The Development Path that have taken Pemex s Farm - Outs in Mexico

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Loren Hodge
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1 April 11 th, 2018 ENERGY ALERT The Development Path that have taken Pemex s Farm - Outs in Mexico By virtue of Round Zero, the Ministry of Energy (SENER per its acronym in Spanish), with the technical assistance of the National Hydrocarbons Commission (CNH per its acronym in Spanish), was the body in charge of assigning to Pemex 489 Exploration and Extraction fields (Asignaciones per its name in Spanish), where 108 are for exploration activities, 286 for extraction and 95 would remain assigned to Pemex until they are tendered by CNH through an open bid round process. On August 15th, 2017 CNH released the results of its assessment on the Minimum Work Commitment for 103 Asignaciones, where it was shown that Pemex did not fully comply with these obligations. As a consequence of this, SENER decided to grant a two-year extension to the exploration period, in order to allow Pemex to comply fully with its Minimum Work Program commitments and been able to declare a commercial discovery. It is worth mention that if there is no declaration of commercial discovery by the end of this extended period, the Asignacion may not be transferred to the extraction stage and Pemex shall forfeit the Asignacion. Derived from the above, and the economic situation that Pemex is under, it has been expected that many of the Asignaciones are migrated to Farm - out processes, where Pemex will be able to partner with other entities to carry out the required exploration and extraction activities, and be able to comply with the commitments acquired by virtue of Round Zero. Taking into consideration that one of the main objectives of the Energy Reform in Mexico has been the encouragement of foreign participation/investment in the Oil and Gas industry to boost the development of the country, Pemex developed a Farm Out program in 2016, that as of today, has continued with the migration of eight onshore Clusters in southern Mexico (Tabasco, Chiapas and Veracruz) and are formed by exploration and extraction Asignaciones with over 40 years of operation. These eight Clusters are the following: Bacal Nelash Lacamango Cinco Presidentes Giraldas Sunuapa Bedel Gasifero Artesa Juspi Teotleco Remolino 1 During 2016 & 2017, the following events took place: Asignaciones of Ogarrio, Cárdenas Mora and Trión had already been migrated into Exploration and Extraction Contracts through a farm out process and a participation in said contracts have been awarded to different oil and gas companies, as partners of Pemex. Pemex suspended the bidding process for the Nobilis-Maximino deepwater farmout due to the lack of adequate conditions to ensure participation in the process. As of Ayin Batsil shallow water farm out bidding process, no bids were submitted to the CNH due to the lack of adequate economic conditions. Ek Balam was the first migration of an Asignacion into an Exploration and Extraction Contract where Pemex remained as the Operator and the only company carrying out the hydrocarbon activities

It is worth mentioning, that according to the last version of the Five Year Plan, the migration of six more Clusters into Exploration and Extraction Contracts have been requested by Pemex that

2 It is worth mentioning, that according to the last version of the Five Year Plan, the migration of six more Clusters into Exploration and Extraction Contracts have been requested by Pemex that together with all the aforementioned Clusters gives a total of 53 Asignaciones (1. Boluntikú; 2. Sinán; 3. Ayatsil, Tekel, Utsil; 4. Kunah, Pilikis; 5. Samaria; 6. Bacab- Ku-Lum-Maloob-Zaap) In this regard, the chart below specifies in general terms the process carried out for a migration of Asignaciones to an Exploration and Extraction Contract regime: Derived from the above, with this Farm Out program, Pemex is looking to increase the company s total output to million barrels per day. Also, if Pemex can successfully Farm Out this Clusters, an investment of approximately $4.6 billion dollars is expected during the life of the seven onshore Clusters. Finally, it is worth mentioning that according to CNH data the exploration potential of the Clusters Bedel-Gasifero, Giraldas-Sunuapa, Juspi-Teotleco, and Artesa is promising, with a combined prospective resource of 443 million barrels of oil equivalent. Below is a summary with the status of the migration process of Pemex Clusters to Farm Outs: Cluster s name Upcoming Pemex Farm Outs Asignaciones forming each Cluster Date in which CNH approved the migration Type of partner that Pemex is looking for 1. Arroyo Prieto 1. Bacal - Nelash 2. Bacal 3. Nelash 4. Tiumut November 16 th, 2017 Operator 2. Lacamango 1. Lacamango November 16 th, 2017 Operator 3. Cinco Presidentes 1. Cinco Presidentes 2. Rodador November 16 th, 2017 Operator 1. Giraldas 4. Giraldas Sunuapa 2. Chiapas-Copano 3. Muspac 4. Comoapa 5. Sunuapa 6. Mezcalapa Grijalva-01 February 20 th, 2018 Operator 1. Eltreinta 5. Bedel - Gasífero 2. Bedel 3. Gasifero 4. Tesechoacan Nispero March 5 th, 2018 Non-Operator

4. Tesechoacan-02 1. Nispero 2. Sitio Grande 6. Artesa 7. Juspí - Teotleco 8. Remolino 3. Rio Nuevo 4. Artesa 5. Gaucho 6. Mezcalapa-08 1. Juspi 2. Teotleco 3. Mezcalapa-07 1. Remolino 2. Morelos 3.

