Mexico: Oil & Gas Regulation 2018

1 Overview of Natural Gas Sector

1.1 A brief outline of your jurisdiction's natural gas sector, including a general description of: natural gas reserves; natural gas production including the extent to which production is associated or non-associated natural gas; import and export of natural gas, including liquefied natural gas (LNG) liquefaction and export facilities, and/or receiving and re-gasification facilities ("LNG facilities"); natural gas pipeline transportation and distribution/transmission network; natural gas storage; and commodity sales and trading.

According to the National Hydrocarbons Commission (Comisión Nacional de Hidrocarburos or "CNH"), the production of natural gas in Mexico, during the first semester of 2017, was approximately 26,094.96 million cubic feet per day ("MMCFD"), which represents a decrease of 4,658.30 MMCFD compared to the figures shown for the same period in 2016. Additionally, it is important to note that most of Mexico's natural gas reserves discovered in 2017 are located in Campo Akal (Cantarell area), Region Marina Noreste, Gulf of Mexico, with a 3P category, and account for approximately 2,181.61 billion cubic feet ("Bcf").

According to the Mexican Ministry of Energy (Secretaría de Energía or "SENER"), exports from U.S. pipelines to Mexico will reach 3.8 billion cubic feet per day (Bcf/d) in 2018, which represents more than twice the exports of natural gas from the U.S. to Mexico in 2013 (1.8 Bcf/d). This projected growth is driven mainly by higher demand from Mexico's electric power sector throughout the country. According to the CNH, in August 2017, Petroleos Mexicanos ("Pemex") burned and produced 128.2 MMCFD of natural gas in Mexico. This corresponds to a reduction of 352.4 MMCFD compared to the same month in 2016. To put this into perspective, this reduction represents 9% of the natural gas produced.

Furthermore, it is important to note that a new underwater pipeline running from southern Texas, USA, to Tuxpan, Veracruz, Mexico (along the coast of the Gulf of Mexico) will commence operations in 2018. Please be advised that such pipeline will have a capacity of 2,600 million cubic feet per day ("MMPCD") and an approximate length of 800 kilometres ("km"). This project will contribute to satisfying the natural gas requirements at the Federal Electricity Commission (Comisión Federal de Electricidad or "CFE") and will supply natural gas to newly constructed power plants and others that operate with fuel oil, which can be converted to use natural gas.

In July 2017, according to statistics published by the U.S. Energy Information Administration ("EIA"), SENER opened the onshore portion of the Burgos Basin, a shale-rich basin in northeastern Mexico, for natural gas exploration and development by private companies. This is the first time non-state entities were offered access to the Burgos Basin for development since the creation of the national oil company Pemex in 1938.

1.2 To what extent are your jurisdiction's energy requirements met using natural gas (including LNG)?

Currently, Mexico's energy requirements are met through diverse power sources such as natural gas (55%), hydraulic (14.8%), carbon (13%), fuel oil (10%), uranium (3.7%), geothermal (2.3%), wind (0.7%) and solar (less than 0.1% of total production). Although energy requirements are mainly met through the use of natural gas, statistics show a slight increase in the use of renewable energy sources such as hydraulic and wind power.

1.3 To what extent are your jurisdiction's natural gas requirements met through domestic natural gas production?

The substitution of natural gas produced from oil for electricity production has grown in 2017, with the main objective of reducing costs and the emission of pollutants, and satisfying the demand for electricity in the country.

According to the Ministry of Energy, from 2015 to 2030, the demand for natural gas will have increased by 20.3%, reaching a volume of 9,030.4 MMCFD. With regards to international trends, it is expected that the demand for electric power will have, from 2015 to 2040, increased by 24.4%, reaching a volume of 32,677.6 MMPCD.

1.4 To what extent is your jurisdiction's natural gas production exported (pipeline or LNG)?

According to the EIA, in August 2017, U.S. natural gas exports through pipelines to Mexico reached unseen levels, now estimated at almost 4.04 billion MMCFD.

U.S. gas exports are expected to grow further in 2018, due to growing natural gas exports to Mexico and increase in domestic demand.

