August 19, 2013 / 12:10 PM / 4 years ago

Mexico to open new and mature oil, gas fields to private firms

Mexican Economy Minister Ildefonso Guajardo gestures as he speaks during an interview with Reuters at his office in Mexico City August 16, 2013.Tomas Bravo

MEXICO CITY (Reuters) - Mexico will open up a range of new and mature oil and gas fields to private firms under a proposed energy industry overhaul, and new partnerships with state oil monopoly Pemex could be launched in the second half of next year, a top government official said.

The energy reform bill proposed last week by President Enrique Pena Nieto would enact a new profit-sharing contracting model to lure in private investment.

Senior ruling party lawmakers have said the reform would target deep water oil and shale gas reserves, which Pemex PEMX.UL has been unable to exploit because it lacks the funds and technology.

However, the reform would also give private firms a chance to operate in mature fields, including shallow water deposits, where Pemex has decades of experience, widening the scope of energy fields up for grabs.

"The scheme we are proposing will not be limited to any single type of field," Enrique Ochoa, the deputy energy minister responsible for hydrocarbons, told Reuters in an interview late last week. "This is not a reform that seeks to only open up new fields."

The overhaul is the cornerstone of a wide-reaching reform package Pena Nieto hopes will boost growth in Mexico, Latin America's No. 2 economy, and drag its energy industry into the modern era.

Pena Nieto hopes a cross-party political pact forged early in his presidency to build consensus on a range of reforms will help him win Congress' support for the constitution-changing energy industry bill by the end of the year.

If it does, Pemex will then choose which fields it wants to exploit on its own. After the so-called "round zero" tender, Pemex would then be free to team up with private oil companies, with the first such profit-sharing contracts likely sealed in the second half of 2014.

"In round zero, Pemex can choose which existing fields it wants to exploit in future," Ochoa said. "Then in a second stage, it could ask the government to agree profit-sharing contracts with private companies."

"That would mean that in the second half of 2014, we could pact the first profit-sharing contracts," he added.

Ochoa, a lawyer, did not outline how the contracts would be structured within so-called secondary laws, which are the fine print of the reform proposal.

Nor did he explain how exactly profits would be divided up between the government and the private companies, saying only that it will depend on a series of factors, including the type of field, the type of risk and will be calculated on a case-by- case basis.

Economy Minister Ildefonso Guajardo, who oversees trade and industry, said the contracts would be drawn up in line with international norms.

"Without a doubt, they will be designed and regulated by the secondary laws which will have to position them as internationally competitive," Guajardo told Reuters in a separate interview late last week. He did not specify how much tax or royalties private companies would pay to the government.

PROFIT DEALS WILL VARY

According to U.S. Interior Department data from 2011, the average U.S. government take from deep water oil developments in the Gulf of Mexico is about 50 percent while the average Brazilian government take in offshore developments is closer to 70 percent.

Mexican Finance Minister Luis Videgaray has said a "reasonable" government take would be below 50 percent, adding the amount would vary contract by contract depending on the field and risk.

Pena Nieto's reform seeks to amend two articles of the constitution to allow the new contracts as well as strip the exclusivity granted to the state in the oil, gas and electricity sectors.

"The profit-sharing contracts will be drafted to give businesses the best possibilities to obtain the financing and capitalization that they need to carry out their developments according to best international practices," Ochoa said.

But the reform keeps ownership of all oil or gas reserves firmly in state hands, a potential stumbling block for companies that would prefer to be able to book reserves outright once they have been awarded a contract.

"Profit-sharing contracts do not allow you to book reserves, neither in Mexico nor anywhere else. However they do allow you to register an economic interest as a note on the balance sheet of your financial statements," Ochoa said.

It will be up to energy companies to approach the U.S. Securities and Exchange Commission, which certifies companies' oil and gas reserves, to seek to bolster their balance sheets.

In coming weeks, Mexico's government will debate the reform proposal in Congress with conservatives pushing for a bill that allows more concessions, and leftists who are against any opening to the private sector, which they say is tantamount to privatization.

Pena Nieto's team says some elements are non-negotiable.

"This reform cannot happen without transforming articles 27 and 28 (of the constitution)," Guajardo said. "Diluting the reform by not touching what is necessary in constitutional terms would in practical terms mean not achieving the objective."

Editing by Kieran Murray and Eric Walsh

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