Mexican National Hydrocarbons Commission recognizes COVID-19 as Force Majeure Event, approves a Resolution to ease administrative burden on operators under Exploration and Production Contracts

The National Hydrocarbons Commission (“CNH”) has approved¹ extraordinary measures to stimulate the development of Mexico’s oil industry, which has been severely affected by the COVID-19 pandemic.

Said measures are included in the “Resolution by which the National Hydrocarbons Commission establishes various measures in order to promote the development of Petroleum Activities” (the “Resolution”), which was published in the Official Gazette of the Federation on August 3, 2020.

The Resolution recognizes that the force majeure event caused by the pandemic started on March 23, 2020, and ended on July 24, 2020² (the “Suspension Term”). The consequences under the Exploration and Production Contracts (“E&P Contracts”) of this generalized recognition of force majeure are the following:

1. The periods foreseen in the exploration plans, evaluation plans and development plans (jointly, the “Periods”) are suspended, and therefore, the Suspension Term will not be accounted to consider the validity of each of the aforementioned Periods. The suspension will not be deemed a modification of the term of the corresponding plans and programs. The terms of Transition Programs currently in force are also suspended.
2. During the Suspension Term, contractors’ obligations related to compliance with the Minimum Work Programs and Transition Programs will not be considered enforceable. However, operators must comply with their other obligations, including the payment of consideration to the State and the maintenance of Performance Guarantees provided in the E&P Contracts.
3. Performance guarantees expiring during the Suspension Term must be presented to the CNH within 20 business days prior to their expiration. For the rest of the contracts with guarantees expiring after the Suspension Term, operators must present new extended performance guarantees (encompassing the Suspension Term) within 20 business days after the termination of the Suspension Term (i.e., August 21, 2020).
4. During the Suspension Term, operators may have carried petroleum activities established in the E&P Contracts, as they have deemed appropriate. However, within 20 business days following the termination of the Suspension Term, the operators must present an updated execution schedule of their activities.
5. For purposes of amending evaluation and pilot programs, as well as exploration and development plans, certain deviations will not be taken into account for updating the assumptions of modification of said plans or programs provided in the Guidelines for Regulation of the Exploration and Development Plans for the Extraction of Hydrocarbons.
6. Administrative procedures initiated to request a recognition of a force majeure event and an extension of the Periods are considered concluded since a general recognition of the event of force majeure has been carried out and the corresponding deadlines have been suspended.
7. Regarding Assignments, the CNH will provide technical advice to the Ministry of Energy in order to determine the mechanism to add the Periods of exploration and evaluation, and similar measures will be applied to those established for the E&P Contracts.

The Resolution complements the publication made by CNH on July 24, 2020 (“Resumption Decree”). Although the Resolution should have been published before the Resumption Decree, the Resolution still serves its purpose of reducing the administrative burden on oil and gas companies operating in Mexico and provides legal certainty on some of the issues resulting from the COVID-19 pandemic.

¹ In its 29th extraordinary meeting dated July 16, 2020.

² The notice of conclusion of the suspension period was published in the DOF on July 24, 2020.

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