Carlos Slim Unit Competes for Mexico Oil Drilling Contract

Dow Jones Newswires

MEXICO CITY (Dow Jones Newswires), Apr. 1, 2009

Mexican tycoon Carlos Slim has set his sights on Chicontepec, an oil project that state monopoly Petroleos Mexicanos is plowing money into despite the price crash.

Slim's Servicios Integrales GSM has attended project meetings and paid bidding fees for a 170-well contract, according to documents on Mexico's Compranet government procurement Web site.

Industry executives expect the unit of industrial conglomerate Grupo Carso SAB to be a main competitor when bids come in on April 7.

Mexican oil production is in freefall, forcing Pemex to ramp up drilling in an effort to correct decades of underinvestment. This makes Pemex a top client for oil service providers during a year when other integrated oil companies from Canada to the Middle East are cutting costs and mothballing drilling equipment.

Unlike most foreign drillers bidding for Chicontepec, Mexico-based Servicios Integrales GSM won't have to haul equipment in from abroad, which would lower its startup costs. Also, the two most established players at Chicontepec, Schlumberger and Weatherford, have their hands full after they both won larger drilling contracts last month at the geologically complex basin. This means they are less likely to cast lowball bids to fence out smaller rivals.

Schlumberger may not even compete. It hasn't turned up at any project meetings or bought the bidding rules for the 170-well tender, said an oil executive who has attended the meetings.

"We haven't seen them," he said.

Schlumberger wasn't immediately available for comment.

Slim, a telecoms magnate ranked by Forbes magazine as the world's third richest man, has sprawling industrial concerns that rake in profitable government contracts ranging from highways to water treatment plants. At Chicontepec, Pemex plans to invest $11 billion over the next four years, making it an attractive target for drillers struggling with a global industry down cycle.

The upcoming contract is designed to attract smaller companies looking for a foothold at Chicontepec and to give Pemex a more diverse pool of suppliers. The previous two contracts were each for 500 wells, three times as large.

Halliburton, Baker Hughes, and Nabors Industries Ltd., as well as China's Sinopec, are all looking to set up shop at Chicontepec.

Over the years Slim has profited from Mexico's oil industry the only way a private company can, by winning contract work with the state monopoly. Mexican law still blocks anyone but Pemex from owning or selling crude.

Slim's engineering and construction companies have built offshore platforms and other infrastructure for Pemex. He was even briefly a member of Pemex's board in 2001 under an effort by then-president Vicente Fox to make the state oil monopoly more efficient. Slim and other businessmen named to the board were withdrawn, however, after the move caused an outburst of oil nationalism.

Slim has recently taken a wider interest in oil services. In March he raised to 15.67% his stake in U.S.-based Bronco Drilling, a company that has three rigs operating in Mexico and sees scope for more work south of the border.

The Chicontepec contract will be a challenge for whoever wins. Each well produces only around 100 barrels a day, compared to 10,000 barrels a day at more prolific wells in Mexico's shallow waters of the Gulf.  

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