Oil companies cautious on partnering with Pemex, await contract details

Mexico needs to provide more detailed information about the contracts on partnerships between federal oil company Pemex and private operators in order to attract more investment to the upstream sector, according to industry participants.

On March 18, President Claudia Sheinbaum signed into law a wide-ranging series of energy reforms. The legislation allows oil and gas companies to take stakes of up to 60% in joint projects with Pemex.

At an energy forum in Mexico's senate, industry representatives welcomed the reforms but said more clarity was needed.

The legislation does not include details about the terms and conditions of the so-called mixed projects between Pemex and the private sector. That information will be contained in regulations that are expected to be published later this year.

"We have to know how the institutional framework will be finalized with the regulations and what the rules of participation will ultimately be," Alberto de la Fuente, chairman of oil and gas industry association Amexhi, told the event.

Amexhi wants the regulations to result in contracts that encourage company boards to support continued investment in Mexico, de la Fuente said.

Small fields

Pemex CEO Víctor Rodríguez Padilla told local media that the company is preparing to sign 17 contracts for onshore and shallow-water fields with mainly Mexican companies, which will increase production by up to 66,000b/d.

"We're planning to rely on local partners. We're not waiting for Shell or BP to come," Rodriguez said. 

Rodríguez cited as examples local companies Grupo Carso, Diavaz, Grupo México and Perforadora Latina.

Alejandra León, associate director of research and analysis at S&P Global Commodity Insights, told the senate meeting that the mixed contracts looked more suitable for small fields. 

"From the little we know, it seems that it will be a model really for relatively small fields, for development and not so much for exploration or for fields that require new infrastructure," León said. "It could work within these limits."

But, she added, "I don't think the same contract model will work for all areas and for all challenges."

León said that decision-making and governance involve major uncertainties for the mixed projects, specifically for field development, purchasing goods and services and sales decisions related to the output of the fields.

The regulations will also have to specify which partners own the reserves for accounting purposes, Sergio Pimentel, legal director at local onshore producer Jaguar Exploración y Producción, told the event.

Pimentel criticized the law's limits on how much of the oil output private companies will be allowed to sell to recoup costs before sharing production with Pemex.