IPD’s Managing Director, John Padilla’s recent interview with Mexico Business News covers has assessment of the country’s oil and gas industry in light of ongoing political challenges.
By Pedro Alcalá | Thu, 07/22/2021 – 12:44
Q: What is your assessment of how the oil and gas sector in Mexico is responding to the changing political landscape?
A: During the second half of 2021 we may make certain investments that are awaiting the outcome of midterm elections to move forward in the oil and gas industry. Some of those opportunities may emerge as other companies decide to depart. Mexico remains an enormous market that continues to hold tremendous potential. The question is one of risk appetite. There will always be opportunities to pursue. Political and regulatory risk have certainly increased, but at least for now, Mexico remains a safe haven in emerging markets, at least in bond markets.
Q: What questions are you receiving from current and potential clients regarding the changing legal framework?
A: It depends on the line of business that you are involved in within the industry. It also depends on your positioning within the market, especially in regard to the amount and types of assets in your national or international portfolio. It also depends on your position within the sector’s value chain. For example, our clients in the downstream and midstream segments have very different concerns from those in the upstream segment. Lines of investment have been paused in some cases but a great deal of work has not been halted. Most of the questions are related to contact sanctity, shifting regulations and policies, and the possibility of arbitration. Companies want to know what their rights are, understanding that arbitration is a last resort. A company’s ability to continue doing business in any country is jeopardized by any arbitration case, even a successful one. We help clients track regulatory developments and what they mean from a macro perspective, providing insight on the technical state of the industry along with other key dynamics. We also work with the financial community that is heavily focused on the financial state of PEMEX, and how that will affect the overall structure of the industry.
Q: What options are available to operators through international treaties and agreements should they feel their contractual rights have been infringed?
A: The primary vehicle for international arbitration for most companies in Mexico’s oil and gas sector are the USMCA and the TPP. There are other treaties including the EU-Mexico Trade Agreement, but they don’t offer the same level of protections, particularly in the energy sector, that the two previously mentioned treaties do. While certain arbitration cases are emerging, Mexico’s courts via amparos, or legal stays, have continued to protect investor interests and have largely been the preferred path where and when possible. Enforcement of USMCA provisions by the Biden administration remains the major unknown as it tries to remain singularly focused on immigration. But as it has introduced economic stability into the immigration equation, both investment and trade will have to be addressed head on, particularly if the US is serious about pursuing a nearshoring strategy for the region. We expect to see increased pressure from US companies on the White House to protect and enforce rule of law, which has always been the central tenant of US foreign policy.
Q: How was your portfolio impacted by the events of 2020?
A: The consulting sector in general took a big hit at a global level. Some specializations within this sector were less affected than others but all experienced some degree of negative impact. However, there were silver linings. We diversified our portfolio significantly, not just in terms of different sectors but in terms of different types of companies and activities we are pursuing. We are dealing with a landscape that includes a new level of volatility in light of the pandemic and energy transition underway. The playing field is becoming much more difficult to read and our longstanding relationships and reputation have been fundamental in sustaining and securing new business opportunities.
IPD Latin America is a regionally-focused consultancy that offers tailored services to both private and public entities. The company leverages on-the-ground insight and analysis with a global perspective for actionable decision-making.