Mexican reform details seen left to Congress

The Aug. 12 energy-reform proposal by Mexican President Enrique Pena Nieto leaves many questions dependent on subsequent legislation, according to a review by the law firm Mayer Brown (OGJ Online, Aug. 13, 2013).

The Mexican Congress is expected to consider the historic proposal in September, the firm said.

Pena Nieto, who leads the Institutional Revolutionary Party (PRI), made his proposal to the Senate after the opposition National Action Party (PAN) advanced a reform program at the end of July (OGJ Online, Aug. 5, 2013).

Both proposals allow private investment in oil and gas exploration and development, for decades the sole province of state-owned Petroleos Mexicanos (Pemex).

Mayer Brown notes the president’s proposal gives Congress broad authority to specify who may conduct exploration and production and to specify terms and conditions. It doesn’t require that Pemex maintain its monopoly over those activities. And it leaves open the question whether E&P rights would be granted through Pemex or directly from the state.

The proposal would allow private companies “to own oil and gas production and to fully share in the economic risks and benefits of the business,” Mayer Brown says.

If the Constitution is amended, the firm adds, “the Mexican Congress will be charged with passing subsequent legislation detailing the types of contracts that can be offered.”

The proposal would allow direct private investment in midstream and downstream businesses, including refining, petrochemicals, distribution, and retail marketing. It also calls for less domination of power generation by a national electricity utility and moves toward a competitive wholesale power market.

Under the proposal, which calls for specific constitutional changes, hydrocarbons in the subsurface would continue to belong to the government, as in most countries. And the government would continue to own Pemex.

The proposal doesn’t address a question important to international oil companies (IOCs): whether foreign investors would be able to book reserves, a practice now banned in Mexico.

Mayer Brown notes that a statement of intent in the Pena Nieto proposal mentions the importance of developing deepwater, ultradeepwater, and shale resources.

“Accordingly, the reforms will likely open the door for the participation of IOCs in both conventional and unconventional resource development in the country,” the firm says.

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