Joint Operating Agreement to qualify in E&P public tenders

Oil companies routinely form equity associations that diminish the risk and cost of failure that any one company would face if it were to undertake an expensive project alone. Another reason is to pool the talents and resources of the partners, regarding, for example, the access to drilling rigs or the availability of manpower, amen, specialized skills in a given operating environment or prospective petroleum formation. Operating abroad, Pemex would be a sought-after partner by any IOC who would see, in Pemex, a company with a half-century of experience in naturally-fractured, carbonate reservoirs.

The associations that these companies form in relation to a given exploration project do not entail the creation of a new corporate entity; it is enough that a Joint Operating Agreement (JOA) specifies the operator and the rights and obligations that correspond to each member of the agreement. A JOA is not a joint venture and is not a single taxpayer.

It would be quite a departure from this international practice for Mexico to disallow—as it seems to do in Article 31 of the Hydrocarbon Revenue Act—a bidder that would seek to participate a public tender under a joint operating agreement. It would not be well received to require that separate corporate entities be necessary in a public tender for each association between Shell and Anadarko, Shell and Apache, Shell and Chevron, Shell and Everyone-Else-and-his-Cousin. It would clutter up the corporate landscape, forcing each company to hire dozens of lawyers to keep track of the several corporate entities, and it would confuse the aggregate posting of reserves in Mexico by Shell or any of its partners.

Pedro van Meurs rightly urges Mexican lawmakers to revise the text to allow for contractors who are united by a JOA are eligible to qualify as a bidder. Click

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.