The Investment Treaty Arbitration Review: Oil: Mexico’s Recent Reforms in the Hydrocarbons Sector

I Introduction

Mexico opened its hydrocarbons sector to foreign direct investment (FDI) less than a decade ago, when it passed a series of constitutional, legal, and regulatory amendments that began in December 2013. This energy reform transformed the oil and gas sector in the country with new, international competitors in all segments of the value chain. It also entailed a legal and administrative transformation that strengthened the regulators and empowered them to regulate the sector, including the incumbent, existent state-owned entity (SOE), Petróleos Mexicanos (also known as Pemex).

This openness to FDI, private investment and competition in the energy sector was not without its detractors. The most salient of these is President Andrés Manuel López Obrador (2018–2024), who has opposed the 2013 energy reform since its inception and has now implemented a series of reforms with the objective of unwinding it, particularly through benefiting Pemex over all other competitors. These regulatory changes have been mostly challenged in national courts but some have spilled over to international investment arbitrations.

This chapter gives a brief overview of these changes and the challenges they may pose to investors in Mexico.

II Background: Mexico's 2013 energy reform

For over 75 years, Mexico had one of the most closed legal regimes to FDI in all segments of its hydrocarbons sector's value chain: the national oil company (Pemex) had a monopoly following the expropriation of assets of oil companies in the country in 1938 and the operations in Mexico of all oil companies, except for Pemex, were barred. Reforms in the 1990s and 2000s opened certain activities along the value chain to private participation,2 but FDI was not allowed until 2013.3 With the 2013 energy reform, Mexico liberalised all segments of the value chain to private investment,4 while retaining Pemex's status as an SOE at the centre of the industry.5

Now, potentially anyone can engage in the hydrocarbons sector by filing applications for the relevant licences or permits, as follows:

  1. Oil and natural gas remain the property of the Mexican nation and all activities relating to the exploration and production of oil and natural gas must have prior authorisation from the state through the issuance of one of two licences: (1) contracts entered into between the state (the National Commission on Hydrocarbons) and either Pemex or a private company, which are awarded through public bidding rounds; or (2) direct assignments of fields by the Ministry of Energy to Pemex.6
  2. To engage in activities in the midstream and downstream segments, the only requirement is to file and obtain a permit before the competent authority:
    • for the refining, transport, storage, distribution, compression, liquefaction, decompression, regasification, commercialisation and end-consumer sale of hydrocarbons (crude oil and natural gas), petroleum-based, natural gas-based or refined products and petrochemicals, and the management of natural gas pipelines systems, it is the Energy Regulatory Commission; and
    • for the refining of oil, processing of natural gas, and export and import of hydrocarbons (crude oil and natural gas), petroleum-based, natural gas-based or refined products, it is the Ministry of Energy.7

The 2013 energy reform also introduced a new architecture for the regulators: it empowered the National Commission on Hydrocarbons (the main technical regulator in the upstream segment)8 and the Energy Regulatory Commission (the main technical regulator for the midstream and downstream segments9 and the power sector10) through elevating their legal status to the same level as the Ministry of Energy, while at the same time granting them budgetary autonomy and a strong collegiate body that requires ratification by the Senate of its Commissioners.11 Furthermore, two new regulators were created: the Safety, Energy and Environment Agency (under the purview of the Ministry of Environment entrusted with health, safety and environment issues for the whole hydrocarbons industry);12 and the National Centre for the Control of Natural Gas (the dispatch-operator of the natural gas grid).13

The legal status of Pemex was also changed (although it remained under the purview of the Executive Branch) to grant it a strong board of directors with independent board members ratified by the Senate – in addition to those appointed by the Executive – and a special legal regime that carved out a special autonomy from applicable government legislation on subsidiaries and affiliates, human resources, procurement, asset management, contracts, budget and debt.14 The underlying idea was to make Pemex competitive for the nascent Mexican hydrocarbons markets by reducing legal, budgetary and financial constraints.15

Overall, the legal framework ensured that any private competitor would be treated the same as Pemex. It even granted the Energy Regulatory Commission with powers to introduce asymmetric regulation that could limit Pemex's market power to entice competition from new participants in certain activities, such as the first sale of hydrocarbons, petroleum-based, natural gas-based or refined products, and petrochemicals.16

FDI in Mexico's hydrocarbons industry has surged since 2014 and thus the hydrocarbons sector that arose out of the 2013 energy reform is quite diverse, with both international and national companies participating alongside Pemex in all segments of the value chain.

