Local content requirements for E&P companies doing business in Mexico could gradually rise from 25% next year to 35% by 2025 if changes approved in a bill by the Senate receive blessings from the country’s lower house and president.

However, the requirement—which is up from the originally proposed 25% by 2025—would not apply to deepwater and ultradeepwater projects, an area in which state-run Pemex lacks technical expertise. Realizing the challenges associated with local ability in this area and the need for advanced technology, the bill states that a different target will be established for deepwater and ultradeepwater activities.

The amended local content percentage came following dialogue from different sectors and would be subject to review every five years after 2025. It is among the details outlined in the draft energy bill, one of four bills making their way through the legislative process that will set the framework for energy-related activity in the country following a December 2013 historic vote that opened the sector to private investors. The three other bills are expected to be debated throughout the weekend and possibly into early next week before moving on to the lower house for a vote.

Jose Valera, a partner with the Mayer Brown law firm, called the higher local content percentage very sensible.

“With respect to areas in which it would apply, there would be some qualifications such as the availability of local workforce. Another qualification that is normally allowed is that the local content cost must not exceed by certain threshold the cost otherwise available from foreign suppliers,” Valera said. “I would presume that that would also be available here, although they are not making it explicit yet in the draft law.”

The economy ministry would be charged with establishing the methodology for measuring the degree of local content in E&P contracts, with the National Hydrocarbons Commission having authority to penalize those that don’t comply with the rules. Methodology determining local content would include the origin of goods and contracted services, national manpower and skilled labor, training of the national workforce, local and regional investment in physical infrastructure and transfer of technology.

But a big piece of the puzzle is missing—details about the hydrocarbon revenues law. Valera said this part originates in the house, where members have not been as forthcoming publicly with information or proposed changes as their counterparts in the senate.

“We still don’t have the full picture. We’re all touching different parts of the elephant here, and we don’t realize what we’re touching,” Valera said, noting that information about the fiscal framework is needed. “By fiscal framework I don’t mean taxes. I mean the contract consideration payable to the state by the oil company.”

The potential for discoveries especially in unconventional shale plays and the deepwater Gulf of Mexico (GoM) is expected to generate much interest from oil and gas companies; however, decisions hinge on the possible profitability of such projects, and the fiscal framework plays a key role in companies’ decisions.

The finance ministry will be responsible for establishing the economic and fiscal terms of the E&P contracts, which include license, production-sharing, profit-sharing and service contracts. The constitutional reform establishes that the law shall provide that “maximizing the nation’s revenues” is to be the guiding principle in implementing this framework, according to Mayer Brown’s analysis of the proposed hydrocarbon legal regime.

The license contracts would include payments to the nation that include a signing bonus, exploratory phase fees, royalties and a payment consisting of a percentage of operating profits or the contract value of hydrocarbons, the analysis said. “After making these payments, the contractor may take the hydrocarbons in-kind at the wellhead. All of the above payments shall be paid in cash by the contractor. These payments are in addition to any taxes owed by the contractor pursuant to the Mexican Income Tax Law or other tax laws.”

The hydrocarbon revenues bill has been sent to the House, and legislators are still working on it. “To my knowledge it has not made it out of committee onto the floor of the house yet,” Valera said.

Legislation concerning energy reform should be approved by the end of August before the next ordinary session of Congress starts in September. “By law, the president needs to submit to that Congress a budget bill for the next fiscal year. And the president, for the purposes of submitting a budget bill, must have some legal basis to make budgetary assumptions concerning revenue expenditures as far as the oil industry is concerned. For that, they need this legislation passed so that they have some basis to make budgetary assumptions.”

In the meantime, debate on the legislation for energy reform—which also includes changes to the downstream, midstream and electricity sectors—continues.

Bloomberg reported that debate on the four bills related to the energy and electricity industries continued early Friday morning, with opponents—mainly from the Democratic Revolution Party (PRD)—calling the move treason.

“In what empty heart, without soul, could we give away our national riches?” Senator Fernando Enrique Mayans, a PRD member, said in the Bloomberg article. “There are no Mexicans with guts that are defending our country here in the Senate.”

The news agency said Mayans compared the energy law to the 1999 movie “La Ley de Herodes.”

“You saw what happened in the movie,” Mayans yelled. “A Mexican opens the door for a gringo to enter the home to install a light and he ended up running off with his wife.”

In addition to the local content requirement, the legislation approved by the Senate sets a 20% minimum participation in cross-border fields for Pemex.

Legislative action comes as Mexico continues to cope with declining production as shale developments flourish just across the border in the U.S. and deepwater potential sits untapped in the GoM.