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Pemex Suspends MSC Program Until Legislation Enacted

Mexico's state-owned oil monopoly Petroleos Mexicanos (Pemex) has suspended its program to offer multiple service contracts (MSCs) to foreign oil and natural gas producers at the request of a legislative auditor, Pemex CFO Juan Jose Suarez Coppel said last week.

Pemex suspended the MSC program until Congress can pass legislation to regulate it, Suarez told reporters at a Mexico City conference. The MSCs were enacted in 2002, and since then, Pemex has awarded about a dozen contracts to explore blocks within the Burgos Basin. However, since the MSCs were enacted, they have faced continual legal challenges, and many companies have been wary about participating.

Under the MSC program, foreign companies may invest in but not own or control the output of oil and natural gas they explore for in Mexico. In effect, the bidders serve as general contractors and share in the proceeds with Pemex. The MSCs were designed to circumvent the Mexican constitution, which does not allow foreign investment in state-owned companies like Pemex.

Pemex, with approval from then newly elected President Vicente Fox, first enacted the MSCs in late 2001, and it began a campaign to encourage more foreign investment in its oil and gas sector. A storm of criticism by nationalists and threats of lawsuits by Fox's opposition party delayed their implementation, with the first MSC awarded to Repsol-YPF SA in October 2003 (see NGI, Oct. 20, 2003).

According to Suarez, Congress is unlikely to consider a law to allow the contracts before Fox's term ends Dec. 1, 2006.

"The federal superior auditor recommended that we not do new bids for multiple service contracts until there is specific legislation for this," Suarez told reporters. The legislature has been moving forward on proposals to give Pemex more autonomy, but none of the reforms are expected to be enacted this year.

In late March, Pemex CEO Luis Ramirez proposed another type of contract to encourage companies to invest in mature oil and gas fields by paying them in oil. The so-called "alliance" contracts eventually could replace MSCs, but they also would have to wait until after the next presidential elections in 2006 because the opposition Institutional Revolutionary Party (PRI) is opposed to them.

Ramirez said the new contract, if enacted, would initially be used to explore in the massive onshore Chicontepec field, which holds about 37% of Mexican reserves. The alliance contracts also could be used to develop Mexico's offshore deepwater reserves.

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