round one fourth call for ids deep and ultra deep … · compliance guarantees corporate guarantee...
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ROUND ONE – FOURTH CALL FOR BIDS
DEEP AND ULTRA DEEP WATERS
Bidding Process CNH-R01-L04/2015
December 2015
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ROUND ONE: FIRST APPROACH
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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%.
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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
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FIVE YEAR PLAN NOMINATIONS PERDIDO AREA
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SELECTED CONTRACTUAL AREAS PERDIDO AREA
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SELECTED CONTRACTUAL AREAS PERDIDO AREA
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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
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FIVE YEAR PLAN NOMINATIONS SALINA DEL ISTMO BASIN
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SELECTED CONTRACTUAL AREAS SALINA DEL ISTMO BASIN
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SELECTED CONTRACTUAL AREAS SALINA DEL ISTMO BASIN
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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
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Perdido
Area
Salina del
Istmo
Basin
BIDDING PROCESS TECHNICAL GUIDELINES
December 2015
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Bidding Process CNH-R01-L04/2015
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
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Bidding Process CNH-R01-L04/2015
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)
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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
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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
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Bidding Process CNH-R01-L04/2015
• 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
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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
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• 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
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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.
www.cnh.gob.mx www.ronda1.gob.mx 32
Bidding Guidelines
• The Bidding Guidelines define the criteria all bidders must follow throughout the process:
1. Requirements
2. Processes
3. Terms
www.cnh.gob.mx www.ronda1.gob.mx 33
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
www.cnh.gob.mx www.ronda1.gob.mx 34
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).
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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).
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Consortia Requirements
Financial Capacity
2. The Non-Operator must demonstrate having:
a) Equity of at least 250 million USD.
www.cnh.gob.mx www.ronda1.gob.mx 37
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
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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