August 24, 2016
ENERGY
ALERT
Drafts of Bidding Terms and License Contract
for Round 2 Phase 2 – Onshore Blocks, were
published by the CNH
On August 24, 2016, the Mexican National Hydrocarbons
Commission (CNH) published the drafts of the bidding terms and
license contract for Round 2 Phase 2 – Onshore Exploration and
Extraction of Hydrocarbons.
Below is a summary of the relevant terms and conditions of the
aforementioned documents. These documents are publicly available
at in the CNH’s webpage (http://rondasmexico.gob.mx/)
• Blocks 10 and 11 should be subject to a “consultation procedure” Bidding terms
Bidding Terms
• The CNH will bid 12 license contracts to perform exploration and • Interested parties and bidders should not be in contact with any extraction activities in onshore blocks, 9 of which are located in Burgos and 3 in Cuencas del Sureste regions, as detailed below:
official from the CNH or the government that is in any manner related to the Round 2 bids, in view that bidding terms and
contracts should not be subject to negotiation. However, any
interested party should be able to make comments related to the
bidding terms and contracts through the CNH’s webpage.
• Bidding and contract terms, excluding prequalification
requirements, might be subject to change at any point in time
before their final publication.
• The bidding process will occur in the following stages: i) publication
of bidding terms, ii) access to data rooms, iii) visits to the onshore
blocks, iv) registration, v) clarifications to the bidding terms, vi)
prequalification, vii) filing of proposals, viii) awarding of contracts
and ix) execution of contracts.
• Participants shall make the following payments in order to
participate in the bidding process:
• Registration - $750,000 MXN.
• Fee to have access to the data rooms – Information worth at least $2,500,000 MXN.
• Bidding day is set for April 5, 2017. The chart below illustrates the
timeline for the bidding process:
with the indigenous communities that are located in such areas, in order to discuss the possibility of developing the exploration and extraction activities covered under this contract. Once an agreement has been reached with such communities, the aforementioned blocks will remain in the final version of this bidding process.
• To prequalify for the bidding process companies have to
demonstrate, among others, the following:
1. Legal origin of the funds & legal documentation. If the participant provided this information for Round 1.1., 1.2.,
1.4 or 2.1, they are not required to file again such documentation, members of the participating consortium have not been modified for this Round 2.2 (only Form CNH-
8 would be necessary).
2. Technical requirements
a) Experience as an operator in projects from 2012 to 2016 through (i) the participation in at least three projects of exploration and/or extraction of
hydrocarbons, or (ii) capital investments in exploration and/or extraction projects that together amount at least USD $250 million.
b) Experience in industrial and environmental, health and safety programs during the last five years in exploration and/or extraction projects in shallow waters and/or deep water.
3. Financial requirements
a) The operator shall demonstrate economic capacity, meaning the contractor shareholder’s equity should be of at least USD $500 million.
b) If the operator does not meet the aforementioned financial criteria on a stand-alone basis, the operator could participate in a consortium demonstrating a shareholder’s equity of USD $300 million, as long as the other members of the consortium demonstrate an
aggregate shareholders’ equity of USD $200 million (directly or through its affiliates).
• Bidders will be able to participate as an individual bidder and/or
as part of one or more consortiums, however, one bidder cannot
participate in more than four consortiums. Proposals are limited
to one per contractual area. There are no restrictions for any
company to partner with major oil companies, international oil
companies or national oil companies, including Pemex.
• The weighted average of the offer or biding factor to determine
the winner will be calculated considering the value of the Royalty
of the Hydrocarbon Contractual Value, and the additional
investment factor related to the minimum work program,
according to the formula provided in the bidding terms.
• The additional investment factor is related to the additional
investment commitment during the exploration period. The
variable corresponding to the investment factor could be 1.5 in
case of making an additional investment commitment of working
units equivalent to two exploratory wells, 1 in case of committing
to working units equivalent to 1 exploratory well and 0 if no
additional investment commitment is made.
• In case of a tie, the first criteria to determine the winner would be
the party which offers a higher signing bonus to be paid prior to
the execution of the contract. Second criteria would be through a
toss-up.
• Minimum values of the offers will be determined by Hacienda
before the CNH publishes the final version of the bidding terms
and contracts.
• A USD $250,000 letter of credit should be submitted as bid
bond for each offer. Bond should be valid for 150 days following
submission of proposals. Note that only bonds from the first and
second place awarded bidders shall remain in full force and effect
for the aforementioned period.
• Contracts will be awarded on April 7, 2017 and shall be executed
within 140 days after they are awarded.
License for Onshore Exploration and Extraction of Hydrocarbons
•
► License contracts will be applicable.
• As stated by the Mexican Constitution the Contract provides
that hydrocarbons remain property of the Government. The
Contractors will have the right to the onerous transfer of the
hydrocarbons produced.
• The initial term of the Contracts is 30 years. The term may be
extended for 2 additional 5-year periods.
