September 19, 2011 Articles

Mexican Oil Law: Protecting Foreign Investors Through International Arbitration Agreements

The federal government's reluctance to issue new permits for offshore exploration in the Gulf of Mexico has sharply decreased offshore exploration north of the Mexican border.

By Manuel Moctezuma – September 19, 2011

As anyone who follows the oil and gas industry is aware, the American federal government’s reluctance to issue new permits for offshore exploration in the Gulf of Mexico, following the dramatic effects of the 2010 Macondo oil spill, has sharply decreased offshore exploration north of the Mexican border. At the same time, Mexico has taken great strides to encourage the role of private industry in offshore development with Pemex south of the Mexican border. On May 31, 2011, for example, McDermott International Inc. announced it had entered into a $50-million contract with Pemex to build and install oil and gas pipelines in the Bay of Campeche. “McDermott gets $50M pipeline contract with PEMEX,” Forbes.com, May 31, 2011.

Although exploration and development ventures often face uncertainty in certain countries that provide limited legal recourse for private enterprises, Mexico is a country that has begun to encourage collaborative ventures between private entities and Pemex to a greater degree than ever before. This is a significant development, particularly after a recent and substantial $350-million arbitration award that KBR subsidiary, Commisa, secured against Pemex in 2009, which may provide a greater degree of assurance to potential outside partners contemplating work with or for Pemex. Press Release, KBR, KBR Receives Arbitration Award Against Pemex (Jan. 12, 2010).

Given the decreasing likelihood of expanding offshore drilling ventures in the Gulf of Mexico north of the Mexican border, concurrent with the ever-increasing incentive to pursue offshore development south of the Mexican border, energy litigation practitioners would do well to accustom themselves with the new framework and role for private ventures with Pemex, because future disputes might be resolved in arbitration.

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