Pemex okays model contract for southern fields

By OGJ editors
HOUSTON, Dec. 1 -- The board of Petroleos Mexicanos last week approved a generic integrated services model contract covering three mature onshore southern oil fields.

The contract, which takes a step toward production-based payments as opposed to Pemex’s standard fixed unitary price-based formula, was approved Nov. 24.

It is expected to be applied to a bid round to cover Santuario, Carrizo, and Magallanes fields in the Chiapas-Tabasco region. The round is presently set for first-quarter 2011. The fields were discovered in 1966, 1962, and 1957, respectively.

The model contract provides for a 25-year term composed of an exploration period and a development and production phase. Duration of both phases may vary by contract. Both periods contain minimum work requirements, and a contractor may terminate the contract after the exploration phase.

The contractor is to be compensated by a fee, adjusted biannually to a weighted producer price index, for each barrel of oil produced in an amount specified by the bidder in the bid round plus a yet-to-be-defined percentage of recoverable costs, subject to each project’s available income.

Other important contract terms include national content obligations, unitization provisions, penalties for noncompliance with minimum work obligations, performance guarantee obligations, anticipated termination, arbitration, and other standard provisions, said attorneys with Thompson & Knight LLC in Mexico City.

“Most industry experts are skeptical that the new contract will be enough to attract the necessary resources, both economic and technological, to address an ongoing decline in reserves, a steady drop in production, the complex challenges of deepwater drilling, and, most recently, the budgetary constraints Pemex faces as a result of Mexico’s weak public finances,” wrote Gabriel Ruiz Rocha and Miguel B. de Erice of Thompson & Knight.

“All of these elements suggest that even more comprehensive energy reform will be required, but for the time being it is expected that the model contract will spur the interest of domestic and foreign industry participants.”