July 6, 2012 / 2:23 AM / 5 years ago

Mexico oil watchdog wants to boost powers by overseeing contracts

MEXICO CITY (Reuters) - Mexico’s oil industry watchdog on Thursday said its role should be expanded to oversee private development contracts awarded by state oil monopoly Pemex to smaller energy companies, ramping up its previous calls for greater reform in the sector.

The National Hydrocarbons Commission, which regulates production and exploration projects in the world’s No. 7 oil producer, has argued since its creation three years ago that it needs more reach to help boost the competitiveness of Pemex.

The development contracts are part of a scheme introduced in 2008 to increase investment in the energy sector after Pemex lost nearly a quarter of its production due to the rapid aging of its largest oil fields.

Mexico, which relies heavily on oil revenues to fund the federal budget, risks becoming a net importer in the next decade if it fails to replace lost output with new discoveries.

Commission president Juan Carlos Zepeda told Reuters in an interview that there is not enough oversight to ensure contractors are meeting their obligations for production targets and safety.

“(Pemex) cannot be a partner and a supervisor at the same time,” Zepeda said. “You have a conflict of interest.”

He added that the Commission’s role should be expanded to oversee the contract bidding process and to supervise private contractors’ performance after the fields are awarded.

Since last year, Pemex PEMX.UL has awarded two rounds of private contracts for mature oil fields, inviting companies to help increase output in areas that are in decline.

The Commission is charged with issuing recommendations to the state oil monopoly and has challenged the company in the past on its reserve estimates and its plans for deep water drilling in the Gulf of Mexico.

Pemex wants to use the private contracting scheme to eventually lure companies into deep waters, but analysts say new oil reform is necessary to attract larger investors.

Mostly oil services companies bid for the first two rounds of oil contracts, with Schlumberger (SLB.N) and British drilling firm Petrofac (PFC.L) among the winners.

On Sunday, Mexico elected a new president, Enrique Pena Nieto, from the opposition Institutional Revolutionary Party (PRI), who promised on the campaign trail to overhaul the country’s oil industry.

But achieving his ambitious goals will be complicated as the PRI is likely to fall short of an absolute majority in Congress.

Editing by Mica Rosenberg and Joseph Radford

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