Mexico: CNH's First Bid Of Round Two (Shallow Waters – Exploration & Extraction Areas)

On July 19, 2016, the Mexico's National Hydrocarbons Commission ("CNH") announced the call for Bid 1 of Round 2, for the awarding of Production Sharing Agreements for the Exploration and Extraction of Hydrocarbons in Shallow Waters in the Mexico's Gulf of Mexico (the "Bid"). CNH will publish tomorrow – July 20th, 2016 – the bidding guidelines and model of contract in CNH's webpage http://www.rondasmexico.gob.mx/, and the call for the Bid in the Federal Register (Diario Oficial de la Federación).

Below please find the main aspects of the Bid, as verbally informed by CNH during the announcement:

I. CONTRACTUAL AREAS.

* Maps of the Contractual Areas are already available at:

http://ronda1.gob.mx/r2-l01-areas-contractuales/

• The Bid considers 15 Contractual Areas in Shallow waters of the Mexico's Gulf of Mexico; some of them includes extraction fields, and the others only exploratory areas.
• 6 are located in front of the Veracruz shore; 8 in front of Tabasco shore; 1 in front of the Campeche bay.
• 10 of these areas are located in the Southeast Basins area; 5 in the Veracruz area; 4 in Tampico-Misantla area.
• The total extension of the contractual areas is of 8,908 km2.

(i) Contractual Areas 1 to 4 are located in Tampico-Misantla, all of these include extraction fields.

• The extraction fields of these Contractual Areas are located in the Gold Belt Marine Region (Faja de Oro - Marina).
• CNIH has 3D seismic and drilled wells info.

(ii) Contractual Area number 5 is an exploration field, in front of the Tuxtla zone in Veracruz.

(iii) Contractual Areas 6 to 15 are located in the Southeast Basin area; 9 of these are exploration fields, and 1 includes an extraction field.

• 6 prospective blocks of light oil, 3 of heavy oil and 1 of humid gas.
• CNIH has 3D seismic and drilled wells information for these Contractual Areas.

• In general, 5 Contractual Areas include extraction fields, and the other 10 are just exploration areas.
• The water depths of these areas vary from 300-500 meters.

II. PREQUALIFICATION REQUIREMENTS.

• The interested parties shall evidence legal, financial and technical capabilities. This time, no résumés of the interested party's personnel is needed. Experience and technical capabilities are focused on the company's information (not on staff).
• The requirements in HSE matters will be reviewed by CNH with the assistance of the National Agency of Industrial Safety and Environmental Protection in the Hydrocarbons Sector (Agencia Nacional de Seguridad Industrial y Protección al Medio Ambiente del Sector Hidrocarburos).
• In respect with the financial capabilities, the Intelligence Unit of the Ministry of Finance and Public Credit (Unidad de Inteligencia de la Secretaría de Hacienda y Crédito Público) will assist CNH reviewing the source of funds of the interested parties.

1. Financial capabilities. The interested parties shall evidence a total net worth of at least 1 Billion US Dollars; in the case of a consortium (i.e. joint bidders) the Operator shall evidence USD$600 Million, while the rest shall be evidence by the other members; or evidence total assets with a value of at least 10 Billion US Dollars.
2. Technical capabilities. The interested parties shall evidence (i) to have within the 2011-2015 period, at least 3 projects for the Exploration and Extraction of hydrocarbons or capital investments in this kind of projects which sum in the aggregate USD$1 Billion; and (ii) being an operator or partner in at least 2 hydrocarbons projects in shallow or deep waters.
3. Participation methods. The interested parties may prequalify either as "Individual Bidder" or as a group (i.e. "Joint Bidders"); different to previous shallow waters bids of CNH, this time CNH will allow that a bidder may participate, at same time, in 4 different groups, with the restriction that it cannot submit more than one proposal for the same Contractual Area. Once the interested parties prequalify, as Individual Bidder or Joint Bidders, there will be a stage in the process for adding non-operating financing partners or to restructure the bidders.
4. Awarding of contracts. The winning bidder will be the one who submits the economic proposal with the highest value. The same will be formed by two variables, which are the following:
   
   
   1. Offered value of the Mexican State's participation in the operative utility; and
      
      * Note that CNH did not provide any advance in the announcement if there will be a floor/cap applicable to this variable. This point should be confirmed in the Bidding Guidelines after their publication.
   2. Additional investment factor. In this last variable, the bidder may decide either to offer "0" (zero) additional investment, or the drilling of 1 or 2 exploratory wells.
5. Bid Guarantee. Every economic proposal for a Contractual Area shall be submitted along with a bid guarantee, which will be a Stand by Letter of Credit for the amount of USD$500,000.

