Canadian energy companies see M&A opportunity as Mexico privatizes its industry
By Julius Melnitzer
In late December, the majority of Mexican state legislatures approved landmark reforms that will open up the country's hydrocarbon and electric-power industries to national and foreign private investment, ending the monopoly that state-owned Petroleos Mexicanos (PEMEX) has had for 75 years. The constitutional reforms, previously approved by both chambers of the country's federal congress, will be enacted when President Peña Nieto signs them, and will come into force the day after publication in the Official Federal Gazette.
The new laws are expected to flood the country with investment dollars, opening the way for foreign developers to contract with Mexican and other juniors to grow the industry. “There have been very limited opportunities for Canadian energy companies and others to date,” says Ryan Keays in Norton Rose Fulbright Canada LLP's Calgary office, who has of late been spending about a week of every month in Mexico on business for a Canadian client. “Although PEMEX has been allowed to enter into contracts with foreigners since 2008, their interest was limited to receiving incentives for increased production, but they could not share in the profits of that production.”
The greatest opportunities for Canadian companies, Keays believes, will lie in unconventional resource development where junior companies will be able to export their unique expertise. “We're talking about shale oil plays, fracking technology, and tight [hard-to-extract] gas and oil, of which you find a lot in the foothills of the Rockies,” he says. “There will also be many opportunities for Canadian service companies to take advantage of the $15 to $20 billion in additional investment that's expected to pour into Mexico.”
Frank Alexander in Dentons Canada LLP's Calgary office works almost exclusively with international oil companies and host countries. He's optimistic about the opportunities that the Mexican reforms will afford his clients, but says the extent of those opportunities may well depend on the specifics of the new regime's framework.
“The changes in Mexico may well provide both exploration and development opportunities, but we still have a lot of questions that need answers — answers that not even the Mexican authorities can provide at this point,” he says. “There are 160 upstream petroleum regimes in the world, and there can be great differences among them regarding the extent to which oil companies have the right to exploit what they find.”
At a very basic level, for example, little is known about how Mexico will go about allocating land and constructing its bid rounds. “Mexico hasn't even decided whether or not it will impose fixed fiscal terms, with bids concentrating on signature bonuses and work performance commitments,” Alexander says.
However this all turns out, there's definitely a place not only for Canadian energy companies but also their lawyers. “People like me, who concentrate their career on how international oil companies and host countries relate, have analyzed and compared the upstream petroleum regimes around the world,” Alexander explains. “So we know what questions to ask about such vital things as the terms of production-sharing contracts that our clients may be negotiating.”
By Julius Melnitzer
In late December, the majority of Mexican state legislatures approved landmark reforms that will open up the country's hydrocarbon and electric-power industries to national and foreign private investment, ending the monopoly that state-owned Petroleos Mexicanos (PEMEX) has had for 75 years. The constitutional reforms, previously approved by both chambers of the country's federal congress, will be enacted when President Peña Nieto signs them, and will come into force the day after publication in the Official Federal Gazette.
The new laws are expected to flood the country with investment dollars, opening the way for foreign developers to contract with Mexican and other juniors to grow the industry. “There have been very limited opportunities for Canadian energy companies and others to date,” says Ryan Keays in Norton Rose Fulbright Canada LLP's Calgary office, who has of late been spending about a week of every month in Mexico on business for a Canadian client. “Although PEMEX has been allowed to enter into contracts with foreigners since 2008, their interest was limited to receiving incentives for increased production, but they could not share in the profits of that production.”
The greatest opportunities for Canadian companies, Keays believes, will lie in unconventional resource development where junior companies will be able to export their unique expertise. “We're talking about shale oil plays, fracking technology, and tight [hard-to-extract] gas and oil, of which you find a lot in the foothills of the Rockies,” he says. “There will also be many opportunities for Canadian service companies to take advantage of the $15 to $20 billion in additional investment that's expected to pour into Mexico.”
Frank Alexander in Dentons Canada LLP's Calgary office works almost exclusively with international oil companies and host countries. He's optimistic about the opportunities that the Mexican reforms will afford his clients, but says the extent of those opportunities may well depend on the specifics of the new regime's framework.
“The changes in Mexico may well provide both exploration and development opportunities, but we still have a lot of questions that need answers — answers that not even the Mexican authorities can provide at this point,” he says. “There are 160 upstream petroleum regimes in the world, and there can be great differences among them regarding the extent to which oil companies have the right to exploit what they find.”
At a very basic level, for example, little is known about how Mexico will go about allocating land and constructing its bid rounds. “Mexico hasn't even decided whether or not it will impose fixed fiscal terms, with bids concentrating on signature bonuses and work performance commitments,” Alexander says.
However this all turns out, there's definitely a place not only for Canadian energy companies but also their lawyers. “People like me, who concentrate their career on how international oil companies and host countries relate, have analyzed and compared the upstream petroleum regimes around the world,” Alexander explains. “So we know what questions to ask about such vital things as the terms of production-sharing contracts that our clients may be negotiating.”
Lawyer(s)
Ryan W. Keays
Frank C. Alexander, Jr.