BY GEORGE BAKER: HOUSTON PERSPECTIVE — Petroleum fiscal-system expert Pedro van Meurs released a 72-page critique–a vivisection–of the fiscal terms and rules of contract administration that are contained in the government’s Model Contract dated December 11, 2014.
In our Market Note 201 we made an index of his concerns in our new report (Table 2). We also add our own perspective, which has quite a different starting point (Table 1).
Operators, portfolio investors and drillers will want to pay close attention to these perceived deficiencies—as well as others that we identify—and keep an eye on the manner in which the authorities in Mexico attend to them. If Pedro is right in just half of what he says, there will be no 1st-tier oil company that will bid on any of the blocks that are being offered in Round One.
To download the title page, introduction, Tables 1 and 2 and titles of related reports, click here.
(1) The Multiple Services Contract (which you say Mr. Van Meurs developed and I assume you are correct) was a very shoddy piece of work. The translation (English to Spanish, when the valid legal version was Spanish!!) was an unmitigated disaster. Perhaps that should make us wonder if Mr. Van Meurs & Co. is a legitimate critic of the New Mexico model.
(2) The Van Meurs critique, in my view, is too harsh and is aimed at upending the Round One bid process. It seems to reflect Mr. Van Meurs disgruntlement at not having been contracted by the CNH. But certainly his critique will influence the Round One process.
(3) The Van Meurs critique is based on ample global experience in contracts. However, the CNH contract model is a home-grown model, based on the perhaps deficient Mexican experience in government procurement. But I think Mexicans have a right to some respect for doing things their own way. So, I think we should try to see some positives in what CNH and SENER are doing, even though we might have some reservations about the process.
(4) I think the biggest threat to the success of Round One, by far, is low oil prices. Van Meurs does not mention that. You do not mention that.