Introduction

Following a poor turnout in the first bidding process called by the National Hydrocarbons Commission (CNH) to award 14 exploration and extraction blocks in shallow waters of the Gulf of Mexico – only two blocks were awarded and only nine bidders were registered – the CNH has introduced certain changes to the bidding guidelines and model production sharing contract for the second bidding process to award five extraction blocks, also in shallow waters of the Gulf of Mexico.

The update highlights the most relevant changes to the bidding guidelines and model production sharing contract.

Bidding guidelines

With regard to the revised bidding guidelines, certain dates related to prequalification and consortium changes have been extended; however, the submission date for bids remains the same.

Moreover, operators in a consortium may choose to participate as individual bidders in other contract areas where the consortium does not submit a bid. If the operator of a consortium withdraws from the bidding process for any reason, the remaining consortium members may join another consortium to continue participating in the process.

Model production sharing contract

With regard to the model production sharing contract, the corporate guarantee shall be enforced only until the performance guarantee and relevant insurance have been exhausted; if the guarantor of the corporate guarantee is not the ultimate holding company, it must evidence a net worth equal to 18 times the value of the minimum work programme.

Contractors are allowed to undertake exploration activities, which were previously not considered in the production sharing contract.

The definitions of 'fault' and 'wilful misconduct' have been included in respect of one of the events which trigger an administrative rescission of the production sharing contract. However, it seems that these concepts fail to bring the clarity sought and may raise additional questions.

Finally, in respect of the arbitration clause, the Permanent Court of Arbitration is now the appointing authority, rather than the president of the International Court of Justice.

Comment

With these revisions, the CNH hopes that a larger number of bidders will be persuaded to submit bids, since some companies decided not to participate as a result of the restrictions which the original bidding guidelines imposed on operators, the corporate guarantee provisions and the CNH's broad rights to rescind administratively the production sharing contract in cases of the contractor's fault or wilful misconduct.

For further information on this topic please contact Rogelio López-Velarde or Diego Campa at López Velarde, Heftye y Soria by telephone (+52 55 3685 3334) or email (rlopezv@lvhs.com.mx or dcampa@lvhs.com.mx). The López Velarde, Heftye y Soria website can be accessed at www.lvhs.com.mx.

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