Pemex Calls for Bids on 3 Remaining MSCs

Mexico's state oil company Pemex has called for bids from private companies to produce gas on a further three blocks in the Burgos basin under the first round of multiple service contracts (MSCs).

The Cuervito, Fronteriza and Olmos blocks complete the first MSC bidding round. Pemex called for bids on the first four blocks - Ricos, Reynosa-Monterrey, Mision and Corindon-Pandura - on July 17. The seven blocks in the first round cover about 15,000 sq km in Nuevo Leon, Tamaulipas and Coahuila states.

The contracts are expected to lead to US$8bn investment, which should see Burgos production double to about 2 billion cubic feet a day (bcf/d) by 2006. The contracts of up to 20 years are fee-for-service contracts, which Pemex designed to confront the growing natural gas demand that is outpacing production and pushing up imports.

Pemex shrugs off claims that MSCs are a step towards privatization, and says the only difference from traditional service contracts is that MSCs reduce costs by wrapping many service contracts into one. Some private companies have been discouraged by contract terms that leave Pemex in control of the production while they take on the risk involved in exploring the blocks.

"On the other hand, this is one of the few opportunities in Mexico for pure upstream operators, so that will be a driver," IPD Latin America analyst Sergio Rosado told BNamericas. "For strategic reasons companies may want to participate just to get a foot in the door in Mexico," he added. "These companies know what they are doing and they are smart," Rosado said, adding that the risk on the Burgos contracts is no greater than in other countries such as Venezuela. "At the end of the day, what's important is that this gas is absolutely crucial for Mexico - if we don't have the gas we will have severe problems," he added.

Based on the success of the first round, Pemex may decide to hold a second bidding round for other blocks in Burgos, and the same MSC model could be used elsewhere in Mexico. Companies with a long-term view of Mexico's gas market could be interested in the contracts if they can "live with the risk and returns" from the Burgos fields, Rosado said, adding that the companies would then be well-positioned to take advantage of other opportunities as Mexico's energy sector gradually opens up in the next 20 years.

Bidding rules are available for Reynosa-Monterrey and Mision until September 11, bids must be received by September 17 and economic bids will be opened on September 18. Bidding rules are available for Cuervito and Corindon-Pandura through September 25, bids must be received by October 1 and economic bids will be opened on October 2. Bidding rules are available for Fronteriza, Olmos and Ricos until October 9, bids must be received by October 15 and economic bids will be opened on October 16.

Companies that have bought bidding rules for the first four blocks include Anglo/Dutch company Shell, UK's BP, US-based Exxon Mobil, ChevronTexaco, France's Total and Argentine company Techint, Petrolatin reported.

About Business News Americas: Business News Americas is a multilingual news and business information service that covers the most important original stories in 11 different business sectors throughout Latin America everyday. Visit BNamericas to access our real-time news reports, 7-year archive, Fact File company database, and latest research reports.

Click here for a Free two week trial to our Latin America Oil & Gas information service.