Sit-In

Lawmakers had to cram into conference rooms to press ahead with routine business on Tuesday.

Leftist MPs seized the podiums of both houses last week in protest at plans to ease limits on private involvement in the state oil giant, Pemex.

The government says Pemex needs outside investment to boost falling production.

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Importance: The oil is in the hands of the government and if it's not then no one knows what will happen, but people are picking sides faithfully.

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Oil Reform Leads to Hunger Strike

The government says the Pemex oil company needs outside investment to boost falling production and increase exploration for new reserves.

But the protesting deputies and senators argue that this will lead to a creeping privatisation of Pemex.

The protesters want a broad debate on Pemex, in state hands for 70 years.

Leftist deputies and senators have been camped out on the floors of the upper and lower houses since they took over the Congress building last week.

In the lower house, lawmakers from the Democratic Revolution Party (PRD) and two other smaller parties have piled chairs around the speaker's platform.

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Importance: The opposition to allowing Pemex freedom for expansion says multitudes for the political culture of Mexico. People are so wary of foreign investors taking advantage or a share of Mexican profits that they are actually going to limit their own growth and allow Pemex to continue to run overbudget and unefficiently.

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Oil Reform

MEXICO CITY (Reuters) - A plan to shake up Mexico's flagging state-run oil sector met with muted reaction on Wednesday, with most seeing it as positive but not enough to restore declining output and reserves overnight.

The government's proposal, which was diluted to give it the best chance of passing through Congress, proposes more hiring of private companies across the oil industry through "incentive contracts" that offer bonuses for work well done.

Foreign oil majors, who want Mexico to join the rest of the world in offering risk-sharing joint ventures, especially in the huge deep-sea sector, mostly declined to comment as they huddled in meetings over the plan.

But analysts see the sweetened service contracts doing little more than drumming up more business for oilfield service companies such as Schlumberger (SLB.N: Quote, Profile, Research), which state oil monopoly Pemex hires to help with engineering work.

"My initial impression is that it's relatively modest," said RoseAnne Franco at PFC Energy. "For the international oil companies it comes down to being able to book reserves."

Pemex, a top U.S. oil supplier, has long complained about Mexico's barriers to private oil investment and says it needs partners to help it unlock huge deepwater reserves as yields decline at its shallow water and onshore fields.

But many question whether the proposed contracts will attract big players like BP (BP.L: Quote, Profile, Research) and Petrobras (PETR4.SA: Quote, Profile, Research) into deep-sea exploration, given such costly and risky ventures are repaid in other countries by giving the partner a share in reserves.

"The important aspect of any contract is the incentive part. If someone is doing a really good job they should be paid for it. But there are different types of incentive around the world so we'll have to wait and see what they are offering," said a Mexico-based executive for a foreign oil major.

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Importance: Calderon is finally acting on the nation's need for an alteration in their oil operations. Even though this proposed reform is watered down in order to be passed in the Mexican Congress, it is a start. The political culture of the country would rebel against a reform too radical because the majority of the population is still against foreign investment despite Pemex's dire need of a partner in oil welling.

Private Investment for Pemex?

Oil output in Mexico, the third-biggest supplier to the US, is declining, and the state company Petroleos Mexicanos (Pemex) lacks the technology to explore for new reserves. For many the answer seems simple: more capital.

But now that senators have begun debating ways to attain that capital – a top priority of President Felipe Calderón – resistance has mounted, particularly to the idea to allowing in private enterprise.

In no place is there more opposition than along the industrial corridor in this resource-rich, steamy stretch of Veracruz State. "This oil is from here, and it belongs to us," says Francisco Lopez Martinez, who inspected oil barges at Pemex for 36 years before retiring this year.

Pemex has been Mexico's sacred cow since foreign companies were kicked out in 1938. Since then the Constitution has barred private ownership. Pemex is a source of national pride, but it's been crippled by inadequate funding, corruption, and inefficiency.

High oil prices have helped mask the decline, says Amy Myers Jaffe, an energy analyst at the James A. Baker III Institute at Rice University in Houston. Pemex generated revenue of about $100 billion last year. But the situation, under the surface, is dire.

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Importance: The drop in oil output is bad for Mexico; Pemex supplies around 40% of the national budget, so losing the company does not appear to be an option. Mexicans are weary of foreign investment, though, because they feel it will take jobs away from them. Something will have to be done, however, to get the company the needed funding to investing in more technology. The company has also been subject to claims of corruption, indicating yet another instance when corruption has hindered Mexico's strides toward increasing development and democracy.

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Pemex and Petrobras

Brazil's state oil company Petrobras is trying to interest its Mexican counterpart Pemex in joining one of its offshore exploration projects in the U.S. Gulf of Mexico, a Petrobras executive said on Thursday.

State-controlled Pemex is banned by law from forming joint ventures in oil exploration and production within Mexico, but it is allowed to form joint ventures abroad.

Samir Awad, executive manager for the Americas, Africa and Eurasia, said Petrobras (PETR4.SA: Quote, Profile, Research) (PBR.N: Quote, Profile, Research) suggested working together in U.S. waters as part of an informal cooperation agreement the two companies have had for some time.

"This was offered some time ago on a very informal basis, in a meeting between the two (chief) executives, without any particular block or area in mind," Awad said by e-mail.

He said Pemex's response was that it could not accept the offer in the near term, for internal reasons, but that it would evaluate the possibility of joining Petrobras in the U.S. Gulf in the medium to long term.

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Importance: Petrobras has been a model of sorts for Pemex as a state-run company that has embraced privatization at some levels. Drilling in U.S. oil, though, has some worried that it will draw revenue from the Mexican stores of oil.

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