The Bridge to Mexican Infrastructure

Transcription

1 The Bridge to Mexican Infrastructure September 16, 2014

2 NET Mexico Asset Overview NET Mexico Pipeline is a lean gas transportation pipeline that will transport natural gas from Agua Dulce Hub to a location near Rio Grande City, TX at the Mexico border and will interconnect with the Los Ramones Pipeline. At 2.3 Bcf/d capacity, NETMEX will become the largest natural gas export pipeline from US to Mexico. Asset Overview NET Mexico Pipeline is a 2.3 Bcf/d, 120 mile, 42 and 48 pipeline from the Agua Dulce Hub to the US / Mexico border, which will be completed in December 2014 Pipeline will be completed on-time and under budget Mainline construction complete, all permits received, all ROW acquired Pipeline extends across the Rio Bravo River (Rio Grande) and interconnects with the Los Ramones pipeline in Mexico, Los Ramones is a 48 pipeline that spans five Mexican states and ends in Mexico s largest industrial corridor Commercial operation for first phase of Los Ramones scheduled to begin in December 2014 Anchored by a 20-year gas transportation agreement with MGS, an affiliate of PEMEX 2.1 Bcf/d firm, ship-or-pay agreement Guaranteed by PGPB Significant compression 100,000 HP of compression at the Agua Dulce Hub 20,000 HP of compression at three connecting processing plants PEMEX owns a 10% equity interest Asset Map 2

3 The Bridge to Mexican Infrastructure September 16, 2014

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5 GRUPO BURSÁTIL MEXICANO GBM GRUPO BURSÁTIL MEXICANO IS A LEADING FINANCIAL GROUP IN MEXICO, WITH PRESENCE IN 5 COUNTRIES. HAS THE MOST ROBUST THE MEXICAN STOCK EXCHANGE S PRICE INDEX (IPC). RESEARCH TEAM IN MEXICO, WITH 44 ANALYSTS, COVERING 95% OF THE MARKET CAP OF OVERVIEW FOOTPRINT USA Established in 1978 Listed in BMV: GBM O Market Cap (March 2014) : $1,179 Start of Operations in 1991 Fully registered BD meber of FINRA Services offered: Fixed Income, Equity Funds and US Derivatives. SIPC insured Equity: $511 Total Assets: $1,829 Assets under Custody: $15,180 Net Income (2013):$100 Employees: Amounts in millions of US Dollars CHILE Start of Operations in 2011 Brokerage Member of Santiago Stock Exchange 3 Analysts MEXICO #1 in volume since 2002 Market Share: 11.3% 44 Analysts LUXEMBOURG BRAZIL (CTVM) Start of Operations in 2008 Brokerage Member of Bovespa (CTVM) 8 Analysts SICAV listed in Luxembourg with a fund UCITS III 5

6 GBM ASSET MANANGEMENT GBM HAS A SUCCESSFUL TRACK RECORD AS AN ASSET MANAGER, PERFORMANCE AWARD, GRANTED BY FUND PRO, AMONG OTHERS. CONSISTENTLY ACHIEVING THE PLATINUM More than 30 years of experience Mexico Investment Solutions Mexican debt and equity funds Portfolios and investment mandates Record Keeping Global Investment Solutions SIC Funds Hedge Funds International Wealth Management UCITS III 6

7 CAPITAL INCREASE (ACQUIRED OUTRIGHT) PRIVATE EQUITY AND INFRASTRUCTURE INFRAESTRUCTURA SEEKS TO CAPITALIZE ON ITS EXPERIENCE IN PRIVATE EQUITY AND INFRASTRUCTURE, TAKING INTO ACCOUNT THAT MOST SUCCESSFUL INFRASTRUCTURE FUNDS WORLDWIDE HAVE BEEN PROMOTED BY FINANCIAL INSTITUTIONS. PRIVATE EQUITY WITH IPO EXIT PRIVATE INVESTMENT IN PUBLIC EQUITY SINCA GBM OTHER INVESTMENTS IN PRIVATE EQUITY (Divested) Punta Venus OTHER SUBSTANTIAL INVESTMENTS Real Estate Portfolio GBM team has been enhanced with independent advisors and the hiring of experts in the development of infrastructure projects. 7