2 Overview of Oil Sector

2.1 Please provide a brief outline of your jurisdiction's oil sector.

Pemex has reported that its average oil production in July 2017 was below 2 million barrels per day ("MBD"), the lowest level for a month in more than 20 years. The average production during July 2017 was 1.99 MBD compared to 2.01 MBD in June. According to official statistics, Pemex has estimated that Mexico will produce 1.951 MBD during 2018, lower than 2017.

2.2 To what extent are your jurisdiction's energy requirements met using oil?

In 2015, the demand for fossil fuels at the national level reached a volume of 17,115 MMPCD which represented an increase of 1.7% compared to 2014. Of the total of this demand, natural gas, with a share of 43.8% with a volume of 7,504.1 MMPCD, is followed by gasoline with a participation of 22.3%, diesel with 12.7%, coal with 7.3%, gas L.P. with 6.3%, fuel oil 4.9%, and finally coke of oil with 2.6% participation.

2.3 To what extent are your jurisdiction's oil requirements met through domestic oil production?

The largest demand was presented by the public electricity sector with a volume of 3,228.9 MMCFD of natural gas, followed by the oil sector with 2,200 MMPCD, the industrial sector with 1,375.8 MMPCD, and private demand with 568.6 MMCFD. The lowest participation was the residential sector with 94.6 MMPCD, services with 33.7 MMPCD and, finally, the transportation sector with a volume of 2.4 MMPCD. It is expected that in almost all sectors there will be an increase in demand, with the exception of the oil sector which will decrease by 34% compared to 2015. The electricity sector will continue to be the largest consumer with 58.7% participation; followed by the industrial sectors, with 23.2%; tanker, with 16.1%; residential and services, with 1.3% and 0.6% respectively; and, finally, the motor transport sector with 0.1%.

2.4 To what extent is your jurisdiction's oil production exported?

According to Pemex, Mexico exported, from January 2017 to August 2017, almost 1,099 thousand barrels per day. Mexico is one of the leading exporters of crude oil worldwide, through its national oil company Pemex (and its subsidiaries).

3 Development of Oil and Natural Gas

3.1 Outline broadly the legal/statutory and organisational framework for the exploration and production ("development") of oil and natural gas reserves including: principal legislation; in whom the State's mineral rights to oil and natural gas are vested; Government authority or authorities responsible for the regulation of oil and natural gas development; and current major initiatives or policies of the Government (if any) in relation to oil and natural gas development.

With the enactment of the Constitutional Reform in Energy Matters on December 20, 2013 (the "Energy Reform"), a major structural change took place which contributed to the development of the country through the sustainable and efficient use of all natural resources; but above all, it had a high impact on the oil exploration and extraction industry. All this began thanks to a reform at the constitutional level in which new provisions on energy were added.

One of the major advances of the Energy Reform has been in natural gas, particularly in the extraction and exploration of natural gas, with the introduction of Round Zero, Round One and Round Two. Round One is the first international public tender for the exploration and extraction of hydrocarbons in the history of Mexico. Derived from the above, various provisions were published in the Official Gazette of the Federation, specifying the requirements for treatment and refining permits for oil, natural gas processing, as well as matters involving the transportation, storage, distribution and commercialisation of natural gas, in order to generate a market that is more competitive and somehow more efficient.

3.2 How are the State's mineral rights to develop oil and natural gas reserves transferred to investors or companies ("participants") (e.g. licence, concession, service contract, contractual rights under Production Sharing Agreement?) and what is the legal status of those rights or interests under domestic law?

There are many types of exploration and extraction contracts that may be tendered by and executed with the CNH, but the contract to be awarded is previously decided by SENER. The contracts are: (i) services; (ii) profit sharing; (iii) production sharing; (iv) licence; and (v) any other contract resulting from the combination of the foregoing. By law, mineral rights of oil and natural gas shall remain state property. Under Mexican law, a licence contract gives partial ownership and possession to the contractor in exchange for the payment of taxes to the Mexican government. Finally, profit-sharing and service contracts do not give title or possession to the contractor of the hydrocarbons, only cash considerations.

