Energy reform: The new regulation for the Hydrocarbons Sector in Mexico

In compliance with the constitutional reforms published in the Federal Official Gazette on October 31, 2024, and December 20, 2024 (the Constitutional Reforms), new secondary legislation regulating the energy sector, specifically in terms of power and hydrocarbons, was published on March 18, 2025.

Regarding the hydrocarbons sector, three new main laws were issued: (i) the Hydrocarbons Sector Law (LSH), (ii) the Petróleos Mexicanos Law (PEMEX Law), and (iii) the National Energy Commission Law (LCNE); as well as reforms to certain laws, including the Hydrocarbons Revenue Law (LISH).

Hydrocarbons Sector Law

The new LSH replaces the previous Hydrocarbons Law issued as part of the 2013 constitutional energy reforms package. The LSH introduces a new structure and regulatory framework for the country's hydrocarbons sector, granting a preferential role to Petróleos Mexicanos (PEMEX) and assigning regulatory and supervisory powers to both the Ministry of Energy (SENER) and the newly established National Energy Commission (CNE). The CNE, in conjunction with SENER, replaces the Energy Regulatory Commission (CRE) and the National Hydrocarbons Commission (CNH).

Despite the preferential role given to PEMEX, the LSH continues to allow private sector participation across the entire hydrocarbons and petroleum production chain, including upstream, midstream and downstream activities.

Upstream

The LSH largely adopts a structure similar to that of the previous Hydrocarbons Law for conducting hydrocarbon exploration and extraction activities. This includes allocations (asignaciones) (“Asignaciones”) granted by SENER to PEMEX, as well as exploration and extraction contracts.

Under the new LSH, Asignaciones can be:

1. Asignaciones for direct development
   1. These are exclusive Asignaciones to be granted to PEMEX for the exploration and extraction of hydrocarbons. Under these, PEMEX will act as the operator.
   2. To fulfill its obligations under these Asignaciones, PEMEX will be able to enter into service contracts with private entities. The compensation under these contracts must be paid in cash.
   3. If PEMEX requires it and obtains prior written authorization from SENER, these Asignaciones could transition to the new "Mixed Development Asignaciones" scheme.
2. Asignaciones for mixed development and mixed contracts
   1. Under this model, PEMEX can complement its technical, operative, financial and execution capabilities with the support of private companies, referred to as "Participants" under the LSH, who may act as operators.
   2. PEMEX has the authority to determine the selection method for Participants while retaining title to the Asignaciones.
   3. PEMEX and the Participants will enter into parallel mixed contracts to these types of Asignaciones, which will contain the terms and conditions whereby the activities inherent to an Asignación for mixed development will be carried out, and will regulate, among other aspects, the participating interest, risks, rights and obligations regarding assets, liabilities and compensation, as well as the mechanism for agreeing on technical, operational and budgetary decisions in the operation of the Asignación by the involved parties.
   4. Under the mixed contracts, PEMEX must maintain at least a 40 percent participating interest.
   5. As a general rule, PEMEX is not obliged to make capital contributions under these Asignaciones. However, the LSH provides that exceptionally, and provided prior written authorization from PEMEX’s Board of Directors is granted, and it is foreseen in the mixed contract, PEMEX could make eventually capital contributions.
   6. All income obtained from these Asignaciones must be allocated in the following order of priority: (1) to the payment of applicable taxes, (2) to cost recovery (which may not exceed 30 percent of the income obtained, unless otherwise approved by SENER, in which case it must not exceed 40 percent of the income obtained) and (3) the remainder will be distributed according to the participating interest of each party in the contract.

