Mexico Energy Reform - Implementing Legislation
May, 2014 - Ariel Ramos, William (Hunt) Buckley, Carlos Canales, Eduardo Corzo Ramos
Mexico’s Senate received on April 30, the first round of the long-awaited secondary legislation to implement the constitutional energy reform effective last December. This first legislative package includes 9 new laws and modifies 12 existing laws. We anticipate that the package will be discussed and voted on during the extraordinary legislative sessions by the end of June. Below we list some of the highlights.
OIL AND GAS
Private Participation in Oil and Gas
• Participation and competition between state-owned “productive” companies (PEMEX, for the time being) and private companies in upstream and midstream activities.
• The opening to the retail fuels sector will be gradual.
Exploration & Production
• In situ hydrocarbons will continue to be sole property of the Mexican State.
• E&P contracts will be awarded through public bids by the National Hydrocarbons Commission (CNH).
• CNH will execute E&P Contracts with PEMEX, other State Productive Companies, or private-sector companies (domestic companies which may be 100 percent foreign owned).
• PEMEX may enter into joint venture agreements or joint operating agreements with the private sector.
• The Ministry of Energy may determine the participation of PEMEX or other State Productive Companies in certain E&P contracts up to 30 percent when it considers that such entities will receive an aggregate value in technology and experience from the private sector or when such projects are supported by specialized financing vehicles of the Mexican government.
• Depending on the type of E&P contracts, booking of reserves becomes possible.
E&P Contract Payment and Compensation
• In connection with “production sharing” contracts and “profit sharing” contracts, generally private contractors will pay an exploration stage fee, royalties, and a payment of a percentage over the operating profit.
• In “license contracts,” generally private contractors will pay an exploration stage fee, royalties, a signing bonus and a percentage over the operating profit or the contractual value of the hydrocarbons.
• The specifics of each payment and compensation scheme will vary on a case-by-case basis for each contract, including production payments, net profit arrangements, cost recovery and sliding scales.
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