Oil and Gas Tenders in Mexico Proceed With Additional Specificity in Draft PSC: Locke Lord Q&A Series

September 9, 2015
September 9, 2015 -- Mexico has introduced changes to the bid rules and PSC for the second package of Mexico’s “Round 1” shallow water areas designed to make this second tender more attractive by, among other things, providing more specificity to the contractual terms and giving bidders acting as consortia increased flexibility to restructure their consortia up to one week before the bidding deadline of September 30, says Locke Lord Partner Scott Arrington in a Q&A Series feature that provides an update on Mexico’s energy reform effort.

Arrington also notes in the feature that the Mexican government is fully aware of the concerns raised by bidders in the first tender —as well as those who chose not to bid. In response to such concerns, The Mexican Comisión Nacional de Hidrocarburos (“CNH”) released several rule changes last month, including lowering the required shareholder equity value for a corporate guarantor (from $6 billion to $2 billion), allowing bidders to apply a $2.5 million guarantee to all blocks on which they bid and not just one block, giving the bidders a larger slice of earnings, and allowing upstream drillers to keep assets that they would have had to forfeit under prior rules if the PSC were revoked for willful misconduct.

In addition, the regulators added specificity to the PSC provision governing administrative rescission (Section 22.1) in an attempt to give private investors more confidence that this right will not be invoked arbitrarily.

“It is impossible to know with certainty how bidders have reacted to the August changes until second phase bids are opened on September 30,” Arrington says, “but industry observers generally view those changes favorably. Despite such improvements, potential bidders — particularly those outside of Mexico —still have important concerns.”

The complete Q&A with Arrington is available here.