Energy Investment in Mexico: Coping with Change in the Investment Climate
Recorded On: 03/11/2022
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Organized by the US Chapter
George Baker, Managing Principal, Baker & Associates, Energy Consultants
Jose Maria Lujambio, Energy Practice Director, Cacheaux, Cavazos & Newton, L.L.P.
Diana Maria Pineda Esteban, Partner, Gonzalez Calvillo
Moderator: Maria Serna, Energy Consultant
Eight years ago, under the government of Enrique Pena Nieto, Mexico amended its constitution to allow foreign participation in the energy sector. These amendments were followed by a number of implementing laws passed in 2014 which clarified and outlined the limits to foreign investment in the upstream, midstream, and downstream sectors of the hydrocarbon and power industry.
Energy companies responded favorably to these energy reforms, and new investments were made in oil and gas exploration, power generation, and power transmission. Hundreds of new and more efficient power plants were constructed, lowering power costs and incentivizing new investments in manufacturing in Mexico. On the oil and gas front, new offshore discoveries were made by Talos Energy, ENI, and Repsol, with more exploration wells planned over the next three years.
In 2018 the Nieto government was replaced by the government of Andres Manuel Lopez Obrador of the Morena Party, who began to roll back the energy reforms promulgated by the previous administration. In April 2021, Congress approved changes to the energy law, allowing regulators the revoke permits for businesses deemed to present “imminent danger to the national security or the national economy”, while the lower house of Congress will vote by May of this year to consider restoring monopoly status to the CFE, the state-owned electric utility. In September 2021 Talos Energy and its two consortium partners received notice from SENER, the energy ministry, that Talos’ deep water Zama discovery in the Gulf of Mexico would be operated by Pemex. The Talos consortium invested an excess of $350MM on the Zama prospect, now deemed a commercial discovery.
These events prompt a number of questions for investors:
- Despite the optics of these impending changes, do investors anticipate significant impact on the commercial viability of their investments?
- Are investors seeing regulatory expropriation or only unusual delays?
- Are there non-legal remedies that operators could deploy to mitigate any potential negative impacts on operations, i.e., investments in social programs deemed to be important to regulators?
- Are there systemic cultural, institutional, and economic barriers that will limit legislators in Mexico from allowing foreign investment in the energy sector?
- Are there legal remedies available to investors, should these changes result in significant changes to investment returns? If so, what is the anticipated time frame (and cost) for resolution?
- Is recourse to the investor-protection mechanisms of USMCA worthwhile?
- What is the likelihood that the energy reforms will be reinstated? What is the prognosis for the Obrador government?
Our panel discussion will focus on these and other questions and will provide some insight as to the future of foreign investment in the energy sector of Mexico.
George Baker
Managing Principal, Baker & Associates, Energy Consultants
George Baker is the publisher in Houston of Mexico Energy Intelligence™, an industry newsletter in Houston since 1996 with a focus on upstream issues. Two essays on Pemex mature fields awards were published in the Mexican Law Review. In 2018, he was one of two guests from Houston to attend the inauguration of President López Obrador. At the 2019 OTC, he was the organizer and moderator of the Mexico panel on midstream issues. The Houston Chronicle and Dallas Morning News published his commentaries on Talos Energy and the Deer Park refinery sale to Pemex. In addition, he was the webinar leader on the topic of the Deer Park refinery sale sponsored by the Clúster Metropolitano de Energía in Mexico City. www.energia.com/about/george-baker. @Energia_com.
José María Lujambio
Energy Practice Director, Cacheaux, Cavazos & Newton, L.L.P.
José María Lujambio is a CCN partner and Energy Practice Director. Based in Austin, Texas, Lujambio joined the firm in 2014. His work for clients, which are mainly U.S. companies doing business in Mexico, has included regulatory and permitting advice, as well as negotiation of several kinds of energy services and procurement contracts for oil product and natural gas midstream and downstream projects; utility-scale and onsite power plant projects deploying wind, solar, and cogeneration technologies; qualified suppliers and traders enabled to participate in the wholesale electricity market, as well as numerous end users, particularly from the manufacturing industry. Previously, he worked for many years in the Mexican government. From 2009 to 2012, he served as General Legal Counsel at the Mexican Energy Regulatory Commission, where he led the regulatory implementation of Mexico’s 2008 energy reform, in the gas and renewable energy sectors. From 2005 to 2009, he worked as an attorney at the Legal Counsel’s Office of Mexico’s President, focusing on legislation and presidential rules, as well as federal constitutional matters. In the academic field, in 2014 Lujambio obtained a Master of Laws (LL.M.) degree, with energy concentration, from the University of Texas at Austin. In 2013, he coordinated the energy research and networking agenda of the Center of Research for Development (CIDAC, now Mexico Evalúa) under a program supported with US-AID funds. Previously, in 2003 Lujambio obtained a Master of Fundamental Rights degree from the University Carlos III of Madrid, Spain, a year after his law graduation from the Autonomous Technological Institute of Mexico (ITAM) in Mexico City. Lujambio has been a featured speaker, panelist and moderator at dozens of business and academic conferences. He has authored numerous published articles and essays on the topics of energy regulation and constitutional law. He serves as Secretary of the Board of the Mexican solar association (ASOLMEX), and Co-Chair of Primerus IPC Oil, Gas & Energy Practice Group. Lujamsio is also a member of the Gulf Coast Power Association and the Mexican Bar Association.
Diana Maria Pineda Esteban
Partner, Gonzalez Calvillo
Diana Maria Pineda Esteban has solid experience in energy matters, oil & gas projects, litigation, and dispute resolution.
Over the past years she has focused her legal practice in the development of energy in Mexico; participation in public international bidding rounds for exploration and extraction of hydrocarbons, among other kinds of tenders; advice regarding complex regulatory matters; development and participation in open season tender processes in midstream; negotiation of supply agreements, take-or-pay contracts, logistics services agreements; advice to several marketing companies of all energy commodities; and participate in the defense of the clients’ interests before administrative courts of law.
In 2020, she was elected member of the firm’s Talent Committee, and President of Fundación Gonzalez Calvillo.
Prior to joining the firm, Diana was General Counsel at Silver Fuels, Inc. and Silver Fuels, LLC, a trading firm based in Houston and Mexico City.
Also, her experience includes working as Legal Researcher at the Columbia Center on Sustainable Investment, focused on sustainable foreign investment, in New York, United States.
Before focusing her practice on energy, oil & gas, Diana spent over five years in litigation and dispute resolution arising out of trade, administrative, and constitutional matters.
María Serna
Energy Consultant
María Serna advises on the design of the regulatory compliance strategies where she oversees that each of our suggestions is both legally viable and enforceable as well as representing the minimum government relationships wear. She has experience in advocating before high-level public servants of the energy regulators in favour of our clients often integrating diverse stakeholders’ points of view.
María Serna has a broad experience in transactional and regulatory energy matters, from the private and public sector. She has advised international energy companies in their compliance and advocacy affairs before energy regulators. María served as director of the National Hydrocarbons Commission's bidding department for the award of exploration and extraction contracts during the first three calls of Round 1, as well as serving as a legal counsel for the Legal Affairs of ASEA, participating in the drafting of regulation. Her experience in the private sector includes being an associate in top-tier energy and finance law firms. Abroad, María advised an international energy company for their Africa and Latin America policy and public affairs. María Serna holds a Masters' degree in Energy, Environment and Natural Resources Law, from the University of Houston; and a Bachelor of Laws from Escuela Libre de Derecho.
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