The CEO of Petroleos Mexicanos (Pemex) said state-run oil company in May will resume offering multiple service contracts (MSCs) to develop Mexico’s natural gas reserves.

Pemex plans to offer contracts to drill in gas fields in Burgos Basin of northeastern Mexico and Veracruz, said Pemex CEO Luis Ramirez Corzo. The oil company in December won a court battle to allow the MSCs, which have been criticized by some Mexican legislators opposed to foreign investments (see Daily GPI, Dec. 20, 2005).

After President Vicente Fox was elected in 2000, Pemex adopted reforms to permit foreign investment to exploit the country’s oil and natural gas reserves. Despite legal challenges, in 2003 Pemex began taking bids from Mexican and foreign oil companies for 15- and 20-year MSCs, which allow private companies to develop — but not own — gas reserves in the Burgos Basin (see Daily GPI, July 18, 2003).

Pemex awarded about a dozen contracts to explore within the basin. However, court challenges followed, and many outside investors were wary of participation. Now that the court challenges appear to be won, Ramirez said Pemex plans to once again encourage private companies to invest in Mexico’s gas exploration.

“We’re implementing and designing new contracts,” Ramirez told Mexico’s El Universal. “They’re more alive than ever.”

The five MSCs still in place have increased Mexico’s gas output by between 200-300 MMcf/d, Ramirez said. He did not detail how the new contracts would be set up, nor did he say where and when bids will be taken.

According to Ramirez, Pemex’s proven oil and gas reserves declined by 1.18 billion boe last year. Proven reserves at the end of 2005 stood at of 16.47 billion boe. Probable and proven reserves at the end of the year were 46.42 billion boe, a decline of almost 500 million boe from 2004.

In an interview with Bloomberg, Ramirez said Pemex was “worried” about its declining reserves. Since 1979, most of Mexico’s oil supplies have come from its Cantarell field, but the Cantarell supply is now declining for the first time (see Daily GPI, March 17). Cantarell, discovered in 1976, held an estimated 35 billion boe. The field peaked at more than 2 million boe/d in 2005, but it is expected to decline by 20% to 1.43 million boe/d by the end of 2008.

Ramirez said with its production declining, Pemex will have to emulate other state-controlled producers, such as Norway’s Statoil ASA, to drill in more remote areas.

“The problem is that today we have to begin making decisions that affect us 10 years from now,” he told Bloomberg. “Hopefully we will not get to the point where we start seeing the effects of a reduction in production to react.”

Pemex wants to more heavily explore the onshore Chicontepec field, which now contains 40% of Pemex’s proven, probable and possible reserves, Ramirez said. However, he estimated Pemex will need to spend $38 billion over the next 20 years to drill about 20,000 wells. Production costs are estimated at about $12/bbl.

“To tackle Chicontepec and deep water, we need to have a legal framework in which we can work with other companies in strategic alliances,” Ramirez told Bloomberg. “To insist that Pemex alone can develop a project of this nature isn’t realistic.”

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