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News Article

Regulatory Volatility Is Challenging But Surmountable

By Cinthya Alaniz Salazar | Wed, 09/21/2022 - 16:54

Over the past 12 months, regulators have introduced numerous regulatory amendments and norms with important implications for Mexico’s Oil and Gas industry. Nevertheless, despite a short window to achieve compliance, industry participants have faith in the potential of Mexico’s oil and gas industry and are preparing to overcome this latest hurdle. In the short term, industry experts recommend that market participants and stakeholders prepare for the proximate mass of changes with proactive market analysis in lockstep with legal advisors, as well as internal and external risk-management advisors and partners.

“Oil and gas companies are being increasingly subjected to a growing volume of regulations and compliance standards meant to augment market competition and curb the sector’s environmental impact. While necessary for the long-term health of the sector, most of these regulatory changes lack procedural clarity and authority,” said Benjamín Torres-Barron, Principal, Baker McKenzie

Mexico’s oil self-sufficiency has become one of the key aspects of the industry’s policy direction, a vision that demands strict compliance and oversight mechanisms. However, it is often a process that lacks transparency and authoritative direction. This is a market characteristic that echoes throughout Mexico’s industries, forcing many companies to defer to expert advice to navigate and meet regulatory compliance requirements. Nevertheless, it is fundamental that organizations do not “overestimate the changes brought by the new reforms, but really look at the advantages and disadvantages they offer,” said Diego Bustamante, Senior Legal and Compliance Officer, Petronas. Ultimately, during this adjustment process it is about adapting regulation to the market reality.

Delving deeper, recent regulatory changes with strong impact power include NOM 001-SEMARNAT-2021, which establishes the permissible limits of contaminants in wastewater discharges in receiving bodies owned by the nation. This will have resounding implications for Mexico’s oil and gas industry and beyond, affecting infrastructure, agriculture and mining as well. In addition, the alignment of hydrocarbon collection will fundamentally change contractual obligations and direct the construction of infrastructure. Overall, parameters will help reduce emissions, reduce infrastructure costs and encourage the implementation of better business practices. 

“Sharing infrastructure would allow us to have stricter security controls while adding value to all actors involved,” added Bustamante.

Despite the public sector's best intentions, there are still technical and operational disconnects that have limiting repercussions for the private sector. One example of this is the regulation for volumetric control “have not been adapted for upstream use,” said Luis Guillermo Colin Villavicencio, Corporate & Public Affairs Manager, Jaguar. This has forced companies to implement haste system patches that are ineffective and potentially dangerous. As such, there needs to be a greater effort on behalf of policymakers to keep up with technical and operational changes in the industry.

“We need regulation to stay in line with technological changes and operational realities. Instead of keeping up with the rulebook, we should perhaps be asking how the rulebook keeps up,” said Teresa Souza, Senior Associate, CMS, adding that the rules of the game should become clearer over time instead of murkier. In that sense, the recent resignation of CNH President Rogelio Hernández Cázares is some cause for concern for the industry, although the panelists expect that the commission’s quorum will soon be re-established. 

For private players, it is essential to stay up to date, too. After all, the experts agree that many of the regulatory changes hold benefits for the industry and the environment. “It is important to review the technical part of safety-oriented rules, as well as the new regulatory challenges brought by the current administration,” said Carlos Ochoa, Partner, Holland & Knight. “Since the energy reform, companies must implement stricter measures and quality standards,” he added, noting that this is a positive development that enables Mexico’s industry to mature.

While uncomfortable, the legal outcome of the Zama offshore oilfield discovery frames the administration’s posture toward private operators. Furthermore, it “served to dismantle illusions in the administration’s adherence to precedent, an important consideration for private participants moving forward,” said David Enríquez, Partner, Goodrich, Riquelme & Asociados.

Cinthya Alaniz Salazar Cinthya Alaniz Salazar Journalist & Industry Analyst