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Mexico to Assign Private Oil Contracts in 2015

Posted by August 13, 2014

Mexico will assign oil and gas exploration and production contracts to foreign and private companies between next May and September under a major sector overhaul, prioritizing areas that boost output quickly and leaving trickier deep water for later, the country's energy regulator said on Wednesday.

The National Hydrocarbons Commission estimates investment by foreign oil majors will average around $8.5 billion a year, between 2015 and 2018, while joint ventures with state oil company Pemex will average around $4.1 billion a year.

Mexico's energy ministry on Wednesday assigned 83 percent of the country's probable and possible reserves to Pemex under the historic energy overhaul, which breaks the state's energy monopoly and seeks to lure billions of dollars in investment.

The ministry also said it had assigned 21 percent of Mexico's prospective resources to Pemex, versus the 31 percent the company had asked for.

The total area assigned to Pemex under a so-called 'Round Zero' allocation is equal to 20.6 billion barrels of oil, or about 2.5 million barrels per day for more than 20 years, and covers around 90,000 square kilometers, the energy ministry said.

"Pemex will continue to be the big business of Mexico," Energy Minister Pedro Coldwell told an event in Mexico City.

Mexican President Enrique Pena Nieto on Monday signed a package of laws needed to implement last year's energy reform, which is aimed at increasing flagging oil output and helping lift sluggish growth in Latin America's No. 2 economy.

The energy reform is the axis of a wider economic reform drive spanning telecoms to taxes pushed through by Pena Nieto, the biggest shake-up of regulations in decades.

Mexico is the world's 10th-biggest crude producer and the third-largest oil exporter to the United States, but since hitting peak production of 3.38 million bpd in 2004, Mexican crude output slid to 2.52 million bpd last year.

Pemex Chief Executive Emilio Lozoya said the company would seek to form joint ventures with private companies on 10 different projects.

"Pemex faces the biggest challenge in its history, the challenge of competing all along the value chain," Lozoya said.

The company will also seek tie-ups for projects at some mature fields as well as the development of the deep-water area associated with Pemex's Maximino well, he added.

The government relies on taxing Pemex for about one-third of its revenue, and the oil company's heavy tax burden has limited its ability to invest in new projects.

(By David Alire Garcia and Tomás Sarmiento; With reporting by Adriana Barrera and Anahi Rama; Writing by Simon Gardner; Editing by Jonathan Oatis and Tom Brown)

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