Introduction

Following the expansion of shale oil extraction projects and the discovery of unconventional hydrocarbon deposits in Mexico, the National Agency for Industrial Safety and the Protection of the Environment in the Hydrocarbons Sector (ASEA) has commenced a public consultation process to enact the Guidelines for the Conservation, Preservation and Protection of National Waters in Industrial Activities of Exploration and Extraction of Hydrocarbons from Unconventional Deposits, before the Federal Regulatory Improvement Commission.

Highlights

The most relevant highlight of the guidelines is the involvement of the National Waters Commission (CONAGUA) and its coordination with the ASEA. Despite holding the relevant authority regarding water surveillance and administration, the CONAGUA has previously not been directly involved in the hydrocarbons industry.

Considering that the development of shale oil extraction projects largely requires the use of hydric resources, the CONAGUA will likely assume an important role in these types of project, as it is the single authority in charge of the administration and protection of national waters – including several underground and surface water bodies – as well as any area within a 10-metre radius of any such water body (ie, so-called 'federal land zones').

Water use permits

According to the guidelines, any project that requires the exploitation of national waters for its development must obtain a water concession title from the CONAGUA, which can be secured only by:

  • requesting the third-party assignment of water rights (for the partial or total transfer of volume) from an existing and valid concession title, where the rights are in and thus granted for the same aquifer from which the water is intended to be extracted for the shale oil extraction project;
  • requesting a new water concession title for the extraction of national marine waters for desalinisation purposes (the guidelines do not provide for the possibility of obtaining a new water concession title from a fresh water source. Rather, it is limited to marine waters, due to scarcity and other water management public policies applicable in Mexico); or
  • securing an authorisation for the use of non-compromised wastewaters from urban sources.

Companies intending to obtain any of the abovementioned titles or authorisations must meet the requirements set out in the National Waters Law and the associated regulations, in addition to those established in the guidelines. For example, the National Hydrocarbons Commission must approve the exploration plan and the ASEA must issue an environmental impact authorisation for the project.

Further, companies that need to occupy any surface within a federal land zone must obtain a federal land zone concession title from the CONAGUA, as well as a hydraulic infrastructure construction permit if any type of construction or installation will take place within the zone.

Finally, any resulting wastewaters from shale oil processes must be subject to a wastewater discharge permit issued by the CONAGUA, while resulting effluents from perforation activities will be subject to the Guidelines for Industrial Safety, Operational Safety and Environmental Protection for Developing Hydrocarbons Exploration and Extraction Projects on Inland Unconventional Sites (published in the Federal Official Gazette on March 16 2017).

Obligations derived from national water use

The guidelines include two major obligations intended to minimise the risk of water and natural resource pollution – namely, the establishment of:

  • a local monitoring grid, comprised of a series of hydrogeological exploration wells throughout the perimeter of any extraction areas(1) with a distance between wells of no more than one kilometre; and
  • a regional monitoring grid, which must cover the entire contractual area with a density of at least one exploratory well for each 25 kilometres.

Both grids will be limited by the project's contractual area.

Before commencing extraction activities, companies must file a report of the information obtained through the exploratory wells. From this report, the CONAGUA will generate a water base line, which will establish the conditions in terms of the level, flow rate and physical chemistry of the water before the start of operations.

In the event that the CONAGUA identifies that the water's characteristics have been modified during the development of a project (eg, contaminated by chemicals used in the project), the responsible parties must restore the water's conditions to those previously outlined in the water base line (independent of any type of liability that may arise therefrom, such as criminal, administrative, environmental or civil).

Once operations have started, the CONAGUA will be the only party authorised to gather information from the local and regional monitoring grids. It will use such information to prevent any unintended changes to the water's characteristics. If the CONAGUA identifies a change in the water's characteristics set out in the water base line, it may order the suspension of extraction activities to investigate further the cause of such alterations. As mentioned above, if the source of the alterations is found to be the development of the shale oil project, the responsible company must restore the water's conditions to those outlined in the water base line, including – when applicable – remediating the environmental damage under the Federal Environmental Liability Law.

Finally, when the fluid return percentage is below 15% of the total volume injected or used for the shale oil extraction process, the responsible party must:

  • suspend activities in order to assess the causes of this situation; and
  • apply the relevant corrective measures to re-establish the project's optimal operations conditions.

Comment

The guidelines may still be modified and updated, as they are subject to the applicable public consultation process. However, they provide a glimpse of the ASEA's and the CONAGUA's preliminary approach to shale oil projects with regard to water resources and environmental protection. To date, a more conservative approach has been taken, and companies should expect the ASEA and the CONAGUA to maintain this position throughout the discussions on these guidelines and the enactment of future provisions.

For further information on this topic please contact Brenda A Rogel Salgado, Jeanett Trad Nacif, Juan Francisco Torres Landa or Mario Jorge Yanez at Hogan Lovells BSTL, SC by telephone (+52 55 5091 0000) or email (brenda.rogel@hoganlovells.com, jeanett.trad@hoganlovells.com, juanf.torreslanda@hoganlovells.com or jorge.yanez@hoganlovells.com). The Hogan Lovells BSTL, SC website can be accessed at www.hoganlovells.com.

Endnotes

(1) 'Extraction areas' are defined under the guidelines as any portion of the contractual area where the unconventional deposit has the greatest potential for its thickness, natural fractures or other conditions.

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