Spanish-Argentine energy concern Repsol-YPF SA said Friday it is committing $170 million over the next three years to produce natural gas in the Burgos Basin of Mexico after being awarded the first multiple service contract (MSC) by Petroleos Mexicanos (Pemex).

On Thursday, Repsol won the first of seven MSCs to be awarded this fall after it bid $2.44 billion to produce non-associated gas in the Reynosa-Monterrey block of the basin, which is located in northeastern Mexico. In 2004, Repsol expects to spend $42 million on exploration and production, and by 2007, it forecasts gas production will increase fivefold to about 2 MMcf/d.

Repsol was the only company to present a bid. Pemex said the bid price “includes the value of the goods and services to be provided over the 20-year life of the contract,” and said it met the state oil monopoly’s set of reference prices. Bids for the remaining six blocks, which include large, medium and small blocks, are expected to be announced over the next two months.

Through the MSCs, Pemex hopes to add 1 Bcf/d to its production, and is forecasting it will reach 6.9 Bcf/d by 2006 — up from the current level of 4.5 Bcf/d. Pemex said that investment in the seven blocks could amount to as much as $10 billion.

Repsol set up an office in Mexico in February to compete for the contracts. It already holds a 24% stake in Mexico’s Gas Natural SDG SA, which operates several natural gas distribution networks across the country. Pemex, in turn, has a 5% stake in Repsol.

Pemex first suggested the MSCs in late 2001, but their implementation has been delayed following criticism and threats of lawsuits by Mexico’s opposition party, which is wary of foreign investments (see NGI, Aug. 11). Under the MSC program, the outside companies would not own or control the gas output, but they would in effect be general contractors and would share in the proceeds with Pemex.

Last week, Pemex Director Raul Munoz Leos said in a speech that “the participation of the private sector is necessary in the production of hydrocarbons, because its investment resources, its experience and talent are indispensable for the national oil industry to achieve its development potential.” Munoz suggested for the first time in public that eventually, outside industry may be able to export oil and gas or use Pemex’s distribution network.

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