On November 13, 2014 the Ministry of Economy published in the Federal Official Gazette the Administrative regulation setting forth the methodology for measuring national content in assignments and agreements for the exploration and extraction of hydrocarbons and for permits related to the hydrocarbons industry (the "Regulation on National Content").
Pursuant to article 46 of the Hydrocarbons Law, priority must be given to Mexican goods and services in assignments, bids, and agreements. Accordingly, hydrocarbon exploration and extraction activities that take place in Mexican territory through assignments and exploration and extraction agreements must reach, on average, at least a degree of thirty five percent of national content as a whole, except when undertaking exploration and extraction of hydrocarbons in deep and ultra-deep water.
Invitations corresponding to each assignment procedure, bid or permit, as well as the corresponding agreements will determine the degree of national content that must be complied with during each stage of the project, setting a gradual increase in applicable percentages.
The Hydrocarbons Law, other applicable regulations and the corresponding agreements provide penalties arising from failing to comply with the corresponding national content requirements.
It should be noted that while in the different free trade agreements to which Mexico is a party, and in public bids (other than those subject to this methodology), the degree of national or regional content (when applicable), considers the value of the materials that are imported into Mexico, the methodology related to hydrocarbons also considers other concepts such as the value of the labor used in the manufacture of those goods, and the price paid for the rendering of services for the project, the expenses for the transfer of technology and infrastructure. It also allows increasing the amount of national content by means of investment in projects that benefit society (such as the construction of highways, schools, hospitals, among others), as well as by means of investment in training and transfer of technology.
The Regulation on National Content establishes a specific methodology to calculate the proportion of national content applicable to each of the above-mentioned concepts, taking into consideration all of them for the determination of the national content of the project as a whole. Moreover, it sets forth the obligation of keeping a compliance program on the percentage of national content and a technology transfer program.