8 mar-04 mar-05 mar-06 mar-07 mar-08 mar-09 mar-10 mar-11 mar-12 mar-13 mar-14 GBM S TRACK RECORD AS A FUND MANAGER THE PERFORMANCE OF PRIVATE EQUITY INVESTMENTS IN PUBLIC COMPANIES IS REFLECTED IN OUR V1 AND V2 FUNDS, WHICH HAVE OUTPERFORMED THE IPC IN THE LAST 10 YEARS. V1 AND V2 PORTFOLIO PERFORMANCE 2004 TO % 600% 400% 200% 0% CAGR GBMV = 18.9% CAGR GBMV = 23.4% CAGR IPC = 13.9% GBMV1 GBMV2 IPC Año IPC GBMV1 GBMV % 76.1% 41.5% % 22.0% 28.2% % 47.1% 48.6% % 50.0% 57.9% % -6.0% -19.7% % 2.9% 19.1% % 5.7% 15.5% % 18.3% 18.9% % 21.2% 30.8% % 14.1% 25.4% 2014* -8.1% -4.9% -3.0% Source: Mexican Stock Exchange *YTD as of Marzo 2014 From 2004 to date, the V1 and V2 portfolios have returned 468% and 721%, respectively. The IPC has an accumulated yield of 268%, for the aforementioned period. 8

9 Switzerland Singapore Finland Germany USA China Chile Spain Mexico Brazil Uruguay Egypt Venezuela Haiti Chad INFRASTRUCTURE IN MEXICO GLOBAL COMPETITIVENESS INDICATORS SHOW THE MEXICO. POTENTIAL FOR THE DEVELOPMENT OF INFRASTRUCTURE IN Mexico s Infrastructure Segment is ranked 65th of 144th worldwide. MEXICO IN THE WORLD MEXICO IN LATIN AMERICA Ranking Sector Ranking Sector Ports Airports Highways Railways Electricity Ports Airports Highways Railways Electricity Source: World Economic Forum Global Competitiveness Report Source: World Economic Forum Global Competitiveness Report OVERALL COMPETITIVENESS COMPARATIVE CHART Source: World Economic Forum Global Competitiveness Report

10 NEW PPP LAW THE PPP LAW*, ENACTED ON JANUARY , BOOSTS THE DEVELOPMENT OF NEW INFRASTRUCTURE PROJECTS IN MEXICO Prioritizes private over public investment. Promotes new financing schemes based on multi-year budgets. Distributes the risks involved in projects execution, in an equitable manner. Establishes agile and flexible contracting procedures with greater security and legal certainty. Beholds the constructive assent of the authorizations required to start projects. Supports projects that investors present without these haven t been called (or tendered), with the possibility of reimbursement of incurred expenses. Stipulates that the assessment of proposals is based on a cost-benefit criteria and rules that enable agility in tenders. Allows negotiation and if applicable the expropriation of property to develop the projects, as in the case of rights of way. Allows the modification of contracts to recognize the existence of some circumstances. Grants reimbursement of investments made in the case of an early termination. Solves disputes regarding technical or economic differences between parties, based on expert judgment or arbitration *Project of Decree issuing the Public Private Partnerships Act and amending, supplementing or repealing certain provisions of the Law on Public Works and Related Services, the Law of Acquisitions, Leasing and Services of the Public Sector, Law Expropriation, the National Assets Law and the Code of the Federation of Civil Procedure. 10

