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Insight

Migration of CIEPs and COPFs

Wed, 01/21/2015 - 14:39

The Hydrocarbons Law grants PEMEX and its contractors the right to request the migration of existing Comprehensive Contracts for Exploration and Production (CIEPs) and the Contracts of Financed Public Works (COPFs) to four new types of exploration and production contracts: licenses, production-sharing contracts, profit- sharing contracts, and service contracts. One of the objectives of this migration is to better align PEMEX’s incentives with those of its contractors in order to yield the best results. Contractors with a satisfactory performance may therefore have access to better economic conditions without affecting the balance of revenues expected by the government. PEMEX also has the ability to request the migration of a contract in order to form an official alliance, as allowed by Article 13 of the Hydrocarbons Law. However, in response to industry concerns, authorities are working on clarifying further details so that the migration of contracts does not reduce the oil revenues estimated by the companies involved.

Companies wishing to migrate their contracts have to present a request before SENER, which PEMEX must then evaluate through an official assessment in five days. After this, SENER will issue precise guidelines to oversee the migration process, which must be complied with in another five days. The next step is for SENER to send the complete migration request to the Treasury and CNH, along with the migration guidelines, the proposed contract model, and other pertinent documentation within 16 days. When selecting the most suitable contract model, SENER, the Treasury, and PEMEX have to consider four factors. First, the parties involved in the partnership have to increase the block’s value; second, contractors and assignees have to maintain the position of operators of the block; third, PEMEX E&P has to maintain an active participation in the association; and finally, there has to be a chance to capitalize on best practices and seize opportunities for potential improvement. Should it happen that the technical and fiscal terms established by SENER and the Treasury are inconvenient for PEMEX and its partners, these can then opt to maintain the original contractual agreements, either CIEP or COPF.

The migration of CIEPs and COFPs has occurred in two stages so far. In the first, 11 contracts for blocks in the Poza Rica-Altamira and Burgos areas began their migration process in 2014. These include the Magallanes, Santuraio, Arenque, San Andrés, Tierra Blanca, Altamira, Pánuco, Nejo, and Ébano blocks, which are governed under the CIEP regime, and the Olmos and Misión blocks under the COFP scheme. The assets in this first migration cover an area of 11,444km2 and amount to 2P reserves of 569 million boe and 3P reserves of 1.08 billion boe, but currently only produce 39,000b/d. The authorities expect the migration of these contracts to result in an investment of US$2.6 billion. Currently, some of the companies with contracts in the first block are Petrofac in Magallanes, Santuario, and Arenque; Petrofac and Dowell Schlumberger in Panuco; Monclova Pirineos Gas in Nejo, San Andrés, and Tierra Blanca; Lewis in Olmos, Tecpetrol and Technit in Misión; Grupo Diavaz in Ébano; and PICO International Petroleum in Altamira.

The second stage oversees the migration of 11 more contracts which began in the first quarter of 2015. The second migration totals 8,626km2 and consists of fields in Chicontepec and Burgos, including Amatitlán, Miahuapán, Miquetla, Pitepec, Soledad, and Carrizo under the CIEP model, and Pirineo, Cuervito, Fronterizo, Moncolva, and Humapa under the COFP modality. Data from PEMEX indicates the fields in the second migration have 2P reserves of 1.639 billion boe and 3P reserves of 3.439 billion boe, although production only stands at 7,000b/d. The migration of these contracts is expected to trigger long- term investments of US$32.7 billion, according to PEMEX. Contracts in the second block include Monclova Pirineos Gas in Pirineo; Petrobras, Grupo Diavaz, and Teikoku in Cuervito and Fronterizo; GPA Energy in Monclova; Halliburton in Humapa; Petrolite in Soledad; Operadora de Campos DWF in Miquetla; and Dowell Schlumberger in Carrizo. Amatitlán, Pitepec, and Miahuapan were not awarded back in 2013.