• Contracts include a transition phase of 120 days following the
effective date of the contract. In such period the contractors will
have to support the status and integrity of the fields, equipment,
initiate social impact and environmental studies. Some additional
social impact terms were included just for blocks 10 and 11.
• Contractors will have to file an exploration plan for approval
within the 120 subsequent days of the day the contract is
executed. CNH will have 120 days to approve it. Late filing of the
exploration plan will be subject to a conventional penalty of USD
$10,000 per late day.
• Contracts include an initial exploration period of 2 years. In
such period contractors will be obliged to finish the minimum
work program. The exploration period may be extended for one
additional period of 2 years, but additional work commitments
will apply for each extension.
• The contractors may request an extension of the additional
exploration period in case the activities contemplated in the
exploration plan cannot be completed for causes that are not
attributable to the contractors.
• Contractors will have to inform the CNH in case of a discovery
•Contractors shall obtain and maintain insurance policies to cover
within 30 days following confirmation of such discovery. Once
that the contractors notify the CNH, they will have 60 days to file
the appraisal plan.
• The appraisal plan should include the activities that the
contractors will carry out for a maximum period of 12 months.
The appraisal period may be extended for another 12 months
when the technical or commercial complexity of the development
of the discovery requires so. If the discovery is unassociated
natural gas, the appraisal period will be of 24 months with an
extension of up to 12 months.
• Within 60 days following termination of any appraisal period,
contractors shall inform if the discovery is a “commercial
discovery”.
• Likewise within 120 days after the confirmation of a commercial
discovery. Contractors shall file a development plan.
• Provisions related to the relinquishment of areas and unitizations
were included.
• Contractors will have to keep an Operating Account where
transactions related to the contract should be recorded.
Additionally contractors will have the obligation to file indicative
budgets and work programs.
• Volume of hydrocarbons will be measured at the measurement
point which may be inside or outside the blocks. Simultaneously
to filing of the development plan, contractors will have to propose
the procedures to store, measure and monitor the quality of the
hydrocarbons.
• Immovable property generated or acquired by the contractors
to carry out the exploration and extraction activities will
automatically transferred to the Government when the contract
is terminated. The immovable property which provides services
to more than one contractual area will be exempted from being
transferred until the provision of said services is completed.
• Contractors will be able to commercialize the production by
themselves or using other parties.
• Ownership of sub products obtained from the production will
remain property of the Government.
• The consideration for the Government will include i) signing
bonus (in case of a tie), ii) quota for exploration phase, iii)
royalties and iii) over-royalties that will be adjusted according to
an R-factor included in the contracts. The consideration for the
contractor will be the onerous transfer of the hydrocarbons.
•R-factor should be computed based on the daily average of
hydrocarbon production recorded during the period and the two
immediately preceding periods.
• The contracts include provisions to determine the value of
hydrocarbons similar to the ones included in prior Rounds.
• Contractors have to obtain a letter of credit as guarantee to
comply with their obligations under the contract. The amount is
to be determined.
• Contractors shall also provide a corporate guarantee issued by
their ultimate holding company, or by another entity. In case
the corporate guarantee is not issued by the ultimate holding
company the contractors shall file audited consolidated financial
statements that demonstrate a shareholder’s equity equal to its
participation in the consortium multiplied by an amount to be
determined.
• Once the development plan is approved, the contractors will have
to incorporate a trust to fund the decommissioning activities on a
quarterly basis.
• Local content obligations are included: 26% during the initial
exploration phase. For the appraisal period the percentage will
be also 26%. In the first year of the development phase the
percentage will be 27% until to 2025 constitutes at least 38%,
from 2025 the concepts outlined in the Methodology established
by the Ministry of Energy should constitute at least 35%.
civil liability, well control, damage to the materials generated or
acquired during the exploration and production activities and
injuries to the personnel.
• Administrative and contractual rescission clauses are included in
the contracts.
• New provisions on “Social Impact” have been included. The
contractor shall ensure the participation of the indigenous
communities located in the contract area, in order to respect
their rights in developing the minimum work program, the social
impact evaluation and the environmental impact statement.
• Compliance and procurement provisions are maintained in Annex
4 and 10 as in the contracts of prior rounds.
• Shared infrastructure provisions are also included in Annex 13 of
the contract.
Contacts:
Alfredo Álvarez
[email protected]
52 (55) 1101-8422
Oscar López-Velarde
[email protected]
52 (55) 5283-8677
(1) 713-750-4810
Rodrigo Ochoa
[email protected]
52 (55) 5283-1493
José Fano
[email protected]
52 (55) 5283-6425
Yuri Barrueco
[email protected]
52 (55) 1101-8433
Santiago Llano
[email protected]
(1) 713-750-8376
Javier Noguez
[email protected]
(1) 713-751-2043
Salvador Meljem
[email protected]
52 (55) 5283-1300