New energy framework still needs improving – Private Sector
The Mexican Association of Hydrocarbon Companies (AMEXHI), celebrated its 10th anniversary last week during its annual convention in Mexico City. While the event was closed to the media, the association broadcast all the panels, where executives discussed the recently approved energy reform and the future of Mexico’s unconventional resources, among other topics. Oil executives in Mexico tend to keep a low profile, rarely speaking at public events, and when they do, they are particularly cautious with their words, lest they upset their counterparts at Pemex or the federal government. Thus, it was all the more surprising to hear them raise concerns about the new industry legal framework: even if it was a mostly technical analysis pointing out the new laws’ shortcomings, it should be seen as a head’s up regarding the framework’s limited appeal, for companies interested in participating in Mexico’s upstream market.
Speaking for the government, Sener’s Undersecretary for Hydrocarbons, Juan Vidal, advocated in favor of the new energy policy. Yes, the administration does want a preponderant role for Pemex, including upstream, midstream and downstream markets, but the doors were reopened to the private sector, which can “complement” the state-owned company’s activities. “We now recognize that dialogue between the state and the private sector is necessary to ensure that, through coordinated and joint efforts, we move toward a goal of national economic growth, with a long-term planning path, clear rules, and an environment of certainty for the benefit of all,” said Vidal during the event’s inauguration.
Companies in the upstream market point out that the laws so far paint a less inviting message. The terms of the new mixed contracts with Pemex drew particular attention. Under the law, Pemex’s partners could retain just 54% of total income to cover their costs, taxes and turn a profit (or 66% for gas projects, where the royalty rate is lower). This limits the type of projects that could be financially attractive, said Vinicio Suro, vice president at Hokchi Energy. “The window is restricted to a small portfolio of projects in Mexico” that would be attractive, said Suro, most likely those already in production that require less upfront investment.
Furthermore, the new hydrocarbon law clearly specifies that these new mixed contracts would only be used to complement Pemex’s needs, as the Energy Ministry (Sener) and Pemex are required to prioritize developing fields through the state-owned company alone, said Sergio Pimentel, head of legal at E&P firm Jaguar. The new reform wants Pemex and the government to be considered first in line to produce Mexico’s crude oil, Pimentel explained to the audience. This is a change in policy relative to the 2013-2014 energy reform, which put tenders as the priority so Mexico would have an open and competitive upstream market.
The government should revise the terms, as the fine print in the contracts could still make more room for private participation, said Gustavo Baquero, executive vice president at Harbour Energy. The company has submitted 10–15 recommendations to Sener, Baquero added, including allowing private operatorship, granting export and commercialization permits to partners, enabling arbitration to resolve conflicts and allowing greater cost recovery than the 30% cap currently in the law.
The government is drafting the regulation to implement the new law, which must also define how Pemex’s board will help select partners, said Fernanda Ballesteros, country manager at non-governmental organization the Natural Resource Governance Institute. The framework could also spark disputes between Sener and Pemex’s board, as their roles remain unclear in areas such as project approval, said former Pemex board member Fluvio Ruiz.
While AMEXHI affiliates want clearer rules and space to improve contract conditions, the government is focused on empowering its position in the energy sector. “The adoption of tariffs and other protectionist measures worldwide reflects a move toward national energy sovereignty, self-sufficiency and industrial protection,” Sener’s Vidal said. “For Mexico, this is not a threat but an opportunity to consolidate our strategy and strengthen national capabilities”.
Shale’s potential – if only…
Mexico must develop its own strategy to tap shale resources, drawing not only from US and Argentine models but also from early domestic efforts in the 2010s, according to panelists at AMEXHI’s conference. The government must take a pragmatic approach and begin tapping the vast crude resources in northeast onshore basins like Tampico-Misantla and Burgos, said German Gomez, corporate director for Mexico and Central America at Baker Hughes. While large-scale production is not yet feasible because of a lack of infrastructure, oil service firms could start pilot projects immediately, he added.
“If we don’t go for unconventional resources now, we’ll be ultra dependent on US gas, and domestic crude output will keep falling,” said former Pemex exploration chief Antonio Escalera. Mr. Escalera noted that Pemex drilled hundreds of wells in these basins in the early 2000s, but the effort was halted around 2013–2014 after the energy reform and only briefly resumed in the final year of former president Enrique Pena Nieto’s administration. “We should learn from Chicontepec, where we tried to run before we could crawl,” Escalera said, referring to Pemex’s costly and largely unsuccessful attempt to develop part of the Tampico-Misantla basin without adequate reservoir data. Despite limited results, those early efforts revealed significant oil and gas potential that Mexico could now pursue to reduce gas import dependence, Escalera added.
