round one fourth call for ids deep and ultra deep … · compliance guarantees corporate guarantee...

ROUND ONE – FOURTH CALL FOR BIDS

DEEP AND ULTRA DEEP WATERS

Bidding Process CNH-R01-L04/2015

December 2015

1

ROUND ONE: FIRST APPROACH

2

INTERNATIONAL CONTEXT OIL MARKETS

3

Between August 13, 2014 and December 16th, 2015, Brent prices have

fallen 63.5%, WTI prices have fallen 63.6%, and the Mexican crude

basket dropped 70.5%.

26

46

66

86

106

126

Mar-

14

Ap

r-1

4

May-1

4

Ju

n-1

4

Ju

l-14

Au

g-1

4

Se

p-1

4

Oct-

14

No

v-1

4

De

c-1

4

Ja

n-1

5

Fe

b-1

5

Mar-

15

Ap

r-1

5

May-1

5

Ju

n-1

5

Ju

l-15

Au

g-1

5

Se

p-1

5

Oct-

15

No

v-1

5

De

c-1

5

Source: Reuters

Spot prices - WTI, Brent and MME (US$/b)

WTI Brent MME Mexican Federal Budget

INITIALLY PROPOSED AREAS PERDIDO AREA

4

FIVE YEAR PLAN NOMINATIONS PERDIDO AREA

5

SELECTED CONTRACTUAL AREAS PERDIDO AREA

6

SELECTED CONTRACTUAL AREAS PERDIDO AREA

7

Block Surface

area (km2)

P50

Prospective

Resources

(MMboe)

% 3D Seismic

Coverage

Depth

(m) Expected Hydrocarbons

1 1,678.0 625.8 100 1,000 – 3,100 Super light oil

2 2,976.6 1,439.7 79.2 2,300 – 3,600 Light and super light oil,

wet gas

3 1,686.9 1,304.0 100 500 – 1,700 Light and super light oil

4 1,876.7 540.5 100 600 - 2,000 Light and super light oil

Total 8,218.2 3,910

INITIALLY PROPOSED AREAS SALINA DEL ISTMO BASIN

8

FIVE YEAR PLAN NOMINATIONS SALINA DEL ISTMO BASIN

9

SELECTED CONTRACTUAL AREAS SALINA DEL ISTMO BASIN

10

SELECTED CONTRACTUAL AREAS SALINA DEL ISTMO BASIN

11

Block Surface

area (km2)

P50 Prospective

Resources (MMboe)

% 3D Seismic

Coverage

Depth

(m) Expected Hydrocarbons

1 2,381.1 1,851.9 100.0 2,000 – 3,100 Light and super light oil

2 2,411.2 1,446.0 62.5 2,000 – 3,000 Heavy and light oil

3 3,287.1 1,668.9 100.0 1,000 – 2,500 Light oil and wet gas

4 2,358.7 392.1 100.0 1,000 – 1,500 Heavy and light oil, and

gas

5 2,573.2 621.4 100.0 1,000 – 1,500 Light and super light oil,

and gas

6 2,605.5 999.2 100.0 500 – 1,000 Heavy oil

Total 15,616.8 6,979.5

SELECTED CONTRACTUAL AREAS FOURTH BID

12

Perdido

Area

Salina del

Istmo

Basin

BIDDING PROCESS TECHNICAL GUIDELINES

December 2015

13


TECHNICAL GUIDELINES BIDDING GUIDELINES CENTRAL ELEMENTS

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Elements that guarantee exploration and extraction activities will be

performed with environmental responsibility, through

prequalification system defined by SENER:

Prequalification criteria allows the participation of reliable

operators with experience in deep water projects.

The operator will hold at least 30% of the capital required for each

project.

Technical guidelines grant flexibility for the establishment of

consortia.

The award date will be announced by the third quarter of 2016,

following established conditions.

FOURTH BID CONTRACT MODEL

BIDDING OF TEN CONTRACTUAL AREAS LOCATED IN DEEP AND

ULTRA DEEP WATERS

December 2015

15


LICENSE CONTRACT KEY ELEMENTS (1/2)

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Contract Object. Performance of hydrocarbons’ exploration and/or

production activities within the contractual areas.

Hydrocarbons in the subsoil belong to the Nation.

The contractor has the right to obtain the produced hydrocarbons

through onerous transfer.

Contract model used by the industry for projects implying high risks and

capital investments.

Used in deep and ultra deep waters exploration and extraction projects in

Norway, the United Kingdom and the United States, amongst other countries.

LICENSE CONTRACT KEY ELEMENTS (2/2)

17

The State transfers geologic and financial risks to the contractors.

The competitive process allows the State to capture oil rent from the moment

commercial production begins.

Administrative costs are lower for both, the contractor and the State.

Awarded through public international bids and signed by the CNH on behalf

of the Mexican State.

Subject to unprecedented national and international transparency rules.

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LICENSE CONTRACT TIMELINE SUMMARY

Exploration Evaluation Development

There exploration periods:

1. Initial Exploration Period of up

to 4 years.

