Oil firms troubled over fading Mexican oil reforms

Oct 04, 2008 02:00 AM

by Robert Campbell

International energy companies' hopes of tapping Mexico's oil reserves are dimming as President Felipe Calderon's oil reform proposal faces dilution by opposition parties in Congress.
Energy companies had hoped to gain a toehold in Mexico's unexplored but potentially prolific deepwater territory in the Gulf of Mexico by partnering with state oil company Pemex, but congressional hearings on the reform package point to a more modest overhaul of energy legislation.

"International oil companies seem to have given up on the reform being anything more that some tweaks at Pemex," said Jeremy Martin, director of the energy program at the Institute of the Americas in La Jolla, California.
Calderon proposed a package of reforms in April to bring in foreign capital and technology to counter a steady drop in oil output that threatens Mexico's status as a major exporter and one of the government's main revenue sources.

Tampering with Mexico's decades-old barriers to direct foreign investment in the oil industry sparks passionate objections from many Mexicans, especially among leftists who are the second-largest block in Congress. The centrist Institutional Revolutionary Party, or PRI, holds the decisive votes needed to pass any energy law, but while the party has backed some proposals, it has blocked others, including any overhaul of Mexico's money-losing state-run fuel refining and distribution system.
"They don't seem to be getting any major agreements on the key issues that could have something to do with private investment so that means in itself, it would be a weak reform," said David Shields, a Mexico City-based energy analyst.

The Senate committee working on compromise legislation goes into final consultations with a closed-door hearing on the contentious issue of incentive-based service contracts -- the main mechanism in the reform package designed to attract private sector know-how to boost exploration and production.
The PRI has said it supports incentive fee contracts in principle but some negotiators have expressed reluctance to allow a substantial reduction in heavy government oversight over Pemex's spending.

Source / The Calgary Herald
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