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Jeremy Martin : Timing enhances
appeal of new Pemex projects



With oil prices hitting a two-and-a-half-year high amidst continued turmoil in oil producing and oil transit points in North Africa and the Middle East, the increased focus on global oil supply provides an interesting backdrop for Pemex's new effort to entice private firms to invest in Mexico's energy sector.

This week, Pemex kicks off a road show in the U.S. and Canadian oil patch capitals of Houston and Calgary aimed at attracting interest in fields up for bid under a new service contract model.

In the world of oil, their timing is exquisite - as are the cities.

Kicking the contracts' tires in Houston and Calgary is a key step - and more intriguing now for geopolitical and business reasons than perhaps originally perceived by Mexican officials.

Houston, long known as the U.S. energy capital, and the broader Gulf Coast have been reeling since the Deepwater Horizon accident and subsequent drilling moratorium, the U.S.'s dependency on Gulf oil notwithstanding.

Now, with unrest pushing up oil prices, the city finds itself in the middle of an international debate over drilling in the Gulf of Mexico with linkages to Egypt, Libya and Mexico, where efforts to reach deep sea oil in the Gulf have long been the ultimate desire and focus of the new Pemex contracts.

Calgary and Canada more broadly have long been the source of a crucial piece to energy supplies in the Western Hemisphere. But lately, the nation's ability to remain a steady supplier of crude oil comes with thorny issues surrounding increased production from Canada's oil sands.

This was made abundantly clear during a February visit by Canadian Prime Minister Stephen Harper to the White House. More than 80 environmental groups used the occasion to send a letter of protest to President Obama. The concerns do not appear to have any immediate or simple resolutions but may augur for the imperative nature on the part of the United States to count on Mexican oil supply in the near and medium term.

The purpose of the road show is what many other nations routinely do: conjure up interest in oil patches. But in some ways, the effort and opportunity today in Mexico is relatively unique. Indeed, the contracts up for bid are a long anticipated element of the energy reform enacted in November of 2008.

The broader concept and aim of the new contracts is not entirely novel. Pemex previously implemented creative contractual schemes to increase production and enhance private sector participation with the company.

The jury remains out on the efficacy of the earlier efforts, known as Multiple Service Contracts (MSCs). But, they have certainly offered important insights. Indeed, by most estimations the MSCs were hamstrung by then-existing limitations of Mexico's and Pemex's contract framework, the rigid Public Services Law.

But for Mexico and Pemex the more relevant point that they must strive to demonstrate, regardless of the current uptick in price, is that the fields being offered and the new contract scheme present legitimate opportunities for serious firms.

It is no small point for Mexico, a declining oil producer and gasoline importing nation with massive fuel subsidies for its populace.

The March 1st session in Mexico City led by the new minister of energy and Pemex CEO, will formally outline contracts for three blocks in the southeastern state of Tabasco, blocks known as Santuario, Carrizo and Magallanes.

Whether the first three blocks are significant enough to attract substantial bids and begin to reverse Pemex's production decline may only be a short term lens with which to view the process.

As the agenda for the new contract roll-out underscores, mature fields is but one of three areas where the state firm hopes to eventually leverage use of the new model, with deep water and Chicontepec being the much larger prizes sought.

At least for now, most would agree that the timing of the contract launch against the backdrop of soaring oil prices and international geopolitical issues is at least intriguing for the kick-off efforts.

Translating intriguing to results is what Pemex officials must do as they take their campaign from Mexico City to Houston to Calgary.

 

 

Jeremy Martin is a frequent commentator and writer on Latin American and energy issues speaking at international conferences and appearing in both print and broadcast media, working at the Institute of the Americas at the University of California, San Diego (UCSD). He can be found on Twitter at @jermartinioa and contacted via e-mail at jermartin@ucsd.edu.
Petroleumworld does not necessarily share these views.

Editor's Note: This commentary was published by MexBizNews on Tue, 03/01/2011 . Petroleumworld reprint this article in the interest of our readers.

All comments posted and published on Petroleumworld, do not reflect either for or against the opinion expressed in the comment as an endorsement of Petroleumworld. All comments expressed are private comments and do not necessary reflect the view of this website. All comments are posted and published without liability to Petroleumworld,

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Petroleumworld News 03/02/2011



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