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Oil and gas exploration and production in Mexico: Pemex mixed contracts and State contracts

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Last verified: 2026-10-26 · Status: Changing

Oil and gas exploration and production are strategic activities reserved to the Nation; private companies take part only through contracts, never concessions, and never own hydrocarbons in the subsoil. The main route since March 2025 is a Pemex mixed development assignment, in which a private partner signs a mixed contract with Pemex, Pemex keeps at least 40 percent and cost recovery is capped at 30 percent of revenue (40 percent with approvals). SENER may exceptionally tender exploration and extraction contracts that pay royalties, for oil 7.5 percent below USD 48 a barrel; existing contracts from the 2014 regime keep their terms.

USD conversions use MXN 18.6638 per US dollar, the US Federal Reserve H.10 noon buying rate in New York for 23 October 2026 (FRED series DEXMXUS), the latest observation available when this page was verified. Legal conversions in Mexico use the Banxico FIX, which differs slightly. Conversions are for orientation only. Fines set in UMA use the 2026 daily UMA of MXN 117.31 published by INEGI in the DOF of 9 January 2026.

Key facts

Minimum Pemex participating interest in mixed contracts	40 %LSH art. 31, as of 2026-10-26 · in force
Cost recovery cap in mixed contracts (up to 40 percent with approvals)	30 % of revenueLSH art. 30, as of 2026-10-26 · in force
Minimum Pemex share of investment where cross border fields may exist	20 %LSH art. 42, as of 2026-10-26 · in force
Oil royalty rate when the contract price is below the USD 48 threshold	7.5 %LIH art. 24, section I, as of 2026-10-26 · in force
Monthly exploration fee per km2, first 60 months (base amount before inflation indexing)	1150 MXNLIH art. 23, as of 2026-10-26 · in force
Time for SENER to decide on a change of control in an E&P contract	35 daysLSH art. 40, as of 2026-10-26 · in force

The rule

1. Who may explore and produce. Exploration and extraction are strategic under article 28 of the Constitution and only the Nation carries them out, through Pemex as assignee or through contractors. No concessions are granted. Surface reconnaissance and midstream and downstream activities are open to any person with the corresponding authorization or permit. The Foreign Investment Law lists oil and gas exploration and extraction among the areas reserved to the State, so a foreign investor's role is contractual.
Cost to do it: No access fee; participation depends on a Pemex selection process or an exceptional SENER tender.
Example: A Canadian service company can drill wells for Pemex under a services contract, or co invest in a field through a mixed contract, but cannot hold its own block title. / No currency threshold applies.Constitución Política, arts. 27 seventh paragraph and 28, reformed DOF 31 October 2024; Ley del Sector Hidrocarburos (LSH), new law DOF 18 March 2025, in force 19 March 2025; Ley de Inversión Extranjera, art. 5, section I, LSH art. 6; LIE art. 5, section I, 2025-03-18 official text · verified 2026-10-26 · changed: The LSH of 18 March 2025 repealed the Ley de Hidrocarburos of 11 August 2014 and annulled all pending bidding rules for exploration and extraction contracts issued under it (LSH transitory arts. Segundo and Cuarto).

2. Pemex mixed development assignments. When Pemex needs to complement its technical, operating, financial or execution capacity, SENER may grant it a mixed development assignment with one or more private partners; any party may act as operator. Pemex keeps the exclusive right to the assignment and can never transfer it. Pemex proposes the area, partner requirements, contract model and selection procedure; SENER authorizes; Pemex then selects the partner under board approved guidelines published in the DOF and registers the signed mixed contract with SENER. Existing Pemex assignments for its own development can be converted into mixed ones.
Cost to do it: Partner contributions are set in each mixed contract; Pemex may contribute only exceptionally and with board approval.
Example: Pemex asks SENER to convert an onshore Tabasco field into a mixed assignment; after authorization, it runs a selection process and signs a mixed contract with the winning partner, which is then registered with SENER. / No currency threshold is set in the law.Ley del Sector Hidrocarburos (LSH), new law DOF 18 March 2025, in force 19 March 2025, LSH arts. 22 and 24 to 27, 2025-03-18 official text · verified 2026-10-26

3. Economics of a mixed contract. Each contract must state the participating interests, a cost recovery limit, and the consideration as a share of production or of profit. From the revenue of the production, the assignment's tax obligations under the LIH are paid first; then cost recovery, which may not exceed 30 percent of revenue (up to 40 percent with Pemex board approval after SENER approval, when the field requires it); the rest is split by participating interest. Pemex must keep at least 40 percent. SENER and the Finance Ministry may audit cost recovery, and the contract must also cover guarantees, assignment and change of control, dispute resolution, anticorruption clauses, an operating committee and abandonment. Commercial law and the civil law apply to these contracts.
Cost to do it: Dispute resolution, guarantees and audit rights are contract terms; budget for cost audits by SENER and the Finance Ministry.
Example: In a year with MXN 10,000 million of production revenue and MXN 3,500 million of taxes on the assignment, cost recovery is capped at MXN 3,000 million (30 percent); the remaining MXN 3,500 million is shared 60/40 if the partner holds 60 percent: MXN 2,100 million to the partner and MXN 1,400 million to Pemex. / Revenue of about USD 535,796,569; partner profit share about USD 112,517,279 plus its share of recovered costs.Ley del Sector Hidrocarburos (LSH), new law DOF 18 March 2025, in force 19 March 2025, LSH arts. 28 to 32, 2025-03-18 official text · verified 2026-10-26

