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Frequently asked questions

1. What are the Mexican E&P Contracts?

Mexican E&P contracts are services contracts, under which a contractor executes works and provides services required by PEMEX. Its compensation is based on pre-established and measurable indicators, typically use by the oil and gas industry.

2. Are Mexican E&P Contracts allowed by the Mexican Constitution?

Yes. Under the Mexican legal framework production sharing contracts and concessions are prohibited; contracts that committee a percentage of production or sales value of the hydrocarbons or its derivatives or PEMEX’s profits; as well as any other contract that grants the contractor any right over the production, or the right to register reserves as assets of its property.

3. Is PEMEX the only one entitled to sell the production obtained through these contracts?

Yes. PEMEX decides to whom and how to sell the obtained production.

4. How does the Mexican E&P Contracts differ from the Public Works Law contracts?

Mexican E&P contracts are designed specifically for the oil and gas projects.

Remuneration under public works contracts’ (governed by the Public Works Law) are payable under three different options: lump-sum, unit prices, a mix of both, and pre-established amortization payments. Mexican E&P contract’s remuneration will be established according to each project’s characteristics, and based on formulas specified in the contract that will result in a definitive price; these allows to include performance incentives.

Public Works Law contracts include provisions setting forth the application of liquidated damages exclusively in case the contractor is delayed in the execution of the works. Mexican E&P contracts’ will incorporate provisions regarding liquidated damages based on the contractor’s poor performance in areas such environment impact, as well as time, opportunity and quality in the execution of the works.
The duration of the Public Works Law contracts is predefined in the contract, according to infrastructure building practices. Duration of the Mexican E&P Contracts is flexible according to the needs and specifications of the rendered services.

5. Why are Mexican E&P Contracts more suitable than public works contracts?

Mexican E&P contracts have more flexible mechanisms than those used in the public work contracts. Therefore, the design and scope of each contract takes into consideration the characteristics and requirements of each exploration and production project. Elements of the contract such as performance indicators, duration, payments adjustment mechanisms are designed for each project.

6. What are the incentives?

Incentives are stimulus established in the contracts that allow the contractor to receive a better remuneration when achieving a better performance. In accordance with the PEMEX Law, incentives may be included when PEMEX increases its profitability due to improved results on works executed and services rendered by the contractor, or the application of new technology.

7. Is the implementation of incentives in accordance to the PEMEX Law?

Yes. Incentive payments recognize a high-standard performance of the contractor, when carrying out the project activities and achieving the contract’s targets. According to pre-established and measurable indicators, typically use by the oil and gas industry. Incentives payments are not based on a percentage of production. Thereby, no production sharing takes place, nor sale value of the hydrocarbons or PEMEX’s profit sharing.

8. What is the duration of the Mexican E&P Contract?

Typically, an exploration and production contract last between twenty and thirty years.

9. Why is the duration of these contracts so long?

The contract establishes a 2 year initial phase, which includes activities such as the application of technological solutions, seismic shooting, processing and evaluating, as well as exploratory drilling. Additionally, once understanding the oil field’s potential, infrastructure has to be developed. These can take from 3 to 7 years. Finally, a 10 to 15 production phase, that includes activities such as workovers and maintenance services, enhanced recovery works, the implementations of artificial production systems, as well as abandonment and decommissioning of the oil fields.

10. How does the Mexican Energy Reform of 2008 strengthens PEMEX’s execution capabilities?

  • It provides a new contractual mechanisms for exploration and production activities;
  • It improves financial flexibility since it reduces PEMEX’s fiscal burden and gradually increases budgetary autonomy. It also enhances the Company’s transparency and accountability due to the citizen bonds and the publications of new reports.
  • It implement best corporate governance practices. The Board of Directors will include four professional members and it will work with seven committees.
Última modificación 20/12/2012 18:04