Mexico to Hold Private Oil Firms to Account for Investment Shortfalls

Oil companies operating in the country only invested 31% of the total approved by regulator CNH in 2021

A Fieldwood Energy offshore platform in the Gulf of Mexico (Photo: Fieldwood Energy).
March 01, 2022 | 03:31 PM

Mexico City — Mexico’s hydrocarbons commission (CNH), the oil and gas sector regulatory body, will evaluate private oil companies’ plans following their investment shortfall last year, and will impose fines in the event of finding irregularities with regard to their contracts and concessions.

“The CNH will review and evaluate compliance with the execution of evaluation plans and programs, pilot programs, transition programs, work and budget and annual operating programs, in terms of the applicable regulations,” the commission stated in a note sent to Bloomberg Linea.

The review will take place in accordance with the guidelines that regulate exploration and development plans for the extraction of hydrocarbons, it said.

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As reported by Bloomberg Línea on February 17, companies in Mexico with oil contracts derived from the energy reform of former president Enrique Peña Nieto exercised only 31% of the $4.46 billion in investments approved by the regulator for 2021.

The CNH approved a total amount of $17.38 billion for the companies’ activities associated with 93 contracts and including allocations from state oil company Pemex.

The approvals also include 151 allocations granted to the state-owned oil company for $12.92 billion, the CNH said.

Although the Covid-19 pandemic hammered the oil industry as oil prices sank due to global lockdowns, the arrival of multiple vaccines against the virus has since reactivated the global economy and boosted oil demand.

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The guidelines, said the regulator headed by Rogelio Hernández Cázares, foresee mechanisms to sanction oil companies according to the information they submit as the CNH measures performance and compliance with the goals and objectives it approved.

“Elements will be assessed, in due time, by the governing body of the regulator, to determine the possibility of initiating a process of administrative sanctions,” the regulator said.

Read More: Private Oil Companies in Mexico Still Far Short of Target Despite Record Output

The guidelines establish the technical and economic assumptions under which companies that operate oil fields for exploration and production must request modifications to their plans and programs that would allow them to reflect changes in the execution of their projects with prior justification.

“Compliance with the plans and programs approved by the CNH constitutes a shared interest between the state and the oil operators, since their efficient execution results in a better understanding of the nation’s oil resources, and economic benefits for all the players involved,” the CNH added.

Mexico’s President Andrés Manuel López Obrador has said that the previous government opened the oil sector to private initiative with the promise that “a lot” of foreign investment would arrive, but that few of the blocks tendered out are active, and on most of them no work or investment has been carried out.

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“In legal terms the contracts could be canceled. We won’t do that because they [the private companies] would cause a commotion,” López Obrador said during a press conference on September 9.

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