11 ENERGY REFORM THE 2013 ENERGY REFORM REPRESENTS A KEY MOMENT FOR THE ENTIRE HYDROCARBON VALUE CHAIN, GENERATING OPPORTUNITIES FOR PRIVATE INVESTORS. Exploration Production Assessment of Potential Reserves Incorporation Reservoirs Characterization Fields Development Production Abandonment Refining Analysis and Assessment of Basins Analysis and Assessment of oil systems Analysis and Assessment of Hypothesis Analysis and Strategy Assestment Assessment of Prospects Delimitation of Reservoirs Field YES With the Energy Reform, oil exploration and extraction activities will be carried out through awards to state-owned productive companies or contracts to private players. YES The Energy Reform authorizes integrated services and operational yield contracts as well as shared production schemes. YES The Energy Reform will allow the treatment and refining of oil, as well the processing of natural gas, to be handled through permits. CHANGES IN THE REFORM The Energy Reform creates opportunities for investing in the production, refining, distribution, storage and commercialization of hydrocarbons. Before the Energy Reform After the Energy Reform PEMEX Company with state-owned majority stake State Productive Company Contract types Incentivized contracts Shared profit or production contracts Accounting and Financial effects Awards and contracts cannot be reported for accounting effects. Companies will be able to report awards and contracts for accounting effects. Storage, transportation and distribution Regulated by PEMEX Regulated by the National Hydrocarbon Commission 11

12 ENERGY REFORM THE ENERGY REFORM OPENS THE GENERATION OF ELECTRICITY TO THE PRIVATE SECTOR, REDUCING THE BARRIERS WHICH EXISTED UNDER THE SELF-SUPPLY AND CO-GENERATION SCHEME, WHILE GIVING CERTAINTY TO DISTRIBUTION. Construction and Generation Distribution Commercialization YES The state will be able to celebrate contracts with private suppliers for the financing, installation, maintenance, management, operation and expansion of the infrastructure required for energy distribution. PARTIAL The National Center for Energy Control (CENACE) will be in charge of controlling the national electric system, the wholesale electrical market and the access to the national transmission grid YES The commercialization of electricity to nonqualified users will be initially handled by the Federal Electricity Commission (CFE)., which will offer tariffs regulated by the Energy Regulation Commission (CRE). Afterwards, there s a possibility for the creation of commercialization companies which would provide distribution services, regulated by the CFE. CHANGES IN THE REFORM Before the Energy Reform After the Energy Reform CFE Companies with state-owned majority stake State Productive Companies Electricity generation Exclusively by CFE Will be fully open to the private sector Contract types Self-supply, co-generation and public works schemes Contracts with private suppliers for the financing, installation, maintenance, management, operation and expansion of infrastructure. 12

13 Hidraulic Energy Communications & Transport INVESTMENT IN GREENFIELD PROJECTS OPPORTUNITIES IN GREENFIELD PROJECTS GO BEYOND THOSE CONTEMPLATED IN THE NIP AND ARE PRESENTED IN DIVERSE INFRASTRUCTURE SECTORS, THUS BEING ABUNDANT AND DIVERSIFIED. Airports MAIN SECTORS VALUE PROPOSITION IDENTIFIED OPPORTUNITIES Strategic relocation New airport development Mexico City, Riviera Maya, Puerto Vallarta Highways Commuter Transportation Port Terminals Touristic Infrastructure Multimodal Terminals Adjacent business development; Real Estate value release Efficient operating structures; Creating synergies with urban transportation Exploiting geographical advantages vs US Development of new container terminals Standardizing service offers; Integrating touristic routes Efficient operating structures; Key locations development Siglo XXI, Tuxpan Tampico, Paquete Chiapas, Cardel Poza Rica, Guanajuato San Miguel Line 3 of Mexico City s suburban train Mexico Toluca, México Querétaro and Mérida Q Roo. Mazatlan, Lazaro Cardenas, Tuxpan, Veracruz Calica, Los Cabos, Puerto Morelos Mexico City and Monterrey Hydrocarbons Pipelines Creating new companies for the operation of oil fields, implementing best practices. Oil E&P in mature fields in Chicontepec Petrochemicals Integration of polyethylene chain to address the market deficit in Mexico. Etileno XXI Renewable Energy Wind, solar, mini-hydro, biofuel Wind in Tamaulipas, Solar in BCS. Bio-jet fuel, ethanol Power Generation from Cogeneration and Combined Cycle Power Plants (CCPP) Aqueducts Utilization of both existing production chains, and of gas prices to generate power to provide a wholesale market. Development of new hidraulic networks and efficient operations to supply urban populations. Combined Cycle Power Plants in the area of influence of new pipelines. Hermosillo, Monterrey VI Dams Solve shortage in big cities. Xalapa Dam 13

