HIGHLIGHTS:

• Mexico's new administration, led by President-Elect Andrés Manuel López Obrador, has promised to not rescind the energy reform of 2013, but to closely review the exploration and production (E&P) contracts already awarded to prevent corruption.
• Investors are following carefully all transition actions taken by the current administration, and determining what would be the actions of the new administration in E&P.
• This client alert provides an update by the National Hydrocarbons Commission (CNH) to defer the calendar dates for the following tenders: Oil Round 3.2, Oil Round 3.3 and seven farmouts.

The oil and gas industry in Mexico opened sector-wide in 2013. As a consequence, many tenders and private projects are now in process.

On July 1, 2018, Mexico held its elections. The new administration, led by President-Elect Andrés Manuel López Obrador, has promised to not rescind the energy reform of 2013, but to closely review the exploration and production (E&P) contracts already awarded to prevent corruption.

As López Obrador begins a six-year team on Dec. 1, 2018, with no reelection, investors are following carefully all transition actions taken by the current administration, and determining what would be the actions of the new administration in E&P.

One of those actions is the resolution dated July 18, 2018, by the National Hydrocarbons Commission (CNH) to defer the calendar dates for the following tenders:

• Oil Round 3.2. A tender for awarding 37 onshore blocks under license model in Tamaulipas, Veracruz and Tabasco, with a total surface of 3,672 square miles (9,513 square kilometers) with 3P oil reserves of approximately 260 million barrel oil equivalent (mmbeq). It is expected to have dry gas, wet gas and light oil.
• Oil Round 3.3. A tender for awarding nine onshore, conventional and (mostly) nonconventional, blocks under license model in Tamaulipas (Burgos), with a total surface of 1,044 square miles (2,704 square kilometers) with 3P oil reserves of approximately 1,350 mmbeq (conventional and shale). It is expected to have dry gas and wet gas.
• Farmouts. A tender for awarding seven farmout agreements with Petróleos Mexicanos (Pemex) for onshore blocks in Veracruz, Tabasco and Chiapas, with a total surface of 1,768 square miles (4,508 square kilometers), with 3P oil reserves of approximately 405.1 mmbeq. As these farmouts are conversions of assigned blocks to Pemex, they have different levels of development.

CNH cited the following reasons for the change of dates:

• The Ministry of Energy (SENER) requested to change the dates following the diverse petitions from participants to complete the analysis and proposals. Oil Round 3.2 has already 20 interested parties and 13 registered, while Oil Round 3.3 has nine interested parties and one registered.
• SENER requested the following changes, among others:
  • participants need to deliver registration documents to the Agency for Industrial Safety and Environmental Protection (ASEA)
  • pre-existing damages can be claimed from contractors to previous contractors of the blocks
  • there is a simpler unification proceeding
  • corporate guarantee can be limited or unlimited
  • letter of credit will be annual and renewable
  • contractor shall present a final report at transition stage
• The CNH announced that, along with the transition team, they are ready to start the review process for the drafts of bidding rules and contracts for tenders of E&P contracts and farmouts. This review process could take until December.
• The CNH confirmed that transition teams have shown interest in increasing the national content in oil rounds, as they are on onshore blocks.
• The CNH wants to send a certain message to the participants in relation to transparency of the tenders.
• It is not clear if one of the objectives to match the calendar events is to put competitive pressure to participants.

The following are the new calendar dates for the three tenders:

Notwithstanding, it is important to note that there is not a final and detailed position of the new administration for each of the pending or upcoming projects. Thus, it is necessary to punctually keep track on the specifics of each one.

From a political perspective, it seems prudent regarding the change of dates from SENER and CNH. The good side is that interested parties and participants that already have invested money and resources have certainty from the new administration that the energy reform and tenders will continue, along with the possibility of private investors to enter the business.

However, the message of the new administration in first quarter of 2019 will be critical for the development of projects, public and private, in the oil and gas sector.

Finally, it might be advisable to analyze international treaties for free trade and investment protection to asses eligibility and incorporation venue of participants before a dispute might arise. (See Holland & Knight alert, "U.S. Investors Face Possible Loss of Investment Treaty Arbitration Under NAFTA," April 6, 2018.)