Mexico's newly elected president, Andrés Manuel López Obrador, who is set to take office on 1 December 2018, and his proposed secretary of energy, Rocio Nahle, have sent mixed messages regarding the implementation of the energy reform introduced in 2013. The 2013 energy reform significantly opened up the energy sector (ie, the upstream, midstream, downstream and power markets) to private participation, thus ending the state's decades-long monopoly. The newly elected administration, which won by an overwhelming majority, has pledged to revisit the reform and grant the state greater control of the energy sector.
Although the market has received mixed messages in this regard, the new administration has confirmed that the third bidding round called for by the National Hydrocarbons Commission (CNH) for granting exploration and production licences and share production agreements will be suspended indefinitely. The underlying reason for this is reportedly the fact that the 107 contracts which were awarded as a result of the 12 prior bidding rounds (including three farm-outs from national oil company Pemex) must be audited to ensure that the bidding was free from corruption. All contracts are expected to be cleared and continue in effect under their current terms.
The CNH has already called for two bidding rounds:
- Round 3.2, which consisted of 37 licence agreements for onshore fields; and
- Round 3.3, which consisted of nine licence agreements for unconventional or shale resources (this was the first bidding round to take place for this type of resource in Mexico).
In addition, the CNH has called for a bidding procedure for seven farm-outs (or, as the CNH calls them, associations) in onshore fields, which are currently in the production stage. After the presidential elections, the CNH extended the term for the award of this procedure to 14 February 2019, which is expected to be extended further.
With respect to farm-outs, members of the new administration have mentioned that the procedures will be suspended and the current regulations amended in order to allow Pemex to select its partners in accordance with specific rules and regulations issued by its board of directors, provided that the participants of such farm-outs have been prequalified by the CNH.
The bidding rounds that resulted in the award of 107 contracts were conducted under strict scrutiny; thus, they are all expected to be cleared of corruption. Further, the new administration will soon realise that there is an urgent need to replace production with reserves, which will require monetary resources and technology that the state simply does not have. Thus, it is likely that the deferral of bidding rounds will be only temporary and that certain aspects of the related contracts and procedures will be modified only slightly in order to adjust to the lessons learned.
For further information on this topic please contact Carlos Ramos Miranda at Hogan Lovells BSTL SC by telephone (+52 55 5091 0172) or email (email@example.com). The Hogan Lovells BSTL SC website can be accessed at www.hoganlovells.com.
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