Juan Carlos Machorro
Energy Partner at Santamarina + Steta
Santamarina + Steta
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Celebrating the Benefits of Legal Reform

Fri, 01/19/2018 - 14:43

Q: What role has the firm played in crafting the Mexican legislation regarding the energy industry?

A: After the Energy Reform we were invited, as a firm, to participate in helping the Mexican government draft the formats and bases for the contracts to be awarded in the licensing rounds. We were involved with the profit-sharing, production, license and service contracts. One requirement for participating law firms was a technical credential that showed the Ministry of Energy that the firm had the international exposure, experience and expertise necessary to put these kinds of contracts together. We are a fully Mexican law firm but we have relationships with many firms outside Mexico.

Q: How has the resulting legal framework benefited the Mexican state?

A: The government’s financial and tax economy was for many years highly dependent on the oil industry and on PEMEX. Unfortunately, this huge dependency had two negative impacts on the Mexican economy: one is that appropriate taxes have not been paid by companies or individuals. An area that still requires reform is taxes. The other negative impact of the monopoly is that it made our NOC a very inefficient operator. It was overstaffed, bloated and, since the government relied so much on the company’s revenues, it stripped all of PEMEX’s profits. This meant that, instead of reinvesting in new technologies, the company was forced to simply continue working in already-producing fields and became very inefficient. So, a second positive impact has been the recognition that we do need private investment to develop all the oil fields in Mexico. One of the requirements to participate in these rounds is that only Mexican companies can sign the contracts. We are now seeing international players such as ENI and Chevron creating Mexican subsidiaries. One of the benefits of this reform is that it will generate a supply chain of domestic companies and entrepreneurs and will catalyze this much-needed Mexican expertise in the oil and gas sector.