Oil Drilling Gulf of Mexico.
Oil Drilling Gulf of Mexico. (Shutterstock)

The possibility that Donald Trump would become president of the United States was never a big selling point in Mexico’s ambitious plan to privatize its energy sector by attracting U.S. investment. But energy lawyers say that even an anti-Mexico Trump administration could not seriously slow the billions of dollars already crossing the border for long-term capital projects.

Sweeping changes to the legal regime surrounding energy already have lured billions in foreign investment in power projects, pipelines, a competitive new power market, and exploration in the Gulf of Mexico. And it’s no wonder. The reforms heralded the reopening of the Mexican energy sector to investors for the first time since the 1930s. Big-firm energy lawyers at the center of the activity see huge opportunities ahead in Mexico for the next decade and beyond, as they work on deals related to all facets of the energy sector.

Lawyers say that clients have been eager to do business with Mexico, and many large U.S. law firms, including Baker & McKenzie, Greenberg Traurig, Jones Day and White & Case, have continued to expand their practices in Mexico. Between 2012 and 2015, the total lawyer head count at U.S. firms in Mexico increased from 387 to 649, according to The National Law Journal.

“Things are happening all over the place,” says Jose Valera, energy partner at Mayer Brown, which opened a three-lawyer office in Mexico City in September. For example, Mayer Brown assisted a client who submitted a winning bid at a recent government power auction, Valera says. The bid was to build a renewable-resource energy project that will sell power to Mexico’s new electric authority. Other clients want help with licensing agreements and changing regulations. And one client sought the firm’s advice before taking part in the December auction of deepwater exploration rights in the Gulf of Mexico.

Energy auctions, in fact, have been a boon to companies, law firms and Mexico itself. “Round One,” which took place in 2015-2016, produced $7 billion in investment by private and foreign companies to explore oil and gas blocks on- and offshore, according to Mexico’s secretary of energy, Pedro Joaquin Coldwell.

In addition, private-sector participation in the electricity market is expected to bring $2.6 billion in new investment, the energy secretary says. Millions more in private investment are going into cross-border natural gas pipelines, already under construction, that will bring gas across the border to Mexico to bridge its energy shortage until new capacity is developed there.

And the biggest projects are still to come. Mexico must also build expensive new refining capacity, new pipelines for the oil to be discovered, new facilities and transmission lines for the new power grid, and more. Coldwell has said that investment in energy projects will total $22 billion.

At press time, Mexico was preparing for its biggest auction to date—scheduled for December—with the country expected to offer the rights to about 10 deepwater blocks located in the Gulf of Mexico. According to Brian Bradshaw, a partner with Morgan, Lewis & Bockius in Houston, this is the auction that the major players in the industry have been waiting for. The amount of oil believed to be located in those offshore deepwater blocks is significant.

“For the supermajors, it is harder to justify small investments, so they are always looking for the big fish,” Bradshaw says. It takes a $5 billion investment before a company sees a return on such a project, he says, but with these projects they get long-term 50-year contracts. Twenty-six companies, from supermajors to smaller firms seeking joint ventures, have registered interest in bidding for the blocks, including Anadarko, BHP Billiton, BP, Chevron, CNOOC, Eni, ExxonMobil, Noble, Petronas, Pemex, Repsol, Shell, Statoil and Total, among others.

Despite all this activity, the foreign private equity deals in Mexico that were predicted a few years ago have not yet materialized in a significant way. Those deals, according to Bradshaw, will come later.

“There is a lot of private equity looking,” he says. “It’s still early in the rounds.” Round One of the oil and gas block auctions was set to end in December 2016. Two new rounds are scheduled for 2017. An additional round will follow. “By then the private equity will be ready,” Bradshaw says.

In the interim, the International Finance Corp., the private-sector investment arm of the World Bank, announced last April a $200 million investment in Citla Energy, a new Mexican oil company. Citla was founded by Washington, D.C.- based Acon Investments, a private equity investment firm interested in Hispanic markets. The International Finance Corp. itself is providing $60 million, and the China-Mexico Fund managed by IFC Asset Management Co. will provide the rest. They have not yet disclosed any activity.

Lawyers working with the reforms say that some projects may take years to complete. But they predict that in time, electric costs will drop for consumers as a result of the new power auctions. In 2016, the first two auctions attracted more than 100 bidders, and the new state electricity regulator, CENACE, awarded power generation contracts and clean energy certificates for 41 projects. New solar projects have dominated at both auctions, followed by wind and then geothermal.

All this energy work means that law firms are continuing to expand in Mexico. Besides Mayer Brown’s new presence, Hogan Lovells added two associates in Mexico City in 2016, and indicated that it might add more. The office currently has 67 attorneys, and Hogan Lovells Mexico City partner Carlos Ramos Miranda says that the firm advised oil companies in various bid rounds throughout 2016. One client was one of the first Mexican companies to win a bid at an auction, receiving a contract for oil exploration and extraction.

Hogan Lovells also advised an international company in the bid process for the December deepwater exploration round, he says. In addition, the firm assists Mexican state-owned oil company Pemex in several areas, such as joint operation agreements, production sharing contracts, licensing and finding partners. “We’ve been helping them in the event that they decide to participate in some of the bid rounds,” Ramos Miranda says.

Clean energy and oil exploration aren’t the only projects attracting investment. Law firms are working with natural gas transportation system projects and are advising clients how to enter the electricity rights auctions for potential power plant projects. Ramos Miranda says that he expects to see more companies partnering in projects in 2017.

“We will start seeing a lot of farm-outs and joint ventures. … We will see consolidation in the liquid fuels. We will see more activity in the transportation and storage of fuels,” he says.

If he is right, law firms can look forward to plenty of transactional work. Ramos Miranda predicts a transformation in Mexico’s energy sector within the next three years. “[The change] is materializing in spite of mistakes of governments, and in spite of the price of oil,” he says. “The investments need to be done.”

Not everyone is so optimistic, however. Some attorneys interviewed before the November U.S. election cautioned that Trump as president would mean that the outlook could quickly change. Trump’s campaign was filled with anti-Mexico rhetoric. And he promised to take apart the North American Free Trade Agreement, a move that would result in the imposition of high tariffs on the billions of dollars in exports from Mexico to the United States. Both would have a negative impact on Mexico’s economy. New Trump policies could also make it more expensive for American companies planning to set up energy facilities in Mexico, and that would mean fewer new jobs. “There are many things he has said that would not be good for Mexico,” said Valera.

Others were more sanguine. “There will be some disruption initially. … But I don’t think that will be a long-lasting effect,” said Ramos Miranda. “There is an international appetite for Mexican resources, and investors will continue to come from all over the world.”

Indeed, most attorneys did not foresee the flow of foreign investment dollars drying up, even with Trump as president. “The relationship between Mexico and the U.S. goes far beyond one individual,” said one. “We cannot afford not to be in business together.”

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