Mexico Looks to Cut Taxes on High-Cost Oil Projects

MEXICO CITY (Dow Jones Newswires), Sept. 9, 2009

Mexico's 2010 budget plan looks to cut taxes on-high cost oil projects on land and in deep areas of the Gulf of Mexico in an effort to increase production.

Details of the budget plan released Wednesday call for a drop in oil royalty taxes to 15% from 20% for barrels produced at the geologically complex Chicontepec basin and in deep waters.

"We are making these projects more viable, above all at Chicontepec," said Ruben Camarillo, a senator for the ruling National Action Party who helped draft energy reforms approved in 2008.

He said the lower house and the Senate must approve the tax reforms before the government can implement them. The tax rates on these projects will continue to be adjusted in coming years to take into account exploration and production costs.

"This is the first adjustment in this direction," Camarillo said.

The tax reforms, which President Felipe Calderon delivered to Congress late Tuesday along with the 2010 national budget, also call for a reduction in the tax rate to 30% for both Chicontepec and deepwater fields.

This is down from 71.5% for Chicontepec and 60% for deepwater. The 30% rate can rise to as much as 36% if production exceeds expectations at the projects.

State oil monopoly Petroleos Mexicanos, or Pemex, has consistently fallen short of production targets at Chicontepec. The rock formations holding the oil have low pressure and flow rates, making extraction difficult.

Pemex expects Chicontepec to pump about 60,000 barrels a day by the end of this year, up from about 40,000 barrels a day currently. At the start of 2009, the company had higher expectations of 70,000 barrels a day on average this year.

Mexico is just beginning to explore in waters deeper than a few thousand feet, and it doesn't expect to bring any of these projects on line until around 2015.

Mexican Finance Minister Agustin Carstens said Wednesday that investment at Pemex will be around 250 billion pesos next year, similar to 2009's level.  

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