Royal Dutch/Shell, Exxon Mobil Corp., ChevronTexaco, Burlington Resources Inc. Petrobras and Schlumberger are but a few of the 75 foreign companies that have expressed an interest in the long-term natural gas production contracts officially unveiled by Mexico’s state-run oil monopoly last week. The first agreements are expected to be offered in November, officials said (see NGI, June 17).

The multiple-service contracts, considered by some as the first step toward privatizing Petroleos Mexicanos, or Pemex, are constitutional and protected by Mexican law, said Pemex director Raul Munoz Leos. He said Mexico’s demand for natural gas is expected to more than double by 2010 to 8.4 Bcf/d, which exceeds current production levels.

Mexico now imports about 10% of its natural gas, but Munoz pointed that the country’s prolific reserves should not be overlooked. Luis Ramirez Corzo, who runs Pemex’s exploration and production unit, estimates Mexico will pay an estimated $3.70/Mcf, compared to $2.50/Mcf to produce the same amount.

The Burgos Basin, which produces non-associated gas, could supply up to 22% of total annual natural gas production in Mexico for up to 20 years, Ramirez said. He said the development cost is estimated by Pemex to fall between $6 billion and $8 billion. Private companies’ investments could save Pemex about $1.3 billion annually.

Ramirez said companies from the United States, Canada, Asia and Europe have already indicated they want to consider long-term agreements with Pemex, different from past contracts that were only one-to-two years long. These new multiple-service transactions would last from 10 to 20 years, with the first ones awarded to about 10 companies.

Pemex would own any gas found, and would not be required to begin payment on the contract until gas is extracted from the field. Profits from the gas extraction would be used to pay the contracts. The projects would be supervised by Pemex, and the private companies will be required to hire and train Mexican workers.

“This will generate respectable but marginal profits compared with other global alternatives,” said Ramirez. He expects between 20 and 30 companies to participate in the first tender offers in November. “Interest has been much greater than we expected.” he said.

Pemex said the number and size of blocks to be tendered would be decided in November. The draft contracts may be seen on Pemex’s web site at www.csm.pemex.com.

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