Bloomberg News

Mexico Parties Said to Seek Oil License Contracts in Energy Bill

November 05, 2013

Mexico’s two largest parties reached a preliminary accord that would give companies more control in new oil field contracts than the government is proposing, said three people with direct knowledge of the agreement.

The ruling PRI and opposition PAN parties will support a new measure to allow the state to decide the type of contracts to be offered for each project, including service contracts, profit and production sharing and licenses, two of the people said, asking not to be identified as talks are private. Like the concession model proposed by PAN, licenses would grant broader operational control of projects than the govenment’s initial profit-sharing model and allow companies to manage oil directly.

President Enrique Pena Nieto is seeking to end a 75-year state monopoly on pumping crude and to attract investment from companies like Exxon Mobil Corp. (XOM:US) and Chevron Corp. (CVX:US) to boost the $95 billion industry. The government says the bill, now before the Senate, would lift economic growth 1 percentage point by 2018 and help state-run Petroleos Mexicanos return to output growth.

“If the bill that Congress decides is a bit more aggressive in terms of legal structures beyond profit sharing, or production sharing or licenses, we’re ready for that,” Chief Executive Officer Emilio Lozoya said in an Oct. 31 interview. “What we have been advocating as the sole operator in the country is whatever legislation gives long-term legal certainty to investors.”

Representatives of the PAN and PRI parties didn’t immediately respond to requests for comment.

Political Landscape

Third-quarter crude production of 2.506 million barrels per day was 1.6 percent lower than the same period a year earlier. Pemex, as Petroleos Mexicanos is known, lost 39.2 billion pesos ($3.05 billion) in the third quarter.

Allowing companies to explore and drill for gas and oil in Mexico requires a constitutional amendment that could only pass with a two-thirds majority in both the lower house and Senate.

The PAN, Mexico’s largest opposition party, along with Pena Nieto’s Institutional Revolutionary Party, or PRI, and its allies, have enough votes to approve a charter change. Both parties have said talks are advancing in congress on an electoral reform that the PAN has said is a requirement for it to pass an energy bill. The third-largest party, the Democratic Revolution Party, is against a constitutional change in energy.

Pena Nieto presented his energy overhaul Aug. 12 that limited contracts to risk-sharing accords with cash payments. The PAN presented its own version in July that offers concessions, allowing companies to book reserves directly on balance sheets. The preliminary agreement will seek to have as many contract options as possible, including those where producers are paid with oil, the three people said.

Biggest Reserves

Mexico has the biggest proven oil reserves in Latin America after Venezuela and Brazil, with 13.87 billion barrels, and shale-gas resources that may be as much as 460 trillion cubic feet, according to data compiled by Pemex.

Pemex is interested in raising capital through real-estate trusts, known as Fibras, or structured securities known as CKDs, as soon as the first quarter of 2014, Pemex’s Lozoya said.

Without a reform, Pemex would need an estimated $1 trillion of investment for extraction of prospective reserves in the next 50 years, Lozoya said. To do so, current annual investment must be increased to $62 billion from $25 billion.

Analysts forecast 2013 economic growth of 1.24 percent this year after a 3.9 percent expansion in 2012, according to a central bank monthly survey published Nov. 1.

To contact the reporters on this story: Nacha Cattan in Mexico City at ncattan@bloomberg.net; Adam Williams in Mexico City at awilliams111@bloomberg.net

To contact the editors responsible for this story: James Attwood at jattwood3@bloomberg.net; Andre Soliani at asoliani@bloomberg.net


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