Competitiveness of shallow water hydrocarbon development projects in Mexico after 2015 actualization of fiscal reforms: Economic benchmark of new production sharing agreement versus typical U.S. federal lease terms

Ruud Weijermars and Jia Zhai

Energy Policy, 2016, vol. 96, issue C, 542-563

Abstract: Development of Mexican hydrocarbon reservoirs by foreign operators has become possible under Mexico's new Hydrocarbon Law, effective as per January 2015. Our study compares the economic returns of shallow water fields in the Gulf of Mexico applying the royalty and taxes due under the fiscal regimes of the U.S. and Mexico. The net present value (NPV) of the base case scenario is US$1.4 billion, assuming standard development and production cost (opex, capex), 10% discount rate accounting for the cost of capital and revenues computed using a reference oil price of $75/bbl. The impact on NPV of oil price volatility is accounted for in a sensitivity analysis. The split of the NPV of shallow water hydrocarbon assets between the two contractual parties, contractor and government, in Mexico and the U.S. is hugely different. Our base case shows that for similar field assets, Mexico's production sharing agreement allocates about $1,150 million to the government and $191 million to the contractor, while under U.S. license conditions the government take is about $700 million and contractor take is $553 million. The current production sharing agreement leaves some marginal shallow water fields in Mexico undeveloped for reasons detailed and quantified in our study.

Keywords: Mexico energy reform; new hydrocarbon law; fiscal benchmark US versus MX; shallow water field development; Gulf of Mexico (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:enepol:v:96:y:2016:i:c:p:542-563

DOI: 10.1016/j.enpol.2016.05.048

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