By Nelson Balido, Energy Council of the Americas

In an effort to improve revenues supporting the government budget, Mexico has implemented sweeping constitutional reforms of its hydrocarbon laws. It focuses on major changes designating the official representative of all hydrocarbons in the country as the Secretary of Energy (SENER) and the National Hydrocarbons Commission (CNH) and no longer PEMEX; therefore, moving forward, both of these governmental entities will be involved in all contracts involving hydrocarbons.

The SENER, with the technical support of the CNH, will award oil and gas contracts in three different ways:

  • Public tenders;
  • Assign contracts to productive public companies (PEMEX) and
  • Assign direct contracts to the coal mining concession holders.

In all contracts, the Mexican government will be a partner to ensure fairness and transparency. All contracts will be negotiated in an open and transparent process. The public tenders, consisting of 169 distinct concessions, are either shallow water, conventional, unconventional or deep water and will be competed and awarded at specified dates in 2015. While the largest number of concessions contracted will be public tender, for a very limited time there will be few coalbed methane concessions awarded without a bid.

These no-bid coalbed methane concessions require that the title-holding coal producers cover several capabilities in a very limited time frame. Despite the time constraint, the opportunity to partner with a coal-mining operation and concession holder provides experienced coalbed methane producers the ability to obtain non-competitive direct concessions awarded from Mexico for coalbed methane resources.

The existing concession holders of coalmines have the right to request a contract assignment for each mine they have under concession. The reform requires that these coal companies partner with a coalbed methane gas company to explore and extract resources within their coal basins. In order to be awarded such a contract, the partnership must prove that they have the technical, financial and administrative capability to extract gas. They were given 90 days to request such a contract from the time the president signed the reform declaration, Aug. 12, 2014. Before Christmas, an extension to Jan. 30, 2015 was provided. After this date any other contract for exploration and extraction of natural gas can only be awarded through a tender process or through an assignment to a productive public company from PEMEX.

Most of the coal producers do not have technical capability or the financial qualifications required. This obligates them to seek a joint venture with a partner that can offer these capabilities. When partnering with a titleholder, the advantage for an operating company lies in the fact that they will not enter a tender process. The contract to be assigned can be requested directly by the titleholders and can have control over the joint venture and its operations.

The time extension arose because many coal producers requested exploration and extraction contracts within the established time frame but their request did not meet all the criteria. They were given limited additional time to find an experienced coalbed methane producer to partner with. The coalbed methane partner has the ability to negotiate terms with the government.

The Energy Council of the Americas (ECOTA) has already facilitated 59 of these concessions in what has been described as the “largest hydrocarbons deal in Mexico for 2014,” according to the Texas Energy Business Journal and is happy to explain this process as well as the process to acquire public tenders or to assign contracts to Productive Public Companies with other interested companies.

Nelson Balido is the CEO of The Energy Council of the Americas (ECOTA), a binational nonprofit organization comprised of public and private entities dedicated to the advancement of energy education in oil, natural gas and power generation markets in the U.S. and Mexico.