Monday, March 31, 2008


Mexico Oil

Opponents of efforts to allow foreign firms to invest and profit from Mexico's oil riches display a banner saying "Pemex is not for sale" in Mexico City's main square last week. Pemex, Mexico's state-owned oil company, says that it needs outside technological help to bring up oil from deep-water fields.

Leftist party decries Calderon's proposal

to enlist foreign firms in deep-water drilling.

Pemex, short for Petroleos Mexicanos, says that it needs outside technological help to bring up oil from deep-water fields. But such a proposal raises the hot-button question of whether foreign companies should be allowed to invest and profit from any of Mexico's oil riches.

The issue is deeply emotional as well as politically charged. Mexico nationalized its oil fields in 1938, expropriating American and European companies. Ever since, most Mexicans have considered public ownership of the country's most lucrative natural resource to be a cornerstone of their sovereignty.

On Tuesday, leaders of the leftist Democratic Revolution Party, or PRD, announced that they would form "resistance brigades" composed of 10,000 women and 18,000 men to fight Calderon's proposals with marches and barricades.

And Wednesday, leaders of the Institutional Revolutionary Party, or PRI, expressed opposition to key elements of the reforms, though they earlier had suggested that they might support it. Calderon needs PRI votes to pass any legislation.

"We are in complete disagreement with the [Calderon] government," Manlio Fabio Beltrones, a PRI senator, said in a radio interview.

Analysts say Mexico's oil reserves could be depleted in a decade if new fields aren't discovered and tapped.

The county's main oil field, Cantarell, is in a major decline. In February, the output of Cantarell, in shallow Gulf of Mexico waters off Campeche state, averaged 1.145 million barrels per day, according to government figures. That's off 24% compared with to the same month last year. And it's down 46% since production peaked at just over 2.1 million barrels per day in 2004.

Calderon has said that Pemex needs foreign help to explore new fields.

In an interview with The Times in February, Calderon suggested that Mexicans should not look upon foreign investment in the oil industry with fear. He pointed to China and Brazil, two countries with government-controlled oil companies that allow foreign investment.

"We have a treasure that could finance the development of the country," Calderon said. "The problem is that it's in the ocean, and at a depth that we Mexicans cannot yet reach by ourselves."

The "treasure" metaphor has been repeated in Pemex television commercials this week in support of deep-water drilling. Those ads say Pemex can reach deep-water oil with "the experience and technology of others," but does not specifically refer to foreign companies.

The PRD has countered with its own spots, which call any private profit from Pemex a national betrayal.

Andres Manuel Lopez Obrador, the firebrand leader of the PRD, told the thousands at a rally here Tuesday that they should resist "the group of potentates, both foreign and domestic, who cynically . . . plan to transform our oil into a juicy private business."

Last year, Pemex generated $104.5 billion in revenue. Half of that money went to the government: The company is the nation's largest taxpayer, and Mexico relies on it to fund schools, roads and social programs.

After paying salaries and other costs, Pemex was left with a loss of $1.5 billion -- in a year when major oil companies around the globe posted blockbuster earnings.

Officials of the ruling National Action Party, or PAN, have not yet submitted their proposed legislation. But they have given the broad outlines of measures to allow private companies to sign contracts with Pemex for exploratory drilling.

PRI officials, who initially appeared warm to the idea, said this week that they could not support changes that guarantee investors a share of any oil they find.

Such arrangements are standard in the oil industry, accepted even by communist Cuba. But they are impossible under Mexican law, which says the country's oil deposits belong exclusively to Mexico's citizens. The nation's constitution allows private companies to participate solely as contractors and forbids so-called "risk contracts" that would reward them with a share of production.

Analysts say private investment is unlikely unless Mexico agrees to share profits from drilling and exploration, known in the industry as "upstream" operations.

"Any upstream component of an energy reform has been difficult from the beginning," said Enrique Bravo, Latin America analyst with the Eurasia Group, a New York-based political risk analysis consulting firm. "Now it looks even more so. . . . The PRI is toughening its position."

Indeed, Beltrones, the PRI's leader in the Senate, accused the government of "alarmism" Wednesday. In an interview with the newspaper Reforma, he said Calderon administration officials were painting the worst possible picture of Pemex to ram through its energy measures.

The PRI legislator said he was skeptical of data released this month on the company's plunging petroleum reserves. Proven reserves have fallen 41% since 2000, to about 14.7 billion barrels, according to Pemex figures. That translates into less than a decade's worth of production unless Mexico can quickly tap new sources of oil.

Independent oil analysts say the country's proven petroleum bounty is even less and for years have predicted the decline of the Cantarell field. The real surprise, they say, is how little Mexico has done to prepare for Cantarell's inevitable demise.

Geologists believe there may be vast reserves of oil below the seabed in the deepest waters of the Gulf.

The trouble is that Mexico has no way of tapping these potential riches.

Deep-water drilling requires specialized know-how, advanced technology and loads of money, none of which Pemex has, analysts say.

hector.tobar@latimes.com




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