Business Attraction Amid Shifting RegulationsTue, 01/21/2020 - 16:49
Q: How have the bidding rounds impacted Thompson & Knight’s practice?
A: Having more than 17 years of experience in the Mexican energy sector, the constitutional changes introduced by the Energy Reform opened the door for us to work with multiple consortiums and individual companies on the planning, bidding and execution phases of their activities. Currently, we represent companies like CNOOC, Fieldwood, GS Oil and Gas, Alfa, BHP and Shell in a diversity of oil and gas projects. In parallel, we are working on the Zama field unitization, the first of its kind in Mexico's history.
Q: How does your advice evolve as your clients' projects progress?
A: We usually assist our clients participating in E&P projects from the early planning stages all the way to the execution of contracts with CNH and up to their day-to-day operations. Once E&P contracts are signed, we help companies with the analysis of the different issues within the exploration phase of their contracts and with their minimum required activity and investment obligations. Our advice for companies in this phase focuses on properly documenting their initial activities, addressing issues such as liability, use of information and many others that may need to be addressed as they approach the project's development phase.
Q: How do you expect production to be managed as wells start flowing?
A: Initially, companies will be looking to enter into crude purchase and sale agreements with PEMEX to easily and quickly locate their production, as many of the blocks are close to PEMEX-owned midstream infrastructure. Eventually, it is likely that companies will be looking to export their product. Given that some of the blocks are being developed by consortia and others by individual companies, it is also likely that the production and marketing strategies will vary from block to block.
Q: What role does Thompson & Knight play in strengthening Mexico’s framework?
A: We are in constant communication with our clients to help them understand the legal framework applicable to Mexico’s oil and gas industry. Such level of knowledge permits us to be in a position where we can help shape and improve technical regulations. There is significant room for improvement in many existing regulations because most were issued during a time when the oil and gas projects were at a very early stage. As more projects materialize, more areas of opportunity in those regulations will emerge.
Q: Are your clients concerned about the new administration’s role in the construction of legal framework?
A: Although the current administration faces a learning curve and has a different set of priorities than the previous one, the fact that it has not attempted to amend the legal framework sends a message of certainty to investors. This has resulted in an optimistic outlook because the current legal framework includes many tools that are aligned with the administration’s objectives. For instance, the legal framework in place can help achieve the objective of increasing PEMEX’s production without creating financial stress. PEMEX could continue to develop its assets using the successful Trion farmout model by working with internationally recognized oil and gas operators where the financial and technical risk is shared.
Q: How could Mexico’s oil and gas regulatory framework be improved to boost the sector’s attractiveness internationally?
A: While the laws passed in 2013 and 2014 were designed under a specific context, they were never meant to be definitive. Those laws should be dynamic and keep evolving over time, especially taking into account the ongoing E&P projects. ASEA has positively taken this approach and has begun amending some of its 2016 regulations. Another example would be amending the Hydrocarbons Law.
Thompson & Knight is a full-service law firm that provides clients with legal advice and assists them in finding business opportunities. Given its expertise, the firm is well-positioned in Mexico’s energy sector.