President Felipe Calderon said Mexico must move urgently to reverse declines in oil output and reserves and proposed allowing foreign and private companies to refine, produce and transport crude.

“We have to act now because we’re running out of time and out of oil,” Calderon said yesterday during a 13-minute, nationally televised speech from Mexico City. He spoke after his party presented an energy reform proposal to the Senate.

Bringing outside companies into Mexico’s oil industry would free up cash that Petroleos Mexicanos, the state oil company, could use for energy exploration. Calderon’s bill doesn’t propose changes to the constitution, which reserves the ownership of oil and gas to the state and bans any accord that would give outside companies an equity stake in oil projects.

“The government made a decision that this is the only type of reform they can handle,” said Daniel Lund, president of consulting group Mund Americas in Mexico City.

The bill’s presentation follows months of fierce political debate and opposing advertising campaigns on television, newspapers and even soap operas. Opponents led by the Party of the Democratic Revolution say the plan will rob Mexicans of their oil riches and perpetuate a history of transferring assets to the nation’s business elites and foreign companies.

Calderon’s proposal also calls for adding independent board members to Pemex, as the company is known. It would cut the company’s taxes by as much as $4.7 billion annually, and give it greater control over budgeting, a deputy minister told reporters before Calderon’s speech.

Oil Exploration

The tax reduction and increased outsourcing will allow Pemex to invest more in exploring for new sources of oil. Crude output has declined for four years, and the company only has reserves to last 9.2 years, according to government estimates.

Without investment from private or foreign companies, Calderon says the nation faces a “catastrophe,” as the state will have less revenue to spend on education, health care and other social services. Taxes paid by Pemex account for about 40 percent of federal revenue. Pemex has lost $10 billion in sales since 2005 because of declining revenue, Calderon said.

“What is at stake is how we are going to put Pemex back on the road to being one of the most important oil companies in the world,” Calderon said in his speech late yesterday.

Opponents of the plan say it will transfer Mexico’s energy riches to outsiders, in violation of a constitutional clause that has reserved oil to the government for 70 years. Former presidential candidate Andres Manuel Lopez Obrador said at least 20,000 of his supporters have agreed to participate in demonstrations to shut down airports, highways and government buildings to protest Calderon’s proposal.

Opposition to Plan

“All those reforms to secondary laws are a violation of the constitution,” Lopez Obrador told reporters in Congress yesterday. “We are ready to battle this.”

Mexico has 12.4 billion barrels of untapped oil reserves, or 10 percent of the world’s crude, according to the U.S. Energy Department. The country’s reserves are declining because most formations in the Mexican section of the Gulf of Mexico remain unexplored, the department said in a December report.

Pemex doesn’t have the technology to explore in deep waters, where it estimates there are 30 billion barrels of crude equivalent buried. Calderon had been seeking reforms that would allow companies to assist in drilling, thereby giving Pemex access to their technology.

Sixty-three percent of Mexicans polled by Reforma newspaper last week said Pemex should be able to partner with oil companies who have the technology for deepwater drilling in the Gulf of Mexico. Twenty-nine percent said they opposed.

Pemex Securities

The proposed plan would also allow Pemex to sell securities to Mexican citizens to raise billions of dollars of additional cash. The yield on the non-voting securities will be linked to the performance of Pemex projects.

Calderon’s bill lets outside companies build and operate refineries under the watch of Pemex. Mexico, an importer of gasoline, would need to build a new refinery every three to four years until 2021 to become self reliant.

The service contracts Calderon is proposing include performance-based incentives that may appeal to international oil companies, a deputy minister told reporters yesterday. They address issues that prompted Repsol YPF SA and Petroleo Brasileiro SA to say they wouldn’t continue service contracts in natural gas production in Mexico.

Pemex has refused offers from Chevron Corp. and Petroleo Brasileiro to partner in deepwater exploration projects because the companies want to book reserves or equity in the projects.

“The opportunity in Mexico is very vast and we just need the door to be opened to us,” Ali Moshiri, head of Chevron’s operations in Africa and Latin America, said in an interview.

Mexico must change the constitutional ban on foreign ownership of petroleum resources before international companies such as his will form partnerships, he said.

To contact the reporter on this story: Andres R. Martinez in Mexico City at amartinez28@bloomberg.net

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