14 Restructures and spin-offs Local Projects Federal Public Tenders INVESTMENT IN BROWNFIELD PROJECTS THERE ARE MANY OPPORTUNITIES TO INVEST IN BROWNFIELDS, THAT ARE NOW UNDER CONCESSION TO PRIVATE COMPANIES, SOME WITH NEEDS TO OBTAIN RESOURCES. MAIN SECTORS VALUE PROPOSITION IDENTIFIED OPPORTUNITIES Highways FARAC, CAPUFE (Querétaro, Cuernavaca, Puebla) Airports Ports & Railways Energy Infrastructure Privatization of infrastructure projects that will generated resources for FONADIN, Pemex and CFE. ASA (Cd del Carmen, Poza Rica) API s, Ferrovalle, Chiapas Mayab Platforms, ducts Hidraulic Systems Cutzamala System, Cancun, Puebla, Tuxtla Highways Highways and state roads Hydraulic Systems Airports Using the value of the projects to reduce debt and/or meet needs. Cancún, Puebla, Chihuahua, Tuxtla Gutiérrez Toluca, Tuxtla Gutierrez Concessions Private Public Associations Demerger of assets that improves the financial situation of enterprises, in order to facilitate their participation in bids. Durango Gomez Palacio, Cardel Veracruz, Monterrey Saltillo Coatzacoalcos Tunnel Line 1 of Mexico City s commuter rail BRT Systems 14

15 SOURCE OF INVESTMENT THE CURRENT STATE OF THE INFRASTRUCTURE SECTOR WILL GENERATE OPPORTUNITIES MATCHING INFRAESTRUCTURA S EXPERIENCE AND CAPACITY. Transactions with governments with assets that can be used to solve the lag between income and expenditure. Asset Utilization: Federal, regional and local Financial restructuring of construction companies and / or concession operators Private equity investments in both Mexican and international companies with operations in Mexico that have solid business plans but whose capital structures are compromised. Redesign of the current business model, allowing the company to generate and capture greater value, in order to optimize its resource use and returns on its operation New Business Models The presence of these factors will be essential for the projects feasibility Consolidations In fragmented industries where there is the opportunity to implement an acquisition strategy for projects to achieve synergies and economies of scale to increase its market share and strength of the company. Nontraditional financial products Use of financial engineering through novel products where traditional financial intermediaries do not participate (examples: Mezzanine loans, convertible loans, etc ). 15

16 INVESTMENT OBJECTIVE INFRAESTRUCTURA WILL INVEST IN ACTIVITIES RELATED TO PLANNING, DESIGN, CONSTRUCTION, DEVELOPMENT, OPERATION AND MAINTENANCE OF INFRASTRUCTURE PROJECTS. INFRASTRUCTURE CHARACTERISTICS 1. Relatively inelastic demand resulting from demographic and assets trade. The demand does not change substantially, regardless of variations in the price of related goods or services 2. Regulated revenue flow resulting mainly from concessions or long-term contracts for services that generally offer predictable cash flows and inflation coverage. 3. A limited level of competition in view of the entry and technological barriers and of government approvals. INSTRUMENTS Once the asset or assets have been selected, Infraestructura will seek to invest through a flexible vehicle capable of optimizing the capital structures with a clear exit strategy. Convertible debt, Mezzanine debt, Preferred, at a discount (stock or private), and Private companies equity, among others. These instruments will be used depending on the case, and at the different stages of the project s life. SECTORS Infraestructura will focus on the following sectors: Communication Sector: Roads, bypasses, ports, airports, railroads, commuter rail, cargo terminals and logistics facilities, among others. Hydraulic Sector: Water purification and treatment plants, aqueducts, water distribution networks, among others. Energy Sector : Oilfield operation, power generation, development of alternative energy sources, biofuels and other clean energy sources, among others. 16

