By Dave Graham
TAMPICO, Mexico, June 25 (Reuters) - During Mexico's firstoil boom, Tampico was such a magnet for foreign capital that itbecame the biggest oil-exporting port in the Americas and hometo grandiose architecture that inspired comparisons to Veniceand New Orleans.
A century on, Tampico is the country's kidnap capital,racked by fear, murder and extortion that threaten to choke offits bid to make a comeback as Mexico, the world's No. 10 crudeoil producer, opens up its oil and gas industry.
In December, President Enrique Pena Nieto ended state-runPemex's 75-year-old oil and gas monopoly in the hope that oilmajors will plow tens of billions of dollars into Mexico,revitalizing an economy that has long lagged its regional peers.
Tampico, which hugs a cluster of crocodile-infested lagoonsin the northeastern state of Tamaulipas, should be well placedto attract firms like Exxon Mobil Corp and Chevron looking to invest in the oil and gas-rich region.
But as lawmakers finalize terms and conditions for theenergy reform, drug gangs have turned Tampico and Tamaulipasinto a maelstrom of gunfights and oil theft.
Among the atrocities on the streets of greater Tampico inlate May: seven corpses stuffed into the back of a car; a bodywith all its limbs hacked off; and a man hung upside down from arope, with his own severed head nearby in a basket ofstrawberries.
"The problem is so serious that the state and municipalauthorities can't cope," said German Pacheco, a federalcongressman for Tampico from the opposition conservativeNational Action Party (PAN).
Murders in Tamaulipas have hit their highest level sincePena Nieto took office 18 months ago, and the president hassought to stem the violence by replacing corrupt local and statepolice with federal security forces that now patrol the state.
But the problem has deep roots.
Federal prosecutors have investigated allegations that thelast three state governors all had links to organized crime. Twowere not charged, but one is a fugitive, wanted for trial in theUnited States. The current governor, Egidio Torre Cantu, wasvoted in after his brother, the favorite for the job, wasmurdered by gunmen days before the 2010 state elections.
'UNTHINKABLY RICH'
In 1914, U.S. writer Jack London likened Tampico to Veniceand described its oil fields as "unthinkably big and rich."Today, the ornate, colorful blend of art nouveau andneoclassical architecture in the heart of the city bears witnessto the early 20th century oil boom.
Although markets around the palm-lined squares of the centerstill bustle with people during the day, the local economy isreeling. Employers' federation Coparmex estimates that sales atbusinesses in Tampico's metropolitan area of some 900,000 peoplefell 20 percent to 25 percent from 2013 during April and May.
As night falls, residents used to living alongsidecrocodiles scatter to avoid becoming statistics in turf warsacross Tamaulipas caused by splits within the Gulf Cartel andits clashes with a rival gang, the Zetas.
The area is still packed with potential. More than half ofMexico's prospective shale oil reserves are in theTampico-Misantla basin extending south from the port intoVeracruz state, said Gustavo Hernandez, head of Pemex'sexploration and production arm.
And more than half of Mexico's estimated deepwater oilreserves in the Gulf of Mexico are in its northern section offTamaulipas, he added. The state is also home to much of Mexico'sgas reserves.
One local retailer, speaking softly in his store not farfrom where John Huston shot scenes for the 1948 Humphrey Bogartfilm "The Treasure of the Sierra Madre," said energy reformcould make a big difference to the economy.
"But who in their right mind is going to invest here withthese headlines?" he said, asking to remain anonymous.
Estimating his sales were down by half from 2009, he saidsome 50 people he knew in the area had been kidnapped in underthree years and that a gang had muscled in on his business withclubs and bars, banning competitors on pain of death.
For army troops battling the cartels, death looms larger inTamaulipas than anywhere else in Mexico, where more than 90,000people have died in gang-related violence since 2007.
Three in every 10 soldiers killed since Pena Nieto tookoffice have died in Tamaulipas, defense ministry figures show.
Oil theft is also rife in Tamaulipas, as gangs steal tankertrucks and siphon off fuel from pipelines. By mid-May itaveraged two illegal oil taps per day, or one-fifth of thenational total, Pemex data shows. Locals in Tampico say gangssell gasoline for half the official price or less.
Tampico also leads Mexico in kidnappings with a rate 20times the national average, a recent study published by Coparmexand Germany's Konrad Adenauer Foundation showed. Up to 70percent of businesses in Tamaulipas pay extortion to gangs, saidan official from a human rights group who requested anonymity.
The result, said congressman Pacheco, has been an exodus of"easily 80 percent" of Tampico's top entrepreneurs.
Many of the wealthy have even stopped coming back to payrespects to their dead, said Jorge Altamirano, 63, a worker atone of Tampico's main cemeteries.
Five years ago, Altamirano was paid to look after about 40tombs, earning 100 pesos for each a month in a graveyardsprinkled with sepulchers of the city's old oil barons. Nowstruggling to feed five others at home, he has only 11 tombs.
"Some were just abandoned," he said. "People don't want toleave their homes."
SECURITY FEARS
Oil executives are reluctant to speak openly about thelawlessness in Tamaulipas. Privately, they say it makes it hardto operate and raises security costs, putting business at risk.
While Tampico's first oil boom ended decades ago, theadjoining city of Altamira is a major petrochemical center andMexico's No. 4 commercial port.
Altamira has high hopes for the reform, and Mayor ArmandoLopez named Royal Dutch Shell and Singapore-based KeppelOffshore & Marine among firms he said planned to invest there.
But Altamira is also suffering. Five people were killed in ashootout this month when a gang blocked access routes to theport by setting trucks ablaze.
Investors are paying close attention.
Pacheco of the PAN said the violence came up time and againat a recent energy conference he attended in Houston withexecutives from companies like Eni, BP and Total.
"Security in Tamaulipas was a general complaint among theworld's top international firms," he said. "(The reform) willonly offer hope if we end the lawlessness." (Reporting by Dave Graham; Editing by Kieran Murray and DouglasRoyalty)
