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Stern Advice for Players Shaping a New Market

Wed, 01/21/2015 - 10:08

Q: What are the challenges you see in implementing the Energy Reform in a way that would fulfill the expectations created by the government?

A: The Mexican government faces a significant challenge regarding the players, both public and private, who will implement the Energy Reform. The investment environment in general will also represent a challenge, so having the right people in the government to make the decisions of whether to implement projects or not will be of paramount importance. Private operators will also need the right people. Operators who have worked in Mexico have experience in a market that no longer exists. The government is under pressure to show the results of the Energy Reform as soon as possible. However, things can go wrong if rushed. If things continue to move in the right direction, even if deadlines are not met, the industry will certainly benefit. Mexico needs to opt for this approach in order to make sure it has top level operators. The country does not need start-ups messing up the industry and creating a bad reputation for the Energy Reform.

Q: As a productive enterprise of the state, will PEMEX have to change the way it allocates risk?

A: It may have to, but for the sake of the Mexican oil industry, PEMEX needs to reduce its importance in the market. PEMEX will find it difficult to compete at every level as it did in the past. It will need to specialize in certain areas and give way to private companies in others. It will therefore be fair to say that the Energy Reform was successful if, ten years from now, we see a sophisticated, technology-driven PEMEX standing out in an industry where global players and local operators interact organically.

Q: What are your expectations for potential acquisitions in the Mexican oil and gas sector?

A: There might be some acquisitions but I do not expect them to occur in the near future. Our expectation is that international companies will create new companies, which will become targets for acquisitions in the next five years. There will probably be a first wave of M&A where we will see companies that did not succeed deciding to sell to larger operators. In the second wave, successful companies with interesting projects will decide it is a good time to sell their projects and firms.

Q: How can the risk factors in future contracts influence the attractiveness of Mexico for your clients?

A: There is a big challenge in terms of having the right people preparing all these documents and making sure that they comply with international standards. The Reform is good, but it has flaws, such as the ability of the government to revoke licenses under certain conditions. Circumstances of this nature will undermine the attractiveness to invest in Mexico. Regarding PEMEX, for many years it has been a combination of a company and an authority in the industry. Changing this and moving PEMEX towards market standards will require time and dedication, but it will provide certainty to investors. Another thing is that CNH will have to prove that it has a strong legal division to be trusted. To do so, CNH has to recruit young people and retain them, as professionals in this sector are usually highly motivated by the experience they will gain from being involved in processes such as the Energy Reform. However, organizations like CNH must also be able to outsource legal work. For a regulator like CNH, it would be impossible to manage such processes without receiving top advice from firms that can draw on knowledge and expertise within their own structures.

Q: How does your firm guarantee the delivery of high quality legal advice to its clients?

A: The Mexican oil and gas industry has been closed from its beginning, so its opening will obviously bring about major legal changes. To cope with this, we maintain a close interaction with our international practices in Washington, New York, Miami, and Sao Paulo. Many of our international customers are approaching us for advice on what is happening in Mexico. White & Case will only serve a client if the firm has the capacity to properly do so. We have prepared ourselves over the years in terms of staffing our energy practice and we have been reasonably successful in strengthening it by attracting new blood. We have also leveraged our practice with our US colleagues who have worked in this sector for years. Today, we have the capacity to serve our clients in the oil and gas industry.