Nicolás Borda
Haynes and Boone

Manhattan Quality, Houston Service, Mexico City Price

Wed, 01/18/2017 - 07:11

The Energy Reform has brought about powerful changes to the legal and business environment in Mexico, transforming the Latin American country from a decades-old state energy monopoly into a multiclient scene with private and public players interacting and doing multimillion-dollar deals. It is an all-out effort to develop the long-stagnating oil and gas sector, among others, with an influx of new money and ideas.

Precisely because of the countless new players entering the market from various backgrounds and geographies, it is not only drilling, exploration and engineering that will be on the rise in years to come. There also will be an increasing need for expert legal counseling to bring all parties into agreement, says Nicolás Borda, a partner in charge of the Mexican Energy Practice at Houston-based law firm Haynes and Boone.

“As the market matures and more players enter all segments, we will see much more activity not only on the transactional and regulatory side but also on the dispute resolutions side,” Borda says. Legal disputes will also multiply as the billions of dollars committed to the sector through CNH’s licensing rounds begin trickling down into real-world operations. The types of litigation cases Borda expects to tackle will be as varied as Mexico’s new oil and gas market.

One legal wrangle he expects to deal with more regularly, especially as private companies sign contracts with regulators and PEMEX, is administrative litigation, the kind of litigation between a private party and the government. “This type of case could arise for several reasons. COFECE, Mexico’s antitrust commission, CNH, ASEA and CRE, among other regulators, can issue penalties and sanctions, which private parties will likely contest,” Borda says. Commercial litigation between private partners and also treaty arbitration are trends likely to increase, he adds.

As well as more bench-side litigation, Borda says that many oil and gas companies are turning to mediation services to settle disputes rather than instigating full-fledged arbitration. “Parties do not want to spend time and money on contentious arbitration proceedings,” Borda says. Companies are instead requesting legal opinions on which they later base their actions. This process takes only a few weeks and is less expensive and less contentious. Otherwise, arbitration awards could take at least six months and in some high- profile cases like Commisa and KBR, almost a decade and tens of millions of dollars in costs, legal and arbitration fees.

While the lawyer praises CNH for its well-designed contracts, he is realistic about the certainty that some disputes will arise as the market evolves. “One of the most important things for Mexico to protect is a level playing field for all parties,” Borda says. The monopolies the government holds over infrastructure like storage facilities and pipelines mean the regulators and antitrust commission need to collaborate to avoid undue discrimination and establish a level playing field for new market participants.

Efforts to make this infrastructure available to private parties are already underway. The results of PEMEX Logistica’s open season were announced on Feb. 15, 2017 and Haynes and Boone’s Mexico City office branch was heavily involved in this process, assisting the participants with import permits from SHCP and SENER, marketing permits, prequalification process, proposal submissions, obtaining taxpayer IDs and all the corporate work from incorporating the SPVs, registrations, POAs, corporate books and issuing stock certificates.

The various open seasons, licensing rounds, energy commodity risk management, new infrastructure and other industry regulatory changes mean more specialized legal experts are needed in Mexico. To answer this need, the firm is implementing policies to attract new talent and will continue training its associates, with the intention of specializing them in specific areas of the energy sector.

With 15 global offices and a presence in London, New York, Texas Denver, DC, California, Chicago and Shanghai, Haynes and Boone is ready to offer its international expertise to the Mexican oil and gas market as it evolves. Borda sums up the firm’s global perspective, saying they are proud of its “Manhattan quality, Houston service and Mexico City price.”