Mexico making progress on new oil contracts - cos

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Mexico's state oil company Pemex is making good progress drafting contracts that could bring major international oil companies into the country as service providers, oil company officials said.

Legislation enacted last year allows Pemex to offer incentive-based contracts that Mexican officials say should be sufficient to bring in foreign expertise to help reverse Mexico's sliding oil production.

"There has been dialogue, not only between ourselves and Pemex and the authorities but also other oil companies, on how that contract is going to look," Pete Mellbye, executive vice president of Norway's StatoilHydro (STL.OL), said at a presentation in London this week.

"It's very much about what sort of incentive structures they are going to introduce in these contracts. We have not yet seen the contracts."

Oil executives and analysts say that, based on their contacts with Pemex executives, they expect the new contracts to stretch the law to its limits to create a workable framework that will allow Pemex to partner with the oil majors in costly, yet potentially lucrative, deepwater oil developments.

Mexican President Felipe Calderon met representatives of BP Plc (BP.L) during his visit to Britain this week and Pemex has established ties with Chevron Corp (CVX.N), Petrobras (PETR4.SA) and Repsol YPF (REP.MC), among other large international oil companies.

Mexico bars private firms from owning crude reserves, or receiving payments based on the market price of oil, but foreign oil companies are following the developments closely due to the huge potential in the deep waters of the Gulf of Mexico, where Pemex has only just begun exploration work.

"Everyone has to be in Mexico. We'll see what the contracts look like, but everyone will be interested. If there is a way to earn a good return, there will be deals," said an oil company executive in Mexico City who asked not to be named.

Oil company executives in Mexico said they expected Pemex to circulate draft versions of the contracts in the coming months to seek input from potential partners, before making the proposals public after Congressional elections in July.

Analysts say Pemex, which in the past could hire oil services firms only on a fixed-fee basis, is making faster-than-expected progress on the contracts.

Pemex officials have said they hope to offer the first incentive-based contracts by the third quarter of this year.

Mexico's oil production has fallen to near 14-year lows as output from the giant Cantarell oil field has tumbled and the effects of years of underinvestment in the state-run industry have come to be felt.

Pemex has ratcheted up spending in the past few years to bolster exploration efforts, but it will be years before new finds can be brought into production.

In a bid to hold oil output at 2.7 million barrels per day this year, the company is spending nearly $20 billion, mostly at existing fields and its onshore Chicontepec project, where billions of barrels of oil are locked in tight pockets of rock that makes production slow and costly.

Observers are skeptical Pemex can maintain production this year and the Finance Ministry said in a report to Congress this week it expected Mexican oil exports to fall 18 percent in 2010 as production also declines. (Editing by Walter Bagley)