Reuters | 18 May 2021
US oil service group seeks $100 million from Mexico in arbitration claim
By Marianna Parraga, Gary McWilliams
MEXICO CITY/HOUSTON (Reuters) - A U.S. oil service group introduced a $100 million claim before a World Bank arbitration court alleging Mexico violated investor protections under the NAFTA trade pact by failing to honor agreements, lawyers for the firms and court documents showed.
The World Bank’s International Centre for Settlement of Investment Disputes (ICSID) on May 12 registered a case by a group led by Finley Resources Inc, a Texas oil and gas company that won two oil tenders and negotiated a third drilling service contract with Mexico’s state-run firm Pemex.
Finley sought arbitration in an international court after efforts to enforce its contracts stalled in Mexican courts, said Andrew Melsheimer, an attorney for the Fort Worth-based company. Finley’s international claim is the first by a U.S. oil services company against Mexico since the North American Free Trade Agreement (NAFTA) was renegotiated as the United States-Mexico-Canada Agreement (USMCA) in 2020.
Cases before ICSID, which resolves investment disputes, can take years to reach a resolution.
“Mexico promised that Finley’s investments would be protected,” said Melsheimer. Instead, the country’s courts provided “little to no movement” on the dispute while Mexican oil service companies that made similar claims received more favorable treatment, he said.
Pemex and Mexico’s foreign ministry did not reply to requests for comment.
According to Melsheimer, Pemex failed to pay for services provided by the companies, while some contracts awarded to them were not honored by Mexico. The group includes Finley, MWS Management Inc and Prize Permanent Holdings.
Dozens of companies began entering Mexico’s oil and gas sector in 2013-2014 as part of the energy reform, aimed at ending Pemex’s longstanding monopoly and opening the country for foreign investment. There were more than 100 oil contracts issued to budding Pemex rivals after reforms were enacted.
Mexico’s president, Andres Manuel Lopez Obrador, who took office in 2018, has pledged to revive highly indebted Pemex and state-owned power utility Comision Federal de Electricidad. But he has threatened to overturn the energy market reforms if he cannot rework the rules here to aid the two companies.
Mexico is facing 13 arbitration disputes before ICSID, 10 of which have been introduced since 2018, according to the court’s Web page.
The American Petroleum Institute, the top U.S. oil and gas lobby group, has sent at least two letters to Mexican and U.S. leaders expressing worry that actions by the Mexican government hurt U.S. investors and violate regional free trade agreements.