Pemex to put last two blocks up for bids

Contract terms and size will be changed to make area more attractive to investors says exploration chief Luis Ramirez Corzo

Debra Beachy

Petroleum News Contributing Writer

Mexico’s state-owned oil monopoly Pemex will auction off two remaining Burgos basin blocks to produce gas at the end of July, Pemex head of exploration and production, Luis Ramirez Corzo, said May 25.

Ramirez told Petroleum News that since the two blocks of land didn’t attract buyers last year, Pemex “plans to change the contract terms and size of the blocs to make them more attractive to investors.” Ramirez didn’t give any details on exactly what changes would be made, emphasizing that the changes would depend on investors.

Last year, Pemex auctioned off five of seven blocks, but only one bidder bid on four blocks, and the bidding was delayed amid opposition from Mexican legislators who challenged the legality of the deal. They argued the contracts weren’t legal under Mexico’s constitution, which forbids foreign exploration and production of oil wealth. In April, Mexico’s Congress sidestepped an attempt to have the contracts declared illegal, declaring that Pemex was not under its jurisdiction. Still, the issue is a lingering concern for investors.

“The question that is still open — unanswered by the vote in the Congress — is: Does Mexico want the expertise, capital and technology of international oil companies or not?” said George Baker, a Houston-based energy consultant and owner of Mexico Energy Intelligence, a consulting firm. Baker said that although Congress did not declare the deals illegal, it also did not find them legally valid. Another disincentive for investors, said Baker, is that Mexico does not allow foreign investors any share in natural gas production.

The new round of bidding comes at a time when investors have become wary about investing in energy in Latin America. U.S. energy companies still are trying to recoup their losses from investments in Argentine power plants that turned sour three years ago because of a deep economic crisis and a plunge in the peso’s value.

The Burgos basin runs along Mexico’s northeastern border with Texas through the Mexican states of Tamaulipas, Nuevo Leon and Coahuila. It currently produces 1 billion cubic feet per day of natural gas, about one-fourth of Mexico’s yearly production. Pemex hopes to get up to a total of $10 billion from auctioning off all of the Burgos contracts, and double Burgos gas production by 2006.