* 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 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
"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.
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