Mexico s Energy Reform. José Luis Hernández Abdalah Dirección de Infraestructura y Operaciones Marítimas

Mexico s Energy Reform José Luis Hernández Abdalah Dirección de Infraestructura y Operaciones Marítimas November 4th, 2015

PEMEX Today Energy Reform Round Zero and Round 1 PMI challenges Anex: Energy Reform, Key Elements

A Snapshot of PEMEX Today Exploration and Production Crude oil production: 2,262 Mbd 1 Natural gas production: 5,575 MMcfd 1,3 75% of crude oil output is produced offshore 1P 4 reserves-life: 9.6 years Production mix 1 : 51% heavy crude; 38% light crude; 12% extra-light crude Downstream Refining capacity: 1,690 Mbd Strategically positioned infrastructure JVs and associations with key operators in the Mexican petrochemical and natural gas transportation industries International 8th largest oil producer worldwide 2 Crude oil exports: 1,164 Mbd 1 3rd largest oil exporter to the USA Long-term relationship with USGC refiners JV with Shell in Deer Park, Texas Total revenues 5 USD billion 83.5 0.4 37.4 111.4 103.8 0.4 0.4 48.0 55.2 126.6 123.0 0.6 0.8 59.4 52.6 107.8 93.2 0.8 0.9 42.8 35.2 45.7 55.3 55.7 66.6 69.6 64.2 57.1 2009 2010 2011 2012 2013 2014 LTM Domestic sales Exports Services Revenues 8% 2% 2% 1% 0% Proved Reserves 4 12.4 MMMboe 87% Southeast Tampico-Misantla Burgos Veracruz Deepwater Sabinas 1. January 2015-June 2015 2. 2014 PIW Ranking 3. Does not include nitrogen 4. As of January 1, 2015 5. PEMEX Audited and Unaudited financial statements

Distribution of PEMEX s Reserves 1 MMMboe (billion barrels of oil equivalent) Basin Cum. Prod. 1P (90%) Reserves 2P (50%) 3P (10%) Prospective Resources Conv. Non Conv. Southeastern 47.8 10.8 14.2 18.2 12.5 Tampico Misantla 6.3 1.0 5.9 10.6 2.4 3.3 Oil and Gas Gas Burgos 2.5 0.3 0.4 0.6 1.5 Veracruz 0.8 0.2 0.2 0.2 0.6 Sabinas 0.1 0.0 0.0 0.1 0.4 Sabinas Burgos Deepwater 0.0 0.1 0.4 1.8 5.2 Tampico- Misantla Deep Sea Exploration Gulf of Mexico Yucatan Platform Total PEMEX 57.5 12.4 21.1 31.5 20.7 5.2 Total Mexico 57.5 13.0 23.0 37.4 52.6 3 60.2 3 Veracruz Development and Exploitation Projects Exploration Projects 1 As of January 1, 2015. 2 Numbers may not total due to rounding. 3 As of January 1, 2014. Southeastern

A Transformation is Underway Benefits for PEMEX Benefits for the Industry 1 Round Zero: reserve base largely intact 12.4 MMMboe proved reserves low replacement cost 1 Open and regulated industry 2 Management and budgetary autonomy 2 Collaboration with companies along the entire value chain 3 Corporate governance 3 Clear distribution of roles 4 New procurement, compensation and fiscal regime 4 Sustainable development of resources 5 Addressing pension liabilities 5 Additional investment and job creation

Energy Reform 21 laws New Regulatory Framework 26 rules of implementation Strengthening CRE and CNH Institutions Creation of: ASEA, CENACE, CENAGAS, FMP Productive State-owned Companies PEMEX and CFE Round Zero Rounds Round 1 www.pmi.com.m x 7

The Milestone of the Energy Reform Constitutional Reform (December 20, 2013) March 21 August 13 2014 August 11 2014 August 13 2014 Round Zero & Resolution Secondary Legislation Potential collaboration agreements (farm-outs, JVs) The Ministry of Energy 1 prioritized PEMEX s request for exploratory blocks and producing fields, and defined their dimensions Approval of 9 new laws and amendment of 12 existing laws Detailed distribution of responsibilities Structure and process for awarding contracts PEMEX defined areas susceptible to collaboration agreements (JVs, farm-outs, etc.) August 13 2014 Round One The Ministry of Energy and the National Hydrocarbons Commission 2 previewed the blocks that will comprise Round One October 2014 On October 7 th, the new Board of Directors was formed On October 14 th, the following committees were established: Audit, Human Resources and Compensation, Strategy and Investments, and lastly, Acquisitions, Leasing, Works and Services December 2015 PEMEX 3 as a State Productive Enterprise 1 SENER 2 CNH 3 PEMEX will be able to work on assignments and contracts during these 24 months

Updating an Outdated Energy Model Constitutional Reform A clear distribution of roles: owner, regulator, operating entities and operating companies Secondary Legislation The Ministry of Energy dictates the energy policy and coordinates the regulatory entities through the Coordinating Council of the Energy Sector The Ministry of Finance defines fiscal regime, economic terms of contracts and manages resources from exploration and production through the Mexican Petroleum Fund for Stabilization and Development Regulatory entities Operating entities 1 2 3 4 5 Operating companies Other participants 1. Comisión Nacional de Hidrocarburos 2. Comisión Reguladora de Energía 3. Agencia de Seguridad, Energía y Ambiente 4. Centro Nacional de Control de Energía. 5. Centro Nacional de Control de Gas Natural. 6. Comisión Federal de Electricidad. New creation

