Mexico’s oil and gas monopoly, Petroleos Mexicanos (Pemex), wants to launch one of the largest debt issues ever by any state-owned or private company in the country, announcing plans this week to issue 10-year peso-denominated debt for up to 20 billion pesos ($1.78 billion). Proceeds would fund a large capital expenditure program to boost declining reserves and increase oil and gas production.

Pemex would issue the debt following approval by Mexico’s securities regulators. The announcement comes a week after Moody’s Investors Service put Pemex’s debt ratings under review for a possible downgrade, citing concerns about rising debt obligations and other liabilities.

The announcement came a day after the country’s power utility, Comision Federal de Electricidad (CFE), placed 2.6 billion pesos ($230 million) in 10-year securities on the Mexican stock exchange. CFE is Mexico’s No. 2 company in terms of assets after Pemex, and proceeds from the offering announced on Monday would be used to pay for new transmission line projects that were initially financed by contractors.

Mexico’s economy has been sagging at a time when Pemex, the world’s seventh-largest oil producer, has been working to ramp up spending in an effort to find and produce more oil and gas. Pemex Director General Raul Munoz Leos said the company wanted to spend $10.3 billion this year on exploration and production (E&P), up from $7.3 billion last year and $6 billion in 2001.

Along with internal efforts to boost spending, Pemex also is inching forward with its multiple service contract (MSC) initiative, said Munoz Leos (see Daily GPI, Aug. 8). The MSCs, which continue to face strong political opposition, would invite foreign companies to help Pemex exploit its Burgos Basin, a massive natural gas field in northern Mexico. Apparently, about 20 of the top oil and gas companies are considering bidding on blocks in the basin, and while the companies would not control the output, they would in effect be general contractors and would share in the proceeds with Pemex.

Alfredo Guzman, who heads Pemex’s E&P efforts, said MSCs originally were to have been announced this month, but he said some of the potential bidders had requested they be delayed. In July, Pemex had placed seven blocks of non-associated gas reserves in Burgos for bid. The 20-year MSCs, if consummated, could double Burgos’ output to 2 Bcf/d by 2006.

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