Pemex official: Mexico’s tax structure discourages deep-water exploration

HOUSTON — Mexico’s energy tax structure discourages its national oil company from investing in complicated but potentially prolific fields, a company official said Thursday.

Petroleos Mexicanos, or Pemex, has focused on shallow-water plays, but has yet to extensively develop deep-water fields or Northern Mexico plays because taxes make the investments less profitable, said Froyland Gracia Galicia, executive chief of staff to the director general of Pemex, while speaking at the Baker Institute at Rice University in Houston.

Because oil revenue from Petroleos Mexicanos provides a third of Mexico’s budget, investment decisions are geared toward projects that cost the least, such as the shallow-water plays, and away from riskier projects that could be lucrative in the long term but have higher up-front costs, such as deep-water plays, Gracia Galicia said.

“Most of Pemex’s investments are made for tax reasons, not because of the business opportunities,” Gracia Galicia said.

Energy reform: Services companies stand to profit if Pemex makes changes

Gracia Galicia said Pemex plans to focus future investment in shallow-water, unconventional and deep-water plays in the Gulf of Mexico. But tax reform for the energy sector would help make many of these plays more profitable, he said.

“There are some fields that are very productive, and maintaining the production would make sense businesswise,” Gracias Galicia said, explaining that Pemex sometimes is forced to close wells that require more investment in favor of others that can produce less expensively.

According to Pemex, under the current tax structure, shallow-water plays cost about $6 to $16 per barrel of oil to develop, while deep-water plays cost about $25 to $40 per barrel.

Mexico legislators will consider this fall a proposed constitutional amendment that would allow international companies to share in the risks and rewards of oil and gas investment in Mexico.

Gracias Galicia said lack of technology and expertise also prevents Pemex from developing some more complicated plays.