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Negotiating ISC Contracts

Manuel Cervantes - MCM Abogados
Founding Partner


Tue, 01/22/2013 - 13:25

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Q: How has the demand for legal services in the Mexican energy sector been impacted by the introduction of the integrated service contracts?

A: MCM Abogados is part of the wave of newer companies that are trying to bring fresh ideas to the table in order to advance the energy sector accordingly. We believe that it does not make sense for potential clients to look for advice at a large fi rm when they can deal directly with our experienced lawyers who have worked on several important contracts that relate directly to the projects they are looking to pursue. With these credentials, we have secured consulting projects with clients that perform interesting projects in the country, which include Compañía Petrolera de Altamira (the Cheiron Holdings Ltd. subsidiary in Mexico). Some of the people inside the law fi rm, including me, had already worked with other Egyptian companies of the same corporate group, so Cheiron realized that it could trust our law fi rm for consulting purposes.

Q: What made the integrated service contracts particularly attractive for Cheiron?

A: The main business for Cheiron is brownfi eld projects, an area in which they are experts: they are currently the most important operator in the Gulf of Suez, where mature fi elds abound. We met them while our lawyers were promoting the second ISC round for mature fi elds at international forums in the US. Executives from the company were interested and approached us, beginning a discussion about several alternative ways to make the situation work. They were interested in the profi tability schemes of the project and the di† erent areas of opportunity to improve production. The company was already familiar with contracting schemes where companies are bound to restricted participation and profi t-sharing schemes are forbidden, which really helped Cheiron’s executives to understand the economic model behind the ISCs.

Q: What were Cheiron’s concerns about the ISC contracting conditions and what was your role as a consultant in expediting the process?

A: The main problem with ISCs is that, since reserves cannot be booked, the large oil companies are less keen to participate; however, the terms ended up being amenable to Cheiron, since 100% of exploration costs and 75% of development costs will be reimbursed. Our main role as consultants was to submit a simple bid proposal according the agreed deadlines: we were the fi rst company to fully submit all the necessary documents in the pre-qualifi cation stage. We have also helped by submitting the operating reports and budget of the fi eld to Pemex for approval. This might sound like a restriction, but since the contract labels Cheiron as the expert, it gives the company fl exibility over how many wells to drill and which technologies to use, amongst other operational specifi cations.

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