Mexico: Trion Deepwater - Bidding Guidelines And Contract For The 1st Farmout Of Pemex

Last Updated: 1 August 2016
Article by Manuel Cervantes

On July 27, 2016, the Mexico's National Hydrocarbons Commission (Comisión Nacional de Hidrocarburos) ("CNH") announced the call for a bid for the first association with Pemex Exploración y Producción ("Pemex") with the purpose of performing hydrocarbons exploration and extraction activities under a license contract in deepwaters at Trion Area (the "Bid"). CNH will publish on July 28, 2016, the bidding guidelines and model of contract in CNH's webpage (www.rondasmexico.gob.mx) and the call for the Bid in the Federal Register (Diario Oficial de la Federación).

In such regard, below please find the main aspects of the Bid informed by CNH and the Ministry of Energy (Secretaría de Energía) ("SENER"). A more detailed outline will follow shortly, but this is a courtesy preliminary report of the main points (it was prepared based on the information verbally shared by CNH and SENER, hence, subject to review of the project documents upon their publication):

I. Bid Schedule (Main Events).

Term to request access to the data room July 28, 2016 to August 29, 2016
Term to pay and be registered in the Bid December 2, 2016 to December 15, 2016
Term to request prequalification meeting July 28, 2016 to August 31, 2016
Submission of prequalification documents September 12, 2016 to September 15, 2016
Review of prequalification documents September 19, 2016 to November 4, 2016
Publication of prequalified bidders November 9, 2016
Term to change integration of consortiums November 14, 2016 to November 18, 2016
List of consortiums November 28, 2016
Opening & submission of proposals & award December 5, 2016

II. Access to the Data Room and Registry.

  • The process will have 5 stages: (i) access to the Bid's data room, (ii) clarification of bidders' queries (including questions of the participants about the JOA, which will be remitted by CNH to the Ministry of Finance ("SHCP") and to Pemex, respectively. Questions can be made if the Data Room access is secured), (iii) prequalification, (iv) opening and submission of proposals, and (v) execution of the relevant contract.
  • The access to the information of the Bid's data room will be obtained through the purchase of a data license with the National Center of Hydrocarbons Information (Centro Nacional de Información de Hidrocarburos) through the payment of an amount equal or higher to $1.6 MM Pesos (approx. USD$85,057).
  • For the registration in the Bid, in addition to obtaining the access to the Bid's data room, the interested party shall pay $750,000.00 Pesos (approx. USD$39,766).

III. Prequalification of Bidders.

  • As in prior bids, the bidders shall evidence legal, financial and technical capacities, which shall be reviewed by CNH; nevertheless, with the opinion of PEP.
  • The requirements in HSE matters will be reviewed by the National Agency of Industrial Security and Protection to Environment in the Hydrocarbons Sector (Agencia Nacional de Seguridad Industrial y Protección al Medio Ambiente del Sector Hidrocarburos).
  • In general, the experience and capacities to be evidenced by the bidders are as follows:

    1. Financial Capacities: (y) A total net worth of at least 5 USD Billion, or (z) total assets with a value of at least 25 USD Billion plus certain credit rating of investment grade and capital investments in hydrocarbons exploration and/or extraction activities jointly representing at least 2 USD Billion. On the other hand, non-operator parties shall evidence a total net worth of at least USD$250 MM.
    2. Technical capacities: Operators shall evidence experience (i) in the last 10 years in at least 1 ultra-deepwater project in depths of 1,500 meters; and (ii) production of a minimum of 50Mbpced in deepwater/ultra-deepwater projects within Y2012-Y2015. Likewise, experience in HSE matters during the last 5 years, including an opinion of a specialized firm in such matters, and certifications OHSAS 18001, ISO 14001and API RP75.
  • Bidders may prequalify as an operator or as a non-operator (financial partner) but shall integrate consortiums to submit proposals (at least 2 operators, one named as "Designated Operator"); note that one company may be part of several consortiums in the prequalification stage but it may only be part of one consortium to submit an economic proposal.
  • Pemex opinion about the potential partner will be requested by CNH during the prequalification stage.
  • Percentages of participation in the project:

    PEP: 45%
    Designated Operator: 30% to 45%
    Operator: 10% to 25%
    Non-Operator:Up to 10%

IV. Opening and Submission of Economic Proposals.

  • As in the other bids, the contract will be awarded to the consortium offering the highest additional royalty for the Government. SHCP will publish before the date of submission of proposals, the minimum additional royalty expected by the Government. SHCP is evaluating if a maximum additional royalty will be established and published as well, before the date of submission of proposals.
  • The consortiums shall guarantee their proposals through a bid guaranty of USD$3 MM, in the form of a stand by letter of credit.

* An "additional carry" will be a tie brake criterion in the bid process.

V. Terms of the License Contract.

  • The contract will have a term of 35 years, with the possibility of two extensions of 10 and 5 years, respectively, integrated by (i) an exploratory stage of 4 years (may be extended two times for 3 years each), (ii) an appraisal stage up to 3 years after a discovery, and (iii) a development stage from 22 to 37 years (including extensions).
  • The contract will include a Minimum Work Program to be met by contractor.
  • Any assignment or change in control of the rights and/or obligations derived from the contract shall have the prior authorization of CNH. In case of a full assignment of the contract, the assignor shall be jointly and severally liable up to the date of the relevant transfer.
  • Contractor shall deliver (a) a performance guaranty to cover the Minimum Work Program, and (b) a corporate guaranty from the ultimate holding company or an affiliates (in such last case, the affiliates shall evidence a net worth of at least the percentage of participation of each member of the consortium multiplied by USD 14 Billion).
  • Minimum percentages of national content to be met by contractor from 3% to 10%.

VI. Terms of the Joint Operating Agreement.

  • As a result of the association with PEP, the awarded bidder shall execute a JOA with the entity in the terms provided in the bidding guidelines. JOA allegedly based on the AIPN model adjusted under Mexican law.
  • JOA will contain clauses dealing with the appointment, rights and obligations of the Operator, percentages of participation, the creation of an Operating Committee, decision making rules as to the Contract, the determination of the Work and Budget Programs, payments of considerations to the members of the consortium, the use of the production obtained from the development of the activities, the operating rules, among others.
  • The JOA model has the approval of the Ministry of Energy (Secretaría de Energía) and the Ministry of Finance and Public Credit (Secretaría de Hacienda y Crédito Público).
  • PEP's carry (i.e. minimum investment to be assumed by the consortium on behalf of PEP) shall be of USD$464 MM; once such amount is exceeded, PEP would make economic contributions to the project.

VII. Trion Field.

  • The field has a total surface of 1,284 km2, with 3D seismic almost thereof, and has two drilled wells (Trion 1 and Trion 1DL).
  • Field Trion is located at 178 km from the Tamaulipas shore, 200 km east of Matamoros and near to the USA border (39 km from the border line).
  • Trion has 3P reserves for 458Mbpce and exploratory opportunities of 140Mb.
  • The field requires an investment of USD 11 Billion, according to SENER, to be explored and exploited.
  • The first production of the field is projected by 2023 and is expected to have a production of 120,000 barrels.
  • This field is located in Cinturón Plegado Perdido.

VIII. Disclaimer.

THIS PRELIMINARY REPORT CONTAINS A BASIC DESCRIPTION OF THE RULES AND CONTRACTUAL TERMS OF THE BID, 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 28, 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.

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