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Contracts with incentives could attract private sector
Source: Bnamericas
Date: 04/15/2008 00:00
Industry analysts are questioning whether the private sector would be attracted by new contracting conditions stipulated in Mexican President Felipe Calderón`s energy reform proposal.
The proposal, part of Calderón`s strategy to improve Pemex`s performance, would exclude the state oil company from the public works law, giving it the flexibility to draw up its own contracts.
Pemex would be able to provide performance-based incentives to private contractors, although it would not be allowed to share profits from oil production.
Pemex could use the contracts to perform exploration in deepwater fields where most of its prospective reserves are located. The risks of costly deepwater exploration could then be shouldered by the contractors.
"There`s one major that said to me about a year ago if those were the terms, they would consider negotiating with Pemex on this. Two others have said absolutely not. Never. I own the oil or nothing. So it depends on the firm," Pamela Starr, an expert on Mexican politics, told BNamericas.
Mexican energy expert David Shields agrees there might be willingness from certain firms, citing the example of multiple service contracts (MSCs) for natural gas E&P.
"The lesson of MSCs is that where you have a situation that is legally on the limit that is not attractive to most, you usually get some opportunistic participation by somebody. I think the same thing could happen. It`s not an ideal scheme, but somebody might want to get involved," he said.
A lot depends on how contracts are structured and what incentives are offered, Fitch analyst Gianna Bern said.
RoseAnne Franco, an analyst from consulting firm PFC Energy, does not believe IOCs would get involved because they could not book reserves and that the proposal would essentially be "good news for the service companies".
Given oil companies want to book reserves, companies not listed in the US as oil firms could be possible participants, Starr said.
"For example, BHP Billiton is a mining firm and they happen also to do deepwater drilling, but their stock price is dependent more on their mining interest because that`s the vast majority of the firm, so they don`t have to book the oil. It`s not a big deal for them," she said.
National oil companies (NOCs) might get involved for the same reason, she said, though she was unsure whether they would want to.
Bear Stearns echoed this sentiment.
"It may be more likely national oil companies or quasi-NOCs that have already entered into such agreements elsewhere may be more ready to accept some such structures from Pemex," Bear Stearns said in a statement.
Calderón presented the reform proposal to the senate on April 8.

