Gulf Oil and Gas accountACCOUNT

Mexico Launches First Auction of Round Three

Source: www.gulfoilandgas.com 9/28/2017, Location: South America

Round 3.1 comprises 35 contractual exploration and extraction areas in shallow waters of the Gulf of Mexico, to be developed through Shared Production Contracts. The technical and financial elements of the Contracts will allow the operating companies to develop the projects in an efficient manner and guarantee the capture of the oil revenue by the State.

This Call comprises a total of 35 exploratory and extraction contractual areas in shallow waters of the Gulf of Mexico, which cover a total area of 26,265 km2 and have approximately 1.988 million barrels of crude oil equivalent (mmbpce) of prospective resources, as well as as a remnant volume of 290 mmbpce:

- 14 contractual areas located in Burgos. They cover an area of 8,424 km2 and estimated prospective resources of 579 mmbpce.

- 13 contractual areas located in Tampico-Misantla-Veracruz. They cover an area of 12,493 km2 and estimated prospective resources of 1,217 mmbpce, as well as a remaining volume of 193 mmbpce.

- 8 contractual areas located in Cuencas del Sureste. They cover an area of 5,348 km2 and have prospective resources estimated at 192 mmbpce, as well as a remaining volume of 96 mmbpce.

The bidding process of the shallow water contract areas of this Call makes it possible to ensure that the operating companies have proven experience and capacity for the optimum development of oil projects. To this end, various technical, financial, enforcement, safety, health and environmental protection requirements were defined, consistent with the highest industry standards at the international level.

Likewise, the Bidding Rules seek to guarantee that this process is carried out under principles of transparency, maximum publicity, equality, competitiveness and simplicity in compliance with what is established in the current regulations.

It highlights the main elements of the Contract, which have been designed to ensure the optimum development of oil projects in the contractual areas:

- Modality of Shared Production. This contractual modality was used in the First and Second Calls of Round One and Round Two, corresponding to contractual areas in shallow waters of the Gulf of Mexico.
- Payment of Considerations. The Contractors shall be obliged to pay the corresponding Considerations in favor of the State, either in cash or in kind, in accordance with the provisions of the Contract and applicable regulations.
- Progressivity in the Contract. The contract includes an adjustment mechanism for the compensations, which increases the amount of resources received by the State in case of unexpected increases in prices, surprises in production or cost efficiency. In conjunction with the other fiscal elements, progressivity in the regime will allow the State to guarantee the capture of the oil revenue by the successful completion of the projects in the contractual areas.
- Cost Recovery. The Contract provides for the recovery of costs, expenses and investments necessary for the realization of petroleum activities, subject to a limit determined by the type of deposit in each contractual area. Exploration Incentives. The Contract provides for incentives to carry out exploratory activities that are part of the minimum investment commitments in the contractual areas.
- Validity. The contract will have an initial duration of 30 years, with two possible extensions, of 5 years each, subject to the continuity of hydrocarbon extraction activities in the contractual areas.
- Exploration Period. The Contract provides for exploratory activities with an initial duration of 4 years and two possible extensions of up to two years each. During the exploration period, the Contractors must complete the minimum work program, as well as the increases in the minimum program to which it has been committed in the tender and as part of the extension of the extensions.
- Evaluation period. The contract provides for a period of 2 years for the evaluation of any geological discovery, which may be extended for an exceptional period of up to 1 year in the case of technical or commercial complexity for the development of the corresponding discovery.
- Development Period. The development phase will begin with the approval of the corresponding Development Plan by the CNH and its extension will be subject to the continuity of the extraction activities in the contractual areas.
- National Content. National content targets for 2025 are expected to be between 17% and 35%, depending on the type of project.

On the other hand the Bases of this Call consider, among other elements, the following:

- Prequalified bidders in Rounds 1 and 2 may automatically pre-qualify if the information presented for a previous tender meets the requirements set forth in the Bases and whenever the bidder declares that such information has not undergone any change.
- The prequalification of the interested parties will be as Operator and Non-Operator.
- Participation during the tender can be done individually or in groups.
- The prequalified stakeholders may participate individually and in the number of consortia they wish, provided that no more than one proposal is submitted for the same contractual area. In the case of Grouped Bidders, the Designated Operator shall maintain at least a 30% interest.
- The bid will be by auction to the first price in closed envelope.

The Winning Bidder will be the one presenting the largest Economic Proposal, which includes a variable in terms of income for the State, as well as an additional investment variable. Both variables will be subject to minimum and maximum values established by the SHCP.

In case the economic proposal considers the maximum values determined by the SHCP for both award variables, the amount of cash payment must be included in the same. Participants must submit with their economic proposal a Guarantee of Seriousness (Letter of Credit) in the amount of $ 500,000.00

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