III Overview of recent hydrocarbon reforms in Mexico

The current Mexican President has been vocal in his opposition to the 2013 energy reform – which also liberalised the power sector – and consequently has attempted to implement a state-centred approach to energy regulation and legislation with the intent of giving a great market share to the energy SOEs (i.e., the National Oil Company (NOC), Pemex and the Federal Electricity Commission).

With the objective of strengthening the energy SOEs, the Mexican government has issued incremental, staggered measures that have sought to unwind the 2013 energy reform in the hydrocarbons sector through the following:

  1. hiring new personnel and designating heads of regulatory bodies, who could be friendlier to the current administration's position on energy matters, which has been perceived by some as detrimental to the limited autonomy that the National Commission on Hydrocarbons and the Energy Regulatory Commission have regarding the Ministry of Energy and the President;17
  2. paralysing the regulators' administrative activities, whereby the National Commission on Hydrocarbons stopped holding bidding rounds altogether18 – and therefore no new contracts for the exploration and production of hydrocarbons in Mexico have been awarded to private participants since 2018. Further, the Energy Regulatory Commission and the Ministry of Energy have delayed the authorisation of requests for new permits and their modifications for downstream and midstream activities in general, and at one moment stopped them altogether because of the covid-19 pandemic;19
  3. issuing regulations that have been deemed by some in the industry as limiting the rights of private participants in the midstream and downstream segments, which have been issued by the Energy Regulatory Commission and the Ministry of Energy. For instance, on 26 December 2020, the Ministries of Energy and Economy enacted an agreement regarding the regulation of import and export permits for hydrocarbons, petroleum-based, natural gas-based or refined products, and petrochemicals, upending the existing framework for import and export permits, reducing their term from 20 years to five years, expanding the list of petrochemicals subject to the regulation – such as ethane – and including more stringent requirements for the issuance and renewal of such permits;20 and
  4. changing legislation by passing bills through Congress.

Although the 2013 energy reform was written into the Constitution and applicable legislation, many of its tenets are found in administrative regulations. Since all the aforementioned regulators are part of the Federal Public Administration, they fall under the purview of the Mexican President, who has control over them.21 This explains why the unwinding of the 2013 energy reform began in the province of the Executive Branch through administrative and regulatory adjustments, and why it afterwards entailed bills submitted before Congress to change applicable legislation.

In that regard, on 26 March 2021, the President sent a bill to Congress to amend the Hydrocarbons Act, which was passed in both houses and was enacted into law on 4 May 2021.22 The explanatory statement of the bill explicitly referred to the need to strengthen Pemex.

The amendments modify the legal regime applicable to permit holders in the midstream and downstream segments of the hydrocarbons industry (i.e., those issued by the Energy Regulatory Commission and the Ministry of Energy) by augmenting their discretionary powers. However, upstream contractors may also potentially be indirectly affected if they behold permits to commercialise or export oil and natural gas.

The amendments provide the following:

  1. All permit holders are subject to storage capacity compliance (irrespective of the kind of permit granted, and therefore irrespective of the kind of product and activity engaged with),23 which will be issued by the Ministry of Energy, obliging regulators to revoke non-compliant permit holders at the entry into force of the reform.24
  2. Federal regulators are empowered to 'suspend' permits for national security, energy security or national economy reasons, which enables them to take control and operate the business of any permit holder for the duration they determine, at their discretion.25 Once the suspension period has elapsed, if the permit holder is not able to continue performing the regulated activities, the permit may be revoked at the discretion of the authority.26
  3. New categories of permit revocation are added regarding recidivism, illegal smuggling and non-compliance with the Hydrocarbons Act and other applicable requirements.27
  4. The presumption of administrative silence is changed from a positive to a negative decision on a petitioner's request to cede a permit,28 which could arguably slow the pace of cessions between market participants.
  5. A provision is included whereby permit holders that could be affected by the amendments may request compensation in accordance with applicable provisions but it is not clear which law or regulation governs this compensation, and therefore it is not clear which procedural steps to follow.29

IV Redress before national courts

The latest regulations and legislation introduced by the Mexican government can and have been challenged in domestic courts by affected private participants, who have obtained relief through injunctions. Depending on the authority involved, different contentious defence mechanisms are available.

Generally, any action or regulation enacted by the Mexican government can be challenged administratively directly before the authority itself. In addition, it can be challenged before the Federal Tribunal on Administrative Justice, whose jurisdiction covers any kind of dispute between private parties and the Federal Public Administration and is part of the Executive Branch. This is generally the case of most regulators, such as the Ministry of Energy and the Safety, Energy and Environment Agency.