3.3 If different authorisations are issued in respect of different stages of development (e.g., exploration appraisal or production arrangements), please specify those authorisations and briefly summarise the most important (standard) terms (such as term/duration, scope of rights, expenditure obligations).

In accordance with the CNH, all contractors that want to obtain exploration and extraction contracts, must carry out all operations plans as approved by the CNH. Also, the execution of any contract must include investment and several pieces of information depending on the block they want to operate in.

As mentioned in the answer to question 3.2 above, there are five different types of exploration and extraction contracts that have to be approved and executed with the CNH: (i) services; (ii) profit sharing; (iii) production sharing; (iv) licence; and (v) any other contract depending on the combination of the foregoing. Once the contract has been approved, the contractor has several obligations to carry out during the entire duration of the contract. Moreover, the amount of the work commitment would vary depending on the size and type of the fields that they will work with.

3.4 To what extent, if any, does the State have an ownership interest, or seek to participate, in the development of oil and natural gas reserves (whether as a matter of law or policy)?

According to the Mexican Constitution, oil and solid, liquid orgaseous hydrocarbons in Mexican subsoil are the inalienable and indefeasible property of the nation and no concessions will be granted. The purpose of this is to provide income for the state which will contribute to the long-term development of the nation, and provide income for the exploration and extraction of oil and other assignments of the productive enterprises of the state or through contracts with them or with individuals, in the terms of the Regulatory Law.

In 2014, the CNH stated in Round Zero that Pemex has to carry out its exploration and extraction plan in compliance with several contracts.

3.5 How does the State derive value from oil and natural gas development (e.g. royalty, share of production, taxes)?

In general, contractors under exploration and extraction contracts must pay: (i) a royalty that is a percentage of the gross revenues of the production; (ii) an exploration fee per square kilometre of the block during the exploration phase of the contract; (iii) a percentage of the profit oil or additional percentage of the production depending on the type of contract; and (iv) income tax applicable to the profits obtained from hydrocarbons production.

3.6 Are there any restrictions on the export of production?

As for service contracts and profit-sharing contracts, oil and gas production is transferred to a special State Trader ("Comercializador del Estado") as an intermediate, who will sell and then distribute the proceeds from the sale to: (i) the Mexican Fund for Stability and Development; and (ii) the contractor, once its commission fee has been charged.

On the other hand, for production-sharing contracts and licence contracts, the contractor is free to store or sell the production it owns to national or international markets, subject to the regulatory permits set forth by the Energy Regulatory Commission (Comisión Reguladora de Energía or "CRE").

3.7 Are there any currency exchange restrictions, or restrictions on the transfer of funds derived from production out of the jurisdiction?

Under the current legislation, there are no currency exchange restrictions or direct transfer fund restrictions. Notwithstanding the above, depending on the type of contract under which hydrocarbons are produced, contractors may not be able to market the production directly, but only through a special State Trader, which may indirectly limit currency exchange options available to monetise production.

3.8 What restrictions (if any) apply to the transfer or disposal of oil and natural gas development rights or interests?

Pursuant to the Hydrocarbons Law and the model contracts of the corresponding Round Bidding Guidelines, transfer of rights or interests shall not be permitted unless authorised by the CNH. The CNH will consider the same criteria for the prequalification process of the bid. Additionally, no change of control, either direct or indirect, shall exist without the previous consent of the CNH.

3.9 Are participants obliged to provide any security or guarantees in relation to oil and natural gas development?

As part of the formal bid proposal, bidders have to present a seriousness guarantee that shall be executed by the CNH in case a bidder wins a block in a bidding round but does not sign the corresponding contract. Once the winner of the bid executes the exploration and extraction contract with the CNH, such participant shall submit one Corporate Guarantee plus an additional Performance Guarantee to comply with the minimum work commitment. The Corporate Guarantee shall be submitted by the ultimate parent of the winning bidder that obliges jointly and severally with such bidder.

3.10 Can rights to develop oil and natural gas reserves granted to a participant be pledged for security, or booked for accounting purposes under domestic law?

Article 45 of the Hydrocarbons Law provides that contractors and assignees are allowed to report, for accounting and financial purposes, all the benefits of the exploration and extraction contracts or assignations, as long as such assignation or contract sets forth that mineral rights are owned by the state.

