On Reporting Oil & Gas Reserves: A Turning Point In The Upstream Sector - Real Estate and Construction - Mexico Law Articles in English - Mondaq Business Briefing - Books and Journals - VLEX 677419189

On Reporting Oil & Gas Reserves: A Turning Point In The Upstream Sector

Author:Mr Ignacio Vera Estrada
Profession:Rodríguez Dávalos Abogados

"Eminent Domain" and the Constitution

In keeping with Post-classical Roman law, all Mexican constitutions —from the Constitution of Cadiz and the Constitution of Apatzingán— have based their system of land ownership on the principle of Eminent Domain. According to this principle, private owners own the surface of their property, while everything above and below it is property of the State.

Historically, the industry has not suffered serious complications from such a limitation: the air above someone's property is normally a pure public good ("non-rivalrous", as economists would say): a good that is available to all and whose use, even intensive use, by one individual does not challenge its use by others, which discourages any motivation to profit from oxygen.[1] And with regard to the subsoil, the principle of Eminent Domain does not prohibit developers from burying the foundations of their buildings as deep as necessary. This explains why land ownership as a two-dimensional real right, of area, not volume, has not meant greater disarray for the industry in general.

Except when it involves mining and hydrocarbons.

And except in the terrible days of the Mexican Oil Expropriation of 1938, when Article 27 of the Constitution pointed out that "[i]n the Nation is vested the direct ownership of substances, which in veins, layers, masses or ore pockets, form deposits [...] such as [...] petroleum and all solid, liquid, and gaseous hydrocarbons [...]"; and that "[i]n the case of petroleum, and solid, liquid, or gaseous hydrocarbons, underground, ownership by the Nation is inalienable and imprescriptible [...]."

Opening up of the sector: Cárdenas revisited

Thus, after more than sixty years of a state energy monopoly and a slow process of deregulation (thirty years), a path was opened to energy reform (the "Reform").

The old Cardenist energy model was no longer compatible with the prevailing reality. Private oil companies existed alongside national oil companies (the NOCs) in a state of mutual benefit. These had endeavored for years to adopt best practices to maximize oil revenue, while Pemex patiently awaited a corporate update.

It was as imperative to modernize Pemex as it was to open up the sector.

And Pemex did modernize. It metamorphosed, at least on paper, into a "Productive Company of the State", keeping pace with best corporate practices, but without ceasing to be 100% Mexican and public.

All that was left was to open up the sector: increase private investment...

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