Mexico’s state oil monopoly Petroleos Mexicanos (Pemex), which will select its first 10 multiple-service contracts following bidding in November for natural gas projects onshore and offshore, expects the companies that participate to obtain internal rates of return as high as 15%, according to an executive with the Mexican oil and gas company.

Vinicio Suro-Perez, who manages the hydrocarbon reserves unit within Pemex Exploration and Production, was boosting U.S. interest in the new contracts in Denver last week as a speaker at Colorado Oil and Gas Association’s Seventh Oil & Gas Conference. Suro-Perez said the contracts are expected to be signed in the first quarter of 2003.

The multiple-service contracts, which will allow outside investors to participate and profit in Mexico’s energy sector, will cover several types of services, including exploration for new gas reserves, development well drilling and pipeline construction, and will range from 10 to 20 years. They were first proposed in a massive government reform plan under President Vicente Fox, and a draft of the contracts was unveiled two months ago (see NGI, June 17).

The first contracts awarded will be for corporate lots in the Burgos Basin, which is located in the Rio Bravo area adjacent to the U.S. border. The Burgos Basin, already eyed by U.S. and Canadian companies, may hold as much as $10 billion worth of contracts over 10 years for foreign drilling companies, according to Pemex.

With natural gas production increasing at a rate of 4% a year, and demand rising more quickly, Suro-Perez noted that Mexico continues to import an increasing amount of gas from the United States — despite the fact that the country has a prolific amount of both oil and gas reserves, especially within the Burgos and Veracruz basins.

However, Mexico has limited resources to invest in the development of reserves; Pemex competes with other sorely needed state-funded projects, including new schools and medical facilities. By using the contracts, Pemex maintains control of the reserves, but allows the private investors to also share in the discoveries.

Mexico’s natural gas production in June totaled 4.449 Bcf/d, down from a year earlier when it was 4.549 Bcf/d. However, by 2006, production is expected to grow 33% to 5.9 Bcf/d. By 2010, it’s expected to expand by 73% to 7.7 Bcf/d, Suro-Perez said. Pemex and top Mexico officials believe the contracts will substantially reduce the need for imports.

In the last two decades, Pemex has only replaced about 26% of its oil and gas reserves, and with the gas market growing — fueled by power plant production — “we need to do a lot of exploration,” Suro-Perez said.

Although there continue to be many opposed to the idea of opening state-owned monopolies like Pemex, which was nationalized in 1938, proponents argue that because none of the bidders will “own” the oil and gas services, the contracts are allowed by the Mexican constitution.

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