“In a pure service contract, the contractor gets paid if the service is satisfactorily completed, regardless of the production outcome. One or two countries have used modified service contracts as agreements for the production of hydrocarbons, and Mexico is one of them, using the 2008 Energy Reform to implement them. The challenge in using a service contract as a production agreement is to obtain the proper balance of risks and rewards, and a natural alignment between the parties in the presence of significant subsurface or geological risk.

“NOCs like Pemex and IOCs like ExxonMobil face common challenges, and often share common goals. One example is exploration in high risk and high capital investment projects such as deepwater. At ExxonMobil we would like to develop long-term partnerships based on these commonalities; this is the business model that we think works best, both for the resource owner and for our company.

“Companies around the world, including those that are state-owned, partner with others in joint ventures in order to share risks, access technology and implement global best practices. We are convinced that these are some of the attributes that we could share with resource owners, including Mexico, if we were able to work together in exploration and production of deepwater projects. That being said, and as in any other part of the world, globally competitive terms will be needed to attract this high-risk investment. Both the opportunity and the terms need to be competitive within the global portfolio of investment opportunities. A successful, value driven partnership between a national oil company and an international oil company has to be structured in a way that both the investor and the resource owner feel that they are in a win-win relationship, and where everyone is able to work together to achieve a positive outcome.

“Mexico has already taken steps to modernize its oil and gas legislation, and the national debate to determine where they want to go in the future is likely to continue. We will evaluate the opportunities as they are presented and participate in these projects if they are globally competitive." 

“We believe that the Energy Reform of 2008 was a major historic milestone after more than 70 years without even discussing the matter. We were impressed by its legitimacy, because it was the result of a very broad debate. Of course, the contracts and opportunities that come up for consideration need to be globally competitive. Shell operates all over the world and every country has its framework, and our mantra is that a contract needs to be globally competitive for us to participate. We believe dierent frameworks work in dierent jurisdictions, but for us what matters is having the right fiscal terms and materiality. As long as the risk/reward balance is appropriate for the investor, and as long as there is sucient stability in a country, we are happy to look at solutions in a creative way. For complex and long-term developments, creativity does not just relate to technology, but also to commercial solutions.

“The first round was a very prudent first step to test the process, and there is consensus that the process was transparent and ecient, but the type of asset that was oered in the first round is not an arena where Shell can be competitive. It is questionable whether the second round will be of interest to us, but our main ambition is deepwater, because it is the type of project of a scale, complexity and investment level that not every company can provide. That is where we can bring an outstanding solution. On top of the technical knowledge and expertise, we have the advantage of having similar projects on the other side of the Gulf of Mexico, which gives us superior knowledge. These are the types of asset that we would be looking at participating in.

“There are dierent types of service contracts with dierent risk profiles. The current legal framework in Mexico allows contracts that leave the operatorship to Pemex, and that is designed in a way that the IOC is the investor, and is remunerated on a fee per barrel basis. The current contract model has been tested on the market and proved to be appropriate for mature fields. But those terms would not necessarily be appropriate for a much riskier and uncertain project like a deepwater exploration contract.”