Round Zero; objectives Strengthen Pemex by providing it with the necessary resources to efficiently maintain its production levels and achieve an appropriate reserve restitution ratio as a first step towards becoming a State Productive Enterprise. Multiply investments in oil and gas exploration and extraction activities through bidding rounds where oil and gas companies and Pemex will be able to participate. Pemex will have substantial oil and gas resources to maintain an adequate level of investment in exploration, development and sustainable extraction, and will be able to access new areas through equal footing competition in subsequent rounds In order to increase Mexico s energy security, the State shall promote investment in exploration and extraction of hydrocarbons through open bidding rounds with the participation of the oil industry. Source: CNH www.pmi.com.mx 11

Round Zero, esults Surface area: 34.7 thousand mi2 (90 thousand km2) 83% of Mexico s 2P reserves 21% of Mexico s prospective resources Production platform: 2.5 MMbd for 20.5 years www.pmi.com.mx 12

Round One, five bid calls First bid call: 14 Exploratory blocks offered and two awarded Two blocks awarded to Sierra Oil & Gas, Talos Energy and Premier Oil Second bid call: 5 Production blocks comprising 9 fields Block 1 awarded for 3 fields to ENI International Block 2 awarded for 1 field to Pan Amercian Energy LLC and E&P Hidrocarburos y Servicios Block 4 awarded for 2 fields to Fieldwood Energy LLC and Petrobal Third bid call: 25 onshore fields offered Contracts to be awarded in December 15, 2015 Burgos area (8 fields), Northern Region (5 fields), Southern Region (12 fields) Fourth bid call: Deepwater blocks and extra heavy shallow water blocks, to be launched in October 2015 Fifth bid call: Will include non-conventional blocks (launch date still TBD by SENER) 13

Round 1, Shallow waters first bid call, 14 explorartory blocks www.pmi.com.mx 14

Round 1, Shallow waters second bid call, 9 extraction fields into 5 contracts www.pmi.com.mx 15

Round 1, terrestral, third bid call, 25 extraction fields www.pmi.com.mx 16

The Transoceanic Belt Under the recently launched legal and structural reforms to the Mexican Energy Sector, PMI Group is leading the construction of new infrastructure project, The Transoceanic Belt, (TOB) that will foster PEMEX competitiveness in international markets. The main goal is to develop an integral infrastructure project to: provide transportation and storage facilities for LPG and LNG products across the Isthmus of Tehuantepec, Mexico, with the commercial objective of securing access to high-growth markets in Central America and Asia, substantially reducing transportation costs and time. 1 Global LPG and LNG production and trading patterns are shifting, with the US becoming a net exporter and therefore in need of optimized logistics to serve its new potential markets 2 TOB offers significant savings in transportation (both in transit time and freight cost) in the US to Asia routes, estimated at least 20% savings of next lower cost route 3 TOB is a one-of-a-kind strategic infrastructure asset which complements the Mexican Government s Isthmus Project. Probability of constructing additional pipeline infrastructure in this region appears, at this time, to be very slim. www.pmi.com.mx 18

Project Summary The purpose of the project is to connect the Pajaritos complex in the Gulf of Mexico s coastal state of Veracruz to the Salina Cruz oil refinery, in Oaxaca, located on the Pacific coast. TOB Proposed Route New infrastructure connecting Mexico's two coasts will allow Pemex to export LPG and LNG produced in the Gulf of Mexico. The project takes advantage of Mexico s strategic geographic position, and the infrastructure currently being operated and under construction by PEMEX in the seaports of Coatzacoalcos (Gulf of Mexico) and Salinas Cruz (Pacific Ocean). This unique business opportunity would allow to transport a full vessel cargo of LPG or LNG through a less than 192 miles long pipeline from the Gulf of Mexico to the Pacific Ocean. The project will allow a maximum of three days to transport a full vessel cargo of LPG/LNG from the Gulf of Mexico to the Pacific Ocean vis-à-vis 10 days using the Panama Canal. The LPG and LNG pipelines will connect the two seaports, increasing significantly the capacity of Pemex to compete in terms of trip length and costs in the Pacific Rim markets where better prices are expected for the next 20 years. www.pmi.com.mx 19

LPG and LNG Transoceanic Belt System s Components API Coatzacoalcos Docks 2 and 3 Refrigerated Terminal at reception point (Pajaritos) Coatzacoalcos TK Storage, new pumping and heating plant (Pajaritos) 20 LPG and a 36 LNG Pipelines Salina Cruz New cryogenic plant and Storage tanks Salina Cruz Terminal at delivery point. Breakwaters under construction. www.pmi.com.mx 20

Salina Cruz Seaport (Pacific coast) Port infrastructure is currently being enhance by PEMEX Enlargement over 1,800 meters. Protected area inside the new breakwater: 220,85 ha LPG tanker vessel capacity: 330,000 tons. Docking positions: 11. Expected new infrastructure date: 2018. New oil terminal area Western Breakwater Eastern Breakwater www.pmi.com.mx 21

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