VIEW FROM THE TOP
LEARN FROM PREVIOUS MISTAKES TO ENSURE A POSITIVE CHANGE NICOLAS BORDA Partner at Haynes and Boone
Q: What have been the key lessons from the licensing
Q: What are going to be the main drivers of change in the
rounds regarding the regulatory process and for CNH?
Mexican upstream sector?
A: Right now, there is a perception of over-regulation and
A: The acceleration of certain processes such as farmouts
most operators seem to feel that this is in fact the case.
and CIEPs will drive an increase in production. Enhanced
However, we expect to see a deregulation down the road
oil recovery from mature fields also will be important as
where the operator will be regulated more by objectives
well as developing unconventional resources. Most likely,
rather than through prescriptive regulation. ASEA is asking
major infrastructure will be required in the offshore Gulf of
for high-level thresholds on the insurance side. One main
Mexico since we do not yet have any deepwater production.
reason is that unlike the US, Mexico lacks a catastrophic
Exploration is going to require a lot of very expensive
fund for offshore accidents. Almost 30 years ago, when
infrastructure but the price of oil is naturally going to play
the Exxon Valdez hit a reef off the coast of Alaska, the
a role in which projects get developed and which do not.
US government triggered a law that created such a fund. A certain percentage of the sales of each barrel of oil
Take Lakach, for example, which is a non-associated deepwater
extracted offshore goes to the fund. With the exception of
field that was going to be developed until prices dropped.
gross negligence, in the case of an accident, the fund will
Currently, it makes no sense to invest so many billions of
kick in and those resources would be deployed.
dollars in bringing dry gas from deepwater production when it can be obtained more cheaply right next door in the US.
Unfortunately, in Mexico if we have an incident such as
Mexico imports more than 4Bcf/d. We have huge amounts of
Macondo, the deployment of resources will not be as
unconventional resources, probably placing Mexico No. 6 in
efficient or swift. Of course, the company responsible
the world, which means that eventually the country will have
for Macondo was a large multinational. If a catastrophe
to develop these resources and reduce imports of natural gas
occurs involving a medium-sized company, the company
from the US. For that to happen, we will need to develop a
will go bankrupt and most likely there will be no financial
logistics platform similar to that in the US.
compensation for the damage. Having a catastrophic fund might make the regulatory burden less onerous.
Q: What do you think CNH needs to do to prepare to offer blocks of unconventional gas fields?
Also, I think it would help to have a dedicated capping
A: The No. 1 priority is to have the right legal framework in
stack in Mexico, in a place such as Altamira, for well control
place. This framework must come from CNH, CRE, ASEA and
if an accident occurs. When there is a major oil spill,
CONAGUA. Mexico needs to make a thorough evaluation
camera-equipped ROVs are brought in to monitor what is
of its unconventional resources. Finally, the Ministry of
happening, but in the meantime a capping stack could be
Finance needs to offer tax incentives to get the ball rolling.
deployed. Currently, there is no capping stack in Mexico.
The finance minister was the CEO of PEMEX so he will most
There are companies that have capping stacks but they
likely change the short-term view on revenues to develop
are in Aberdeen or in Singapore, and I think Mexico would
unconventional resources in Mexico because it is always
greatly benefit from having its own.
better to have a 5 percent tax on US$1 billion than a 50 percent tax on nothing.
In the US, 10 major oil companies formed an alliance and each put up US$100 million and that US$1 billion was invested in two capping stacks. But by law these cannot
Haynes and Boone is experienced in a wide array of energy areas.
leave the US. CNH has been receptive to the comments
It has legal professionals in both Mexico and the US doing cross-
from the industry, such as from AMEXHI, which has about
border energy work. The firm’s practice includes energy, oil and
50 members.
gas, corporate and international and domestic planning
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