Midstream and downstream

Regarding midstream and downstream activities, the LSH includes several changes in permitted activities:

1. SENER will be responsible for regulating and granting permits for the treatment, refining, import, export, transportation, storage and commercialization of oil, as well as for the import and export of natural gas and petroleum products. Meanwhile, the CNE will regulate and grant permits for the processing, liquefaction, regasification, compression, transportation, storage, distribution, commercialization and public sale of natural gas, petroleum products and petrochemicals, as well as for the management of integrated systems.
2. Regarding the import of hydrocarbons, petroleum products and petrochemicals, provisions were also included that regulate the joint liability of permit holders in fiscal matters related to other regulated activities associated with importation.
3. The inclusion of a new permitted activity called "formulation" also stands out, which consists of mixing petroleum products with additives and biofuels to obtain new products.
4. In terms of integrated systems (pipeline or non-pipeline transportation and storage), the LSH grants PEMEX and its subsidiaries a preference and priority in accessing the capacity of new transportation projects or when increasing the capacity of existing infrastructure. This could potentially contravene certain provisions of international trade treaties to which Mexico is a party, especially the Treaty between Mexico, the United States and Canada.
5. The new LSH repeals the regulation of first-hand sales (VPM) for PEMEX, which is also exempted from complying with open access obligations for the transportation, storage and distribution of hydrocarbons, petroleum products and petrochemicals.
6. Finally, the transitional articles of the LSH establish that VPM contracts entered into by PEMEX and its subsidiaries must migrate to commercialization contracts within no more than 180 calendar days after the new LSH comes into effect.

Transitional provisions of the LSH

The transitional articles of the LSH establish several provisions that will undoubtedly impact existing Asignaciones and exploration and extraction contracts (CEEs), as well as activities, permits and procedures related to permitted activities:

1. Mexican Congress has 180 days following the publication of the LSH to issue the law's regulations.
2. Asignaciones and CEEs granted prior to the LSH will remain valid under the terms in which they were granted. Similarly, approval processes and administrative procedures related to assignments and CEEs initiated before the new LSH must be processed according to the legal provisions in force at the time of their processing.
3. SENER is granted a period of 180 days after the new LSH comes into effect to enter into amending agreements to CEEs entered into by Pemex Exploración y Producción, due to the change in PEMEX's legal nature as a public state company.
4. In general, other contracts or agreements (services, commercialization or information access agreements) entered into with PEMEX, the State or other authorities will remain valid under the terms agreed upon.
5. Permits and authorizations granted by SENER, CNH or CRE will remain valid under the terms granted.

Law of the State Public Company, Petróleos Mexicanos

With the purpose of strengthening state control over PEMEX, redefining its organizational and operational structure and consolidating it as a public company (as opposed to a state productive company), the new PEMEX Law establishes that this administrative entity may carry out, among others, the following activities:

1. Exploration and extraction of oil and hydrocarbons, including processing, commercialization and transportation.
2. Refining and transformation of hydrocarbons and their derivatives.
3. Commercialization, import and export of hydrocarbons, petroleum products and petrochemicals.
4. Generation and commercialization of electric energy and development of renewable energy sources.
5. Use, transportation and distribution of biofuels and lithium.

To carry out its functions, PEMEX may enter into contracts with private entities under mixed development schemes and CEEs, including partnerships and alliances to share costs, investments and risks; the foregoing, in accordance with the provisions of the LSH and the PEMEX Law.

As the figure of subsidiary productive companies will be eliminated, PEMEX will directly assume the rights and obligations of Pemex Exploration and Production, Pemex Industrial Transformation and Pemex Logistics.

In summary, the changes and laws derived from the Constitutional Reforms gave PEMEX greater autonomy, market preference, vertical integration and strengthened its supervision and public character.

National Energy Commission Law

The CNE is the new technical and regulatory organization with operational, management and decision-making independence, under SENER, intended to replace several of the functions and activities of the CRE and CNH.

In the hydrocarbons sector, the CNE will have the following faculties:

1. Regulate the compensations, prices and tariffs applicable to sector activities.
2. Grant, modify, revoke and supervise permits for the processing, liquefaction, regasification, compression, decompression, transportation, storage, distribution, commercialization and public sale of natural gas.
3. Grant, modify, revoke and supervise permits for the formulation, transportation, storage, distribution, commercialization and public sale of petroleum products and petrochemicals.
4. Manage the collection, safeguarding, use, updating and publication of information related to energy sector activities, as established by SENER.

Distinction of faculties between SENER and CNE

The provisions established in the LSH, PEMEX Law and LCNE confirm the separation of faculties between SENER and CNE. However, this separation is not precise. Generally, the distribution of competencies for permitted activities is detailed as follows and is expected to be further defined through subsequent regulations:

SENER activities