CERAWeek: Constant Industry Feedback Aiding Mexico's Reformed Energy Sector

With three bidding rounds completed and a deepwater round announced for early December, the transformation of Mexico’s energy sector is underway.

Presented last year, development of the five-year exploration and production plan in Mexico was an interesting exercise. It wasn’t created by a bunch of bureaucrats alone, but was supported by the Comision Nationale de Hidrocarbonos (CNH) and incorporated feedback from the oil and gas industry and Mexican states, Lourdes Melgar, deputy secretary of energy for hydrocarbons for Mexico’s Energy Ministry, told an audience at the IHS CERAWeek conference in Houston.

“The constant industry dialogue helps us adjust what we can and ensure when rules are clear and when they’re not,” said Melgar.

Mexico has gotten a lot of praise for listening to the oil and gas industry, but concerns still remain for the industry. Administrative recission is one such concern. Oil and gas companies are worried that the clause will allow Mexico to terminate a contract at any time, leaving the company no recourse.

Melgar said that three specific conditions were required to occur at the same time for an administrative recession to be invoked: loss of production, infrastructure damage and loss of life.

When asked why Mexico didn’t simply say it could cancel a contract due to gross negligence, Lourdes said that the concept of gross negligence doesn’t exist in Mexico’s legal system. But an administrative recission would not be carried out suddenly or without warning, Melgar said.

Prior to an administrative recission being made, an investigation that could span 30 days to two years would be conducted. A technical discussion of an incident would take place, allowing a company to present evidence. This discussion could involve a third party technical advisor. CNH’s 10 board members also would have to unanimously approve an administrative recission, Melgar said. Additionally, companies will have the option to appeal CNH’s decision in Mexico’s court system. The administrative recission would not override any bilaterial agreements existing between Mexico and other nations.

Ten blocks will be offered in the upcoming deepwater round. This includes acreage in the Saline Basin, where nine plays with prospective resources have been identified and documented, according to a CNH document. The acreage being offered is not as explored as the Perdido Foldbelt, but was chosen in response to industry interest in frontier acreage, said Miguel Messbacher, undersecretary of revenue, ministry of finance and public credit in Mexico. Petroleos Mexicanos (PEMEX) has already proved that the Perdido Foldbelt system extends from the U.S. side of the Gulf to the Mexico side. When planning the size of the deepwater blocks, the Energy Ministry responded to requests by oil and gas companies that made the block sizes larger.

Both oil companies and geophysical companies as a whole have done aggressive investment and research to understand the subsurface of Mexico’s deepwater. Oil and gas companies already have been studying existing PEMEX data, reprocessing data, or have been acquiring new seismic data, Messbacher said.

Messbacher said that the Energy Ministry would work with PEMEX to address the issue of payments to vendors. In terms of safety, Mexico will used a performance-based model, rather than a prescriptive model, for the enforcement of offshore regulations, and will require SEMS (safety and environment management systems).

Karen Boman has more than 10 years of experience covering the upstream oil and gas sector. Email Karen at kboman@rigzone.com

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