Sweeping reforms across Mexico's oil, gas and electric markets promise more opportunities for the private sector and increased investment from international firms. However, U.S. companies looking to enter this market will need to stay vigilant to anti-corruption risks and plan ahead to ensure they have adequate anti-corruption compliance structures in place to address these risks. Given heightened enforcement of the U.S. Foreign Corrupt Practices Act, particularly in the energy industry, international energy firms need to pay particular attention to their anti-bribery risks when contemplating potential transactions in Mexico's newly privatized energy markets.
Oil Market Reforms in Mexico
In an interview on February 11, 2014, Mexico's finance minister, Luis Videgaray, announced that Mexico is expediting the schedule for its first oil contracts with private companies and would begin announcing certain private agreements to the market by early 2015. Considered the country's most significant legal overhaul since the North American Free Trade Agreement, Mexico amended its constitution in December 2013 to end the state monopoly on oil. Initially, the Mexican government indicated that foreign crude producers would have to wait until late 2015 to begin bidding on oil fields, but Mr. Videgaray's announcement sends a clear signal that foreign investment is set to move at a significantly faster pace.
The reforms enacted by President Enrique Pena Nieto were designed to end the output slump that Mexico, one of the biggest crude oil resources in the Western Hemisphere, has experienced in recent years. Analysts estimate that by inviting international explorers to drill in Mexico, roughly 2.5 million barrels per day (the equivalent of another Nigeria) will be added to the world's supply. The Mexican government expects roughly $10 billion per year in new revenues from the privatization of its oil industry, resulting in an added 2.5 percent of gross domestic product by 2025. Despite the significant financial impact and the promised expedited contracting process, significant questions remain regarding the ground rules on how licensing, bidding and contracting processes will work. Drilling may also be slowed down by a lack of infrastructure, uncertain tax structures and other to-be-determined standards.
FCPA and Applicable Anti-Bribery Laws Pose Heightened Risks
As international energy companies move into the Mexican market under an uncertain regulatory...