US Oil Group Pursues US$100 Million Claim Against Mexico

An oil service group from the US is seeking US$100 million from Mexico in a claim at the World Bank arbitration court, Reuters reported. The group is led by Finley Resources, a company that won two oil tenders in Mexico and has a further service contract regarding drilling operations for PEMEX. The claim alleges that Mexico violated investor protection clauses lodged in trade pacts because it did not honor the contracts.

Finley registered the claim at the World Bank's International Centre for Settlement of Investment Disputes (ICSID) on May 12 after failing to get its claims honored in Mexican courts. “Mexico promised that Finley’s investments would be protected,” said Andrew Melsheimer, an Attorney representing Finley. Melsheimer also commented that Mexico’s courts showed “little to no movement” in handling the case.

This is the first instance of a claim from an US-based oil service company against Mexico since NAFTA turned into the USMCA in 2020 following an exhaustive renegotiation process. Neither Mexico’s Ministry of Foreign Affairs nor PEMEX have so far responded to the issue.

Melsheimer asserts that PEMEX did not pay for the services it has contracted from companies under the Finley umbrella. Mexico allegedly failed to honor other contracts awarded to the company as well.

PEMEX’s payment track record has become an issue for Mexico. Bogged down by a crippling debt of US$113.9 billion, lower production figures and fragile crude oil sales, the NOC has been adding millions of dollars in late payments to its backlog, Bloomberg News reported earlier this month. Delaying payments had long since been part of PEMEX’s efforts to ensure its liquidity, but the practice risked becoming a bigger problem now that it was no longer reimbursing its partner companies. As of April 30, PEMEX owed US$60 million to Cheiron and about US$4 million to Hokchi Energy. Deferring payments is no unusual strategy for large, state-owned oil enterprises, although experts warn that failing to pay partners can eventually harm trust between companies.

Nevertheless, the NOC continues its efforts to pay what it owes. Earlier this week, El Financiero reported that PEMEX paid back US$7 million of the US$26 million that it still owes to offshore service provider Tidewater.

Even since President Andrés Manuel López Obrador took office in 2018, he has committed to bolster PEMEX, which was already in a troubled financial state due to years of underinvestment and dropping output. Cancelling the auctions and farm-outs established after the 2014 Energy Reform were among the first measures taken to allow for the NOC’s recovery. US-based institutes and lobby groups have joined Mexican industry watchdogs in expressing concern over private investment in Mexico since.