Mexican Government Improves the Fiscal Regime on

Tax Flash 9/2015 | Tax and Legal Services | March 11th, 2015
The Ministry of Finance announced
changes on the draft model of the
production sharing contract (PSC) to
provide legal certainty to oil and gas
companies participating in Round One.
This decision is a response to the
comments and feedback provided by
interested parties and industry experts.
In addition, new guidelines have been
issued for Contractors and Assignees on
the costs, expenses and investments
requirements and financial reporting to the
Mexican Stabilization and Development
Oil Fund (FMP) to compute the payment
of considerations under the model contract
(for more information please refer to our
Tax Flash 08/2015).
The changes to the PSC are mostly
related to the adjustment mechanism for
costs and revenues included in the
contracts, the contractual price and
minimum work program commitments.
These changes have been incorporated to
a certain degree in the second call of
Round One, which consists in five shallow
water PSCs in Tabasco and Campeche.
Adjustment Mechanism (R factor)
The adjustment mechanism for
extraordinary profitability (which is used to
determine the operating profits in the
PSC) clarifies the portion of the operating
profits for the Mexican State if the oil
prices show a significantly large increase.
It also limits the capacity of the State to an
increased claim on the shared profits or to
impose additional or special taxes in case
of a windfall. This change in the PSC
could increase the profitability potential for
Contractors up to five additional
percentage points.
Contractual Price
The updated version of the PSC considers
the market price to be the Contractual
Price in case of sales to non-related
parties. In the case of sales to related
parties, or if the hydrocarbons are not
marketed or are stored, the Contractual
Price is defined according to the formulas
and transfer pricing requirements included
in the PSC. According to the Ministry of
Finance, this change assimilates the terms
and conditions for private companies with
those required of PEMEX, the state owned
oil company.
It is also worth mentioning that further
adjustments may be made to the price, to
recognize infrastructure investment from
the measurement point to the delivery
Simón Somohano
Tax and Legal, Energy and
Natural Resources Industry
+52 (664) 622-7872
[email protected]
Miguel Llovera
Tax and Legal, Energy and
Natural Resources Industry
+52 (55) 5080-6535
[email protected]
Eduardo Barrón
International Tax
+52 (55) 5080-6452
[email protected]
Minimum Work Commitments
The updated PSC introduces a new
concept in the form of “work units” to
establish the minimum work commitments
and eliminates the previous reference to
commitments denominated in U.S. dollars.
All tasks, activities and investments in the
exploration and extraction of hydrocarbons
are included in a table showing their
equivalence in “work units.”
As an example, if a seismic study equals
10 work units and drilling a well equals
100 work units and a participant in the bid
process offers 120 additional work units, a
Contractor may be required to drill a well
and prepare two studies. In case that the
Contractor does not meet the work units
committed, a conversion table would
monetize the work units in order to impose
penalties under the terms of the model
contract as a result of the work not
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