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17 December 2018
Mexico's newly elected president, Andrés Manuel López Obrador, who took office on 1 December 2018, recently confirmed that he will shift the course of the 2013 energy reform with regard to upstream activities (for further details please see "Will Mexico suspend bidding rounds and farm-outs?").
López Obrador has confirmed that bidding rounds organised by the National Hydrocarbons Commission (CNH) will be suspended for at least three years until the contracts awarded during the previous administration result in effective investment and, most importantly, new oil and gas production. The president has further affirmed that production will be increased through additional investment in Pemex, which will ultimately result in the national oil company's rescue.
The president's declarations will have different implications for different industry players.
First, although the new administration has ensured that contracts which have already been awarded will not be cancelled, international oil companies may be discouraged from making future investments in Mexican players if such investments are threatened. This may be exacerbated if the new government does not guarantee the CNH's independence (for further details please see "Energy regulatory bodies to lose independence under new government").
Further, in the absence of bidding rounds, international oil companies may secure exploration and production rights through farm-in transactions or company acquisitions, most of which require government authorisation (depending on the particular case). However, neither Pemex nor the president have confirmed whether Pemex will continue to partner with international oil companies in order to explore and develop its allocated blocks.
Finally, the announcement of new investments to be made by Pemex (specifically, by its subsidiary Pemex Exploracion y Produccion), along with other statements made by the new administration regarding the drilling of new oil producing wells on the coast of Campeche (intended to reverse the decline of oil production), presents opportunity for oil service providers. However, such providers should be prepared to undergo increased compliance surveillance and anti-corruption regulation in view of the positions of the new administration and Pemex with regard to corruption.
Notwithstanding the above, López Obrador's administration has not fully disclosed details of how Pemex's finances will be strengthened while simultaneously making major investments to produce crude oil. Further, the president's messages have been focused on oil production during a period when natural gas supply for the industrial sector is scarce and mostly dependent on US imports.
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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