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An employee of the Canadian Pacific Rubiales Petroleum Company ascends an oil storage tank in Campo Rubiales field in Meta, Colombia in April of 2010.JOSE MIGUEL GOMEZ/Reuters

Pacific Rubiales Energy Corp. has struck a deal with Petroleos Mexicanos to explore for oil and gas in Mexico, becoming one of the first Canadian-listed companies to try and capitalize on the country's sweeping energy reforms.

Toronto- and Bogota-listed Pacific Rubiales said Friday it entered into a three-year memorandum of understanding with Pemex, as the state-run oil and gas producer is known, to study potential exploration prospects, including deep-water projects and extra-heavy oil fields onshore.

"We expect Mexico will be a significant driver of future growth," Ronald Pantin, chief executive officer of Pacific Rubiales, said in a statement. The company pumps about 320,000 barrels of oil equivalent per day from fields in Colombia and Peru.

The government of Enrique Pena Nieto is eager to lure energy companies back to Mexico after scrapping a ban on foreign investment in the oil and gas sector that dates to 1938. Energy reforms introduced this year have reversed expectations of steep production declines in the country's oil sector, while raising the spectre of new competition for Canada's oil patch in the U.S. Gulf Coast market.

From 3 million barrels per day (bpd) in 2010, Mexican production was expected to decline steadily to 2.5 million bpd next year and to 1.8 million bpd by 2025, according to U.S. government forecasts.

With the first round of licensing for foreign companies set to open next year, the U.S. Energy Information Administration now sees output topping 3 million bpd in the next decade, rising to 3.7 million bpd by 2040. That's up 76 per cent from the agency's previous expectations before reforms were announced.

Mexican officials have set a more aggressive target: 3 million bpd by 2018. Gains could come from enhanced oil-recovery techniques in old fields, heavy oil and shallow-water drilling offshore, as well as horizontal drilling in the country's Chicontepec basin, which has 80 billion barrels of oil in place with a recovery factor under 4 per cent, according to Wood Mackenzie estimates.

For Canada's oil industry, rising oil production in Mexico could spark competition on the U.S. Gulf Coast, long considered an ideal market for extra-thick crude derived from Alberta's oil sands.

Analysts say water scarcity, a lack of infrastructure and security concerns could slow development, while fiscal terms must still be clarified to attract foreign companies.

"The risks are basically how you implement the whole reform," said Pablo Medina, analyst for Latin America at Wood Mackenzie. "The changes are there, but when you have to execute them, that's where you could see some delays."

With files from Jeffrey Jones

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