MEXICO CITY - A line on a map of the Gulf of Mexico clearly divides U.S. and Mexican claims to potentially vast pools of oil deep below the ocean floor, and multinational companies are busily extracting crude north of this maritime border.
South of the line, Mexico’s state-run oil company has hardly begun exploring — a problem President Felipe Calderon hopes to solve with the reform initiative he finally unveiled on Tuesday.
Immediate reaction was mixed at best on Wednesday. Calderon’s leftist opponents denounced it as “privatization” that threatens Mexico’s sovereignty, while some oil analysts said it doesn’t begin to go far enough to boost sagging production.
“This is not by any means what the market was expecting or what it was hoping for,” said Enrique Bravo, a Washington-based analyst for the Eurasia Group consulting firm.
But Bravo and other analysts also called it a first, critical step that could eventually enable Petroleos Mexicanos to reach the deep-water oil reserves Mexico needs to sustain its economy for years to come.
Calderon’s Senate bill, which comes after months of political debate, would remove constraints that have prevented Pemex from working with oil industry partners that have the expertise and equipment needed for successful deep-water drilling.
Calderon backed off the politically explosive option of allowing Pemex to form joint ventures. Instead, he would ease some bureaucratic barriers, and allow Pemex to pay outside contractors a “bonus” — not a percentage cut — for any oil they find.
“I want to make clear that oil is and will continue to be exclusively Mexican property,” Calderon said in a nationally televised address Tuesday. “Pemex is not being privatized. Oil is a symbol of the nation’s sovereignty.”
Calderon also would allow Pemex — which now depends on U.S. refineries to convert much of its crude into gasoline — to hire specialized firms to build and operate new refineries for Mexico. And he would raise cash for Pemex by letting Mexicans buy “Citizen Bonds” and share in its income.
Sharing oil or direct income from oil production with outside companies is barred by Mexico’s constitution, and the leftist Democratic Revolution Party has vowed to oppose any hint of privatization in the industry, which was nationalized in 1938.
But something must be done. Mexico depends on Pemex for nearly 40 percent of its annual budget, adding up to US$64.1 billion (euro40.8 billion) last year, even as Pemex’s oil production declined by more than 5 percent.
Mexico is the third-largest U.S. oil supplier, so America also stands to lose if Pemex doesn’t develop its reserves.
But some analysts say private companies with deep-water experience might not sign up unless they can get a cut of the oil revenues — standard practice with many other public-private joint ventures.
“International companies generally want to share the oil and book reserves,” said David Shields, an independent energy analyst based in Mexico City.
What’s more, paying outside firms to explore for oil rather than giving them a share of any profits could hurt Pemex’s bottom line. Drilling in water as deep as 10,000 feet (3,050 meters) is extremely costly — each deep-water discovery by Britain’s BP PLC cost more than US$1 billion (euro640 million) — nearly as much as Pemex’s reported net losses for 2007.
“Pemex is taking all of the risk,” said George Baker, a Houston, Texas-based energy analyst who follows Pemex. “The whole idea of these joint ventures is risk mitigation.”
Most exploration and production companies would want to be guaranteed at least a portion of reserves, agreed David Pursell, an energy analyst at Tudor, Pickering, Holt & Co. Securities in Houston.
Still, in a world where access to potential reservoirs is increasingly limited, Mexico offers an attractive new market. State-run oil companies control almost 90 percent of global oil reserves, and private companies are increasingly forced to accept the terms offered by these governments.
The payoffs are still sizeable, but Pemex won’t likely get them without major investments and “a ton of help,” Pursell said.
Mexico sees the deep-water Gulf reserves as one of several areas that could offset plunging output at Cantarell, its most productive offshore field. But Mexico has drilled just six deep-water wells in the Gulf in recent years, while hundreds of deep-water platforms have sprung up on the U.S. side.
If Mexico doesn’t act soon, all that drilling could suck oil out from Mexico’s side of the border, some analysts say.
“The cross-border hydrocarbons that belong to us could be lost if they flow to the U.S. side due to drilling there,” analyst Lourdes Melgar wrote in the 2008 book “Crossing Borders: Mexico and the challenge of its cross-border oil fields.”
Others say the effect of U.S. drilling can’t be known until Mexico invests more in exploration.
“In theory, if you have a container of liquid and you draw out from one side, it will lower the pressure on the other side,” Baker said. “But the rock could be so dense as to make the amount of flow of oil meaningless.”
Meanwhile, oil companies might contract with Pemex if they think Calderon’s proposal is the first step toward more significant change — and “that’s not a bad calculation,” Bravo said. “We have to see this reform as a gradual process. Having a very ambitious reform today is not something that’s politically possible.”