III. ACCESS TO THE DATA ROOM AND REGISTRY.

• Like in Round 1, the process will have 3 stages: (i) access to the data room and registration, (ii) prequalification stage, and (iii) opening and submission of proposals stage.
• The access to the information of the Data Room will be obtained through the acquisition of a License of Use from the National Center of Hydrocarbons Information (Centro Nacional de Información de Hidrocarburos) ("CNIH").
• For the acquisition of the License of Use there will be 15 different data packages, containing seismic and well data of the different contractual areas; each with different cost. The interested party, in order to be eligible for registration in the Bid, shall pay data packages in an amount equal to or above MXP$8 MM Pesos (approx. USD$432,432.432). Official figures are in MXP.
• Once the interested party obtained the access to the Data Room from the CNIH, it shall notify CNH – through a written statement – requesting its registration to the Bid.
• The registration fee will be of $750,000.00 Pesos (approx. USD$40,540.54). Official figures are in MXP.
• Interested parties registered in the Bid may submit questions/clarifications requests as to the prequalification requirements and model contract.

IV. CALENDAR.

V. CONTRACTUAL TERMS.

Incipient information so far; just few contractual terms were mentioned during the CNH's announcement, which are the following:

• The contract will have a term of 30 years, with an exploratory phase from 4 to 6 years, with two potential extensions of 5 years each.
• The Contract will include a Minimum Work Program.
• It contemplates a gradual reduction and devolution of undeveloped areas.
• Prior to determine a rescission, there will be an investigation by CNH regarding the cause of rescission.
• Any assignment and change of control in the rights and/or obligations of the Contract, shall have the prior authorization of CNH. In case of a total assignment, the assignor will remain jointly and severally liable until the assignment is concluded.
• A trust shall be created in order to cover any required abandonment during the execution of the project.
• In the exploration period, contractor shall comply with a 15% national content, increasing to 17% in the evaluation period and to 35% in the in the development period.
• The contractor shall get insurance policies covering civil liability for damages to third party, wells control and damage to materials, among others.

VI. DISCLAIMER.

THIS PRELIMINARY REPORT CONTAINS A BASIC DESCRIPTION OF THE BID RULES AND CONTRACTUAL TERMS OF THE FIRST BID OF ROUND TWO (EXPLORATION AND EXTRACTION BLOCKS IN SHALLOW WATERS OF THE MEXICO'S GULF OF MEXICO) ANNOUNCED TODAY BY CNH, AS VERBALLY EXPLAINED BY THE GOVERNING BODY OF THE CNH. THEREFORE, THE SAME MAY NOT BE ENTIRELY ACCURATE, SINCE IT IS SUBJECT TO THE REVIEW OF THE MODEL CONTRACT AND BIDDING GUIDELINES THAT WILL BE PUBLISHED BY CNH IN ITS WEBSITE (TENTATIVELY ON JULY 20, 2016).

THIS PRELIMINARY REPORT IS A COURTESY MATERIAL, WHICH WAS PRODUCED BY MCM ABOGADOS AS LEGAL EXPERTS, IN ORDER TO PROVIDE A PRELIMINARY OVERVIEW OF THE CHARACTERISTICS OF THE BID PROCEDURE. THEREFORE, THE SAME WAS NEITHER REQUESTED BY ANY PARTY, NOR WAS THIS DOCUMENT REVIEWED WITH ANY THIRD PARTY PRIOR TO ITS RELEASE BY MCM ABOGADOS.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.