17 STRATEGY THE INVESTMENT STRATEGY SHOULD BE BASED ON ADDING VALUE TO A RIGOROUS SELECTION OF ASSETS AND OPERATING PARTNERS IN ORDER TO ENSURE ATTRACTIVE RETURNS. Asset Selection Suitable Operating + + Partner Added Value = Higher returns than market returns Synergies with adjacent projects Growth Potential Optimization of Tariff Structures Elements that add value Operating Efficiencies Financial Structure Improvements Creation of platforms seeking to exit investments through financial markets 17

18 PERFORMANCE AND RISK GBM HAS THE PROVEN ABILITY TO CREATE, ANALYZE, STRUCTURE, INVEST, NEGOTIATE, MONITOR, AND CARRY OUT INVESTMENT OPPORTUNITIES WITH AN EXPECTED RETURN BETWEEN 16%,AND 19% WHICH IS HIGHER THAN THE AVERAGE RETURN IN THE INFRASTRUCTURE SECTOR. Vision Clear origination in the way of entering, managing risks, and exiting. Due Diligence Terms and Conditions Corporate Governance Rigorous analysis of the sector and the asset, as well as of the parties involved, to find the right price and determine the feasibility of the project. Negotiation of minority rights to ensure adequate strategic decisions and avoid inappropriate behavior. Institutionalization in order to increase accountability and facilitate access to capital markets. Capital Structure Optimization of funding sources to boost the growth of the business and managing risk. Successful Exit Choosing and implementing the appropriate mechanism based on market knowledge. 18

19 SUPPORT OF CORPORATIVO GBM GBM S INFRASTRUCTURE FUND HAS THE SUPPORT OF GBM TO ACHIEVE A PROPER STRUCTURE, MANAGEMENT AND CONTROL. C o r p o r a t i v o G B M P o r t f o lio I n v e s t m e n t s I n c GBM C a p i t a l GBM C a s a de B o l s a O p e r a d o r a G BM F o m e n t a G B M S o f o m GBM I n f r a e s t r u c t u r a GBM B r a s i l GBM Chile H o u s t o n B r o k e n D e a l e r GBM Infraestructura. Portfolio management Sales Monitoring of asset performance. Risk assessment. Corporate governance. Report (valuation and justification of investment objectives). Periodic performance evaluation. MANAGEMENT CONTROL SUPPORT AND OPERATION OF ASSETS Investment Management Regulation and Accountability Holders Assembly Technical Committee Fiduciary Common Representative Independent Auditor Fund Accounting and Reporting Cash management Buy/Sell Execution Monitoring the operations of the Trust Audit the Fund s Accounting. GBM Brokerage Market research. Evaluation of returns. Covenants. Sponsorship (channeling). exit strategies. Investment origination, monitoring and analysis Investment Comittee Independent Apraiser Operating Partners Independent valuation of the fund s assets Origination, coinvestment and operation of the projects. 19

20 INVESTMENT COMMITTEE THE INVESTMENT COMMITTEE HAS A MAJORITY OF INDEPENDENT MEMBERS AND IS COMPRISED OF PEOPLE WHOSE AMPLE KNOWLEDGE AND EXPERIENCE CONTRIBUTE TO THE INVESTMENT DECISIONS AND THE VALUE CREATION WITHIN THE FUND S PROJECTS. 30 years of experience in private and public equity markets. Executive VP at GBM. Fernando Fernando Ramos Ramos Expert in equity markets. Joint General Manager at GBM Enrique Rojas Member Member Member Diego Ramos 27 years of experiece in equity markets. GBM s President and CEO. 30 years of experience. Infrastructure Undersecretary at SCT. Oscar de Buen Independent Member Independent Member Guillermo Guerrero General Manager at CFE. General Manager at CONAGUA. National Civil Engineering Award (2007). President and CEO of Grupo Alfa. Dionisio Garza Medina Independent Member Independent Member Rodrigo Franco Joint General Manager at INFRA Energy Secretary General Manager at PEMEX General Manager at Banobras. Jesús Reyes-Heroles Independent Member Member Manuel Rodríguez Independent Member 21 years of professional experience, mainly in infrastructure. Rolando Vega CEO and President of Grupo Atlas. President of the Mexican Association of Insurance Institutions. VP of the Inter-American Federation of Insurance Companies. 20

