Mexican law stalls deepwater talks

Offshore staff

(Mexico City)-Mexico's energy minister Fernando Canales commented last Friday that discussions between state oil monopoly Petroleos Mexicanos (Pemex) and potential partners on deepwater projects are being held up by Mexico's legal restrictions.

A limited number of companies have the technology to explore deepwater, and they insist on forming partnerships with Pemex, Canales said in his first press conference since taking over the Energy Ministry this week.

Mexico's constitution forbids oil and gas concessions to non-Mexican private companies, a practice that has been in place since Mexico nationalized its oil industry in 1938. Pemex does contract work to private companies, however.

Pemex has not developed its own deepwater technology to its fullest extent, due in part to its work in the shallow offshore field of Cantarell. This field is responsible for about 2 MMbbl of Pemex's 3.4 MMb/d crude production.

With production at Cantarell beginning to decline however, Pemex sees deepwater exploration as its best bet to increase crude oil and natural gas production, and to build up declining reserves. Pemex estimates that there are billions of barrels of crude lying farther out in 500 m of water in the GoM. In order to fully exploit these reserves, there is a need for associations with international companies, who have the technology to explore and produce in deeper waters.

The roadblock to this is Mexico's own nationalistic feelings of maintaining control of its own oil. President Vicente Fox, who earlier this month proposed to Congress a constitutional amendment to allow private companies to explore for and produce natural gas, but not crude, recently lamented legislative opposition to a more open energy sector.

In a recent interview with Dow Jones Newswires, Fox said "It's incredible that those who continue with that absurd nationalism, and that defense of sovereignty which is totally out of date in the way in which they present it, haven't got the vision that the 'magic formula' today is to associate private investment with public investment without losing sovereignty."

In the meantime, talks with international companies continue with the expectation that the current bans in the Mexican constitution will be resolved.

10/6/2005