Pemex May Award First Oil Exploration Contract by End of 2009

By Andres R. Martinez

Nov. 14 (Bloomberg) -- Petroleos Mexicanos may award the company's first external oil production and exploration contract by the end of next year, as it targets producers such as Exxon Mobil Corp.,Royal Dutch Shell Plc and Chevron Corp.

The contracts will focus on deepwater projects or its onshore Chicontepec development, areas where the state oil company lacks technical expertise, said Carlos Morales, chief of exploration and production at Pemex, as the company is known. Pemex lowered its daily output forecast for 2008 on Oct. 30.

``We expect to be ready to release the first tender by the middle of the year and award it by the end of the year,'' Morales said in an interview yesterday at his Mexico City office. ``We can learn the most from working with major oil companies, such as Petrobras, Statoil, Exxon, BP, Shell, Total and Chevron.''

Mexico's Congress approved seven oil-related bills in October after a summer-long debate and protests by opponents. The legislation allows Mexico City-based Pemex to hire companies to explore and produce oil and lets it seek outside expertise to search for crude in more expensive and complex fields.

For 70 years, the Mexican constitution prohibited foreign companies from exploring or producing oil on domestic soil or water as those rights were restricted to Pemex. Now, Pemex may hire companies and pay them incentives to find oil or cut costs.

Hired companies won't be allowed to own the oil or book the reserves, which are the lifeblood of oil companies. Mexico estimates it has 30 billion barrels of deepwater reserves.

Pemex has discussed partnering with Shell, Italy's Eni SpA and Norway's StatoilHydro ASA on exploration projects outside Mexico, Morales said. Pemex declined to participate on a StatoilHydro project in Timor it wouldn't directly benefit its domestic capabilities, he said.

Petrobras Rejection

Pemex also rejected an offer last year from Brazil's state- controlled Petroleo Brasileiro SA to take a 15 percent stake in an exploration block in deep waters of the U.S. Gulf of Mexico, he said.

Amid the global credit crisis and falling oil prices, Pemex postponed publishing tenders for some projects to allow companies to secure financing, Morales said. This includes a $1 billion pipeline maintenance project in the Gulf of Mexico.

Pemex doesn't have any plans to cut its $20 billion budget (258.7 billion pesos) amid the financial crisis, Morales said.

Last week, the IMF warned of the first simultaneous recession in the U.S., Japan and Europe in more than 60 years.

Pemex's projects are profitable at oil as low as $25 a barrel, he said. Below that, Pemex would have to consider cutting production or shelving or delaying projects, he said.

Crude at today's price is ``undervalued'' and will likely trade in a range of $50 to $70 a barrel through 2009, he said.

Tumbling Prices

Oil futures traded in New York have tumbled 60 percent since reaching a record $147.27 a barrel on July 11. They touched $54.67 a barrel yesterday, the lowest since Jan. 30, 2007.

Mexico is the third-largest supplier of crude to the U.S. Canada and Saudi Arabia are the first- and second-largest suppliers.

Pemex's output may fall next year to 2.75 million barrels of oil a day, Morales said. Cantarell, the world's third-largest field and Pemex's largest, is losing pressure, making it more expensive and harder to maintain output.

Pemex extracted 65 percent of its oil from Cantarell in March 2005, its peak. Cantarell now accounts for 35 percent of Pemex's total output.

The company on Oct. 30 lowered its 2008 output forecast by 3.6 percent to between 2.7 million barrels of oil a day and 2.8 million barrels after interruptions from hurricanes and stormy weather.

The company plans to drill three deepwater wells this year and 15 deepwater wells a year by 2011, Morales said. So far, the company has drilled eight deepwater wells. Pemex is betting that deepwater fields will produce 500,000 barrels a day by 2021.

Production Start-ups

Pemex may begin production at its Lakach deepwater natural gas field in 2013, at a daily rate of 400 million cubic feet, Morales said. Crude output at other deepwater wells may not begin until 2015, he said.

Pemex will publish seven tenders for work at its Chicontepec field in the next three months. The winning companies will drill about 2,520 wells, he said. Pemex expects output at the field to reach 600,000 barrels a day by 2021, helping the company return to production of 3 million barrels a year by 2012, Morales said.

To contact the reporter on this story: Andres R. Martinez in Mexico City at amartinez28@bloomberg.net