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Oil proposal to give Pemex 20% ownership of cross-border fields

NACHA CATTAN and ADAM WILLIAMS

MEXICO CITY (Bloomberg) -- Mexican President Enrique Pena Nieto is proposing legislation that will ensure Petroleos Mexicanos owns at least 20% of oil and gas fields that span the country’s borders.

The proposal is part of secondary legislation to an energy bill approved last year, Energy Minister Pedro Joaquin Coldwell told reporters today after the legislation was sent to congress. The northern border onshore region is home to some of the world’s largest shale oil and gas fields, including the Eagle Ford play, which produced about 1.2 MMbpd last year, according to data compiled by Bloomberg.

The additional legislation also proposes the gradual reduction of state-owned Pemex’s tax burden, which currently funds about a third of the government budget, Finance Minister Luis Videgaray said. Weaning government funding off Pemex’s earnings is a key element of the Dec. 20 law approved by Pena Nieto that ended the company’s 75-year state oil monopoly to allow for foreign companies to develop oil fields in Mexico.

The new tax regime will increase Pemex profits three or four fold, Videgaray said today. The tax structure will be “highly progressive” and provide Pemex the financial space to be able to compete with private energy firms, he said.

The energy overhaul aims to halt nine straight years of declines in Mexico’s oil output and will boost economic growth by 1 percentage point by 2018, the government has said. The overhaul may bring in as much as $30 bn more in annual foreign direct investment, according to Edgar Rangel of the National Hydrocarbons Commission.

Production at state-owned Pemex averaged 2.52 MMbpd of crude in 2013 and slid to its lowest monthly level in almost two decades in March as output at Mexico’s biggest discovery, Cantarell, declined. Monthly production fell 2.1% in the first quarter this year, Gustavo Hernandez, acting director of exploration and production, said on an earnings conference call today.

Mexico will probably offer its first oil drilling contracts to private companies as early as this year or the beginning of next year, Videgaray said in a Feb. 6 interview.

“I applaud Mexico for going forward boldly to move the reform along,” Dallas Parker, energy analyst and partner at law firm Mayer Brown in Houston, said in a phone interview from Mexico City before the bill’s presentation. “The overall sentiment we’re getting is that the legislation is going to closely follow the directives of the constitutional amendment. If that’s the case, the international community will be happy.”

04/30/2014

 

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