FAQ: Oil reserves in Mexico

In US federal lands and waters, a licensee has commercial rights to any oil and gas production for the period of his lease (and conditioned on his fulfilling performance requirements, like paying royalties to federal and state governments). It would be a stretch to call the set of commercial rights and obligations “ownership,” a word we use in reference to homes and cars.

The oil company needs to be able to report discounted future revenue from his discovered proved reserves in order to balance future revenue against the amount of investments to date. The “ceiling test” is a key indicator for investors, who would like to see estimates of $2 of discounted future revenue for every $1 deployed in current investments.

These proved reserves may be either “producing” or “non-producing.” At present, Mexican rules prohibit even a statistical relationship by a contractor to oil in situ, be it from producing or non-producing reservoirs.

This is the circle that the energy reform must square.

Written by

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.