... private foreign companies to book ownership of oil reserves. There has been much confusion on this point. It matters not what word the constitutional amendments use. “License” or “profit-sharing contract” or even “service agreement” ... they all will allow foreign companies to book reserves.
Simply put: the U.S. Securities and Exchange Commission makes that decision, not any Mexican authority, and the SEC has been notably liberal about the kinds of contractual arrangement that it lets U.S. companies call “ownership.”
For example, the Iraqi service contracts are about as hard-nosed as you can imagine. They adamantly confer no ownership rights under Iraqi law (in fact, Iraq doesn’t even have an oil law) and give the companies only a flat fee per barrel, plus cost recovery. And cost recovery is paid by the Iraqi oil ministry, not the companies. The only way in which the companies actually get their hands on actual hydrocarbon molecules is that the fees and recovery payments are usually made in barrels of oil rather than cash.
And what do you know? Companies can book Iraqi reserves.
- The right to extract oil or gas;
- The right to take volumes in kind;
- A clear mineral interest;
- Exposure to risk and potential reward.
The name used in domestic law does not matter. Hell, it doesn’t matter if domestic law explicitly and loudly bans foreign ownership of reserves. In accounting terms, if you have one of those four interests in an existing oil operation, you can book reserves under American regulations.
I will have a few more posts about the reform coming up, but I wanted to get this out: hair-splitting over terminology makes no sense regardless of your stance. The SEC will rule as it will rule based on GAAP and the concrete terms of the contract, not local legal phrases or foreign constitutional declarations of intent. All hail the regulators!