ON 28 NOVEMBER, THE MEXICAN HYDROCARBONS COMMISSION (CNH) PUBLISHED THE ADMINISTRATIVE TERMS AND CONDITIONS THAT WILL GOVERN THE UPCOMING OIL AUCTIONS, AND ON 11 DECEMBER, THE OFFICIAL JOURNAL OF THE FEDERATION PUBLISHED THE FIRST CALL TO THE INTERNATIONAL TENDER FOR THE EXPLORATION AND EXTRACTION OF HYDROCARBONS.

The Mexican energy reform approved in December last year and the subsequent secondary legislation passed to structure the energy sector, established that the CNH would be responsible for carrying out and managing the first and future oil rounds in Mexico.

The first round will auction 19,945 billion barrels of oil equivalent (BOE), divided into five tenders; the first has just been published, in which 14 blocks will be auctioned in shallow water.

1. FIRST CALL ROUND 1

The first of the five calls to tender in which the first oil round will be divided will auction 14 blocks for hydrocarbon exploration and extraction in the shallow waters of the Gulf of Mexico.

National or foreign entities and state production companies will be able to participate.

Shared production contracts will be tendered in this case and it is expected that the areas, with prospective resources totalling 686.6 million BOE, will contain light crude oil. The cost of producing each barrel will not exceed $20 per barrel, which makes those areas highly attractive.

The terms and conditions to participate in the auction have been published (published shortly) and award is expected to take place in July 2015.

2. TERMS AND CONDITIONS OF THE OIL AUCTIONS

  1. Rules governing the oil auctions:

The CNH will be responsible for managing the oil auctions. The aim of the administrative terms and conditions is to establish the rules that will govern the tenders and the awarding of the different contracts in accordance with the Mexican Hydrocarbons Law.

Tender Committee will be created to coordinate and carry out the tender.

The tender process: the CNH will decide on the different stages of the process taking into account the characteristics and the scale of the round:

  • Publication of the call to tender in the Official Journal of the Federation, which will start the process.
  • Publication of the terms and conditions of the tender, which will set out the requirements for participating in the auction.
  • Clarification of the terms and conditions of the tender: a process has been established by which to raise questions and request clarifications in relation to the auction.
  • Amendments: the CNH may amend the terms and conditions of the tender at any time during the process.
  • Prequalification requirements: elements required to participate in the process.
  • Prequalification procedure: will be established in the terms and conditions of each tender.
  • Submission of bids: only one bid may be submitted per contractual area.
  • Award of the exploration and extraction contracts
  • tender may be declared unsuccessful when: no bids are submitted, the participants do not meet the prequalification requirements, the economic bids are unacceptable or for any other reason established in the terms and conditions.
  1.  Exploration and extraction contracts

Hydrocarbons exploration and extraction contracts can only be awarded to state production companies or to entities that have been legally incorporated in accordance with Mexican law.

With regards to the notification of the award, a time period will be set within which the awardee must sign the exploration and extraction contract.

In order to sign the contract, the awardee must submit the information required in the terms and conditions.

  1. Rights and exploitation related to the tender process

The CNH will require the payment of rights and exploitations related to the tender in accordance with applicable legislation.

3. NEXT STEPS

Once the first call for Round 1 has been officially published, opening the bidding process for 14 shallow water blocks, the next steps will be:

  1. December: areas of extra heavy crude will be auctioned (Ayatsil, Tekel, Utsi)
  2. January: Chicontepec and areas with non-conventional resources will be auctioned (shale gas, shale oil)
  3. February: Inland areas will be auctioned (Rodador, Ogarrio and Cárdenas Mora) as well as deep sea areas (Gulf of Mexico)
  4. March: Deep sea areas in the Gulf of Mexico will be auctioned