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Feature 100812 Baker

Monday, October 8, 2012

Mexico does not need Constitutional Change to Update PEMEX

By George Baker

●  Press Perspective, October 5, 2012

At a March 2011 breakfast for the press, in Houston, on the occasion of Mexico's launching of the PEMEX Second Bid Round under its new, post-2008 contract model, Juan José Suárez Coppel was asked about the status of the drawn-out negotiations for a cross-border oil agreement between the U.S. and Mexico. The PEMEX director general replied, dryly (and with prescience), that "A commercial discovery tends to clear the mind."

The negotiations produced a signed agreement in February, 2012; and it would seem that PEMEX has made one or more commercial discoveries in the Perdido area, as some geologists had so predicted. Additional drilling will be needed to determine, a) the extent and volume of the field, and b) if there is any evidence of geologic continuity with U.S.-side discoveries.

The buzz in Mexico City has circled back to the question of whether or not the next government would "change the Constitution."

Really, everyone, this is a worn-out boring topic, and nothing good can come from a conversation in which this policy ghost is the initial subject of discussion.

If the new government wants to get anyone's serious attention, it will modify Article 6 of the Petroleum Law of 1958, returning to the previous language of the Petroleum Law of 1941, which said that "la nación" is the legal agency by which petroleum licenses or concessions are granted.

It was the decades old perverse idea of a group of senators, who were unhappy with former PEMEX DG Antonio J. Bermúdez [1946-58], to change the language to read that it would be PEMEX that would contract for materials and services, provided that no compensation could be given on the basis of a percentage of production or as a function of production.

Serious legal scholars in Mexico would do everyone a favor by weighing in on the question of the constitutionality of this clause, given that it is Constitutional Article 134 that addresses government procurement. Needless to say, that article says nothing about "percentages," so the senators of 1958 just invented a legal restriction on account of their decade-long pique with Bermúdez.

Changing this law will not require a change in the Constitution; but what is the likelihood that any new administration will have the vision or courage to tamper with a 60-year-old law that has so deeply rewarded the major oilfield service companies?

You might go so far as to say (in private) that it is disappointing that the President of Mexico has to insert himself in the narrative of PEMEX oil discoveries. The new president should understand that Mexico urgently needs to "de-presidentialize" the oil sector. The oil narrative in Mexico needs to move away from one of victimhood mixed with triumphalism, and a nice gesture in this direction would be if the president of Mexico would discipline himself to staying away from microphones when PEMEX does something good (like find oil in deep-water, a 10-year-old quest).

Whether or not Trion-1 and Supremus-1 are shown to be geologically contiguous with fields in the United States, the heat in the kitchens of law and policymakers on both sides of the border will increase (just as Juan José had predicted).

And that was the essential view given to NOTIMEX when its Dallas reporter called me this morning (in Spanish, see Ayudará descubrimiento de yacimiento a precisar acuerdo México-EU).

● note:  George Baker will make a presentation on "The U.S.-Mexico Transboundary Hydrocarbon Agreement: Pending Issues," during the Petroleum Mexico Panel session on November 5 at the 31st USAEE/IAEE North American Conference.  The conference, "Transition to a Sustainable Energy Era: Opportunities & Challenges," will take place from November 4 to 7, 2012 in Austin, Texas.


George Baker is the publisher and director of Mexico Energy Intelligence and, respectively, part of Baker & Associates - Energy Consultants, based in Houston, TX.  He can be reached via e-mail at

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