In 2008, the Mexican Congress approved a controversial energy reform package in an effort to halt production decline and stimulate production, particularly in mature fields. The reform package established the legal framework for Integrated E&P Contracts to be awarded by the national oil company, Pemex, to contractors under the Pemex Law and the Pemex Law Regulations. Such incentive-based Integrated E&P Contracts aim to maximise production by offering contractors fixed prices for barrels of oil produced and production bonuses where production exceeds crude output targets. Contractors have greater flexibility under such Integrated E&P Contracts with regard to technical, engineering, design and construction issues than under previous hydrocarbon contracts with Pemex but have no commercial interest in the sale or marketing of hydrocarbons produced, all of which belong to the Mexican nation.

In August 2011, the first Integrated E&P Contracts were awarded for the development of three mature fields in the states of Tabasco and Veracruz to Petrofac and Schlumberger. More recently in January of this year, Pemex announced tenders for a second round of contracts based in Mexico’s North region with two contracts in Tamaulipas, two in Veracruz and two in the offshore Atun and Arenque fields. Contracts in the second round were awarded in July and August of this year to Petrofac and Schlumberger as well as Cheiron (Pico Petroleum) and Monclova Pirineos Gas / Alfasid.

On October 22nd of this year, Pemex published preliminary technical and legal information relating to a third round of Integrated E&P Contracts in the Chicontepec region of Mexico in the Amatitlan, Soledad, Humapa, Miquetla, Miahuapan and Pitepec onshore blocks which cover an area of approximately 750 km2 and have proven reserves of approximately 2,205 mm boe. Whilst traditionally the recovery factor in the Chicontepec region is low, there is a significant potential for recoverability to be increased and contracts are expected to be awarded in July 2013.  It is understood that PEMEX intends to use these contracts for deepwater E&P in the Gulf of Mexico in further rounds for an estimated 29,000 mbo, i.e. more than 50% for the actual prospective resources.  The plan is to use these first rounds to gather experience and refine the legal documentation.

The preliminary information published suggests that there will be several changes to key terms of the third round Integrated E&P Contracts including changes to the contract award criteria and the contract duration whilst bidders must prove their experience to Pemex as operators in unconventional fields.

The preliminary information is still subject to change and cannot be taken to accurately reflect the final terms and conditions that will apply to the third round of Integrated E&P Contracts. Nevertheless, it provides companies with a valuable insight into the potential future development of Mexico’s petroleum resources and the opportunity to provide feedback on the draft model contract.

Derek Woodhouse and Enrique Ludlow of Woodhouse Lorente Ludlow.