Economía 22-08-2017

Pemex’s deepwater farmouts to bring up to US$10 billion in investments

Pemex’s new deepwater farmout will entail investments of up to US$10 billion during the term of the contract, according to the National Hydrocarbons Commission (NHC), which also recommended applying licensing agreements aimed at allowing contractors to pay the considerations shared with the State in oil instead of just cash.

According to information published by lacomunidadpetrolera, the Nobilis-Maximo area is located in the Gulf of Mexico near the coast of Tamaulipas, in the Perdido area, at a depth of 2,500 to 3,600 meters. The Nobilis, Maximino, Supremus, and Minus oil and gas discoveries are within the contractual area. These discoveries came as a result of a drilling operation carried out by Pemex Exploration & Production (PEP) in accordance with the corresponding regulations.

The allocations’ transfer comes from a request made by PEP to complement its technological capabilities by associating with an operator with extensive experience in the deep waters, in order to accelerate exploration and development of these findings.

Giving a favorable opinion on this matter, the NHC regarded that the license agreement model is the most appropriate, as it offers operative flexibility, and increases the odds of investment for the integral development of the project. However, the definitions of the characteristics of each contract under the Hydrocarbons Law establishes that regarding the licenses associated contractors will pay the State royalties on the gross value once the hydrocarbon sales begin.

Onshore and shallow waters farmouts. Meanwhile, among the association processes currently being carried out there are 15 companies that started the prequalification process for the Ayin-Batsil shared production contract – located in shallow waters of the province of Istmo – and the offshore portion of the Pilar Reforma-Akal, as well as the licenses for the Tabasco, Cardenas-Mora, and Orgarrio onshore blocks.

Said companies include German Dea Deutsche Erdoel and Colombian Ecopetrol, which are involved in consortium contracts with Pemex in Mexico, as well as companies already exploring the Mexican shallow waters, such as Mexican Sierra Oil and Gas and Petrobal, and Argentinian consortium Hokchi Energy.

Participants that currently hold contracts in Mexico include: China Offshore Oil Corporation, U.S. Murphy Sur, in addition to Mexican companies Grupo R and Alfa’s subsidiary Newpek. Argentinian Techint, Egyptian Cheiron, Mexican Gran Tierra, and English Galen Energy will also participate.

SHCP incentives. The Ministry of Finance and Public Credit (SHCP, according to the Spanish acronym) is offering a series of tax incentives to companies awarded Pemex’s mature or marginal fields, with the purpose of avoiding a revenue loss and a decline in hydrocarbons production levels.

“In recognition of the technical and financial challenges of extraction activities in mature and/or marginal fields carried out by the State through allocations, it is necessary to offer more flexibility to the tax regime applicable in said cases, by means of granting tax incentives consisting in allowing the legatee to set a limit to the deductibles, expenses, and investments, higher than the ones foreseen in the Hydrocarbons Income Law,” the organization explained in the Federation’s Official Report.

The federal government will expand the limits on the deductible cost of the shared income rights for marginal fields in the following manner: in onshore oil fields the cost limit for income percentage will be 40 percent, instead of 20 percent; in shallow water fields it will be 35 percent, in non-associated natural gas fields it will be 85 percent; and in Chicontepec fields it will be 75 percent.

“The State must implement mechanisms to guarantee the continuity of hydrocarbon extraction activities,” the decree reads. The organization assured that another reason to increase the incentives is the international prices in this sector.