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Client Alert
May 13, 2015
MEXICO ENERGY REFORM UPDATE
ROUND ONE – FIRST ONSHORE BLOCKS ANNOUNCED
On May 12, 2015 Mexico’s National Hydrocarbons Commission (“CNH”) published bidding
guidelines (the “Guidelines”) for the third of a series of bids for oil and gas exploration and production blocks
(the “First Onshore Tender”) as part of a continued and aggressive program to open up exploration and
production in Mexico to private investment, with such process generally referred to as Round One. Unlike the
first two Round One tenders currently underway, both for shallow water exploration and production (the
“Shallow Water Tenders”), the First Onshore Tender is for 26 onshore production blocks located in the states
of Chiapas (five blocks), Nuevo León (eight blocks), Tabasco (five blocks), Tamaulipas (two blocks), and
Veracruz (six blocks). This First Onshore Tender has been structured so that winning bidders enter into a
license agreement for each awarded contractual area with the Mexican government, rather than a production
sharing agreement as is the case with the Shallow Water Tenders. This Client Alert provides a brief summary
of the Guidelines.
I.
SUMMARY
Like the first of the Shallow Water Tenders, this First Onshore Tender represents a milestone in
Mexico’s history. The first of the Shallow Water Tenders represented the beginning of a new era in Mexico’s
energy sector, resulting from an ambitious energy reform that opened up an industry after 76 years. This First
Onshore Tender marks a potentially significant boost in Mexico’s onshore oil production, an increase in the
production of natural gas as the country looks for means to produce electricity more efficiently, and also the
beginning of shale and unconventional production in Mexico.
As with the Shallow Water Tenders, although the CNH will welcome comments from anyone,
interested companies may access the data room for the First Onshore Tender by paying the corresponding fee
(MXN$2,500,000.00 unlike the MXN$5,300,000.00 payment required for each of the Shallow Water
Tenders), and must register (and pay the corresponding registration fee) to formally participate in the different
stages of the First Onshore Tender, including the data room access period (if the interested party acquires the
data), the pre-qualification period (and corresponding clarification period with CNH), proposal submission
period (and corresponding clarification period with the CNH), and the contract award and execution.
As previously mentioned, the First Onshore Tender will be for the award of 26 license agreements
(rather than production sharing agreements). The license agreements will provide control of exploration,
production, and commercialization of the hydrocarbons produced in an awarded contractual area, with only
payment of royalties and taxes due to the Mexican government rather than having to share production with the
Mexican government and report on exploration and production expenses. Some of the key terms included in
the Guidelines are the following:
•
Blocks are divided into Type 1 and Type 2 blocks. Type 1 blocks are those with proven,
probable, and possible (“3P”) reserves of 100 MM barrels or less. Type 2 blocks are those with
3P reserves of more than 100 MM barrels.
Mexico Energy Reform Update
Client Alert
May 13, 2015
•
As with the Shallow Water Tenders, companies will be able to acquire access to the data room,
pre-qualify, and submit proposals through their foreign entities; only those companies that are
awarded a contract shall have to incorporate a Mexican entity for purposes of executing the
license agreement with the CNH.
•
As with the Shallow Water Tenders, companies will be able to participate individually or as part
of a non-incorporated consortium; however, companies will not be able to submit or be part of
more than one proposal per contract area. Unlike in the Shallow Water Tenders, an interested
party may present a bid for all 26 blocks (not just five blocks).
•
The prequalification criteria in the Guidelines is final (not subject to further modifications) and
includes proving that proposed personnel has operating and managerial experience in onshore or
offshore exploration and production projects in the last 10 years, that the bidding company or
proposed personnel of the bidding company has at least five years of experience operating under
international occupational safety and environmental standards, showing equity equal to USD$5
million (or USD$3 million if in a consortium and Operator does not meet criteria) per Type 1 area
that a bid is submitted for, or USD$200 million (or USD$120 million if in a consortium and
Operator does not meet criteria) per Type 2 area that a bid is submitted for, among others. It
should be noted that a party (whether an individual or consortium) that has been pre-qualified by
CNH for either (or both) of the Shallow Water Tenders is presumed pre-qualified for this First
Onshore Tender.
•
Major oil companies (those with 1.6 MM barrels per day of production) cannot partner among
themselves.
•
The winning bid will be based on (i) the amount of additional royalties offered to the Mexican
government and (ii) the amount of additional investment, each per contractual area.
•
The Guidelines include the following tentative schedule:
 Data Room Access Acquisition – May 12, 2015 through August 14, 2015
 Data Room Opening – June 1, 2015 (visits may be scheduled starting from
June 1, 2015 through December 14, 2015)
 Site Visits of Contractual Areas – June 15, 2015 through September 11, 2015
 Prequalification – May 12, 2015 through October 23, 2015 (with announcement of
prequalified parties on October 30, 2015)
 Final Bid Guidelines – November 2, 2015
 Proposal Submission – December 15, 2015
 Contract Execution – February 8, 2016
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Mexico Energy Reform Update
Client Alert
II.
May 13, 2015
CONCLUSION
As you may recall from previous alerts, this First Onshore Tender is but a portion of a multiple-phase
approach by Mexico to implement Energy Reform, including the migration of 22 outstanding integrated
service agreements with PEMEX into production sharing contracts, farm-outs of 10 contract areas directly
awarded to PEMEX, and the tender of 169 Round One blocks, of which 49 have now been opened for bidding
in both the Shallow Water Tenders and this First Onshore Tender. There is still much to be done, but with this
new bidding process in Round One, the Mexican Government is showing its seriousness in opening the energy
sector and, in particular with this First Onshore Tender, by reducing financial requirements and loosening
company experience requirements (by allowing individuals to qualify rather than companies) its eagerness to
create a domestic oil and gas industry sooner rather than later. Clearly, very exciting things are happening
down south. We will keep you advised as developments unfold.
If you have additional questions or are interested in understanding the full scope and content of the
Guidelines, do not hesitate to contact the Thompson & Knight attorney with whom you regularly work or one
of the attorneys listed below.
CONTACTS:
Luis Fernando Gomar
+1.214.969.1240
+52.55.8000.7434
Luis.Gomar@tklaw.com
Gabriel Ruiz Rocha
+52.81.8215.7724
Gabriel.Ruiz@tklaw.com
Andrew B. Derman
+1.214.969.1307
Andrew.Derman@tklaw.com
This Client Alert is sent for the information of our clients and friends. It is not intended as legal advice
or an opinion on specific circumstances.
©2015 Thompson & Knight LLP
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Mexico Energy Reform Update