4. Exceptional State exploration and extraction contracts. SENER may, exceptionally, tender exploration and extraction contracts after issuing bidding guidelines (with Finance Ministry guidelines on fiscal terms). Contract models may be service, profit sharing, production sharing or license contracts. SENER may require a Pemex stake in any tender, and must require at least 20 percent Pemex participation in the investment where cross border fields may exist. Transferring corporate control or operational control needs prior SENER approval, decided within 35 days; other changes in share capital must be notified within 30 calendar days. Arbitration is allowed but must apply Mexican federal law, sit in Mexico City and run in Spanish. SENER must reject bidders that are barred from public contracting, have serious pending defaults or submit false information.
Cost to do it: Bid guarantees and fiscal terms are set in each tender's rules.
Example: A listed partner in a 2014 regime contract that sells a non controlling 10 percent of its shares must notify SENER within 30 calendar days; a sale giving control needs prior approval. / No currency threshold applies; the test is control.Ley del Sector Hidrocarburos (LSH), new law DOF 18 March 2025, in force 19 March 2025, LSH arts. 37 and 39 to 53, 2025-03-18 official text · verified 2026-10-26

5. Fiscal terms for contractors and for Pemex. Contracts pay the State a monthly exploration fee per square kilometer of area not in production (MXN 1,150 for the first 60 months and MXN 2,750 from month 61, statutory base amounts indexed to inflation every January) and royalties. The oil royalty is 7.5 percent of contract value when the contract oil price is below USD 48 a barrel, and (0.125 x price + 1.5) percent at USD 48 or more; non associated gas pays 0 percent up to USD 5 per million BTU; condensates pay 5 percent below USD 60 a barrel. The thresholds are adjusted for US producer price inflation under Finance Ministry guidelines. Pemex as assignee pays instead the Petroleum Duty for Wellbeing, a yearly levy without deductions, for example 30 percent plus a price adjustment for oil from onshore and shallow water fields.
Cost to do it: Exploration fee base amounts MXN 1,150 and MXN 2,750 per square kilometer per month, before inflation indexing.
Example: At a contract oil price of USD 70 a barrel the statutory oil royalty formula gives 10.25 percent of contract value; at USD 45 it is 7.5 percent, before the producer price adjustment of the thresholds. / On USD 100 million of oil sold at USD 70, the royalty under the base formula is about USD 10,250,000.Ley de Ingresos sobre Hidrocarburos (LIH), DOF 11 August 2014, last reform DOF 18 March 2025, LIH arts. 23, 24 and 39, 2025-03-18 official text · verified 2026-10-26 · changed: The reform of 18 March 2025 renamed the assignment duty as the Derecho Petrolero para el Bienestar (LIH art. 39).

6. Land access and social impact. The hydrocarbons industry is of public utility and federal jurisdiction. Use of land is negotiated with owners in transparent agreements; if no agreement is reached within 30 business days, the parties may ask for mediation and ultimately for an administrative easement. Before a Pemex assignment or a tender call, SENER runs a social impact study, and anyone seeking a permit or authorization for a project must file an energy social impact assessment with SENER. Consultation with indigenous and Afro Mexican communities is carried out by SENER.
Cost to do it: Land payments are agreed with owners, with reference tables kept by INDAABIN; appraisals and mediator fees are paid by the operator.
Example: In an onshore mixed field, the land use agreement reached with ejido landholders is filed by the assignee or contractor with a federal civil district judge or a unitary agrarian court, which validates it with the force of a final judgment. / No statutory amount; payments depend on the land and its use.Ley del Sector Hidrocarburos (LSH), new law DOF 18 March 2025, in force 19 March 2025, LSH arts. 127, 128, 132 to 143 and 150 to 157, 2025-03-18 official text · verified 2026-10-26

Route	Who holds the title	Private role	Key limits	Rule
Pemex assignment for own development	Pemex	Service contracts only	Pemex cannot use public private partnership contracts for E&P	LSH arts. 10 to 23 and 38
Pemex mixed development assignment	Pemex (non transferable)	Partner in a mixed contract, may be operator	Pemex at least 40 percent; cost recovery up to 30 percent (40 with approvals)	LSH arts. 24 to 36
SENER exploration and extraction contract	State contract with the contractor	Contractor alone or with Pemex	Exceptional; tender required; Pemex at least 20 percent near cross border fields	LSH arts. 37 to 53
Contracts signed under the 2014 law	Contractor	As signed	Keep their original terms	LSH transitory art. Décimo

Routes for private capital in Mexican upstream oil and gas, verified 26 October 2026.

Worked example

A US independent holds 60 percent of a Pemex mixed contract on a shallow water field selling 10,000 barrels a day at USD 70, about USD 255.5 million a year. After the assignment's taxes are paid, cost recovery is capped at 30 percent of revenue and the remainder is split 60/40. Under a 2014 regime license contract instead, the same oil would carry a base royalty of 10.25 percent before other contract considerations.

Step by step

1. Decide between partnering with Pemex (mixed assignment) and waiting for an exceptional SENER tender.
2. Prequalify under the Pemex board guidelines published in the DOF: technical, financial, execution and experience criteria.
3. Negotiate the mixed contract terms: operator, interests, cost recovery limit, consideration, guarantees, exit and dispute clauses.
4. After signature, Pemex registers the contract with SENER; SENER approves exploration and development plans.
5. Plan land access agreements, social impact assessment and community consultation before field work.

Common traps

Expecting to book reserves or hold title: hydrocarbons in the subsoil belong to the Nation and the assignment stays with Pemex (LSH arts. 24 and 26).
Assuming cost recovery above 30 percent: it needs SENER approval and then Pemex board approval, and never exceeds 40 percent (LSH art. 30).
Changing control of a contractor without prior SENER approval; the assignment of rights is void (LSH art. 40).
Choosing foreign law or a seat abroad for arbitration of an E&P contract; the law requires Mexican federal law, Mexico City and Spanish (LSH art. 48).

Sources

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