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Summary“Mexico Upstream Fiscal and Regulatory Report - Minimum Bids Set for Deepwater Round”, presents the essential information relating to the terms which govern investment into Mexico’s upstream oil and gas sector. The report sets out in detail the contractual framework under which firms must operate in the industry, clearly defining factors affecting profitability and quantifying the state’s take from hydrocarbon production. Considering political, economic and industry specific variables, the report also analyses future trends for Mexico’s upstream oil and gas investment climate.Scope- Overview of current fiscal terms governing upstream oil and gas operations in Mexico- Assessment of the current fiscal regime’s state take and attractiveness to investors- Charts illustrating the regime structure, and legal and institutional frameworks- Detail on legal framework and governing bodies administering the industry- Levels of upfront payments and taxation applicable to oil and gas production- Information on application of fiscal and regulatory terms to specific licenses- Outlook on future of fiscal and regulatory terms in MexicoReasons to buy- Understand the complex regulations and contractual requirements applicable to Mexico’s upstream oil and gas sector- Evaluate factors determining profit levels in the industry- Identify potential regulatory issues facing investors in the country’s upstream sector- Utilize considered insight on future trends to inform decision-making
1 Table of Contents1 Table of Contents 11.1 List of Tables 31.2 List of Figures 42 Regime Overview 53 State Take Assessment 94 Key Fiscal Terms- Production/Profit Sharing Contract 114.1 Royalties, Bonuses and Fees 114.1.1 Royalties 114.1.2 Exploration Rental Fees 124.1.3 Hydrocarbon Activity Tax 134.2 Cost Recovery 134.2.1 Cost Recovery Limit 134.2.2 Recoverable Costs 134.2.3 Uplift on Cost Recovery 144.3 Profit-Sharing 154.4 Direct Taxation 174.4.1 Corporate Income Tax 174.4.2 Deductions and Depreciation 174.4.3 Withholding Tax 174.5 Indirect Taxation 174.5.1 Value Added Tax 174.5.2 Customs Duties 174.5.3 Landowner Compensation 184.5.4 Carbon Tax 184.5.5 Abandonment Fund 184.5.6 State Participation 185 Key Fiscal Terms- Royalty and Tax License 195.1 Signature Bonus 195.2 Royalties 195.3 Additional Royalty 195.3.1 Profitability-based Adjustment Mechanism (Deepwater) 195.3.2 Production-based Adjustment Mechanism (Onshore and Shallow-water) 215.3.3 Exploration Rental Fees 225.3.4 Hydrocarbon Activity Tax 225.4 Taxation 235.5 Abandonment Fund 235.6 State Participation 235.6.1 Regular Licensing 235.6.2 Farm-Outs 236 Key Fiscal Terms- Pemex Assignments Regime 246.1 Upfront Payments 246.1.1 Royalties 246.1.2 Exploration Rental Fees 246.1.3 Hydrocarbon Activity Tax 246.2 Profit Sharing Duty 246.3 Taxation 257 Regulation and Licensing 267.1 Legal Framework 267.1.1 Governing Law 267.1.2 Contract Type 267.1.3 Title to Hydrocarbons 277.2 Institutional Framework 277.2.1 Licensing Authority 277.2.2 Regulatory Agency 277.2.3 National Oil Company 287.3 Licensing Process 287.3.1 Migration of Assignments 287.3.2 Licensing Rounds 287.3.3 Registration and Prequalification 297.3.4 Bidding Requirements 317.3.5 Evaluation of Bids 327.4 License Terms 337.4.1 Duration and Relinquishment 337.4.2 Exploration Obligations 347.4.3 Local Content 358 Outlook 379 Contact Information 391.1 List of TablesTable 1: Summary 5Table 2: Mexico, Formula-Based Price for Crude Oil, Rounds 1.4-2.2, 2015-2016 12Table 3: Mexico, Formula-Based Price for Crude Oil, Rounds 1.1-1.3, 2015 12Table 4: Mexico, Initial Contractor Share of Profit (%), Rounds 1.1 and 1.2, 2015 16Table 5: Mexico, Signature Bonus and Additional Pemex Cost Carry Value, Trión Farm-out, 2016 19Table 6: Mexico, Additional Royalty Adjustment Mechanism, Round 1.4 and Trión, 2016 20Table 7: Mexico, Additional Royalty Adjustment Mechanism, Round 1.3, 2015 21Table 8: Mexico, Additional Royalty Rate (%), Minimum and Winning Bids, Round 1.3, 2015 22Table 9: Mexico - Pemex Assignment Regime, Profit Sharing Duty Rates (%), 2015 onwards 24Table 10: Mexico, Round 1 Schedule, 2015 29Table 11: Mexico, Round 2 Schedule, 2016 29Table 12: Mexico, Round 1.1 and Round 2 Prequalification Requirements, 2016 30Table 13: Mexico, Round 1.1 and Round 2 Minimum Work Commitments, 2015 and 2016 31Table 14: Mexico, Work Unit Value, 2015 34Table 15: Mexico, Work Unit Value, 2016 35Table 16: Mexico, Round 1 and 2 Local Content Requirements (%), 2016 361.2 List of FiguresFigure 1: Regime Flow Chart - Production/Profit Sharing Contract 6Figure 2: Regime Flow Chart - Royalty and Tax License 7Figure 3: Regime Flow Chart - Pemex Assignment Regime 8Figure 4: Mexico, Indicative NPV10/boe, IRR and State Take Comparison, Internal, 2016 9Figure 5: Mexico, Indicative NPV10/boe, IRR and State Take Comparison, Regional Peers, 2016 10Figure 6: Mexico, Legal Framework 26Figure 7: Mexico, Institutional Framework 27