Today the Mexican State published the bidding guidelines and the contract model for deepwater contracts related to Round One’s Fourth Call for Bids, available at: http://www.ronda1.gob.mx.
In line with the best international practice, the guidelines to conduct this bidding process are designed to guarantee that companies operating in deep and ultra-deep waters of the Gulf of Mexico have proven capabilities and experience. Therefore, the guidelines establish technical, financial, execution, industrial safety and environmental protection requirements consistent with the highest international standards. Similarly, and as in the three previous bids, the Fourth Call Bidding Guidelines guarantee this process will be conducted under principles of transparency, maximum publicity, equality, competitiveness and simplicity.
Round One’s Fourth Call for bids includes 10 exploration blocks located in deep and ultra-deep waters. Four of these blocks are located in the Perdido Fold Belt Area and six in the Saline Basin of the Gulf of Mexico. They have the following characteristics:
- The exploration blocks located in the Perdido Fold Belt Area cover a surface area of 8,218.2 km2 and contain an estimated prospective resource base of 3,557.7 million barrels of oil equivalent (mmboe).
- The exploration blocks located in the Saline Basin cover a surface area of 15,616.8 km2 and have an estimated prospective resource base of 6,979.5 mmboe.
The main provisions contained in the contract include:
- License Mode. This contract modality implies that the main contributions to be paid by the contractor will be calculated as a portion of its gross revenue, without cost recovery.
- Purpose of the Contract. The execution of hydrocarbon exploration and extraction activities within the contractual areas.
- Term. The contract shall have an initial term of 35 years with two possible extensions of 10 and 5 years, respectively, subject to achieving regular commercial production.
- Phases. The contract considers the following phases:
- An initial 4-year exploration phase, plus two additional 3-year exploration phases.
- A 3-year appraisal period following any discovery.
- A development period of 22 to up to 37 years (subject to maintaining regular commercial production).
- Initial Exploration Phase. During the first four years of the contract, the contractor shall conduct the activities required to fulfill the minimum work program as established in each contract.
- Additional Exploration Phases. The contract foresees two additional exploration periods of 3 years each. To qualify for this extensions, the contractor shall commit to drill an additional exploration well in each period.
- National Content. The minimum national content percentage requirements depend on the project phase as outlined in the contract, and range from 3% to 10%.
- Performance Guarantee. The contractor shall present a standby letter of credit, which shall be unconditional, irrevocable and payable to CNH, to guarantee the execution of the minimum work commitment during the exploration phase.
- Corporate Guarantee. The contractor shall be financially backed by its ultimate parent company or a duly capitalized affiliate company, to guarantee the performance of the contractual obligations.
- Insurance. The contract foresees the required main insurance policy features, which are in line with the best industry practices.
- Industrial Safety and Environmental Protection. The contractor shall comply with applicable industry norms regarding industrial and operational safety, occupational health and environmental protection.
- Exploration and Development Plans, Work Programs and Budgets. The exploration and development plans shall be approved by the CNH, whereas the associated annual work programs and budgets will be merely informative.
- Administrative Rescission. As defined by the Hydrocarbons Law. It considers a previous investigation stage that may include the participation of an independent expert to determine the Contractor’s willful misconduct or gross negligence.
- Contractual Rescission. Applicable upon unjustified breach of contractual obligations, with the possibility to access alternative dispute resolution mechanisms such as conciliation or arbitration.
- Progressivity of the Fiscal Terms. The contract foresees an adjustment mechanism to increase the government take in case of windfall production results or prices’ increase.
To foster the best conditions for the competition, the Bidding Guidelines of this Fourth Call for bids present adjustments in relation to Round One’s previous bidding rounds:
1. Individual prequalification of the interested parties. Companies will prequalify as “Operators” or “Non Operators” according to their technical and financial capabilities.
2. Joint bidders shall include at least one interested party prequalified as “Operator”.
3. To allow an optimum diversification of the associated risks, one interested party may be part of more than one joint bidder, provided that such interested party cannot present more than one proposal for the same contract area.
4. Parties interested in prequalifying as Operators who have previously acquired applicable information from the National Hydrocarbon Information Center will be able to access the data room, without paying additional fees.
5. The technical and financial prequalification information requirements have been simplified.
6. The submission of proposals and award date will be announced during the third quarter of 2016 at the latest, and will take place at least 90 days after its announcement.
7. The bidding variables will be the additional royalty to be paid to the Mexican State and the commitment to drill a well during the initial 4-year exploration period.
Finally, considering the volatility observed in recent months in the international oil market and to guarantee the State’s best interest, the call for bids related to heavy oil and extra heavy oil fields will be suspended until further notice.