($1.5 billion) in funding because of the peso's slump.

The currency's decline led to a "distortion" in Pemex's budget, Carlos Morales, Pemex's director for exploration and production, said Tuesday in Mexico City. The company may finalize an agreement with the government within days, he said.

Pemex wants to maintain record spending of 228.2 billion pesos this year to offset the fastest decline in output since World War II. The peso's 17 percent plunge since the budget was finalized in the third quarter of 2008 is forcing the company to spend more on goods and services priced in U.S. dollars.

"Pemex has an important part of its expenses in dollars," Morales said. "We are working with the Finance Secretariat so they can help us fix some of those differences in the budget. We are in the final steps to get the money from the secretariat."

About 60 percent of the Mexico City-based oil company's spending is in dollars used to pay contractors including Halliburton Co. and Schlumberger Ltd. Pemex originally set a capital budget of 228.2 billion pesos for 2009.

Pemex has said it will raise $10 billion by borrowing from banks, selling local and international bonds, and receiving loans from export-import banks this year.

Debt-financing costs also rose in the first quarter because dollar-denominated debt became more expensive on the peso's slump, according to Morales.

PRIMING THE PUMP

Pemex plans to spend $61 billion in the next three years on its Chicontepec field and other new deposits to boost oil output after last year's 9.2 percent drop, the largest since 1942. Latin America's second-largest economy gets 37 percent of government revenue from Pemex and is the third-largest foreign supplier of oil to the United States after Canada and Saudi Arabia.

Mexico revised its laws last year to allow Pemex to hire non-Mexican companies to explore and produce oil. Pemex hasn't found commercially viable oil in depths greater than 500 meters (1,600 feet). Mexico estimates it has 30 billion barrels of crude in deepwater deposits.

Pemex production averaged 2.799 million barrels a day last year, down from 3.083 million barrels in 2007. Production from its Cantarell field averaged 1.01 million barrels a day, from 1.471 million barrels the year before.

Source:
www.thenews.com.mx

BY ANDRES R. MARTINEZ
Bloomberg News