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Summary“Mexico Upstream Fiscal and Regulatory Report - Continued licensing expected but 2018 election adds risks”, 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 32. Regime Overview 43. State Take Assessment 94. Key Fiscal Terms- Production Sharing Agreement 114.1. Royalties, Bonuses and Fees 114.1.1. Signature Bonus 114.1.2. Royalty 114.1.3. Exploration Rental Fees 124.1.4. Hydrocarbon Activity Tax 124.2. Cost Recovery 134.2.1. Limit on Recovery 134.2.2. Recoverable Costs 134.2.3. Uplift on Cost Recovery 144.3. Profit Sharing 144.4. Direct Taxation 154.4.1. Corporate Income Tax 154.4.2. Deductions and Depreciation 164.4.3. Withholding Tax 164.5. Indirect Taxation 164.5.1. Value Added Tax 164.5.2. Customs Duties 164.5.3. Landowner Compensation 164.5.4. Carbon Tax 174.6. Abandonment Fund 174.7. State Participation 175. Key Fiscal Terms - Royalty and Tax 185.1. Signature Bonus 185.2. Royalty 185.3. Additional Royalty 185.3.1. Deepwater: Profitability-Based Adjustment Mechanism 195.3.2. Onshore: Production-Based Adjustment Mechanism 205.4. Exploration Rental Fees 225.5. Hydrocarbons Activity Tax 235.6. Taxation 235.7. Abandonment Fund 236. Key Fiscal Terms - Pemex Assignments Regime 246.1. Royalties, Bonuses and Fees 246.1.1. Royalty 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 287.2.1. Licensing Authority 287.2.2. Regulatory Agency 287.2.3. National Oil Company 287.3. Licensing Process 297.3.1. Migration of Assignments 297.3.2. Licensing Rounds 297.3.3. Registration and Prequalification 307.3.4. Bidding 307.3.5. Evaluation of Bids 337.4. License Terms 347.4.1. Duration and Relinquishments 347.4.2. Work Obligation 347.5. Local Content 368. Outlook 389. Appendix 409.1. Contact Us 409.2. Disclaimer 401.1 List of TablesTable 1: Regime Overview 4Table 2: Mexico, Production Sharing Agreement, Formula-Based Price for Crude Oil, Round 1 12Table 3: Mexico, Production Sharing Agreement, Initial State Share of Profit (%),Rounds 1.1, 1.2& 2.1 15Table 4: Mexico, Royalty and Tax,Applicable Signature Bonus (US$) 18Table 5: Mexico, Royalty and Tax, Additional Royalty Adjustment Mechanism 19Table 6: Mexico, Royalty and Tax,Winning Additional Royalty Bids (%), Deepwater Licenses 20Table 7: Mexico, Royalty and Tax, Additional Royalty Adjustment Mechanism,Onshore 20Table 8: Mexico, Royalty and Tax, Minimum Additional Royalty Rates (%), Round 1.3, 1.4, 2.2, 2.3 21Table 9: Mexico, Royalty and Tax,Winning Additional Royalty Bids (%), Rounds2.2 and 2.3 (Onshore) 22Table 10: Mexico, Pemex Assignment Regime, Profit Sharing Duty Rates (%), 2015 onwards 24Table 11: Mexico, Schedule for Ongoing Licensing Rounds 29Table 12: Mexico, Round 2.3, 2.4 and 3.1 Prequalification Requirements 30Table 13: Mexico, Minimum Work Commitments, Round 3.1 31Table 14: Mexico, Work Program Units, Round 3.1 32Table 15: Mexico, License Duration (Years) 34Table 16: Mexico, Work Unit Value, Prior to Round 1.4 35Table 17: Mexico, Work Unit Value, Round 1.4 onward 36Table 18: Mexico, Local Content Requirement (%) 371.2 List of FiguresFigure 1: Regime Flow Chart - Production Sharing Agreement 6Figure 2: Regime Flow Chart - Royalty and Tax 7Figure 3: Regime Flow Chart - Pemex Assignment Regime 8Figure 4: Mexico, Indicative NPV10/boe, IRR and State Take Comparison, Internal 9Figure 5: Mexico, Indicative NPV10/boe, IRR and State Take Comparison, Regional 10Figure 6: Mexico, Legal Framework 26Figure 7: Mexico, Institutional Framework 28