Mexico should also consider fiscal incentives for companies developing unconventional resources, similar to those offered in Argentina’s Vaca Muerta basin, said Luis Zagaglia, exploration EVP at Diavaz. He also called for clarity on how Pemex could partner with third parties under the new mixed-contract model. Such partnerships could provide access to key areas, facilitate community negotiations and enable the use of fracking technology.
In other energy news…
- Mexico’s state-centric energy policy has led to the exit of US investments from the sector and created barriers for others to compete, according to the US Trade Representative (USTR). Since December 2018, Mexico has pursued an energy policy centered on reinstating the primacy of its state-owned electric utility CFE and state-owned Pemex. “Mexico has undertaken various measures to achieve this aim,” said the USTR in its annual Foreign Trade Barriers report published this week. The USTR also criticized the lack of effective market participation for private firms in Mexico because of frequent delays, unexplained rejections and inaction on new permit applications or modifications. “Unexplained or unjustified suspensions or revocations of existing permits, as well as other impediments, also undermine private companies’ ability to operate renewable energy facilities”, it said.
- Pemex faces more serious challenges from a lack of upstream investment and shrinking crude exports than from US president Donald Trump’s threats to impose tariffs on Mexican imports, rating agency Moody’s said. “The lack of investment in crude production, rather than tariffs and counter-tariffs, remains one of the main intrinsic risks for Pemex”, analysts said. “Mexico sent nearly 40% of its crude to the US in 2023, but exports to the US are expected to decline,” the agency noted. This trend will likely continue as the 340,000 bpd Olmeca refinery ramps up operations and requires more domestic crude, leaving less available for export by 2027–2028.
- CFE plans to install 22,674 MW during President Sheinbaum’s term, as part of the “Plan Mexico” strategy presented early this year, said Energy Secretary Luz Elena González during a press conference last week. The government will invite private companies to install 6,400 MW, mainly in renewable sources. CFE plans to tender seven projects this year, including two expansions of its solar park in Sonora, worth US$3.1bn.
- The Senate approved two of the three independent board members proposed by President Claudia Sheinbaum to join state-owned Pemex’s new board. The upper house’s energy commission voted on April 10 to endorse María del Rosario Vargas and Juan José Paullada, both of whom were later confirmed by more than two-thirds of the full chamber. The commission did not advance the third nominee, Cristobal Arias, a former lawmaker from Morena and long-time ally of Cuauhtémoc Cárdenas and his son Lázaro Cárdenas, who serves as Sheinbaum’s chief of staff. Paullada, who served three terms on the Pemex board under former president Lopez Obrador, was appointed for four years. Vargas, an energy expert with a PhD from UNAM, will serve a three-year term.
- Pemex has ordered the re-mobilization of three offshore drilling rigs from Norwegian service firm Borr Drilling, including one assigned to the Bacab-Lum fields. Borr told investors the rigs Galar, Grid and Gersemi will be mobilized in mid-April with operations “expected to resume shortly thereafter, within the second quarter.” The Galar will be deployed to the Bacab-Lum field, according to Borr. Borr partnered with Opex in 2022 to supply five rigs for Pemex’s drilling program under a USD 715m contract running through December 2025. In August, Mexican oil service firm CME and its affiliates Opex Perforadora and Perforadora Profesional Akal I announced a USD 1.65 bn contract with Pemex to develop Bacab and Lum, offshore Campeche. The deal covers drilling nine wells from 2024-2039, aiming to boost output from 4,000 bpd to 40,000 bpd of crude equivalent by 2028.
- Bloomberg reported that Mexico has halted fuel imports by truck from Texas as part of a sweeping crackdown on tax evasion and illegal fuel trading—known locally as huachicol fiscal. For over two weeks, gasoline and diesel shipments at key land crossings have been paralyzed due to stricter inspections by Mexican authorities. The move is part of President Claudia Sheinbaum’s broader effort to combat fuel tax fraud, which is costing the government and Pemex billions annually. According to PETROIntelligence, huachicol fiscal caused losses of 177 billion pesos in 2024—an incredible 44% of the IEPS tax collected on gasoline and diesel that year. As part of this crackdown, in recent weeks, Mexican authorities have seized millions of gallons of illegal fuel in Baja California and Tampico. The tax authority even temporally suspended Valero Energy’s import license due to fraudulent documents used by fuel smugglers not related to Valero. Valero accounts for about 10% of fuel imports into Mexico; as with other global players, its fuel trading business in Mexico has been significantly negatively impacted by the surge in illegal fuel imports in recent years. Effective measures to curb illegal smuggling that are not just backdoor attempts to protect Pemex’s import business will thus be welcomed by the whole industry, and of course by the Finance Ministry that badly needs the revenues.
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