2. First Additional Exploration

Period of up to 3 years, if

applicable.

3. Second Additional Exploration

Period of up to 3 years, if

applicable.

An evaluation period per

discovery:

• Evaluation Period of up to 3

years following a discovery.

Length of the Development

Period:

• Approximately 22 years upon the

approval of the Development

Plan.

Two possible extensions: subject

to achieving regular commercial

production:

1. First extension: 10 years

2. Second extension: 5 years

Contract’s maximum life-time:

50 years

Obligatory

relinquishment of areas

not evaluated nor

developed.

Obligatory

relinquishment of areas

excluded from a

Development Plan.

Obligatory

relinquishment of the

entire area at the end of

the contract.

4 to 10 years Up to 3 years Over 22 years

35 to 50 years

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LICENSE CONTRACT

LOCAL CONTENT REQUIREMENTS

Local Content

• 3% during the Initial

Exploration Period.

• 6% during the First

Additional Exploration

Period.

• 8% during the Second

Additional Exploration

Period.

Local Content

• Determined considering

the exploration phase

in which discoveries

take place.

Local Content

• 4% prior to the start of

production.

• 10% after production

begins.

Exploration Evaluation Development

4 to 10 years Up to 3 years Over 22 years

35 to 50 years

LICENSE CONTRACT

GUARANTEES

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Compliance Guarantees

Corporate Guarantee

Covering minimum work commitments acquired during the bidding

process or the projects life-time.

Calculated on the bases of work units defined for each exploration period.

Last resource guarantee over the contractor obligations.

Signed by parent companies or affiliates with enough capital.

Contractor must demonstrate having:

Minimum equity levels, equivalent to each joint bidders participation

percentage multiplied by 14 billion USD; or

Assets equivalent to 5 times the required equity.

LICENSE CONTRACT

INSURANCES, WORK PROGRAMS AND BUDGETS

21

Coverage is in line with international practice regarding this type of projects.

The contractor must demonstrate it belongs to mutual insurance schemes that

provide well control services, or has a special service provider for this

purpose.

Obligations in line with management systems approved by ASEA.

It incorporates the necessary requirements for the execution of project under

industrial and operational safety, health at work and environmental

protection conditions.

Industrial Safety and Environmental Protection

Insurance

Work Programs and Budgets

Informative nature, CNH’s approval not required..

LICENSE CONTRACT

RESCISSION

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Linked to severe causes, as provided by Art. 20 of the Hydrocarbons Law.

Includes a prior investigation stage, to be performed by an independent

third party, to determine the contractor’s willful misconduct or gross

negligence.

Included definitions: Willful misconduct, gross negligence, unjustified

cause, and serious accident.

Applicable upon unjustified breach of contractual obligations.

Possibility to access alternative dispute resolution mechanisms such as

conciliation or arbitration.

Contractual Rescission

Administrative Rescission

ECONOMIC AND FISCAL TERMS

December 2015

23


• The License Contract Model will be used for the Fourth Call for Bids.

FISCAL TERMS INTRODUCTION

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Production Sharing Contract

(1st and 2nd Bids)

License Contract

(3rd and 4th Bids)

State’s main compensations are

calculated based on net profits.

State’s main compensations are

calculated based on gross income.

Considers cost recovery. Excluding cost recovery.

Adjustment mechanism based on

profitability.

Adjustment mechanism based on

profitability.

FISCAL TERMS INTRODUCTION

25

Elements established by the Law

Income tax 30%

Exploration Phase contractual fee* First 60 months: 1,150 MXN/km2

Thereafter: 2,750 MXN/km2

Exploration and Extraction Activities Tax* 11,500 MXN/km2 during exploration

6,000 MXN/km2 during extraction

Basic Royalty Price sensitive formula for each hydrocarbon

Ring-fencing E&P Industry for Corporate Income Tax purposes

Elements defined in the Contract

Adjustment mechanism Defined formula

Element to be defined in the public bid

Additional royalty Defined by the winning bidder

* The value of monthly fees will be updated every January.

FISCAL TERMS BIDDING PROCESS

Award Variables

• The contract award variables will be:

o Additional royalty percentage.

o Additional investment commitments equivalent to the drilling of a well during the

contract’s initial phase.

• The additional investment commitment will be measured through a binary variable:

• The award will be based on a formula that grants a specific weight to the additional

investment commitment.

• The winner will be the bidder whose economic proposal weighted value (VPO) is the highest:

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Additional Commitment Offer Additional Investment Factor

Yes 1

No 0

VPO = Additional royalty factor + weighted value * additional investment factor

FISCAL TERMS BIDDING PROCESS

1. Cash payment; and

2. Polling method.

Tie breaker

27

• The Ministry of Finance will determine the

minimum acceptable award variables values

and the moment at which these will be

revealed.

• The date will be published in the final version

of the Bidding Guidelines.

Reserve Price

Adjustment Mechanism

LICENSE CONTRACT FISCAL REGIME – ADJUSTMENT MECHANISM

• This mechanism modifies the total

royalty to be paid by the contractor.

