By Jess Davis
Law360, Dallas (September 19, 2014, 7:38 PM ET) — The denationalization of the Mexican energy market after 75 years of government control will give Texas industry enormous opportunities for growth, with Mexico expected to spend more than $10 billion to import Texas goods and services in early stages of the overhaul, experts told a Texas Senate panel Friday.
Speaking to a Senate subcommittee formed to study the impact of Mexico’s landmark 2013 energy reforms, policy experts, economists and lawyers outlined the massive changes Mexico adopted and the opportunities the change provides for Texas companies and universities, not just in the energy sector but in manufacturing and technological research. Committee chair Sen. Juan “Chuy” Hinojosa, D-McAllen, said the restructuring “will be a tremendous benefit not only to Mexico but also to the state’s economy.”
Primary and secondary impacts will give Texas $10.5 billion in additional economic activity, with 132,000 new jobs and more than $2 billion in tax revenue headed to the state, said Nathaniel Karp, executive vice president and chief economist of BBVA Compass. A tertiary effect, coming from increased regional trade as Mexico grows and improves its living standards and income, will generate $34.9 billion in incremental economic activity in Texas, Karp said.
“Texas stands to be the major beneficiary from the reform due to deep economic ties, geographic proximity and expertise in energy exploration, production and distribution,” Karp said.
Karp said Mexico will need Texas firms to provide physical resources, cutting edge technologies and human capital and expertise, particularly because more than half of Mexico’s resources are considered unconventional and needing horizontal drilling and fracking to be productive and with its two largest basins near the Texas border and the Eagle Ford Shale.
The Mexican government in August finalized legislative measures that open up its oil industry to private and foreign investment. It also laid out a road map for energy firms to grab a piece of Mexico’s vast oil and gas reserves: Model forms of contracts will be unveiled later this year, with bidding on reserves not held by state-owned Petroleos Mexicanos — also known as Pemex — and the awarding of contracts in 2015.
Jose Maria Lujambio Irazabal of the Texas and Mexico law firm Cacheaux Cavazos & Newton LLP, the former general legal counsel of the Mexican Energy Regulatory Commission, described the new model as free market, with regulation where needed. Among the options for contracts to develop oil and resources will be service contracts like those already used by Pemex, along with alternatives that could be more profitable, he said.
“The novelty here is we’re going to have licensing contracts, which will be almost like concessions, and production sharing contracts, which are the ones that will give the best incentives for private companies to invest in Mexico,” Lujambio said.
He said while Texas may not need to make any legislative changes to best take advantage of the reforms, the U.S. may need to change its process for granting permits for cross-border infrastructure like gas and fuel pipelines and electricity transmission lines.
Mexico’s energy reforms have gotten significant attention, but they’re just part of a broad reform agenda that includes changes to its labor, education, economic competition, telecommunications, finances and tax, as well as updates in social areas like the justice and penal systems, electoral changes and transparency.
Cesar Martinez, a vice president at consulting firm Vianovo, called the reforms in Mexico a paradigm shift equivalent to the signing of the North American Free Trade Agreement.
Within the energy sector, Martinez said, the first area likely to see growth is in the midstream sector, with pipeline infrastructure one of the key areas for partnerships between Texas and Mexican companies. And as the reforms continue to be implemented, opportunities will arise in actual drilling for shale oil and gas, in improving the Mexican energy grid and power generation capacity and in human capital, with educational exchanges between Texas and Mexico universities, he said.
Sen. Kel Seliger, R-Amarillo, asked whether the opportunity for American companies would be mainly in an advisory and support role, providing guidance, technology and workers. Martinez pointed out American companies will be able to directly invest and operate in all sectors except for nuclear energy, which will remain operated by the Mexican government.
–Editing by Jeremy Barker.
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Professor Tom McGarity was quoted recently in an Inside Climate News article about the $2.9 million fracking verdict against Aruba Petroleum, which has survived another challenge. According to the story, “Judge Mark Greenberg has denied a motion by Aruba Petroleum for a new trial, letting stand the $2.9 million jury award to Lisa and Bob Parr who sued the company after gas and oil wells surrounded their once rural ranch south of Dallas.” Aruba says it will appeal. Professor McGarity isn’t surprised Aruba lost it’s motion for a new trial, observing that “‘The defendants presented a collection of things that they claimed were prejudicial and the judge said ‘No. I think there has been a fair trial here.’” McGarity also believes “the case will ultimately end up in the Texas Supreme Court … because [it] could be used to help determine future claims involving air emissions from the oil and gas industry.” “I think this case is viewed as a test case for lots of companies engaged in hydraulic fracturing,” McGarity added.
In an article about Texas’ two-year statue of limitations that says people have just two years from the time they notice a problem until the file a lawsuit, InsideClimate News quoted Professor Tom McGarity on how “If a plaintiff waits too long they will be barred by the statutes from brining a cause of action,” adding that “So to that degree it works in the defendants’ favor.”
An August 27th Bloomberg News article quotes Professor David Spence on how the oil industry in Colorado is giving fracking a makeover and cutting back on rumbling trucks and tamping down on pollution. According to the article, “Oil companies in Colorado are responding to a rising tide of resentment as local communities and environmental activists vie to impose measures to ban fracking and restrict drilling. A series of ballot initiatives and other grass roots opposition around the country is seen as threatening the booming shale industry, even is oil-friendly Texas, where the U.S. energy renaissance began.” “If those initiatives ‘continue to proliferate then companies lose access to those resources,’” said Spence.
PBS Preimiere: August 25, 2014
Online: Aug. 26, 2014 – Sept. 24, 2014
Over five years, director Rachel Boynton and her cinematographer film the quest for oil in Ghana by Dallas-based Kosmos. The company develops the country’s first commercial oil field, yet its success is quickly compromised by political intrigue and accusations of corruption. As Ghanaians wait to reap the benefits of oil, the filmmakers discover violent resistance down the coast in the Niger Delta, where poor Nigerians have yet to prosper from decades-old oil fields. Big Men, executive produced by Brad Pitt, provides an unprecedented inside look at the global deal making and dark underside of energy development — a contest for money and power that is reshaping the world. Official Selection of the 2013 Tribeca Film Festival.
Read the full film description.
ClimateProgress quoted Professor Tom McGarity in an August 18th story on a Texas family that claimed they were severely sickened by air pollution from two companies’ hydraulic fracturing operations near their home that has had their lawsuit against the companies thrown out last week. The judge’s ruling agreed with Marathon Oil Corp. and Plains Exploration & Production that Mike and Myra Cerny did not have enough scientific or medical proof that emissions alleged to be contaminating their air were causing their health problems. According to the story, “The ruling comes just a few months after a different family won $2.95 million in a separate Texas court on a lawsuit with similar claims.” “How can you have cases with similar facts and such different outcomes,” observed McGarity, adding that “There is a certain amount of judgment and that implies there is a certain amount of subjectivity.”
Professor Tom McGarity was quoted recently in an InsideClimate News article about a Texas judge who has dismissed a million-dollar lawsuit by a Karnes County, Texas, family that says their lives have been ruined by noxious emissions from oil and gas facilities near their home. According to the article, the dismissal is in contrast to a case in which a jury awarded $2.9 million to a family who also claimed to be sickened by fracking emissions. “That two similar cases could have such different outcomes highlights vagaries of both the justice and regulatory system in Texas where the oil and gas industry is widely praised and supported,” the article stated. Professor Tom McGarity observed that “Judges try to do the right thing but they come at the task with certain preconceptions, adding that those preconceptions vary with the sentiments of the jurisdictions they represent.”