Petroleos Mexicanos, struggling as oil production declines, may drill for crude outside Mexico for the first time unless lawmakers approve hiring foreign partners for domestic offshore projects.

Chief Executive Officer Jesus Reyes Heroles said the company, known as Pemex, may court partners on the U.S. side of the Gulf of Mexico, off the coast of Cuba and in Latin America unless Congress adopts oil reforms proposed by President Felipe Calderon. Pemex needs foreign help because it doesn't have the technology to drill in water deeper than 500 meters (1,640 feet), he said.

``If we can't learn it here, we have to learn somewhere else,'' Reyes Heroles, 56, said in an interview in Mexico City. "We could partner with other companies."

Pemex pumped 11 percent less oil in June than a year earlier as production from the Cantarell field, the world's third-largest, declined 35 percent. The drop is costing Mexico $20 billion a year in lost revenue at a time when oil prices are at record highs, according to the Energy Ministry.

Mexico's Congress wraps up more than two months of hearings on Calderon's oil bill today. The country nationalized its oil industry in 1938 and enacted a constitutional ban on foreign energy investment to protect its resources.

Calderon's proposal stopped short of asking Congress to change the constitution. Instead, he wants to ease restrictions that would allow foreign companies to help explore, produce, refine and transport oil, though they wouldn't own the reserves. Congress may call a special session to vote on the reform legislation.

Boost Spending

If the legislation is approved, Pemex would seek as much as $15 billion of funding annually for deepwater development, double the company's current exploration and production budget.

The company estimates it has the equivalent of 30 billion barrels of oil reserves in deepwater deposits, or enough to supply the U.S. with oil for almost four years, according to data in BP Plc's statistical review of world energy.

If Pemex must go outside of Mexico to gain technological knowledge, it will delay development of domestic resources, said John Padilla, managing director of IPD Latin America, an energy consulting firm. The company is running out of time, said Padilla, who estimates production will drop to 2 million barrels a day by 2012 from a current 2.8 million.

``If they take the do-it-yourself model, it could take them 15 years,'' Padilla said in an interview from Mexico City.

Pemex would have to seek permission from Congress for budget allocations to invest in international projects, which could spark a political battle, Padilla said.

Living in the Past

For Mexican legislators to approve the energy reform bill they will need to overcome outdated fears of outsiders taking over the oil industry, said Francisco Gil Diaz, a finance minister during the administration of President Vicente Fox from 2000 to 2006.

Fox was unable to convince Congress to tackle energy reform during his term.

``If we don't do the changes that will allow for investors to come do the investment where the oil is, we're going to end up importing our energy needs,'' said Gil Diaz, president of the Mexican unit of Spain's Telefonica SA, in an interview today.

In the past four years, Pemex has found oil that may be commercially viable in one of seven deepwater exploratory wells it has drilled. Any new project will take nine years to pump the first barrels of oil.

Domestic Drilling

Pemex would prefer to drill in its own territory because ``we think the probability of success would be higher than in the U.S. Gulf of Mexico,'' said Reyes Heroles, who was appointed by Calderon to lead Latin America's largest company by revenue almost two years ago.

Oil production dropped for four years to 2.8 million barrels a day in 2008's first half, short of Pemex's goal of pumping 3 million barrels. Oil prices rose 73 percent in the past year and reached a record $147.27 a barrel in New York on July 11.

Reyes Heroles said he agrees with analysts who say the actual price of a barrel of oil, excluding speculation, is closer to $80 a barrel.

Pemex could exceed its production target if it was allowed to hire foreign companies to assist in seeking deepwater deposits, Reyes Heroles said.

``We basically think that we would revise substantially our strategic plan, especially in the medium term, if the reform is passed,'' he said.

Petrobras Offer

The company has partnership opportunities abroad. Brazil's state-controlled oil company, Petroleo Brasileiro SA, offered Pemex a 10 percent stake in a venture to explore an area of the U.S. Gulf of Mexico known as El Perdido Foldbelt. Pemex may also explore for natural gas in Latin America, Reyes Heroles said.

The ban on Pemex forming partnerships to explore for oil doesn't apply outside the country. The company jointly owns a refinery in Deer Park, Texas, with Royal Dutch Shell Plc, Europe's largest oil company.

Reyes Heroles said he's optimistic Congress will approve the bill even if changes are required.

``There's awareness from practically every political party that the reform is needed" he said. "The group of changes that was proposed are indispensable to really give Pemex an injection of oxygen.''

July 22 (Bloomberg) www.bloomberg.com
By Andres R. Martinez and Thomas Black
To contact the reporter on this story: Andres R. Martinez in Mexico City at amartinez28@bloomberg.net ; or Thomas Black in Monterrey at tblack@bloomberg.net.