However, there are exceptions that allow a claimant to seek relief directly before federal courts when challenging regulations through an amparo claim (a special litigation that allows a claimant to challenge the constitutionality of any administrative, legislative or judicial act with the objective of obtaining a definitive injunction from the application of the act to the claimant).

In the case of the Energy Regulatory Commission and the National Hydrocarbons Commission, the law allows a claimant to directly challenge their actions and regulations through an amparo claim before federal courts.

Regarding legislation – such as the amendments to the Hydrocarbons Act explained above – a private party can challenge the law's constitutionality through an amparo claim, whereby a claimant can request and obtain a preliminary injunction that has traditionally been inter partes. However, recently, the main criterion of the specialist district courts on antitrust and telecommunications (the federal district courts that have handled the most prominent energy-related amparos in recent years) has been to grant injunctions generally with erga omnes effects in specific cases. This has been the case of the amparos filed against the amendments to the Hydrocarbons Act, whose erga omnes injunctions had the effect of legally and materially paralysing the amendments by suspending their legal effects and thus preventing their application to anyone.

However, the decisions of the district courts were challenged by the federal government – as the defendant in the amparo proceedings – and some were reversed by the appellate courts, which have lifted some of the injunctions and have decided to dismiss outright some amparo lawsuits. The legal effects of the amendments will continue to be suspended if and until the federal courts revoke the last of the erga omnes injunctions granted.

The constitutional standing of the amendments has yet to be resolved in the merits of these amparos, which could reach the Mexican Supreme Court. Therefore, the future of the amendments is still pending.

In sum, depending on the authority involved, a private participant in the hydrocarbons industry in Mexico can seek relief through different jurisdictional mechanisms, which have been used recently with different degrees of success by private parties in the energy sector.

V Impact of the reforms to treaty protection standards

In addition to the redress that a company in Mexico can obtain through domestic litigation, foreign investors can benefit from the international dispute mechanisms available in the manifold international investment treaties (IIAs) – made up of bilateral investment treaties (BITs) and investment chapters in free trade agreements (FTAs) – to which Mexico is a party (30 BITs and 15 FTAs). The IIAs provide foreign investors a number of rights and protections for their investments in the hydrocarbons sector in Mexico.

While the scope and limitations of each specific protection standard vary from treaty to treaty, the majority of these IIAs (if not all) provide foreign investors in Mexico with protection against discrimination and arbitrary measures, either through the fair and equitable treatment, the most-favoured nation, the national treatment or the non-discrimination standards. Thereunder, Mexico has the obligation, to one extent or another, to guarantee that foreign investors do not suffer from discrimination and arbitrary measures within the country, either with respect to Mexican nationals (including energy SOEs) or foreign investors.

As such, foreign investors who consider that measures undertaken recently in the hydrocarbons sector unduly discriminate against them in favour of the NOC, could potentially seek relief before an arbitral tribunal, pursuant to the applicable IIA.

In fact, various investors and stakeholders have raised concerns in this sense since the current administration started implementing the above-mentioned legal and regulatory modifications.30 Some investors have even gone as far as initiating arbitration proceedings in response to such actions in different segments of the value chain.

In September 2021, Talos Energy filed notices of dispute under both the Agreement between the United States, the United Mexican States and Canada (USMCA) and the BIT between the United Mexican States and the Belgo-Luxembourg Economic Union before the Mexican government.31 The notice concerns mainly the Mexican Ministry of Energy's decision to assign Pemex as the operator of the Zama oil field within the context of the first unitisation proceeding in Mexico, wherein Talos Energy discovered a field that extends to an area operated and assigned to Pemex.

In February 2022, Monterra Energy submitted its notice of intent as a legacy investment under the North American Free Trade Agreement (NAFTA). The notice concerns chiefly the Energy Regulatory Commission's closure of its fuels' storage terminal.32

It is salient that both of these notices concern the perceived favourable treatment of the NOC by the Mexican government (in the eyes of the investor) to the detriment of the foreign investor's rights, and they both concern actions undertaken at the federal level by the main regulators in the sector – the Ministry of Energy, the Energy Regulatory Commission and the National Commission on Hydrocarbons. This conduct has been a cause of concern for members of the industry. The outcome of these notices and the arbitrations that could ensue therefrom are still uncertain.