21 TECHNICAL COMMITTEE THE TECHNICAL COMMITTEE HAS A MAJORITY OF INDEPENDENT MEMBERS AND IS FORMED BY REPRESENTATIVES OF THE CKD S HOLDERS AND OF GBM. WITH THE SUPPORT OF EXTERNAL ADVISORS, THE TECHNICAL COMMITTEE MAKES THE FUND S INVESTMENT DECISIONS AND FOLLOWS THE DEVELOPMENT OF THE ITS INVESTMENTS. Independent GBM Investors Members Advisors Diego Ramos AFORE Banamex Guillermo Guerrero Louis Ranger President and CEO of GBM. 27 years of experience in equity markets. Assets under management: MXP$335,655 million. CEO at CFE. CEO at CONAGUA. National Civil Engineering Award (2007). Deputy Minister of Transport, Infrastructure and Communities for the Canadian government. Fernando Ramos Executive Vice-President at GBM. 30 years of experience in private and public equity investments. Enrique Rojas Joint CEO at GBM. Variable income investments expert. Manuel Rodríguez AFORE SURA Assets under management: MXP$270, 643 million. AFORE Principal Financial Assets under management: MXP$130,651 million. Jesús Reyes-Heroles Secretary of Energy. General Manager of PEMEX. CEO at Banobras. Oscar de Buen 30 years of experience. Undersecretary of infrastructure at SCT. Ginger Evans Jeff Shane Experience in infrastructure, mainly in the US Department of Transportation (DOT). Undersecretary of policies at the DOT. Managing Director of GBM Infraestructura. 21 years of professional experience, mainly in infrastructure. VP of Engineering at Metropolitan Washington Airports Authority Director of Aviation and Sr. VP at Parsons Corporation. 21

22 ALIGNMENT WITH BEST PRACTICES INFRAESTRUCTURA ADOPTS MARKET TRANSPARENCY. FOR THIS REASON, ASSOCIATION (ILPA). PRACTICES WHICH ENABLE THE ALIGNMENT OF INCENTIVES AS WELL AS IT FOLLOWS THE GUIDELINES OF THE INTERNATIONAL LIMITED PARTNERS THE 3 AXIS OVER WHICH THE FUND IS MANAGED: ALIGNMENT OF INTERESTS FUND MANAGEMENT TRANSPARENCY Remuneration: Mainly based on the success of the investments, through Performance Distributions. Management fee: Competitive. Joint venture: Obligation to co-invest with the Fund in each investment and disinvestment. Investment opportunities: Obligation not to take advantage of investment opportunities that are within the fund s objectives, except for specific exceptions (eg, after completion of the Investment Period or investments rejected by the Technical Committee). Subsequent funds: Obligation not to complete a subsequent offer of a fund with similar strategies and objectives until 80% of the Fund has been invested. Investment Period: 5 years with the obligation to invest 20% in the first 2 years. Investment strategy: Aligned to FONADIN s investment strategy. Capital calls and distributions: Subject to market practices. Corporate bodies: Fiduciary, trustee, Shareholders Meeting, and Technical Committee in accordance with legal requirements and market practices. Key Officials: Involve key persons leading the daily businesses of the Trust Manager Replacement: With or without cause, in accordance with market practices. Risk management. Infraestructura will have the workgroup and support from GBM and its analysts to identify and manage potential risks of the Cascade, Accounts Transparent. and Valuation: By independent appraiser. Expenses: Independent Auditor: To audit the Fund s financial information. Financial information: In accordance with market practices. Reserve and Independent Advisors. Set up in order to be used by the Shareholders to hire independent advisors. Reserved Matters: The Independent Members of the Technical Committee will decide on transactions where there is a conflict of interest, as well as appoint a new independent appraiser, Trustee or External Auditor. 22

