Minister Georgina Kessel said she doesn't expect to roll out new upstream oil contracts under the new scheme until late next year.

Pemex needs to act fast to reverse falling output. During the third quarter, crude oil production decreased 9.8% on year to 2.76 million barrels a day. Pemex expects full-year 2008 output to average 2.8 million barrels a day, 9% below Pemex's original target for the year, said Morales.

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