It is important to keep in mind that Mexico's IIAs are manifold and different in the breadth and scope of the protections afforded to investors, as well as the procedural requirements needed for an arbitration. Particularly in North America, the recent treaties that spun out of NAFTA have different scopes of protection and requirements for arbitration, including the following:

  1. A US investor has the potential to seek protection from both NAFTA and the USMCA. Although NAFTA was terminated on the same date that the USMCA came into force (1 July 2020), the USMCA provides that investors that have 'legacy investments' (i.e., investments that were established or acquired between 1994 and 1 July 2020) may submit claims under NAFTA during the three years following its termination.33 After the three years have elapsed, they may only gain access to arbitration pursuant to the USMCA.
  2. Whereas NAFTA affords the usual treaty protections for investors (e.g., protection against direct and indirect expropriation, fair and equitable treatment, full protection and security, most-favoured nation and national treatment), the USMCA differentiates between those investors within a 'covered sector' and all others: it affords investors not within a covered sector access to arbitration restricted to the national treatment, most-favoured nation and direct expropriation clauses,34 while it affords investors within a covered sector full access to arbitration under the USMCA over all the usual substantive treaty protections (i.e., those found in NAFTA, as stated above).35
  3. Under the USMCA, a covered sector means '(i) activities with respect to oil and natural gas that a national authority of an Annex Party controls, such as exploration, extraction, refining, transportation, distribution, or sale, . . . (ii) . . . power generation. . . (iii) . . . telecommunications . . . (iv) . . . transportation. . . , or (v) the ownership or management of roads, railways, bridges, or canals'.36 As such, US investors in the hydrocarbons sector would seem to prima facie fall within a covered sector, and thus have full access to arbitration under the USMCA over all the substantive protections afforded therein. Ultimately, however, whether a particular investment falls under the covered sectors' definition is contingent on, inter alia, whether the investor could be deemed to have a 'covered government contract' with a 'national authority' under the USMCA for such purposes,37 and whether the investor relied on the government contract for its investment.38
  4. These requirements are novel, and therefore do not have any resemblance with NAFTA or other treaties entered into by Mexico. It will be interesting to look at the different interpretations that arbitral tribunals might have on these provisions if future arbitrations are conducted pursuant to the USMCA.
  5. Considering that Canada is not a party to Annex 14-D and Annex 14-E of the USMCA, Canadian investors cannot submit arbitration claims under the USMCA, but could potentially submit claims against Mexico under the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, which is more akin to NAFTA than to the USMCA and thereby affording Canadian investors in general with the substantive protections enunciated above for NAFTA.

Foreign investors in the Mexican hydrocarbons sector should be wary of these differences before resorting to investment treaty arbitration.

VI Conclusion

Since 2018, the Mexican government has changed course from an openness to FDI, private investment and competition in the energy sector. This has entailed changes in regulation and legislation that reach manifold private participants, including foreign investors. Although affected parties have access to domestic remedies, which have been used widely (the amparo proceeding in particular), some disputes have spilled over into the international investment arena.

Within this context, foreign investors in the Mexican hydrocarbons sector should be mindful that domestic and international dispute mechanisms are at their disposal.


1 Bernardo Sepúlveda Amor is of counsel and Camilo Soto Crespo is an associate at Creel, García-Cuéllar, Aiza y Enríquez, SC. The authors would specially like to thank and acknowledge colleagues Pamela Payró Katthain and Sara Contreras Medrano for their valuable contributions to this chapter.

2 See Alejandro López-Velarde, 'The New Foreign Participation Rules in Each Sector of the Mexican Oil and Gas Industry: Are the Modifications Enough for Foreign Capitals?', 3 J. World Energy L. & Bus., 71, 82–83, 90–91 (2010).

3 See Legislative Decree Whereby the Hydrocarbons Act is Enacted, and the Foreign Investment, Mining and Public-Private Partnership Acts Are Amended, Official Journal of the Federation (DOF): 11/08/2014 (Mex.) (Decree Whereby the Hydrocarbons Act is Enacted).

4 Elisabeth Eljuri and Daniel Johnston, 'Mexico's Energy Sector Reform', 7 J. World Energy L. & Bus. 168 (2014).

5 See Eduardo Gonzalez-Canales, 'Mexican Energy Law: Industry Renaissance or Chronicle of a Death Foretold', 8 J. World Energy L. & Bus. 45, 53–54 (2015).

6 Decree amending the Mexican Constitution on Energy, DOF: 20/12/2013 (Mex.) (2013 Constitutional Energy Reform), at Article 27, seventh paragraph.