3.11 In addition to those rights/authorisations required to explore for and produce oil and natural gas, what other principal Government authorisations are required to develop oil and natural gas reserves (e.g. environmental, occupational health and safety) and from whom are these authorisations to be obtained?

The Hydrocarbons Law sets forth the need for a social impact authorisation issued by SENER for the development of a hydrocarbons project. It is noteworthy to mention that rights of way obtained for the development of hydrocarbon blocks are subject to a special acquisition process, which involves both executive and judicial authorities.

The National Agency for Industrial Safety and Environmental Protection for the Hydrocarbons Sector (Agencia Nacional de Seguridad Industrial y de Protección al Medio Ambiente del Sector Hidrocarburos or "ASEA") regulates and supervises environmental protection, and health and safety. The ASEA's health and safety provisions, which are applicable for activities related to hydrocarbons, are still pending publication. Also, Mexican law establishes that any person involved in the development of any oil and gas activity has to obtain an environmental impact authorisation, granted by Ministry of Environmental and Natural Resources (Secretaría de Medio Ambiente y Recursos Naturales or "SEMARNAT").

3.12 Is there any legislation or framework relating to the abandonment or decommissioning of physical structures used in oil and natural gas development? If so, what are the principal features/requirements of the legislation?

The ASEA Law sets out provisions for the abandonment or decommissioning of this kind of structure used in oil and natural gas.

Furthermore, the model contract used in Round One has a specific provision that requires the contractor to set an abandonment trust, which shall be controlled jointly by the contractor and the CNH, in case a commercial discovery exists.

3.13 Is there any legislation or framework relating to gas storage? If so, what are the principal features/ requirements of the legislation?

Pursuant to the Hydrocarbons Law, gas storage services, as a general rule, are subject to non-discriminatory third parties open access in exchange of a tariff payment approved by the CRE. A certain percentage of the storage capacity may be available for selfuse, subject to prior authorisation by the CRE.

Despite the above, it is essential to highlight that, as of August 28, 2014, the creation of the National Center of Natural Gas Control (hereinafter referred as "CENAGAS") was decreed with the purpose of generating a competitive natural gas transportation and storage market. This centre will also act as an independent operator of the Integrated National Natural Gas Transportation and Storage System, which is meant to maintain the continuity and safety of the supply of natural gas across Mexican territory.

4 Import / Export of Natural Gas (including LNG)

4.1 Outline any regulatory requirements, or specific terms, limitations or rules applying in respect of cross-border sales or deliveries of natural gas (including LNG).

According to Mexican regulations, contractors carrying out regulated activities and cross-border sales and deliveries, in relation to exportation activities, have to obtain a permit issued by SENER, an authorisation from the Tax Authorities is also needed, and for a marketing permit an authorisation is required from the CRE.

5 Import / Export of Oil

5.1 Outline any regulatory requirements, or specific terms, limitations or rules applying in respect of cross-border sales or deliveries of oil and oil products.

Following the Energy Reform and with the entry into force of the Hydrocarbons Law, the legal framework that has governed the development of the hydrocarbons and oil industry in the country was profoundly modified so that Mexico can achieve important energy goals and a new market structure.

Pursuant to article 48 of the Hydrocarbons Law, the export and import of hydrocarbons shall be subject to a permit granted by the Ministry of Energy. As for service contracts and profit-sharing contracts, oil and gas production is transferred to a special State Trader, an intermediary, which will distribute any proceeds from the sale to (i) the Mexican Fund for Stability and Development, and (ii) the contractor, once its commission fee has been charged.

On the other hand, for production-sharing contracts and licence contracts, the contractor is free to store or sell the production it owns to national or international markets, subject to the regulatory permits set forth by the CRE.

For sale of oil in Mexico, the contractors must obtain a permit issued by the CRE, and several Tax authorisations are required.

To view the full report please click here.

The views and opinions expressed in this article are those of the author and do not necessarily reflect the official opinion or position or institutional view of Rodríguez Dávalos Abogados.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Practice Guides
by Mondaq Advice Centres
Relevancy Powered by MondaqAI
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions