Oil & Gas Industry in Mexico. February 2018

Transcription

1 Oil & Gas Industry in Mexico February 2018

2 Update Oil & Gas Industry Page 2

3 Update Oil & Gas Industry Mexico s Oil & Gas Reform Contract Regimes LFD Bidding Rounds CEE PSC 3. Private Farmouts License PEP as operator (i.e. Ek Balam) 2. Migration of CIEP s, COPF s and Asignaciones Titles Old Regime ROUND 1. Migration to Farmout PEP s fiscal regime (Title III HRL) Asignaciones Service Contract PEP operator Fee per barrel No CR Page 3

4 Update Oil & Gas Industry Mexico s Energy Reform timeline Monopoly Round Zero Pemex - Asignaciones December 2013 Energy Reform December 2016 Round 1.4 Deepwater Pemex s first Farm Out - Deepwater Electricity Auctions: March st Long term Auction September nd Long term Auction Farmouts: October nd Pemex Farm Out Shallow water, 3 rd Pemex Farm Out - Onshore 4 th Pemex Farm Out - Onshore Electricity Auctions: November rd Long term Energy Auction Gas Price Liberalization 2015 Round 1: to Completed Bids Current Bids 2016 July 2015 Round 1.1 Shallow water September 2015 Round 1.2 Shallow water December 2015 Round 1.3 Onshore Round 2: June 2017 Round 2.1 Shallow waters July 2017 Rounds 2.2 & 2.3 Onshore January 2018 Round 2.4 Deepwater Round 3: March 2018 Round 3.1 Shallow water July 2018 Round Onshore Storage and Pipeline Transportation Auctions: March 2018 Stage 1.2 Northern System (Border Zone) April 2018 Stage 2.1 Pacific System (Topolobampo Zone) Page 4

5 Update Oil & Gas Industry Summary of Bidding Rounds Round 1 Round 2 Farmouts Round 3 Shallow Water Round 1.1 PSC 14 blocks 2 blocks awarded Round 1.2 PSC 5 Blocks 3 blocks awarded Round 2.1 PSC - 15 blocks 10 blocks awarded Ayin-Batsil No bids submitted Round 3.1 PSC TBD 35 blocks March 27, 2018 Onshore Round 1.3 License - 25 Blocks All awarded Round 2.2 License 10 blocks 7 blocks awarded Round 2.3 License 14 blocks 14 blocks awarded Ogarrio License- Contract awarded on October 6 17 TBD Cardenas Mora License- Contract awarded on October 6 17 Round 3.2 License 37 TBD blocks July 25, 2018 Deepwater Round 1.4 License - 10 blocks 8 blocks awarded Round 2.4 License 29 blocks 19 blocks awarded Trion License Contract signed March 3 17 Maximino Nobilis Bid cancelled TBD NA Round 2.5 TBD TBD TBD Unconventional Page 5 Contracts Awarded Current Bids Future Bids

6 Update Oil & Gas Industry Summary of first and second rounds 12 Bid Procedures 8 rounds 4 Farm outs Round License contracts to be signed 23 Committed Wells Countries 72 Companies Awarded Contracts $736 MMUSD of signing bonus 106 Committed wells Biddings in process Round 3.1 (SW) Round 3.2 (OS) Shallow water rounds 4 Onshore rounds 2 Deep Water rounds 2 23 Consortiums 1 1 Unconventional onshore? 16 PSC 2 Migrations 57 License 3 Farm-Outs Page 6 37 Wildcat wells 39 Development wells 19 Individual Bidders

7 Update Oil & Gas Industry What to expect? Continuous Legislative Reforms Rounds 3 & 4 Modernization of the upstream / midstream infrastructure Downstream Sector Migration of CIEPS New Service Contracts with Pemex Future Pemex farm outs / Unconventional fields Full market liberalization Market prices for fuel Imports and Retail Improvement of energy policies Increased certainty for Investments Page 7

8 Contractual Regimes Page 8

9 Contractual Regimes PSC Government Take / Contractor Take Payment in cash Contractual Value of Hydrocarbons Cost Recovery Operating Profit Royalty CAPEX & OPEX Operating Profit for the Contractor Operating Profit for the Government Exp Fee. (**) E&E Tax (**) Tax Profit R Factor Government take Contractor take Dividends IT PTU Dividends Other Concepts Hydrocarbons Extracted Regalía Base % Utilidad Operativa para el Estado Factor R Considerations for The Government $ Payments in cash from the Contractor to the Government Exploration Fee E&E Tax Income Tax Total Contractista (% Utilidad Operativa + Cost Recovery) Payment in kind Considerations for The Contractor Page 9 (*) In case of a consortium, these concepts are divided in proportion to the Working Interest (**) Payments based on Surface area of the Contractual Area (payment by km 2 )

10 Government Take / Contractor Take Contractual Regimes License Contractual Value of Hydrocarbons Real Costs (*) Contractor (*) R Factor Over Royalty Base Royalty Capex & Opex Exp. Fee (**) E&E Tax(**) Tax Profit Government take Contractor take IT PTU Dividends Contractor s profit net of tax Others Hydrocarbons Extracted Payment in Kind To the Contractor Contractor (*) 100% Hydrocarbons Production Cash Payment by Contractor to Government Estado $ Base Royalty (USD) Over Royalty (USD) R Factor (USD) Contractual Fee for exploration phase (MXP) Exploration and Production Tax (MXP) IT (MXP) (*) In case of a consortium, these concepts are divided in proportion to the Working Interest (**) Payments based on Surface area of the Contractual Area (payment by km 2 )( Page 10

11 Private Farm-Outs Page 11

12 Private Farm-Outs Secondary market Tax implications shall be different between the different alternatives that exist in order to carry out a transfer of a portion of Working Interest, which mainly consist in the following: Reimbursement of expenses already incurred A reimbursement of the expenses that were already incurred through an up-front payment should be paid. This route is not efficient from a tax perspective since it represents a cost of 30% over the amount that is reimbursed, also because, reinvoicing the expenses that were already paid may create some practical issues for both parties Carry The Assignor shall carry an amount equivalent to the percentage of the expenses that were already incurred after the Contract was awarded instead of an up-front consideration. The Farmee should undertake to pay the expenses that are necessary for the project (from the moment of transfer of rights) and could be agreed as follows: Sale of Fixed Assets and Rights of Participation Up to an amount that represents certain percentage historical expenses; or An agreed amount higher than historical expenses. Some farm-outs also agree a consideration for the transfer of fixed assets or rights of participation. In general terms, the gain obtained from the sale of fixed assets and intangible assets (rights of participation) should be taxable for income tax purposes. Contractor shall notify the CNH of any change in the capital structure that does not result in a change of Control; or to request for authorization if there is a change of Control. This alternative should be more tax-efficient since the Farmer should not receive any reimbursement. Also, this alternative will allow the parties to deduct/credit the expenses that are effectively paid per entity. Page 12

13 Open Tax Items Page 13

14 Open Tax Items Overview PTU Tax stability clause VAT (Tax Reform) Tax depreciation rates Shadow invoices/ operator s self invoicing Abandonment funding Social expenses income tax deductibility Permanent Establishment Exploration and Extraction tax Mexican bank account (operator) Payments abroad (self - invoice) Pre-contract expenses income tax deductibility Page 14

15 Open Tax Items Immigration Compliance Compliance requirements that need precise planning and study of regulations. Compliance Increased deployment time that can impact business plans and operations. HEALTH INSPECTION CUSTOMS INSPECTION MARITIME DOCUMENTATION Associated costs from administrative work and time to deploy. Compliance Page 15 Presentation title

16 General Tax Considerations Page 16

17 General Tax Considerations Taxation 30% Income Tax 16% VAT (0% for transactions with Government) Distributions 10% dividend WHT Corporate tax paid if distributions in excess of net after tax profits Capital Gains (Exit strategies) Debt Other Domestic Law - 25% on gross proceeds or 35% on net gain. Double Tax Treaties may offer reduced tax rates as well as tax free reorganization provisions. Thin cap 3:1 ratio, exception applies to E&P projects Back to back provisions. Withholding tax on interests (Double Tax Treaties may offer reduced tax rates) Inflationary adjustment No exchange controls No financial or stamp taxes Administrative burden Transfer pricing requirements Page 17

18 General Tax Considerations Main Tax Amendments 2017 Income Tax Law 10% depreciation for fixed assets used for: Hydrocarbon transportation, storage and processing Platform, rigs and drill ships. Processing and storage vessels (i.e. FPSO) Transfer pricing reports are now required for E&P companies regardless of their annual income Value Added Tax Law New rules to recover VAT on preoperating period. Clarification on the VAT treatment applicable to assets that are being leased by non- Mexican residents and imported by the Mexican lessee. Services rendered abroad are deemed as imported into Mexican territory when they are effectively paid. Hydrocarbons Revenue Law Financial certainty on tax incentive applicable to Pemex (Asignaciones) regarding cost deductibility limit and profit sharing fees. Changes in the R Factor in order to not loose its current progressive nature. Consortium rules. Page 18

19 Other Considerations Transfer Pricing The Hydrocarbons commission of the Mexican Tax Authorities ( SHCP for its acronym in Spanish) requires that all entities involved with Hydrocarbons business report all and any intercompany dealings, not necessarily just those that accrue a taxable income or relate to a tax deduction. Such transactions may include intercompany provisions for which a deduction has not been taken, non-interest bearing loans, or even capital contributions. Page 19

20 Local Content Page 20

21 Local Content Structure Energy Reform Local Content % Methodology to compute the local content in projects and contracts Hydrocarbon Law Page 21

22 Local Content Production Sharing Contract Local Content provisions This indicator will allow to know the compliance of the minimum percentage of national content per year, as approved in the plans of exploration and evaluation, and development for the extraction The contractor will include in its exploration / evaluation and development plans, a national content compliance program. The plans will be reviewed by the National Hydrocarbons Commission (CNH) with the opinion of the Ministry of Economy (SE), and if approved, will be considered part of the terms of the contract The obligations of local content will come into force at the time of authorization of the plans. Local content will be verified annually by the Ministry of Economy. Ministry of Economy may assign an independent third party for verification. Page 22

23 Local Content Computation - Factors The formula for calculating the national content considers the value in pesos of the following concepts: CNB. Contracted goods, considering their origin CNS. Contracted services, considering their origin CNMO. National workforce Local Content CNC. Training of national workforce taje de contenido nacional. B: Value invoice in Mexican pesos of the final good MO: Value of workforce used. S: Value of the contracted services C: Value of the training services contracted NOTA: The calculations will be made in Mexican pesos TT. Transfer of technology I. Investment in infrastructure For each of the concepts already mentioned, there are formulas and provisions that specify how to calculate the national content in pesos. Page 23

24 Business Tax Advisory Rodrigo Ochoa Tax Partner Tel +52 (55) Mobile +52 (1) Professional background Rodrigo is an International Tax Partner based in Mexico City Prior joining EY Rodrigo was a partner at the Tax department for Deloitte in Mexico City and was part of the Latin America Business Center based in Chicago from 2006 until Rodrigo is a Mexican licensed public accountant with over 15 years of experience advising clients on international tax issues arising on Latin America. Areas of Expertise Rodrigo is particularly active in the oil & gas and manufacturing industries. Rodrigo advises major audit and non-audit clients on the reorganization of the Mexican operations related to acquisitions, mergers, leveraged buyouts, spin-offs, carve outs and joint ventures. Rodrigo also advises all type of companiesofthe oil & gas industry providing advice on the startup process of doing business in Mexico. Professional experience. During the last year, Rodrigo has been the Mexican tax advisor for BHP Billiton, Chevron, CNOOC, Repsol, Seadrill, Bimbo Bakeries Food, Trinity, Yum. Rodrigo spends a lot of his time in the oil & gas services sector. He has advised AMS, Østensjø, EMGS, Trinidad, Halliburton, among others, in different domestic and international transactions. 24 Page