Investment in Mexico Arising from the Energy Reform. Beatriz Camarena Maney

Transcription

1 Investment in Mexico Arising from the Energy Reform Beatriz Camarena Maney

2 Overview National Infrastructure Program & Key Factors of The Energy Reform for the Midstream Sector! Currently, Mexico does not have sufficient infrastructure to satisfy the country s growing demand for natural gas. However the National Infrastructure Program and Ministry of Energy sets mechanisms to fulfill the required infrastructure investments! Challenges are: " a) Limited transport capacity " b) Limited redundancy " c) It does not reach all the States! Mexico is moving to develop new rules that allow a total investment of US 17 Billion over the next 4/5 years! Issue extends over a lack of facilities as the transportation & storage business is unsophisticated. Example: Pemex existing transportation network, which connects production centers with domestic refineries and export terminals, including around 3,000 miles of pipelines, mostly in Southern Mexico, compared to the US total of about 57,000 miles of crude oil pipelines 2

3 Overview (cont d) National Infrastructure Program & Key Factors of The Energy Reform for the Midstream Sector! Mexico Crude oil and gas infrastructure is aging, and many parts of the country are underserved for natural gas, " Mexico has about 5,500 miles of pipelines " Texas has 58,000 of natural gas pipelines! The Mexican Electricity Utility, Comisión Federal de Electricidad (CFE) currently is issuing bids for the construction of 5 pipelines in Northern Mexico with related power plants expected top cost US$2 billion- primarily to bring in natural gas from the US to fuel Mexico s electricity generation and industry! Mexico in 2013 had a Gas System s length of: 11,342 KM* is urgently requiring to build the pipelines to transport natural gas and liquids since transportation via rail is underdeveloped and it also represents an issue for E&P companies working in Mexico.! Strategy includes 11 to be build in Mexico (3818 KM) and 2 in Us (297 KM) 3

4 Structure and Midstream Investments! In 1997, Mexico opened up a portion of its midstream sector, allowing private investors to build and operate natural gas pipelines (although the Government kept the prohibition on private investment in oil pipelines in place)! The above action did little to encourage new capital flows into Mexico, and the natural gas pipeline industry is still largely controlled by Pemex and CFE! Now a days a new agency called CENEGAS has been created to oversee and manage crude oil and natural gas transportation infrastructure! Mexico s tax structure was likely to blame, in part, for the lack of investment! In the US, the recent growth of the MLP structure in which flow-through entities are listed on the US exchanges has attracted a great deal of capital to the midstream sector and has enabled domestic companies to expand or build new pipelines, processing plants and storage facilities as needed! Currently, a number of interests in Mexico are lobbying the government to allow a foreign MLP to form a FIBRA a type of Mexican REIT that would own midstream assets in Mexico.! The MLP s unitholders would then pay a withholding tax on distributions, perhaps 10% to 30 (depending on a variety of factors, including, in part, the tax residency of the unitholders), but the entity itself would pay no corporate tax in Mexico, depending on the tax residency of the investor 4

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8 Gas Pipeline Map 8

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10 CFE Promotes the construction of 5 new gas pipelines. Cost 5.1 billion dollars 10

11 CFE Promotes the Private Sector Investment of $USD 6.1 billion on the construction of 4 gas pipelines and 5 thermoelectric power plants 11

12 Organization & Structure of Pemex/CFE. Now, CENEGAS in the Industry 12

13 PEMEX is a State Productive Enterprise 13

14 CENEGAS Organization Structure of Contracts and Process of the Contracts Given to Contractors The following is being transferred: 1. Pipelines 2. Land 3. Rights of way 4. Shipping permits and contracts 5. Control centers configuration 6. Other rights and obligations Contracts: Services including O&M 1. Operations and Maintenance 2. Rights of Way: Management, Regularization, and Legalization 3. Legal Services 4. Control Center (SCADA) Services, and Assistance for new Control Centers 5. Commercial Services 6. Financial and Fiscal Services 7. Regulation Compliances Services 8. Safety 14

15 Understanding Investor Concerns! Investors are looking for clear terms and conditions on their investment agreements to be stable inside a regulatory environment that can be monetized. At the end of the day, most of the investments in the energy sector have a very long shelf life, it means: the investment horizon should be 15 to 20 + years with a significant initial investment capital.! Under these conditions, the ability of the Mexican government to attract investment in the energy sector, will be driven not only by its size and attractive - which is certainly large and relevant to the industry, but more importantly, the way in which the regulation is implemented and the rule of law enforced. 15

16 Investor Objectives! Develop reserves to add to reserve inventory! Diversify asset base! Minimize capital and operating costs! Maximize operational freedom! Reasonable taxation and royalties! Maximize equity returns! Minimize political risk and provide for stabilization of investment! Establish long term, mutually beneficial relationship with host country 16

17 Lessons Learned for Raising Capital! Start the process as soon as possible! Hire a quality financial advisor! Provide documentation as fast as possible! Be highly communicative! Plan for delays! The process of raising capital is more difficult than expected! Takes longer than expected! Don t withhold information 17

18 Contact Information OFSCap, LLC 720 N. Post Oak Road, Suite 285 Houston, Texas (713) Mobile (713) Office Contact Mobile Beatriz Camarena-Maney bmaney@ofscap.com

19 GRACIAS 19