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Pemex Reports Exploration Success with Burgos Basin Contracts

Pemex Reports Exploration Success with Burgos Basin Contracts

Mexico's state-owned energy company Petroleos Mexicanos (Pemex) said last week that private investment by companies through the country's multiple service contracts (MSCs) will produce 89 MMcf/d by the end of this year.

Following a contentious battle between Mexican legislators and President Vicente Fox's administration -- which was pushing for the MSCs -- Pemex awarded contracts to develop six blocks holding natural gas reserves in the Burgos Basin in 2003 (see NGI, Oct. 20, 2003).

The contracts brought investment commitments by outside companies worth $5.24 billion, and by 2007, Pemex is forecasting the new investment in the MSC-funded blocks could lead to gas production of 535 MMcf/d by 2007. The success of the MSCs, which allow private, outside investment in the state-owned oil and gas business, will lead to three more blocks being tendered in January to develop reserves in the Burgos Basin, Pemex said.

Eventually, Pemex hopes the MSCs, which carry 15-20 year commitments by the companies that obtain them, will contribute 1 Bcf/d to overall production in the country. Current gas production overall is currently 4.6 Bcf/d.

The oil and gas monopoly, with the backing of the government, had not been able to attract outside investment because of the country's laws. However, Pemex had pushed to allow the use of MSCs, which do not violate Mexico's Constitution, to allow private investment in Mexico's oil and gas sector. With the MSCs, companies may make investments in the reserve production and earn a share of the profits, while Mexico continues to own the leases and the output.

Pemex noted that the six contracts will reduce Mexico's gas import costs in 2004 by $110 million. Mexico is currently paying about $5.50/Mcf to import gas from the United States, however, the gas can be extracted in the country for about half that price. In 2004, Mexico imported about $2 billion worth of gas, or about 35% of the country's trade deficit in 2003, according to Pemex.

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