August 9, 2013 / 7:35 AM / 4 years ago

Mexico energy reform to target deep water: lawmaker

A demonstrator holds a Mexican national flag in front of riot policemen during a protest against the privatization of the state oil monopoly Pemex at the Angel of Independence in Mexico City July 1, 2013.Tomas Bravo

MEXICO CITY (Reuters) - Mexico will propose energy reform that includes controversial changes to the constitution aimed at drawing private know-how to tap the country's massive deep water oil and shale gas reserves, a senior ruling party lawmaker said late Thursday.

The bill, expected to be presented by President Enrique Pena Nieto next week, will open the way for private sector investment to boost output at ailing state oil and gas monopoly Pemex PEMX.UL, which has seen production slump for nearly a decade.

Marco Antonio Bernal, who heads the energy commission in the lower chamber of Congress and belongs to Pena Nieto's ruling Institutional Revolutionary Party, said the proposal will include changes to two articles of the country's constitution.

He said so-called secondary laws to be considered after the constitutional reform's passage will flesh out a more generous contracting scheme that favors deep water and shale developments, where Pemex has very little experience.

"We don't need private participation, nor participation of other companies on land and in shallow waters. Pemex has the technology, the capacity to do it alone," said Bernal.

"Where we don't have the capacity is in deep water and shale gas exploitation."

Pemex believes there are up to 29 billion barrels of crude oil equivalent in its territorial waters in the Gulf of Mexico, more than half the country's potential oil resources.

But the company lacks technology, experience and results tapping deep water wells, even as on the U.S. side of the Gulf production has been growing for decades.

Mexico also has the world's fourth-largest shale gas reserves, an estimated 681 trillion cubic feet of recoverable gas resources in deposits that may contain rich pockets of both natural gas and oil, according to U.S. Energy Information Administration data.

THREE VERSIONS

Efforts to open up Pemex to more private investment have faced an uphill battle in Mexico, where the country's oil monopoly is deeply integrated into the national psyche.

Bernal said Pena Nieto's bill will amend articles 27 and 28 of the constitution to allow greater private sector participation, but would not detail the new proposed language.

Article 28 defines oil and gas as a strategic sector where the public sector exercises exclusive control. Article 27 currently bans the government from granting private sector concessions for oil or gas, making their exploitation the sole preserve of the Mexican state.

Bernal would not say exactly how secondary laws would deal with payment to private companies to develop Mexico's deep water and shale riches, but he did identify three possibilities.

"You have a production sharing contract, or you have a profit-sharing contract, or you have a contract where what you produce is mine but I pay you what you've invested," he said.

"Which will it be? I think we have to be open to each of the three versions."

Reporting by Alexandra Alper; editing by Keiron Henderson

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