By Marianna Parraga
HOUSTON, April 2 (Reuters) - For decades, many LatinAmerica's oil-producing nations have often shunned investmentfrom foreign firms, instead keeping their vast reserves underthe tight control of governments and state-run oil companies.
They aimed to protect profits to feed public budgets, but inpractice have seen some major breakdowns, as with the corruptionscandals and heavy debts at Brazil's Petroleo Brasileiro SA, or the inability of Mexico's Pemex toconjure the cash and expertise to tap its vast deepwaterreserves.
Now, an unprecedented wave of free-market energy reforms isgaining traction across the region, setting up a fiercecompetition to attract billions of dollars in investment fromthe likes of Exxon Mobil, BP and Royal DutchShell.
Seven governments this year will combine to hold at least 15oil and gas auctions, offering a record 1,100 blocks of onshoreor offshore acreage, according to interviews with officials anda tally of announced auctions. On Thursday, Brazil's latestauction collected $2.4 billion in pledges, awarding 22 of 68regions on offer.
"In 2018, countries in the region will host the mostlicensing rounds in history," said Pablo Medina, vice presidentof energy consultancy Welligence.
(For a graphic on Latin American oil auctions, see: http://tmsnrt.rs/2pw8i6y)
The race for private investment reflects an acknowledgmentby many countries that they have neither the cash nor thetechnology to fully explore and develop their reserves. Theembrace of foreign capital in Argentina, Brazil and Ecuador alsofollows the rise of centrist or right-leaning governments.
It also signals a willingness by governments to settle for asmaller cut of the profits - which could be slimmed further bythe competition to attract investment as governments offer taxincentives, reduced royalties and other inducements.
The glaring exception is Venezuela, where state-run PDVSAremains under the firm control of a leftist government in thethroes of an economic and political meltdown.
Elsewhere, emerging reforms are giving oil majors andindependent producers their pick of some of the region's richestresources - after being shut out of these markets or waitingyears for the right moment to invest. But they also face a riskthat governments could shift back to resource nationalization orlose the political will to fully establish market reforms. Anoil price drop could also undermine profits from such long-term,expensive projects.
"We love this continent. We know it well and now need tomake sure we will spend the money wisely," said Michel Hourcard,senior vice president of development, exploration and productionat France's Total, during an industry conference inHouston last month.
INCENTIVES TO INVEST
The ground-breaking regulatory changes in Latin Americainclude tax breaks, reduced royalties, longer contracts, relaxedqualification terms and flexible exploration mandates that allowcompanies to back out of investments more easily than in thepast.
Brazil and Colombia also plan to set up permanent offers ofareas for exploration and production - similar to those offeredby the United States - rather than making them available only inoccasional auctions.
Ecuador is offering shared-profit agreements that arepotentially more lucrative for oil firms than fee-for-servicecontracts that prevented companies from benefiting from oilprice gains.
Countries have to present terms attractive enough to drawbidders back to the region, said Julie Wilson, research directorof global exploration at consultancy Wood Mackenzie.
$110 BILLION IN PLEDGES
Strong participation by oil majors in recent auctions ofexploration and production rights in Mexico and Brazil haveheralded a new era by attracting about $110 billion ininvestment pledges.
Brazil started its effort to lure outside capital twodecades ago, but it fell flat after initially enticing more than100 companies, said Decio Oddone, head of Brazil's oilregulator. The effort was stymied by too few areas offered forauction, the low quality of some projects and the dominant roleof state-run Petrobras.
"Many of those companies did not have the expected success,"Oddone said.
Now, Brazil is relaxing bidding rules to encourage localfirms and medium-size foreign explorers to participate, joiningmajors already established in its vast pre-salt region.
In Mexico, political risks hampered its most recent auctionin March, where bidding was dominated by state-run Pemex. Thefront-runner in a presidential election set for July haspromised to scrutinize the nation's energy reforms.
But some industry leaders believe the country will stay onthe path of opening everything from exploration to refining andgasoline retailing.
"There is a very clear long-term strategy," said JeremyWeir, chief executive of Trading firm Trafigura.
Broad participation by European, U.S. and Asian firms inseveral auctions is another a sign a "Mexican revival" isunderway, added Fatih Birol, president of the InternationalEnergy Agency, a 29-nation group representing most of theworld's top oil consuming nations.
Some of Mexico's and Brazil's efforts are being copied.
Argentina is allowing oil companies to recommend specificareas for they would like to see auctioned, as Mexico did inpast rounds; Colombia will open a permanent offer of areas, asBrazil plans to do; and Mexico plans to replicate Brazil'sthree-year auction calendar, giving firms more time to plancapital spending before bidding rounds.
Some countries are keenly aware of the need to adjust itspolicies to compete with other nations, according to Juan CarlosZepeda, head of the nation's energy regulator NationalHydrocarbons Commission (CNH).
"We are flexible enough to accommodate any of our neighbors'creativity," he said.
HIGHER RISK, HIGHER REWARD
Compared with Brazil and Mexico, Argentina and Uruguay thisyear hope to catch investors with offers that hold greaterexploration risk - but potentially higher rewards.
Argentina officials believe Brazil's oil-rich pre-saltformation could extend to areas off its Atlantic coast, and inJuly will release terms of its first offshore auction. That is abig change in a nation that just six year ago expropriatedSpanish oil firm Repsol's stake in state-owned YPF.
Unlike the rounds for Argentina's vast Vaca Muerta shaleformation - which were led locally by provincial governments -the nation's central government will run this year's auctions,standardizing rules and offering better terms.
Uruguay, which holds a third offshore auction in April, isputting up 17 blocks for exploration and production afterrelaxing the qualification terms and reducing the scope of itsmandatory exploration programs.
Smaller Latin American countries including Guyana, Surinameand Paraguay are in talks with oil companies to offer rights tooilfields or to find partners for their state-run oil firms.
Similar energy market openings have blossomed in the pastonly to fade as governments reverted to resource nationalizationor imposed limits to foreign investment.
Latin America has see-sawed in prior decades between openingto private investment and returning to oil nationalism.
"It's part of the cycle: The countries tend to ask (oilcompanies) for as much as they can," said Horacio Cuenca, WoodMackenzie's director of upstream research for Latin America.They only lower costs and royalties "when available capitalstarts drying up."
(Reporting by Marianna ParragaAdditional reporting by Ernest Scheyder Editing by GaryMcWilliams and Brian Thevenot)
