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Home > Oil and Gas >  Upstream >  Mexico Upstream Fiscal and Regulatory Guide

Mexico Upstream Fiscal and Regulatory Guide

The administration of President Lopez Obrador is expected to clarify to foreign investors whether it intends to close the door on international investments in the oil and gas sector after in December 2018 it cancelled new licensing rounds until at least 2022. In the meanwhile, Congress has recently modified some articles of the Hydrocarbons Revenue Law reducing Pemex’s profit sharing duty from the current 65% to 58% in 2020 and then to 54% in 2021. Reducing the profit sharing duty may help Pemex to obtain liquidity and fund its obligations currently jeopardized by negative free cash flow and high debt. With no planned licensing rounds, service contracts migrations, and farm-outs, the government is looking to rely on Pemex for upstream development. Pemex offers new integrated service contracts to support development, but it will retain operatorship and contractors will receive a cash fee based on production.

“Mexico Upstream Fiscal and Regulatory Guide”, 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 Mexico

Reasons 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

Table of Contents

1. Table of Contents

1.1. List of Tables

1.2. List of Figures

2. Regime Overview

2.1. Regime Overview ─ Production Sharing Agreements

2.2. Regime Overview ─ Royalty and Tax Licenses

2.3. Regime Overview ─ Pemex Assignment Regime

2.4. Timeline

3. State Take Assessment

4. Key Fiscal Terms – Production Sharing Agreement

4.1. Royalties, Bonuses and Fees

4.1.1. Signature Bonus

4.1.2. Royalty

4.1.3. Exploration Rental Fees

4.1.4. Hydrocarbon Activity Tax

4.2. Cost Recovery

4.2.1. Limit on Recovery

4.2.2. Recoverable Costs and Non-Recoverable Costs

4.2.3. Uplift on Cost Recovery

4.3. Profit Sharing

4.4. Direct Taxation

4.4.1. Corporate Income Tax

4.4.2. Deductions and Depreciation

4.4.3. Withholding Tax

4.5. Indirect Taxation

4.5.1. Value Added Tax

4.5.2. Customs Duties

4.5.3. Landowner Compensation

4.5.4. Carbon Tax

4.6. Abandonment Fund

4.7. State Participation

5. Key Fiscal Terms – Royalty and Tax

5.1. Signature Bonus

5.2. Royalty

5.3. Additional Royalty

5.3.1. Deepwater: Profitability-Based Adjustment Mechanism

5.3.2. Onshore: Production-Based Adjustment Mechanism

5.4. Exploration Rental Fees

5.5. Hydrocarbons Activity Tax

5.6. Taxation

5.7. Abandonment Fund

6. Key Fiscal Terms – Pemex Assignment Regime

6.1. Royalties, Bonuses and Fees

6.1.1. Royalty

6.1.2. Exploration Rental Fees

6.1.3. Hydrocarbon Activity Tax

6.2. Profit Sharing Duty

6.3. Taxation

6.3.1. Fiscal Stimulus

7. Regulation and Licensing

7.1. Legal Framework

7.1.1. Governing Law

7.1.2. Contract Type

7.1.3. Title to Hydrocarbons

7.2. Institutional Framework

7.2.1. Licensing Authority

7.2.2. Regulatory Agency

7.2.3. National Oil Company

7.3. Licensing Process

7.3.1. Migration of Assignments

7.3.2. Licensing Rounds

7.3.3. Registration and Prequalification

7.3.4. Bidding

7.3.5. Evaluation of Bids

7.4. License Terms

7.4.1. Duration and Relinquishments

7.4.2. Work Obligation

7.5. Local Content

8. Appendix

8.1. References

9. Appendix

9.1. Contact Us

9.2. Disclaimer

List of Tables

1.1. List of Tables

Table 1: Regime Overview

Table 2: Mexico, Key Events Since Year 2000

Table 3: Mexico, Production Sharing Agreement, Formula-Based Price for Crude Oil, Round 1.1

Table 4: Mexico, Production Sharing Agreement, State’s Share of Profit (%), Rounds 1.1, 1.2, 2.1, and 3.1

Table 5: Mexico, Royalty and Tax, Applicable Signature Bonus (US$)

Table 6: Mexico, Royalty and Tax, Additional Royalty Adjustment Mechanism

Table 7: Mexico, Royalty and Tax, Additional Royalty Rates (%), Deepwater Licenses, Rounds 1.4 and 2.4

Table 8: Mexico, Royalty and Tax, Additional Royalty Adjustment Mechanism, Onshore

Table 9: Mexico, Royalty and Tax, Additional Royalty Rates (%), Rounds 1.3, 2.2, and 2.3

Table 10: Mexico, Pemex Assignment Regime, Profit Sharing Duty Rates (%), 2015 onward

Table 11: Mexico, Pemex Assignment Regime, Maximum Deduction for the Calculation of the Profit-Sharing Duty

Table 12: Mexico, Types of Offered Agreements According to the Licensing Round

Table 13: Mexico, Round 2.3, 2.4 and 3.1 Prequalification Requirements

Table 14: Mexico, License Duration (Years)

Table 15: Mexico, Local Content Requirement (%)

Table 16: References

List of Figures

1.2. List of Figures

Figure 1: Regime Flow Chart – Production Sharing Agreement

Figure 2: Regime Flow Chart – Royalty and Tax

Figure 3: Regime Flow Chart – Pemex Assignment Regime

Figure 4: Mexico, Indicative NPV10/boe, IRR and State Take Comparison, Regional

Figure 5: Mexico, Legal Framework

Figure 6: Mexico, Institutional Framework

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