Mexico's Upstream Business Model

George Baker

Abstract

A fundamental question concerning the upstream business model that is incorporated into the 2014 Energy Reform in Mexico concerns the intended evolution of the energy policy framework in which it appears. The situation of “before,” as alluded to in President Peña’s remarks on March 18, 2015, was one in which Pemex served as the iconic state monopoly, and through which, by virtue of Article 6 of the now-abrogated Petroleum Law of 1958, all contracting was required to take place under restrictive terms that excluded the business model of an oil company. The government is now offering a mineral contract that approximates the business model of a mineral lease as understood diverse jurisdictions, including the U.S. and Mexico. There are important differences, however, ones that represent for the State and the prospective operator and layers of uncertainty and regulatory discretionality. As for the broader benefits for the country that the new involvement of oil companies might bring, there are a priori reasons for concern: the government seeks to sharply restrict the reporting of statistical data on the operations and discoveries of the oil companies, including Pemex. All such data are to be funneled through and managed by a single government agency (CNH), redolent of the way the way that Pemex has traditionally reported data. A decade will be needed to recast the national oil narrative in a way that allows for an evolution of the upstream regime in 2026 in which a mineral lease will be offered to oil companies.

Keywords

Energy Reform of 2014; Round 1; upstream regime; National Hydrocarbon Commission (CNH); Pemex; biddable variables; Petroleum Law of 1958; Lázaro Cárdenas del Río; Mexico’s petroleum narrative; Energy Reform of 2026

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