A dispersed molybdenum catalyst, derived from MoO2(acac)(2) (where acac = acetylacetonate), was used for upgrading extra-heavy crude oil in the presence of methane as source of hydrogen. The experiments were carried out in a batch reactor at a final CH4 pressure of 11 MPa, 410 degrees C, for 1 h. An increase of 7 degrees in the API gravity, 16% of reduction in sulfur content, and 55% conversion of the >500 degrees C fraction with respect to the original crude was found. The catalyst was analyzed by XPS and EDAX from the coke isolated from the upgrading reaction and it was confirmed that molybdenum is present as MoS2. By XPS and SIMS, mechanistic studies were carried out using MoS2 synthesized on a pure molybdenum sheet. A mechanism for addition of the methane to crude oil is proposed which involves activation of CH4 by the MoS2 catalyst generating CHx and H4-x species on the catalyst surface (where x = 1, 2, or 3). The CHx moiety can be added to the hydrocarbon molecules, forming methylated products. By carbon isotope ratio mass spectrometry analysis, labeled methane ((CH4)-C-13) was found to incorporate into the crude oil (estimated value 0.01% w/w) giving conclusive evidence on the involvement of CH4 in the heavy crude oil upgrading processes.