August 7, 2014 / 4:08 PM / in 4 years

Energy reform approved, Mexico to speed up deals with Big Oil -source

MEXICO CITY, Aug 7 (Reuters) - After a months-long delay in passage of a landmark overhaul of Mexico’s state-run energy sector, the government now plans to accelerate the timetable for inking joint ventures with private oil firms to reverse a slump in oil output, a senior government official said.

Mexico’s Congress put the finishing touches on an energy-policy revamp on Wednesday night, approving bills that implement a reform that ends the decades-old monopolies of state-owned oil company Pemex and national power company CFE and aims to lure billions of dollars in investment.

The energy ministry will now announce a month ahead of schedule which oil and gas fields Pemex will keep, following the reform in a so-called ‘Round Zero’ allocation.

That in turn brings forward the timeline for tie-ups between Pemex and major oil companies, which will also later be able to operate alone, part of a wider economic reform drive spanning telecoms to taxes that aims to boost Mexico’s economic growth.

“Round Zero will be announced next week,” a senior government official told Reuters on condition of anonymity.

Oil majors like Chevron and Royal Dutch Shell Plc have said they are eyeing new opportunities closely.

The cornerstone of the energy reform, a new hydrocarbons law, sets out a new contractual framework that offers private companies a cut of profits or production. But all-important commercial terms will not be known until the finance ministry sets them for upcoming public tenders.

“I think companies will be more convinced and satisfied once they have contracts in their hands,” said Miriam Grunstein, an energy specialist with Mexico City’s CIDE research institute. “Right now, they have nothing.”

The newly empowered hydrocarbons commission will regulate the sector, supervise contracts, manage bid rounds, and sanction violations including the power to rescind contracts.

Grunstein added that the hydrocarbons law forbids companies from appealing the termination of contacts via international arbitration, a departure from international best practices. “That’s a pretty deadly provision for any company,” she said.

The final package of bills approved on Wednesday allow the government to absorb a portion of the massive pension liabilities shouldered by Pemex and CFE so long as both can negotiate a leaner pension scheme with their respective unions.

Shifting a chunk of pension debt to the government was pitched as way to prepare both for competition.

The energy ministry will determine which oil and gas fields will be put up for bid starting next year.

“We are very encouraged,” Jeff Miller, president of North America’s top oilfield services provider Halliburton, said in an emailed statement to Reuters.

While reforms to the oil sector garnered most of the attention during the debate, a complete opening of the power sector will likely see the first investments. The reform creates an independent grid operator as well as Mexico’s first-ever wholesale electricity market, long the sole domain of CFE. (Editing by Simon Gardner and Alden Bentley)

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