ANALYSIS-Mexico, late to game, must hustle to attract foreign oil companies
* Other countries try to attract foreign oil companies
* Benefits from proximity to U.S. and shared geology
* Violent drug war weighs
By Terry Wade and Marianna Parraga
HOUSTON, Dec 13 (Reuters) - The ultimate success of Mexico's push to open up its stagnant oil industry 75 years after a nationalization will depend on whether it can guarantee enough autonomy to foreign firms that have a cornucopia of options worldwide, energy experts said on Friday.
Mexico President Enrique Pena Nieto, who won a victory in Congress on Thursday when landmark reform legislation was approved, hopes foreign companies will help reverse a decade-long slide in output by state-run Pemex and tap what experts agree are tremendous resources.
Mexico was among the first countries to nationalize its oil industry. Now, its liberalization effort comes well after Venezuela, Brazil and Colombia attracted more than $100 billion in foreign funding to new fields in recent years and as Arab states and Iran, according to its latest overtures, compete for a limited pool of capital that private companies can invest.
Mexico faces other challenges, including violent drug gangs that pose risks for foreign companies and declining demand for imports from its biggest oil customer, the United States, where production from onshore shale deposits is booming.
"Mexico is at least five years late with this reform," said Roger Tissot, an energy consultant based in Canada. "The portfolios of transnational companies are already full, so they are going to require big incentives to choose Mexico."
Oil majors including Chevron and Exxon Mobil Corp have expressed broad support for the reforms, though final investment decisions will depend on how new rules are implemented.
"Whether companies will shift capital to Mexico and away from other marginal ventures - I don't think that's clear yet," said Kenneth Medlock of the center for energy studies at Rice University in Houston.
Variables that could give investors pause include vague rules on whether companies must book projected revenues instead of reserves on balance sheets, whether there are local content rules for oil field services firms, if companies can become operators when they partner with Pemex, and how the model of licenses will be defined.
"The private companies don't want to be obliged to partner with Pemex if the state will be the majority partner, and they want the freedom to manage their output and profits. They also want a truly independent regulator," Tissot said.
LESS APPETITE FOR RISK
Others said the fact that the reforms give the government wide latitude to choose which type of investment structure to offer should improve the odds of success.
The draft mentions "services, profit- or production-sharing, or licenses," and an option to pay companies with a percentage of output obtained under production-sharing contracts.
Another factor: Pemex's budget is stretched by a high tax burden, so companies will likely have to shoulder financing for exploration work, crucial to replace declining reserves.
"I think the Mexican officials are well aware of the need to compete on a global scale to secure investment," said Pablo Medina, Latin American upstream analyst at Wood Mackenzie.
In recent months, shareholders have put pressure on publicly traded oil companies to boost dividend payouts even as oil prices slip and costs rise. Global exploration and production spending will rise by just 6 percent next year, according to a Barclays survey this month.
That has left companies with less flexibility. Many have moved to trim exposure to countries with vast reserves but high political risks, such as Egypt, Nigeria and Argentina. Instead, they will focus on stabler U.S. onshore fields.
U.S. firm Apache Corp sold a portion of its Egyptian oil business to China's Sinopec in November and Royal Dutch Shell PLC has been scaling back in Nigeria.
GEOLOGY SMILES ON MEXICO
Still, geology and geography may work in Mexico's favor. It sits next to three highly productive U.S. oil fields and its proximity to the United States means dozens of onshore and offshore services companies on or near the Gulf Coast could quite easily set up shop in Mexico.
So-called elephant fields have been tapped in the prolific deepwaters of the U.S. Gulf of Mexico and there are good chances for similar finds in Mexican waters, geologists say.
Pemex has drilled only 25 deepwater wells, with five of those in the highly touted Perdido area near the border. OF those, three were declared economic, according to Medina. That is a small fraction of the wells that have been drilled in U.S. waters.
In addition, two shale plays in Texas, the Eagle Ford and Permian Basin, abut the Mexican border. Each produces more than 1 million barrels of oil a day.
But security is an issue. More than 80,000 people have died since former President Felipe Calderon began cracking down on warring drug gangs in early 2007 and kidnappings are common.
That would force companies to give workers hazard pay or hire private security, raising costs.
"Are the people involved in Eagle Ford going to be willing to move south across border? Maybe not because you've got major safety concerns," said Medlock. (Additional reporting by Anna Driver in Houston; Editing by David Gregorio)
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