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Mexico proposes private firms in oil industry

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Enrique Pena Nieto

Mexico’s President Enrique Pena Nieto announces a proposal Monday in Mexico City to let private firms participate in the oil industry.

National law now bans such contracts

MEXICO CITY – Mexican President Enrique Pena Nieto proposed on Monday lifting a decades-old ban on private companies investing in the state-run oil industry, a cornerstone of Mexico’s national pride that’s seen production plummet in recent decades.

The reform would allow profit-sharing contracts with private companies that have exploration know-how in deep water and other difficult areas that the state-owned oil company, Pemex, doesn’t have. Such contracts are currently prohibited by the constitution, which would have to be changed.

The leftist Democratic Revolution Party says it won’t support constitutional changes, but Pena Nieto’s ruling Institutional Revolutionary Party and the conservative National Action Party have enough votes combined to secure the two-thirds majority needed in the Senate to pass the change. They could do the same with the support of a small, allied party in the Chamber of Deputies.

The measure then would have to be approved by at least 17 of the country’s 32 state legislatures.

“Mexicans will remain the sole beneficiaries of the country’s oil profits,” Pena Nieto said as he presented his proposal. “It’s time to use all of our energy resources to move forward and transform Mexico.”

Pena Nieto’s administration offered virtually no details about how it envisioned private participation, and Energy Secretary Pedro Joaquin Coldwell refused to specify the maximum percentage of profits that could be shared. The apparent vagueness of the proposal raised uneasiness.

“This has to be carefully studied to see what they mean with this, and what percentage of the profits they would share,” said Jesus Zambrano, leader of the leftist Democratic Revolution Party. “This kind of talk is the kind of thing they use when they want to pull the wool over our eyes.”

Mexico City-based oil analyst David Shields said the private sector may be underwhelmed by the plan, which like a measure in 2008, appears to make only marginal changes.

“There are no specifics, and with no specifics it is not clear what is going to attract foreign investment,” Shields said. “It’s as if they opened the door a little bit in 2008 and now they’re opening it another little bit, but it’s a long way to go before it’s open” in the view of private oil companies.

He said the companies want the opportunity to share in the actual oil found and to add oil reserves to their own corporate books. Neither would be permitted under Pena Nieto’s proposal.

Mexico’s oil fields are drying up and Pemex lacks the equipment to explore for new reserves in deep water or to extract shale gas. Production has plunged about 25 percent over the past decade, and a country that was once a significant oil power could become a net energy importer in a few years unless new production is brought online.

Mexico produces about 2.5 million barrels a day, Pena Nieto said, placing the country among the world’s top 10 producers, according to the U.S. Energy Information Administration. He said his proposal would boost Pemex production to 3 million barrels a day by 2018 and 3.5 million by 2025.

Mexico sends 85 percent of its oil exports to the United States and regularly ranks among the top foreign sources of oil used in the United States.

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