Talanza Energy Consulting

junio, 2021

Alternatives to halt oil and gas activities

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Some oil fields have such conditions that interrupting production may lead to damage fluid-rock reservoir  properties, compromising future production. Exploration andExtraction Contracts provide that in case of  relinquishment, termination or rescission, the Operator and the National Hydrocarbons Commission (CNH)  shall give noticeand go through the Final Transition Stage for that acreage.

However, there comes a time when government inaction may lead to uncertainty whether to continue production  or shut it. Picture this, during COVID-19 pandemic, several Operators filed notice for triggering Force Majeure  clauses with many of them being denied. Already belayed due to the COVID-19’s impact on activities, some  authorized terms were about to end, with no possibility of extension. In some cases, shutting down production  from some fields could lead to reservoir damage, which would harm the recoveryfactor of the field leaving valuable  barrels buried in the ground for good, contrary to the Nation’s (the Mexican people) interests. On the other hand, if  Operators continueproduction beyond the authorized term, they could be facing severe fines and penalties.

Alternatives

PLAN B

The CNH must have these fields identified and design a plan in case a sudden shut of production should happen.  After all, they have the technical information even if not expressly stated by the Operator. Another option could be  that CNH requests Operators from fields in this risk to confirm this situation and notify them with the applicable  procedureshould such a case ever happen.

ROUND ZERO BACKGROUND

During Round Zero, Petróleos Mexicanos (PEMEX) left some producing fields out of its request. Due to the  risk of compromising reservoir productivity, by the end of 2014, the CNH awarded 95 temporary Entitlements  where PEMEX should continue operations until CNH awarded them in a tender process, like the one of Round 1.3. This mechanism was supported by article 6 of Hydrocarbons Law, that allows SENER to exceptionally award  Entitlements to PEMEX for protecting the State interest in termsof production and supply assurance.

LEGAL ALTERNATIVES

Normally, threat of such a harm could be avoided by filing for an injunction, however, since it is the Mexican State’s  property, the legal interest for requesting the injunctioncorresponds to the State or, to the Operator if it can be  linked to its legal duties or potential rights.

We suggest considering the use of the negotiorum gestio figure (or “altruistic intermeddler”) to prevent harm to  the Nation’s property. Negotiorum gestio is known since Romanlaw and is foreseen in the Mexican civil legislation.  This figure allows a person to interfere in someone else’s business to avoid a harm.

By using this figure, the current Operator could act as a gestor and continue with production until the CNH appoints  a new Operator, even if temporary. During this time, theOperator, acting as a gestor, would need to deliver 100% of  the production to the State.

According to the negotiorum gestio figure in Mexican law, the gestor is only entitled to the reimbursement of  the incurred costs, plus legal interests. Pursuant to the Federal CivilCode, in case the negotiorum gestio is used  to fulfill a public interest duty, the gestor is entitled to the reimbursement of all necessary costs. In this case, we  believe avoiding wasteof the State’s natural resources qualifies as public interest.

CONCLUSION

As Exploration and Extraction Contracts become more mature, cases like these are more likely to happen. When  it comes to natural resources, it is in everybody’s interest to avoidwaste. These and other ideas should be further  studied and developed to prevent an unfortunate situation.

Recommendations

1.    When facing the decision of shutting activities, make CNH acknowledgeable of the field’s current status and its risk of reservoir damage from early communication.

2.    Give CNH notice of urgent action at least  60 days in advance of the shut day and request for instructions.

3.    Develop a legal mechanism for CNH, Operators and PEMEX on how to act in these cases.

An example: the case of Round 2.3

By the end of 2020, several Operators without an approved Development Plan faced the decision of shutting down activities or In case they decided to operate without an approved plan they could face an administrative rescission process.

 

Como firma internacional con presencia en Estados Unidos, México y Colombia, encaminamos empresas del sector energético hacia un correcto cumplimiento normativo y asesoramos gobiernos a diseñar e implementar regulaciones que impulsen la sostenibilidad en el largo plazo para dicha industria.
Resultado de la sinergia entre líderes Canadienses y Mexicanos, en Eminent nos especializamos en la cuantificación, control y reducción de emisiones de metano. Como pioneros en México en aplicar la tecnología OGI, potenciamos la sostenibilidad de la industria petrolera internacional.