Mexican officials reiterate commitment to making regulatory opening work

By Kurt Abraham, Editor on 10/10/2016

MEXICO CITY -- At a conference of governmental agencies, operators, service firms and financial institutions on Thursday, Mexican officials said that they remain committed to an effective, expedited implementation of the energy sector’s regulatory reform. The conference, entitled “Mexico: Reform implementation in an era of oil-price volatility,” was hosted by World Oil’s sister publication, Petroleum Economist.

Principal among governmental speakers was Mexican Secretary of Energy Pedro Joaquin Coldwell, who pointed to the upcoming Round 1.4 auction of 10 deepwater tracts in the Gulf of Mexico as proof of the administration’s continued commitment to implementation of regulatory reform. Coldwell noted that the auction is on track for an awarding of blocks in early December, with 26 oil companies having entered the pre-qualification process to become bidders. And he reiterated his belief that this auction will bring in millions of dollars of badly needed licensing fees into Mexico’s treasury.

Another example cited by Coldwell, of Mexico remaining committed to implementation of regulatory reform, is that the country now expects to re-open its long-delayed auction of shale oil fields to foreign drillers. This auction had been postponed by officials, when oil prices plummeted two years ago. However, reacting to recent requests from operators to re-start the process, Coldwell and other officials are now working on various aspects, with the goal of re-opening the auction of these shale fields by some point after the first quarter of 2017. The secretary explained that officials had thought that the industry would not be interested. “But now everything can be ready by March.” The latter comment refers not only to guidelines for the actual auction, but also to environmental regulations that will govern certain aspects of shale field development, including hydraulic fracturing and pipeline operations.

Addressing other aspects of Mexico’s regulatory opening, Coldwell acknowledged that the government has a fair amount of work to do, as relates to such issues as supply chain improvements, human resource management and infrastructure development. The secretary said that various agencies of the administration are working with private-sector firms in the industry to find ways to expedite solutions to various problems.

Supply chain issues were the subject of one of the morning panel discussions at the Petroleum Economist forum. Panelists agreed that one of the fundamental characteristics of the Mexican market is that roughly a dozen world-class companies dominate the scene, and yet there could be “up to a thousand smaller companies” looking for a share of oil and gas projects. While noting that their own firms are doing well in the Mexican market, Jose Pablo Mendoza, CEO of Octopus Group, and Laura Minakata Esparza, Oil and Gas Director, Mexico, for Tenaris, expressed concerns that sufficient accommodation has yet to be made—by the government or the industry—to ensure that smaller firms have an equal chance at supplying products and services to operators. In response, Héctor Márquez Solís, head of the Energy Unit in Mexico’s Ministry of Economy, said that the government is working right now to put measures in place that will ensure that local companies can play a key role in the supply chain.

Meanwhile, finishing up the day-long forum was the fourth and final panel discussion, which focused on where the regulatory reform “ambition” and “realization” go from this point forward. The three panelists acknowledged that 2016 continues to be an important year for realizing implementation of key components of the reform effort. New regulatory elements continue to be published nearly every day. These regulations, methodologies and guidelines are slowly strengthening the regulatory framework of Mexico’s energy sector.

To this end, Ramón Massieu, chief of staff of Mexico’s Energy Regulatory Commission (CRE), acknowledged that the administration is taking some lessons from the energy successes registered by Brazil and Colombia. “Yes, definitely, we are studying things that they have done, both offshore and onshore, to achieve a better energy sector performance,” said Massieu.

Another item that is part of the overall regulatory reform effort is the government’s setting of environmental protection and social inclusion targets. The subject of whether those targets are realistic soon became the basis for some verbal sparring between Héctor Juan Villarreal Páez, general director of the Center for Economic Research and Budget (CIEP) and Miriam Grunstein, non-resident scholar at the Mexico Center of the Baker Institute, and chief energy counsel for Brilliant Energy Consulting. Simply put, Villarreal seemed to think that the targets are working, and Grunstein was having none of that. She complained that the government may have opened the door to private and foreign firms to do upstream and downstream work in Mexico, but it won’t matter if skilled labor isn’t available to do the work. “The government’s Strategic Human Resources Training Program doesn’t go nearly far enough, in terms of managing human capital, to fill the 135,000 new jobs that supposedly will be created by 2018, due to the reform opening,” said Grunstein

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