MEXICO CITY – President Felipe Calderón is closing in on an energy reform that could give a shot in the arm to Mexico's struggling oil industry, but it is not clear if oil majors will be lured into crucial deep-water projects.

It is Calderón's most ambitious economic reform attempt yet but the left-wing opposition and many ordinary Mexicans are wary of private involvement in the cherished oil sector, which has been in state hands since 1938.

Calderón, a conservative, lacks a majority in Congress but a centrist opposition party expects to reach a deal with the government in the coming weeks to approve a reform.

Sen. Francisco Labastida, a central figure in talks between the government and his centrist Institutional Revolutionary Party, or PRI, said a compromise bill was “probable”.

“We should be finishing it by the end of August or the beginning of September,” he told Reuters. Calderón wants to protect Mexico's status as a top supplier of the United States and reverse a big drop in output in the world's No. 6 producer. Mexico's main oil field, Cantarell, has begun to dry up after three decades in use.

State oil monopoly Pemex lacks the technology to successfully drill for oil in deep waters of the Gulf of Mexico and current legislation makes it very difficult for it to enlist the help of private companies.

A proposal by Calderón, launched in April, would let Pemex sign performance-based contracts with foreign companies to get them more involved in project planning and give them incentives to share technology.

Analysts say the contracts would boost efficiency across the oil sector.

The PRI recently put forward its own energy proposal that calls for a contract scheme similar to Calderón's plan, leading many in the industry to think the idea will make its way into law.

TALKS THIS WEEK

“There will be a reform that will be important enough to spark a change in the oil sector,” Pemex chief Jesus Reyes Heroles said in a recent radio interview.

Calderón and the PRI still disagree over how to boost refining but many observers think a deal will emerge. Lawmakers in the Senate will kick off a round of talks Tuesday aimed at drawing up a compromise bill, Labastida said.

But it is still far from clear whether the reform would get major international oil companies involved in deepwater oil fields in the Gulf of Mexico that are seen as crucial for maintaining Mexico's output.

Under the contracts schemes proposed by Calderón and the PRI, Pemex could pay bonuses or incentive fees for work well done. The contracts could also make a hired company cover some or even all the costs of a drilling project that fails.

Spokespeople at several big international oil companies declined to comment on the reform proposals.

Mexico's constitution forbids private companies from being paid in oil or sharing profits, which is a common practice in the crude industry, especially for risky deep-sea ventures.

“The oil companies and the Mexican government are still far apart as to what could motivate them to be willing actors in some kind of deepwater program,” said George Baker of Houston-based Mexico Energy Intelligence.

Pemex has drilled just a handful of deepwater wells in recent years, none of which have hit oil.

Even if oil majors got on board, Pemex would still face substantial costs in deep waters because the constitutional limits on private investment will remain, analysts said.

“Performance contracts are particularly good for shallow water and for work on land. They don't solve all your problems in deep water,” said David Shields, an energy consultant based in Mexico City.

Pemex says it needs to get about 500,000 barrels per day from deep-sea fields in the Gulf of Mexico by 2021 if it wants to make up for big declines in the Cantarell field.

“That goal is probably slightly optimistic,” Shields said.