Business Law Articles
On October 20, slightly more than two months after the preliminary announcement of the blocks to be bid on in the so called “Round One” for the exploration and extraction of hydrocarbons, the Department of Energy (SENER), the National Hydrocarbons Commission (CNH) and the Department of Finance (SHCP) convened a public meeting in Houston, Texas, entitled: Mexico Round One – Executive and Technical Sessions.
This was the first in a series of sessions or “road shows,” which will be held in various cities around the world. The next sessions will take place in New York and Amsterdam. The event was organized by the Greater Houston Partnership and the University of Texas at Austin and was led by Dr. Lourdes Melgar, Undersecretary of Hydrocarbons at SENER. The attendees were primarily representatives from oil and gas exploration and production companies.
It is interesting to note that, on this occasion, Petróleos Mexicanos (Pemex) was not seated at the table with the other officials, although, along with details related to the Round One were offered, additional information was shared in regards to Pemex associations with the private industry for the exploration and production within specific areas. It is often said that, in politics, form is substance.
Various details regarding “Round One” were revealed through various presentations and an extensive series of questions and answers. Perhaps the most noteworthy aspect is that “Round One” will be conducted in stages, which will be determined according to the type of reserves involved, in the following order: (i) shallow waters; (ii) extra heavy oil; (iii) Chicontepec and unconventional; (iv) onshore; and (v) deep water. Thus, “Round One” will gradually commence as of mid November 2014, with the opening of the first data room, and each stage will conclude with the assignment of contracts beginning in May through October 2015, as indicated in the following timeline:
It seems that the order of the fields available for bidding will be determined by the availability of information that has to be included in the data rooms, Also, the decline in oil prices over the past several months will play an important role in the sequence of the bidding process. It was also reported that the data rooms will be organized based on the contracting method corresponding to each block. They will contain geological and seismological information, as well as information regarding available infrastructure and an analysis and assessment of the social impact that will be prepared by SENER, so that interested parties may become aware of potential conflicts regarding the occupation of the surface, safety aspects, and other relevant social information for each one of the blocks to be bid upon. Both physical and virtual access to the data rooms will be available for companies established in Mexico that prequalify and pay for such access. Companies that prequalify for entry into the data rooms will not have to qualify again in order to submit their bids.
During the event, Dr. Eduardo Camero Godínez, Head of the Unit of Non-Tax Income Policy of the SHCP, spoke about the contracting modalities intended for the exploration and extraction contracts. He explained the tax and financial conditions of the services, profit sharing, production sharing and license contracts, and he reiterated the possibility that certain blocks should be subject to specific types of contracts (“hybrid contracts”) in order to obtain the greatest possible benefit for the country.
Four of the seven commissioners of the CNH offered geological and infrastructure information. The map below depicts the areas slated for “Round One”, along with the areas allocated to private entities through the scheme of Service Contracts that will migrate to the new exploration and production contracts, as well as Pemex associations with the private industry.
The eyes of the international oil and gas industry are now on the new legal and institutional framework of the Mexican energy sector. In these critical moments, prior to the formal opening of the bidding process, it is important for the Mexican government to transmit certainty by means of consistent and well-organized information. A good part of the success of “Round One” and its successive rounds depends on the rules of the game being clear for all parties.
Sources of information and disclaimer: The following sources of information, among others, have been used in preparing this document: Official Journal of the Federation, presentations by the Department of Energy, and the website of the Federal Commission for Regulatory Improvement. Mexican Energy Law does not constitute legal or tax advice and should not be used for purposes other than as purely informative for the general public. For more information on Mexican Energy Law, any of the issues mentioned therein or to inquire about legal services, please contact CCN energy practice attorneys, whose data can be found at http://ccn-law.com/en/practice-areas/energy.
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