U.S. plans loan guarantee to increase Mexican oil

MONTERREY, MEXICO — MONTERREY, Mexico -- The Bush administration yesterday announced a proposed $1.5 billion loan guarantee aimed at increasing Mexico's dwindling oil reserves.

The announcement by Treasury Secretary Nicholas F. Brady capped a two-day meeting between Mr. Bush and President Carlos Salinas de Gortari.


Both presidents saw no impediments to a proposed U.S.-Mexico free trade agreement that is expected to be negotiated after getting a congressional go-ahead in the spring.

Mr. Salinas de Gortari has expressed fears that an agreement might be defeated in Congress as the United States heads into a recession.


The AFL-CIO has announced a plan to kill the measure, saying thousands of U.S. jobs would be lost to Mexico, where wages are one-eighth of those north of the border.

"I think there is a genuine enthusiasm for this project that will override any vestiges of protectionism," Mr. Bush told a group of U.S. and Mexican businessmen.

Free trade was the centerpiece of Mr. Bush's first official visit to Mexico, and both leaders were effusive in their praise of it and of each other.

Mr. Bush, accompanied by his wife, Barbara, their Mexican-born daughter-in-law and three Cabinet officials, was given the royal treatment by the Salinas government in this largely symbolic visit to Mexico's third largest city.

President Bush has had a long association with Mexico since his Texas days as head of the Zapata Oil Company, which had contracts with Pemex, the Mexican oil monopoly. George Bush Jr., one of the president's sons, has expressed an interest in oil exploration in Mexico.

The loan guarantee is considered important with the possibility of war breaking out in the Persian Gulf, which may result in long-term damage to oil fields that provide the United States with most of its foreign oil.

The guarantee came as a surprise, since officials of both administrations and the final communique failed to mention oil as a subject of talks between the two leaders.

Mexico has an estimated 43 billion barrels of reserves that remain untapped because of constitutional restrictions and a lack of capital and technology.


Mr. Bush has expressed the hope that Mexico would lift its ban on foreign investments in the oil industry.

According to Mr. Brady, the loan guarantee idea was broached by the Mexicans as part of a $5 billion oil industry development plan.

Details of the Export-Import Bank loan guarantee are still being worked out, said Treasury Department officials who emphasized that it would underwrite contracts of U.S. firms for equipment and services.

"I want to underscore that American firms would not be allowed to take an equity position in Pemex," said Mr. Brady.

If all the money were spent on oil exploration, it would more than double this year's $1 billion exploration and production budget of Pemex, said George Baker, a Mexican oil expert at UCLA.

Mr. Baker and other oil experts said the guarantee would permit for the first time deep-sea drilling in Mexico's vast oil fields in Campeche Sound in the Gulf of Mexico.


Mexican drilling rigs cannot drill below 100 meters. But with the U.S. loan program, U.S. deep-sea rigs can tap extensive reserves that lie between 100 and 300 meters deep.

Mr. Baker said U.S. technology could also help cure pressure problems in the Cantarel field in Campeche Sound, increasing the daily yield to about 380,000 barrels a day by 1994. Mexico exports 650,000 barrels a day to the United States.

Mr. Baker said the loan program might lead Mexico to permit risk contracts in which foreign drillers would be allowed a percentage of the oil they found.

Because of the increase in oil prices, Pemex has been earning about $450 million a month in extra revenues. In the past, much of Pemex's revenue was used by other government agencies and was subject to a 56 percent tax.