On July 15, 2015, the Mexico's National Hydrocarbons Commission (Comisión Nacional de Hidrocarburos) ("CNH") approved the Resolution modifying the Technical Guidelines on Hydrocarbons Measurement Matters (the "Guidelines") (Lineamientos Técnicos en Materia de Medición de Hidrocaburos) (the "Resolution").
This Resolution is part of the "solutions" that the Mexico's upstream regulator is trying to implement due to the problems the operators of the onshore blocks recently awarded by CNH have found to give continuity to the petroleum activities in already producing areas, which is something that CNH did not foresee when such blocks were subject to bidding procedure. The reality is that those blocks continued production without these, and other matters, being even resolved.
This modification in regulation has impact in (i) onshore blocks already producing, awarded to operators in Mexico in Round 1.3; (ii) blocks to be migrated to the new Exploration & Extraction Contracts; and (iii) future blocks to be awarded in the next bids, which are to be received in production with the obligation to give continuity to the extraction activities.
In terms of the Hydrocarbons Law (Ley de Hidrocarburos) ("LH"), CNH shall issue a technical opinion in order to approve the Development Plans for the Extraction of hydrocarbons (the "Technical Opinion") submitted by those who have a Contract for Exploration & Extraction of hydrocarbons executed with CNH (the "E&E Contractors") and those holding Entitlements (i.e. Pemex), and such technical opinion shall include, among other matters, the evaluation and, if applicable, the approval of the relevant hydrocarbons measurement mechanisms (the "Measurement Mechanisms").
In this sense, the Guidelines provides the requirements that the Contractors and Entitlement holders shall comply with for the approval of their Measurement Mechanisms; likewise, it establishes that in the relevant Technical Opinion, the CNH will determine a measurement point in which: (i) the measurement and determination of the quality of each hydrocarbon extracted will be performed; and (ii) the price of each hydrocarbon will be determined (the "Measurement Point").
Moreover in terms of the Guidelines, the Contractors and the Entitlement holders are prohibited to start the production of hydrocarbons of their relevant field until they obtain the approval of their Measurement Mechanisms and the determination of their Measurement Point, through the issuance of the Technical Opinion; however, the obtainment of this approval may take a period of 120 days after the relevant application is submitted.
As you may recall, this is not the first time that the Guidelines are modified. In February 2016, the Guidelines were modified to add a Transitory Article Seventh so that, while CNH approves Pemex´s measurement systems definitively, in a transitional period, measuring points will be established and recognized with the purpose that the Entitlements production is calculated through a balance (i.e., calculation of what each Entitlement is producing in the overall set of Pemex production).
The time required to obtain the approval of the Measurement Mechanism and Measurement Point is a problem for those Contractors that were awarded fields that are already producing hydrocarbons and are obliged to continue with the Petroleum Activities (i.e. continue with such production) as of the execution date of the relevant contracts (i.e. the majority of the contracts awarded in Bid 3 of Round 1) or for those Contractors that due to the nature of the field, they may initiate the production of their fields almost immediately.
III. CNH's alleged solution
In the light of the foregoing, with the CNH's Resolution, the Guidelines will be modified so that in case of those fields that were on production at the moment of the execution of the relevant contracts or that are susceptible of initiating the production prior to the implementation of the Measurement Mechanisms and Measurement Points in accordance with the relevant plans, (i) the winning bidder; (ii) the designated operator in virtue of a migration procedure; (iii) the Contractor; or (iv) Entitlement holder, as applicable, may submit to the consideration of the CNH, 15 days prior to the start of the extraction activities, a proposal of a Provisional Measurement Point, in order to initiate or continue with the corresponding production.
The proposal of provisional Measurement Point shall contain, at least:
- Responsible for the provisional Measurement Point;
- Mechanism, system, procedure or agreement with a Contractor or Entitlement holder in order to carry out the measurement; and
- Determination or allocation of the volume, quality and price of each type of hydrocarbon.
CNH will review and, if applicable, approve such proposal verifying the sufficiency and congruency of the same.
The provisional Measurement Point will be in force for the relevant operator until the CNH issues its Technical Opinion approving, if applicable, the definitive Measurement Mechanism and determines the Measurement Point.
The CNH's Resolution modifying the Technical Guidelines on Hydrocarbons Measurement Matters was submitted for notice-and-comment period to the Federal Commission of Regulatory Improvement (Comisión Federal de Mejora Regulatoria); once the regulatory improvement procedure is finished, the definitive Resolution will be published in the Federal Register (Diario Oficial de la Federación) to become effective.
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.