Mexican Congress Approves Energy Reform

On Dec. 11, 2013, the Mexican Congress approved amendments to Articles 25, 27 and 28 of the Mexican Federal Constitution. These aggressive reforms completely overhaul the Mexican energy sector to enable foreign investment. The constitutional amendments have already obtained necessary approval from the State Congresses and are expected to be published at the Official Gazette by the end of this week.

More specifically, the proposed energy reform will usher in the following commercial changes:

• Profit-sharing agreements will now be permitted.
• Production-sharing agreements will now be permitted.
• Licensing contracts will now be permitted. (These agreements enable private companies to obtain complete operational control. Title to hydrocarbons will be transferred to them at the wellhead upon payment of the government-established consideration).
• Companies will be able to report the contract's expected benefits for financial and accounting purposes, as long as such reports clearly state that the hydrocarbons will remain the property of the Mexican Government before the wellhead.
• The Energy Regulatory Commission will be in charge of issuing permits for hydrocarbons storage, transportation and pipeline distribution. This Commission will also promulgate rules for third-party interconnectivity with these pipeline systems and for the first-hand sales of such commodities.
• The first awards of oilfields (round zero) will be made to Pemex (the Mexican state-owned national oil company) and thereafter other oilfields will be subject to public bid managed by the Hydrocarbons National Commission.
• Even though the national electricity grid remains in control of Comisión Federal de Electricidad (the State-owned utility company), the latter may enter into contracts with private investors to handle the distribution and transmission of electricity, and private companies will be able to generate and commercialize electricity, thus opening the door to a wholesale power market.

Although the Congress and the States have approved these constitutional amendments, many of the details remain "to be determined" and the coming 120 days are critical. During this period, the Mexican Congress will enact the secondary laws that actually implement these reforms.

If you have any questions regarding the status of the referenced bills or wish to further discuss the potential business opportunities or risks involved or any other issues relating to the Mexican Energy Industry, please contact Daniel Aranda ([email protected]; +52.55.5.201.4518) and Roberto Arena ([email protected]; +52.55.5.284.8542) in Gardere’s Mexico City office or Doug Eyberg ([email protected]; 713.276.5704) and Charles Meacham ([email protected]; 713.276.5633) in Gardere’s Houston office.