• The mechanism will result in the

use of an additional rate calculated

through a continuous formula to

prevent distortions.

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• Calculated based on the contractor’s

profitability, measured quarterly.

• The applicable rate will increase as

the contractor’s profitability

increases.

• The contractor’s profitability will be

calculated on a pre income tax

basis, considering the payment of

State’s compensations and

exploration and extraction activities

taxes.

• It considers a maximum rate set in

the contracts.

How it works

Contractor’s profitability

U1 U2

X%

0

Ad

justm

en

t fa

cto

r

Ra

te %

Accounting Procedures and Costs

and Investments Recording

LICENSE CONTRACT FISCAL REGIME – OTHER CONSIDERATIONS

• To perform the adjustment mechanism

calculations, and in accordance with

transparency regulations, the contractors

must register costs, expenditures and

investments through the Mexican

Petroleum Fund.

• The registry will operate in a simple

manner and for information purposes, in

accordance with guidelines issued by the

Secretariat of Finance.

• The Ministry of Finance will review and

verify the proper payment of the State’s

corresponding compensations.

• The Treasury (SAT) can perform

verifications and audits for income tax

purposes.

• Information is electronically registered and

signed.

• The Fund receives payments related to

the State’s corresponding compensations.

• The rules, dates, and periods to turn in the

relevant information and payments to the

Fund are predefined.

Interaction with the Mexican Petroleum

Fund

29

30

Round 1: Fourth Bid Deep and Ultra Deep Waters

December 2015

Bidding Guidelines

www.cnh.gob.mx www.ronda1.gob.mx 31

Introduction

• The National Hydrocarbons Commission published on December 16, 2015, Round One’s fourth call for proposals and bidding guidelines to award Exploration and Extraction License Contracts.

• This fourth bidding process includes 10 areas located in deep waters.


Bidding Guidelines

• The Bidding Guidelines define the criteria all bidders must follow throughout the process:

1. Requirements

2. Processes

3. Terms


Requirements

Who is able to participate?

• Mexican or foreign companies and State Productive Enterprises

o Individually or in consortium

• These must demonstrate they have the required capacity:

o Technical

o Financial


Requirements for Operators

Technical Capacity

1. Experience in at least one exploration and production project in deep waters of at least 1,000 meters of depth, from 2011-2015.

2. Capital investments in exploration and/or production projects or at least 2 billion USD in total.

3. Experience in industrial and operation safety, and environmental protection related to deep water infrastructure or projects’ management systems, acquired in the past 5 years, such as OHSAS 18001 (safety) or ISO 14001 (environment).

35

Requisitos para el Operador

Financial Capacity

2. The Operator must demonstrate having:

a) Equity of at least 2 billion USD; or, b) Total assets with a minimum value of 10 billion USD

and an investment grade credit rating issued in 2014 or 2015 (Fitch Ratings, Moody’s Investors Service, o Standard & Poors, Rating Services).

36

Consortia Requirements

Financial Capacity

2. The Non-Operator must demonstrate having:

a) Equity of at least 250 million USD.


Processes

Access to the Data Room 1. Parties interested in pre-qualifying as operators must pay the access

fee.

2. Exceptions:

o Interested parties holding and information use license granted by the National Hydrocarbons Information Center, with equal or higher value than the data room access fee, related to:

Seismic Cubes

Centauro

Magno

Sayab

Anegada Labay

Han Sur Oeste de Tamil

Yoka Butub

Well

Pozo Ahawbil -1

Pozo Alak-1

38

Participation Criteria

Interested parties can prequalify as Operator or Non-Operator.

Prequalified Operators can participate as:

– Individual bidder, or

– Member of one or more Bidding Groups, with other Operators or Non-Operators.

A company cannot present more than one Proposal for the same Contractual Area: – Individually

– Through direct or indirect participation in more than one Bidding Group, or

– Individually through companies over which it exerts control, or belonging to the same economic entity as a Bidder different from which they take part in.

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Periods

• Data room access request and payment

From January 6, 2015 through April 15, 2016.

• Data room access

From January 6, 2015.

• Reception of pre-qualification documents

From June 14 to July 1st, 2016.

• Proposals’ presentation and award date

The award date will be defined by the third quarter of 2016, and the Act will take place at least 90 days after its definition.

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Transparency

• Verify the licit origin of financial resources

o The licit origin of the project’s financial resources will be verified as part of the prequalification process. The CNH will request the support of the Ministry of Finance’s Financial Intelligence Unit.

• Clarifications and guidelines’ modifications o In writing, through www.ronda1.gob.mx o Interested parties and bidders will refrain from contacting CNH to

obtain additional information or aiming to influence the process in any manner.

• Electronic inbox o To receive public comments.

• Proposals presentation act o Broadcasted life through electronic media (internet). o With the participation of a public notary to guarantee the event’s

validity.

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Website

www.ronda1.gob.mx

www.ronda1.gob.mx

round one fourth call for ids deep and ultra deep … · compliance guarantees corporate guarantee...

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