23 CONCLUSIONS GBM Infraestructura meets all the requirements to ensure the success of the listed private equity fund Alignment of incentives through the joint venture of 20% from GBM Investment and Technical Committees with a majority of Independent Members GBM Professional team with vast experience in various types of infrastructure projects. GBM track record in Infrastructure and adjacent businesses in Mexico. Alignment of incentives through Capital Calls Experience as fund manager in Mexico Strategy aligned to the NIP that identifies investment opportunities for Private Equity. Relationships Network to select proper partners and promote projects. Detailed Due Diligence and asset management processes. Experience in optimizing capital structures. Knowledge of the different stages of a project s life cycle. Capacity to generate business exits (IPO, securitization, etc.). Accountability with best practices for corporate governance and reports. Proven commitment, assigning human and material resources by GBM. 23

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25 Mexico in a North American Context Historical Underdevelopment Implies Remaining Potential Mexico today has 5% of the oil reserves and 4% of the gas reserves in NAM Oil Proved Reserves (Bbbl) but it has not always been that way (1984) Oil Proved Reserves (Bbbl) Gas Proved Reserves (Tcf) % 10 5% 77 58% 56 42% % 77 21% Mexico US & Canada Gas Proved Reserves (Tcf) Mexico US & Canada There s also shale potential Shale Oil Resource (Bbbl) Mexico US & Canada Shale Gas Resource (Tcf) 17 4% 13 16% % % 67 84% 1,238 69% Mexico US & Canada Mexico US & Canada Mexico US & Canada Source: EIA, CIA. 25

26 Mexico Power Consumption (BkWh) Texas Natural Gas Production (Bcf/d) Stage Set for Cross-Border Equilibrium Mexico s Growing Power Demand Needs Fuel 250 and Texas Natural Gas Is Eager to Be It Source: EIA. 26

27 Midstream Investments Needed to Keep Pace Power Plants and LNG Terminals Will Fuel Demand for Additional Natural Gas Pipeline Capacity US exporting ~2 Bcf/d to Mexico ~3% of entire US output >4 Bcf/d in next decade $34B needed in pipeline infrastructure investment 55 GW of new generation needed over next few years LNG Terminal New or Expansion CCGT Existing Pipelines Expansion Pipelines Source: Woodmac, RBN Energy, Platt, Shalemag, KMI. 27

28 Key Aspects of Mexican Energy Reform Legislation Midstream and Downstream Private sector entities may invest in all midstream and downstream oil and gas activities Ministry of Energy (SENER) will issue permits for private sector oil treatment and refining, natural gas processing, and import/export of hydrocarbons, LPG, refined products and petrochemicals, and (for the remainder of 2014) also for the distribution and sale of LPG and LPG transportation/storage Energy Regulatory Commission (CRE) will grant permits for all other midstream and downstream activities, including transportation and storage, distribution, liquefaction, compression and regasification, marketing and retail sales activities for all hydrocarbons, LPG, refined products, and petrochemicals Starting on January 1, 2016, CRE will grant permits for gasoline and diesel marketing to private firms (in 2017, private firms will be able to import gasoline and diesel) CENAGAS will be created to act as independent operator of Mexico s existing pipeline and storage infrastructure, and will receive all of PEMEX s pipelines and storage capacity at the end of a transition period Permit holders for pipelines and gas storage facilities must provide open access on a non-discriminatory basis to third parties, subject to available capacity. Midstream companies may not sell hydrocarbons or other products that are transported through or stored in their facilities, except for limited exceptions Vinson & Elkins LLP Confidential & Proprietary 28

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30 Rio Grande City Bore Site Tool placement prior to drill 30

31 Rio Grande City Bore Site Drilling operations 31

32 Rio Grande City Bore Site Drilling continues 24 hours per day 32

33 Mainline Pipeline Construction Welding operations 33

34 Mainline Pipeline Construction Welding shacks on the mainline 34

35 Mainline Pipeline Construction Road crossing 35

36 Mainline Pipeline Construction 36

37 Agua Dulce Compressor and Header 24 flow valve 37

38 Agua Dulce Compressor and Header Solar compressors arrive on-site 38

39 Agua Dulce Compressor and Header Gas cooler installation 39

40 Agua Dulce Compressor and Header 40

41 Agua Dulce Compressor and Header Compressor building (1 of 4) 41