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The Mexican Energy Reform: Interested in Doing
Business Under the New Rules?
Fernando Cano-Lasa
Houston, Texas, September 3, 2014
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Table of Contents
1. Legal considerations related to the Reform.
2. Myths and Reality: What the Government has done well.
3. The Oil and Gas Industry Scenario: Prior and Post Reform.
4. Business Opportunities by Sector of the Industry.
5. Conclusions.
6. Copyrights.
The Mexican Energy Reform: Interested in Doing
Business Under the New Rules?
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Spent 12 years following development of the O&G Industry.
The 2008 effort.
2013 and majority consent.
Legally speaking, one of the best pieces of legislation I have witnessed.
What has happened so far:
CONSTITUTIONAL AMENDMENT: December 2013.
SECONDARY LEGISLATION: August 2014.
ROUND “0” RESOLUTION: August 2014.
ROUND “1” GENERAL INFO: August 2014.
CREATION OF CENACE AND CENEGAS: August 2014.
1. Legal Considerations Related to the Reform
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MYTH
There is no way the Constitution will be
amended
Secondary legislation will be significantly
delayed
Secondary legislation will not follow
international standards
Resolution of Round “0” will be significantly
delayed
All feasible resources will be granted to
Pemex
Rules on Midstream and Downstream will
not be clear
Corruption will not be prevented
SO ON AND SO FORTH
2. Myths and Reality: What the Government has
done well
REALITY
Constitution was amended on December,
2013
Legislation was enacted in record time and
effective August, 2014
Legislation clearly follows best practices
internationally
Resolution was issued one month before
required by Law
Round “1” is a very well accomplished mix
of available resources
Legislation is very precise in every aspect
of private participation for these sectors
Serious Compliance measures
POSITIVE MESSAGES
Right Message at the Right Time
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3. The Oil & Gas Industry Scenario: Prior to the
Reform
UPSTREAM
- No private investment
- Only services
- No production sharing
- Insufficient Investment for
country potential
MIDSTREAM
DOWNSTREAM
- Limited private investment.
- Only transportation of Gas
- Insufficient infrastructure
- Insufficient investment
- Limited private investment
- Secondary petrochemicals
- Gas stations (Pemex brand)
- Insufficient infrastructure
PEMEX
Regulators- Limited faculties and structure
- Subject to executive branch
- Limited by Pemex
Figure 1
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3. The Oil & Gas Industry Scenario: Post Reform
UPSTREAM
MIDSTREAM
DOWNSTREAM
Mexican
StateRegulators
- Private investment
permitted
- Via permits
- Full competition (in stages)
- Based on market needs
- No private investment
- Round “0” is the basis
- Only to Governmental Companies
- Only services contracts permitted
- May be transformed into E&P
- Strong faculties
- Autonomy to make decisions
- Act in benefit of Industry
- Private investment permitted
- Via Public Tender
- Agreements:
Production Sharing
Profit Sharing
Licenses
Others
Assignments E&P Agreements
CN
H
CR
E
Ministry of Energy
Others
Figure 2
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Round “0”
Joint venture with Pemex.
Pemex cannot freely associate.
Public tender.
Mexican company needs to be incorporated.
Round “1” and Subsequent.
Joint venture with Pemex.
Joint venture with others.
Individual participation.
Public tender.
Mexican company needs to be incorporated.
4. Business Opportunities by Sector of the Industry
Operator Interested in Reserves
Figure 3
Figure 4
UPSTREAM
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Round “0”
Joint venture with Pemex.
Pemex cannot freely associate.
Public tender.
Mexican company needs to be incorporated.
Round “1” and Subsequent.
Joint venture with Pemex.
Joint venture with others.
Individual participation.
Public tender.
Mexican company needs to be incorporated.
4. Business Opportunities by Sector of the Industry
Operator Interested in Revenue
Service Contracts
Figure 3
Figure 5
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General principle:
Their current rights are respected.
Companies have shown interest in industry.
They may participate as any other company.
Special rights:
Associated gas.
Right to request direct award of agreement.
Must do so in 90 days.
4. Business Opportunities by Sector of the Industry
Mining Companies
Figure 6
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4. Business Opportunities by Sector of the Industry
Authorities in Upstream
Economic expert.
Definition of economic conditions
for contracts.
Overall supervision.
Definition of rounds and fields.
Technical advisor.
Bids fields.
Executes agreements.
Supervision of agreements.
CHECKS &
BALANCES
Royalties from agreements.
Autonomous administration.
Defined destiny of resources.
Environmental protection.
Industrial protection.
Specialized for the sector.
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No longer considered “Strategic”.
This allows for private participation.
Regulated free market conditions.
Procedure
Preparation of projects.
Permits issued by the regulator.
Public Tender for “Major Projects”.
Authorities:
4. Business Opportunities by Sector of the Industry
MIDSTREAM
Figure 7
Figure 8
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No longer considered “Strategic”.
This allows for private participation.
Regulated free market conditions.
Procedure
Preparation of projects.
Permits issued by the regulator.
Public Tender for “Major Projects”.
Authorities:
4. Business Opportunities by Sector of the Industry
DOWNSTREAM
Figure 9
Figure 10
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4. Business Opportunities by Sector of the Industry
PROCUREMENT RELATED
COMPANIES
UPSTREAM MIDSTREAM DOWNSTREAM
Key factors Issues to consider
Needs will remain and will be similar
to others around the world
Pemex and its Procurement
regulations
Opportunities for the 3 sectors of
the Industry (more and diversified
players)
Procurement rules for upstream
issued by the Ministry of Finance
(SHCP).
Local Content (key players) Compliance in all matters
(permanent establishment, transfer
pricing and others).
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Identify strengths.
Understand the market and identify business opportunity in Mexico.
Identify risks and mitigation measures associated to such opportunity:
Commercial
Technical
Economic.
Legal.
Prepare Strategy to implement business.
Due Diligence on prospective partners.
Execute.
5. Conclusions
CHECK-LIST
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6. Copyrights
Copyrights
• Figure 1. © Squire Patton Boggs (US), LLP.
• Figure 2. © Squire Patton Boggs (US), LLP.
• Figure 3. © Lars Christopher Nøttaasen http://commons.wikimedia.org/wiki/File:Seadrill_west_epsilon.jpg
• Figure 4. © Ji-Elle http://commons.wikimedia.org/wiki/File:Pechelbronn-Mus%C3%A9e_du_P%C3%A9trole_(5).jpg
• Figure 5. © Selbstfotografiert http://commons.wikimedia.org/wiki/File:20_Dollars_art3.jpg
• Figure 6. © Stephen Codrington http://en.wikipedia.org/wiki/File:Strip_coal_mining.jpg
• Figure 7. © Rosemary Oakeshot http://commons.wikimedia.org/wiki/File:Gas_pipeline_internment-geograph.org.uk-899546.jpg
• Figure 8. © Roland Unger http://commons.wikimedia.org/wiki/File:IsmailiaSuezCanal.jpg
• Figure 9. © http://www.flickr.com/photos/keepitsurreal/ http://commons.wikimedia.org/wiki/File:Oil_refinery_canada.jpg
• Figure 10. © Re Al http://commons.wikimedia.org/wiki/File:Solohiv_natural_gas_plant_-_fragment.jpg