7 Decree Whereby the Hydrocarbons Act is Enacted, at Article 48.

8 Chiefly, exploration and production of oil and natural gas.

9 Including the following activities: end-consumer sale, commercialisation, importation, exportation, transport, distribution, storage, refining and processing of hydrocarbons (crude oil and natural gas), petroleum-based, natural gas-based or refined products (petrolíferos), and petrochemicals (petroquímica).

10 The 2013 Constitutional Energy Reform liberalised the generation, supply and commercialisation of electricity, while reserving transmission and distribution activities for the Mexican state only through the Federal Electricity Commission. See 2013 Constitutional Energy Reform, at Article 28, fourth paragraph.

11 See Legislative Decree Whereby the Regulatory Coordinated Organs in Energy Matters Act and the Safety and Environment Energy Agency Act are enacted, and the Federal Public Administration Organic Act is amended, DOF: 11/08/2014 (Mex.).

12 See id.

13 See Decree that creates the National Centre for the Control of Natural Gas, DOF 28-08-2014 (Mex.).

14 See Legislative Decree Whereby the Petróleos Mexicanos Act and the Federal Commission of Electricity Act are enacted, and the following acts are amended: Public Procurement Act and Public Works Act, DOF: 11/08/2014 (Mex.).

15 Leticia Abad and Noel Maurer, 'A crude reform: Pemex in Mexico's energy landscape' in Mexico's New Energy Reform, 78, 100 (Duncan Wood, et al., eds, Wilson Center, 2018), (last accessed 24. Mar. 2022).

16 See Decree Whereby the Hydrocarbons Act is Enacted, at Transitory Article 13.

17 See, e.g., Diana Nava, 'Un regulador debilitado: así es como la CRE ha perdido fuerza este sexenio', Expansión (15 Jan. 2021), (last accessed 24. Mar. 2022).

18 On 11 December 2018, the National Commission on Hydrocarbons cancelled the 3.2 and 3.3 bidding rounds that were being held. National Commission on Hydrocarbons, Resolution CNH.E.70.003/18 (ón/cancelación-de-la-licitacón/) and Resolution CNH.E.70.004/18 (ón/cancelación-de-la-licitación/) (web pages last accessed 28 Apr. 2022).

19 See, e.g., Patricia Tapia, 'Un año de ajetreo en el sector petrolíferos e hidrocarburos', Forbes Mexico (22 Dec. 2021),; see also 'CRE profundiza la parálisis en el sector', Reporte Índigo (24 Jun. 2021), (web pages last accessed 24. Mar. 2022).

20 Decree that establishes the goods, the import and export of which are subject to regulation by the Ministry of Energy, DOF 26/12/2020 (Mex.).

21 Guillermo García, 'The Fine Print of the Mexican Energy Reform' in Mexico's New Energy Reform, 36, 36–37 (Duncan Wood, et al., eds, Wilson Center 2018), (last accessed 24. Mar. 2022).

22 Decree whereby the Hydrocarbons Act is amended, DOF 04/05/2021 (Mex.).

23 ibid., at Article 51, Section III.

24 ibid., at Transitory Article 4.

25 ibid., at Articles 57 and 59 bis.

26 ibid., at Article 59 bis, fifth paragraph.

27 ibid., at Article 56, Sections XI and XII; Article 86, Section II, second paragraph; and Transitory Article 6.

28 ibid., at Article 53, second paragraph.

29 ibid., at Transitory Article 3.

30 For instance, in July 2021, members of the United States Congress sent a letter to President Biden voicing their concerns regarding the energy regulatory reforms and how they harm their investors in Mexico. A similar letter was sent by the Alliance for Trade Enforcement to Vice President Harris in September 2021.

31 Talos Energy, Press release, 'Talos Energy files notices of dispute regarding Zama in an effort to achieve a mutually beneficial resolution' (3 Sep. 2021), (last accessed 24 Mar. 2022).

32 Monterra Energy, Press release, 'Monterra Energy Takes Legal Action Against Closure of its Tuxpan Facility by Submitting to the Government of Mexico a Notice of Intent under NAFTA' (22 Feb. 2022), (last accessed 24 Mar. 2022).

33 USMCA, Annex 14-C, para. 3.

34 ibid., at Annex 14-D, art. 14.D.3.1.

35 ibid., at Annex 14-E, para. 2.

36 ibid., at Annex 14-E, para. 6(b).

37 ibid., at Annex 14-E, paras. 2(a)(i)(A)(2) and 6(a).

38 ibid., at Annex 14-E, paras. 2 and 6(a).

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