Oil & gas (Upstream,
Midstream and Downstream)
Round 1 - Exploration and Extraction Contracts (E&E Contracts). Round 1 has triggered the first round of tenders organized by the National Hydrocarbon Commission (CNH), which purpose is the award of E&E Contracts. Four bidders have been organized in Round One. The E&E Contracts for the first three bids have been awarded and included Production Sharing Contracts and contracts for onshore and shallow water blocks. The fourth tender comprises the award license contracts for deep-water blocks. At this time significant opportunities exist in farm-outs associated with the E&E Contracts awarded in the first three tenders and significant association opportunities related with the fourth tender. Midstream and Downstream. The midstream sector has been very vibrant. The Federal Electricity Commission (CFE) has been organizing public bids seeking to award long-term transportation services contracts (for natural gas). In addition to these bids, the Energy Regulatory Commission (CRE) issued specific regulations to organize detailed natural gas, crude oil, petroleum products and petrochemical midstream activities. As a result there is increasing interest of national and foreign investors to develop the required infrastructure, and, with CRE leading a new drive to promote open access in midstream infrastructure, a mature secondary capacity market is growing at the same time. As for the downstream sector, the Mexican government lifted the ban on imports of gasoline and diesel. The ban was supposed to be lifted in January 2017. However, the fact that that transportation and storage of petroleum products is liberalized and that these products will be imported starting on April 2016, creates substantial opportunities in this sector.
Implementation of this segment of the reform has been moving slower than the oil & gas upstream and midstream sectors (due to its complexity). So far, the Wholesale Electricity Market (WEM) guidelines have been issued, along with other regulatory instruments. However, a number of new regulations must be issued so that the WEM is fully implemented. To date, bilateral transactions can be carried out; spot transactions will come after, once the relevant regulatory instruments are issued. The National Power Control Center (CENACE) organized an auction with the purpose of awarding a long term Power Purchase Agreements (PPA) to sell energy, power and clean energy certificates to the CFE. This auction is the result of the new market structure.
As for opportunities in this sector, the most obvious opportunities that exist are: (i) potential Mergers and Acquisitions transactions with companies that are awarded PPA’s derived from the long term auction; and (ii) grandfathered generation projects with PPA’s already executed.
All in all the energy sector in Mexico as well and vibrant. We are convinced that a “first come, first served” applies in the sense of companies that engage in these developments early on will benefit significantly compared to others that decide to follow a “wait and see” approach