New guidelines issued by the Mexico Ministry of Energy on the consideration to landowners when a project reaches commercial extraction of hydrocarbons

On July 27th, 2020, the Ministry of Energy published guidelines “that set forth the parameters to determine the consideration payable to landowners or land titleholders when a project reaches commercial extraction of hydrocarbons” (Guidelines) in the Federal Official Gazette.

These Guidelines substitute those issued in 2018, and restrict the number of landowners and land titleholders entitled to the payment of the consideration set forth in the Guidelines only to those that have a contract executed with exploration and extraction contractors or allocation holders (asignatarios) or a judicial resolution instructing the use of a property where exploration and extraction activities are being performed. 

Furthermore, the period to notify the landowners and land titleholders of the commencement of the commercial extraction and the economic limit of a project was extended to thirty and sixty business days, respectively.

As mentioned above, pursuant to the Guidelines, the payment of a consideration is mandatory for all exploration and extraction contractors and allocation holders (asignatarios) that had previously executed such contracts with landowners or land titleholders, or that had obtained the referred judicial resolution, when obtaining revenue from the commercial extraction of hydrocarbons.

The consideration shall be calculated based on three components:

1. A percentage to be determined pursuant to the monthly income from commercial extraction of hydrocarbons of the relevant contractor or allocation holder (asignatario);
2. The number of landowners or land titleholders; and
3. The surface of the property being used or affected.

However, landowners and land titleholders shall be entitled to the payment of such consideration from the beginning of the commercial extraction until the project reaches its economic limit, namely, until production costs exceed the capacity of the project to produce revenue. Nevertheless, certain notification obligations from contractors and allocation holders (asignatarios) must be met.