Mexico to Offer 3 Gas Blocks in July Bidding Round

Dow Jones Newswires

VERACRUZ, Mexico (Dow Jones Newswires), Jun. 12, 2009

State oil company Petroleos Mexicanos will offer three natural gas blocks in July in an effort to draw more international energy companies into Mexico, Pemex's exploration and production chief, Carlos Morales, said Friday.

The blocks will be offered under a so-called multiple-service-contract model in which interested companies have the chance to make money in Mexico but not own and sell the natural gas produced.

Pemex first rolled out natural gas service contracts in 2003 and 2004, attracting large and mid-size firms including Repsol YPF (REP); Brazil's Petroleo Brasileiro SA (PBR), or Petrobras; Japan's Teikoku; Texas-based Lewis Energy; and Argentina's Tecpetrol,

"The contracts will be the same ... Pemex will hire the companies," said Morales.

He said each block is expected to produce 50 million to 100 million cubic feet a day of natural gas.

The existing contracts have had mixed results. Repsol didn't find enough gas reserves to justify the completion of its drilling program, but the other companies are still operating the blocks they won.

Mexico is also working on new incentive-based oil services contracts to draw experienced international companies into areas where Pemex lacks experience, such as the deep waters of the Gulf of Mexico.

The multiple service contracts and the upcoming incentive-based contracts put international oil companies in the role of oil service companies when they're accustomed to risk-reward contracts under which they buy exploration tracts and pay taxes on the profits. Unlike oil companies, oil service firms provide technology and expertise but don't buy reserves or sell oil.

Mexico has a long history of resource nationalism, and Pemex has a monopoly on owning and selling Mexican oil.

Morales said Pemex is making progress in drafting the incentive-based contracts, which are allowed under an energy reform approved in 2008. Pemex expects to hold bidding rounds for the incentive contracts before the end of the year, and Morales said the company has almost finished draft contracts.

Industry executives, however, say they are still in the dark on what the contracts will look like.

"We don't know what the contracts will contain, what the incentives will be," said a top executive at a large foreign oil company.

He said the his company will look at both the natural gas contracts and the incentive contracts to see if they offer attractive returns on investment.

"We have to compare them to other opportunities around the world," he said.  

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