FACTBOX-Key political risks to watch in Mexico

OIL OUTLOOK

Oil production, which funds about one-third of government spending, has stabilized after slumping by nearly a quarter between 2004 and 2009. It hit an eight-month high in January but output fell slightly in February, and the government says it should hold steady at around 2.6 million barrels per day through 2012. [O/MEXICO1] [ID:nN25294483]

Mexico's debt downgrade was partly due to a drop in production and a lack of will to cut dependence on oil. Pemex's need for an overhaul was underscored in February, when it said negative equity nearly doubled as of Dec. 31, 2010, meaning its liabilities far outweigh its assets. [ID:nN28175706]

Pemex also has a huge pension liability. [ID:nN30164662]

Regulators have challenged Pemex's estimates of recoverable oil reserves, calling into question the industry's long-term sustainability. [ID:nN19219594]

Pemex, however, told Reuters in March that the number of oil fields operated by private companies in Mexico will jump by the end of 2012, as the firm speeds up the unwinding of a seven-decade ban on private investment. [ID:nN2965942]

Pemex is also studying imports of foreign crude oil for the first time in more than 30 years to improve the profitability of Mexican refineries. [ID:nN20205847]

Pemex has spent billions of dollars at its Chicontepec project, where results have repeatedly fallen short of expectations. However, the firm has few other options for substantial new production and has vowed to push ahead despite Chicontepec's immense technical challenges. [ID:nN21272804]

A government report released on Jan. 24 acknowledged the difficulties and slashed the target for peak output by nearly half to 377,000 bpd. Maximum output is now expected in 2025, eight years later than prior forecasts. [ID:nN24183884]

What to watch:

-- Foreign companies' interest in the operating contracts.

-- Any improvement in the performance of Chicontepec.

-- Further declines in monthly oil output figures.

(Additional reporting by Jason Lange and Robert Campbell; Editing by Paul Simao)