SHALE Magazine - Rogelio Cuevas on Mexico's Energy Industry

Mexico’s Energy Industry Evolves

Rogelio Cuevas, Co-Managing Partner, Cuevas & Cuevas LLP

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Mexico is going through a major overhaul with an energy reform that will change the territory completely. The Mexican energy reform approved last year and the subsequent secondary legislation passed to structure the energy sector established that the National Hydrocarbons Commission (CNH, the acronym for its name in Spanish) would be responsible for carrying out and managing future oil rounds in Mexico.

The CNH is an organization with technical autonomy that regulates and supervises the exploration and production of hydrocarbons in Mexico. This organization was formed on November 28, 2008. Its mission is to oversee, regulate and evaluate all hydrocarbon explorations and production in Mexico. The CNH has the ability on the behalf of the Mexican state to enter into and manage hydrocarbon exploration and production contracts. It will safeguard at all times the principles of maximum transparency and international best practices, in order to assure the optimal development of the national energy industry. Its vision is to be transparent, reliable and act as a professional regulator that provides the technical basis for overseeing the country’s hydrocarbon contracts and allocations ensuring optimal use of the resource and maximum profit for the Mexican state.

The CNH has three strategic objectives it accomplishes. First, it regulates and supervises surface reconnaissance and exploration activities, as well as the extraction of hydrocarbons, including its collection from the points of production, its transportation and storage. Secondly, it tenders and executes the contracts for the exploration and extraction of hydrocarbons. Thirdly, it technically manages all hydrocarbons exploration and extraction contracts and allocations.

The mission of the CNH is to oversee, regulate and evaluate all hydrocarbon explorations and production in Mexico

The CNH has announced a series of 12 rounds starting with Round Zero, which has already concluded. The third stage of Round One is now beginning. Within the time frame established in the Sixth Transitory Article of the Constitutional Energy Reform, Petróleos Mexicanos (PEMEX) put forward its request to the Energy Ministry for the exploration areas and production fields that according to the company, it is able to operate via entitlements.

During this process, known as Round Zero, PEMEX was awarded the oil resources it needs to assure adequate and sustainable investments in exploration, development and extraction. These are the resources PEMEX will have at its disposal at the start of this new era in Mexico’s energy sector. PEMEX will also have the opportunity to participate in other areas through future bidding processes. Round Zero also establishes the oil resources the Mexican state has at its disposal in order to multiply investments in the exploration and extraction of hydrocarbons in open bidding rounds, to increase Mexico’s energy security.

Round One has announced 26 companies that pre-qualified for the 14 blocks of the first stage back in May. The companies that are selected will be able to submit their economic proposals. Their goal is to explore and produce oil in shallow waters through production-sharing contracts. The CNH has been paying attention to the comments that oil companies have made about the bidding process since the clarification stages began in January. The clarification stages have given pre-qualified companies the opportunity to inform themselves, study and evaluate all data in order to present their questions and opinions regarding regulations. Pre-qualified companies had until June 8 to present any closing inquiries.

After concluding these steps, the CNH will evaluate the opinion received and answer the questions to clear up any misconception about Round One’s procedures. After the CNH analyzed the questions it published its final terms and contracts on June 9. It is important we are aware that several changes to the conditions of the original contract have been made since its initial release.

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Visit www.cuevasandcuevas.com to learn more about the international business advisors at Cuevas & Cuevas LLP.

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