BHP Billiton, Woodside Petroleum and Santos have each registered interest in participating in Mexico's first round of invitations to foreign companies to join the state-owned company Pemex in exploring the nation's rich oil and gas reserves.
However, doing business in Mexico's petroleum sector is fraught with difficulty. Under very specific clauses in the Mexican Constitution, Mexico's petroleum reserves are owned by the people, which expressly rules out foreign ownership of domestic petroleum assets.
To overcome this problem, the Mexican Government has developed a tender process which would allow foreign companies to participate in the industry without breaching the Constitution.
Under its 'multi-service contract' scheme, 'gringo' companies would be allowed to develop and exploit oil and gas reserves in Mexico, but only while acting as a contractor to Pemex, who would retain ownership of the fields.
Under such a scenario, foreign companies would be allowed to develop the field, build any required infrastructure and produce all the hydrocarbons.
However, the biggest drawback for companies such as Woodside and Santos would be that all the hydrocarbons produced would have to be handed to Pemex, which would then market the production and receive all the cash proceeds.
In short, the foreign company is being asked to assume all the risk - political, financial, and technical - while at the same time being prevented from having direct access to the cash flow.
Representatives of Woodside, Santo and BHPB have met with senior Mexican Government officials to hear the latest developments in regards to multi-service contract.
However, it is understood all three companies have expressed extreme reservations about the proposed arrangements - in particularly having Pemex responsible for marketing all production - but all have agreed to keep a close eye on developments.
Last year Mexico produced more than 3.5 million barrels of oil per day, which ranked it ninth in the world based on revenues but third in oil exports and fifth by gross production. According to the Mexican Government, the country will have to spend around $US88 billion by 2010 in the petroleum sector just to maintain the nation's crude oil self-sufficiency.
