What’s Missing from Round One? – A Clear Philosophy of Alignment

The report is meant to offer perspective on the Mexican energy reform, and to contribute public discussion of the philosophy of Round One. The central idea is that there should be an alignment of the long-term interests of society, the oil company and the State.

Why long-term?

Answer: Some oil fields may be in production for more than a century. The terms, conditions and incentives have to be those that equitably reward stakeholders over several generations, while simultaneously incentivizing the optimal recovery of hydrocarbons from a reservoir.

Incentivizing?

An oil company begins the development of a field with today’s technology and expectations. Twenty years from now, a new technology may become available. The fiscal system needs to reward the operator for investing fresh capital in a field that’s now twenty years in production.

The fiscal and contractual regime that was made public in December, 2014, that would apply to Round One is in need of further polishing in order for it to achieve the alignment that would motivate the participation of global oil companies as bidders.

The present report is a condensation of a longer report, MEI 775, which is available to our subscribers, clients and webinar and workshop participants.

Comments are invited: perspectives@energia.com.

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Mexico Energy Intelligence

Baker & Associates offers niche-market business and policy intelligence related to Mexico's oil and gas, power and chemical industries. Over 1,000 reports have been issued in the last 20 years. Subject matter expert and publisher George Baker, who directs the firm, has carried out consulting assignments starting in the late 1970s at the height of the Oil Boom in Mexico. He brings bilingual and bicultural skill-sets to understanding and responding to challenges of business and public policy, coupled with a deep familiarity with the history and idiosyncrasies of the Mexican operating environment.

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