3 4. Tesechoacan Nispero 2. Sitio Grande 6. Artesa 7. Juspí - Teotleco 8. Remolino 3. Rio Nuevo 4. Artesa 5. Gaucho 6. Mezcalapa Juspi 2. Teotleco 3. Mezcalapa Remolino 2. Morelos 3. Hallazgo 4. Riachuelo March 6 th, 2018 March 6 th, 2018 TBD Operator Operator TBD 1) Bacal Nelash On November 16th, 2017, CNH presented its technical opinion in a favorable manner to SENER for the request for the migration on the following onshore Cluster which is located in the States of Tabasco and Veracruz, 70 km from the city of Coatzacoalcos, Veracruz to an Exploration and Extraction Contract. Moreover on April 3rd, 2018 CNH approved SENER s proposal of migrating both Asignaciones, into one single Exploration and Extraction Contract under a License model regime. As of the date, CNH has not yet published the dates in which this Farm Out bidding process will be launched. General Information Asignaciones Arroyo Prieto, Bacal, Nelash, Tiumut Type of activities Extraction Area 117 km 2 Hydrocarbon type Crude oil API density API Drilled wells 116

2) Lacamango Also, on November 16th, 2017, CNH presented its technical opinion in a favorable manner to SENER for the request for the migration on the following onshore Asignacion which is located in

4 2) Lacamango Also, on November 16th, 2017, CNH presented its technical opinion in a favorable manner to SENER for the request for the migration on the following onshore Asignacion which is located in the States of Veracruz to a Exploration and Extraction Contract. Moreover, on April 3rd, 2018, CNH approved SENER s proposal of migrating the Asignaciones into one single Exploration and Extraction Contract under a License model regime. However, CNH has not yet published the dates in which the bidding process will be launched. General Information Name Lacamango Type of activity Extraction Surface km 2 Hydrocarbon type Crude Oil API density 27.5 API Drilled wells 16 (11 producing and 5 shut down) 3) Cinco Presidentes Likewise, on November 16th, 2017, CNH presented its technical opinion in a favorable manner to SENER for the request for the migration on the following onshore Cluster which is located in the States of Tabasco and Veracruz, 40 km east from the city of Coatzacoalcos, Veracruz to an Exploration and Extraction Contract. Moreover on February 20th, 2018 CNH approved SENER s proposal of migrating both Asignaciones, into one single Exploration and Extraction Contract under a License model regime. As of the date, CNH has not yet published the dates in which this Farm Out bidding process will be launched. General Information Asignaciones Cinco Presidentes Rodador Discovery Date Type of activitty Extraction Extraction Surface km km 2 Hydrocarbon type Oil Oil API density 33.6 API 29.4 API Drilled wells 404 (30 90 (19 Production Average monthly production per well of 160 barrels of oil and 190 mcf of gas (as of January 2018) Average monthly production per well of 150 barrels of oil and 180 mcf of gas (as of January 2018)

4) Giraldas - Sunuapa On February 20th, 2018, CNH presented its technical opinion in a favorable manner to SENER for the request for the migration on the following onshore Cluster which is located in

5 4) Giraldas - Sunuapa On February 20th, 2018, CNH presented its technical opinion in a favorable manner to SENER for the request for the migration on the following onshore Cluster which is located in the States of Chiapas, 35 km south from the city of Villahermosa, Tabasco to an Exploration and Extraction Contract. Giraldas - Sunuapa Cluster Asignacione s Giraldas Chiapas- Copanó Muspac Comoapa Sunuapa Mezcalap a 04 Grijalva 01 Surface Km Km Km Km Km 2 1,452 Km Km 2 Field Type of activity Original Volume 3P reserves (January 1 st, 2017) Hydrocarbo n type Mid Oil: Gas: 2,828.6 Oil: 2.9 Gas: es Late Oil: Gas: 2,226.6 Oil: 2.8 Gas: 11.9 es Late Extraction Oil: Gas: 2,720.1 Oil: 1.0 Gas: 14.7 es Late Oil: Gas: Oil: 1.7 Gas: 2.7 Volatile Oil Late Oil: Gas: 1,160.3 Oil: 6.2 Gas: 59.6 API density 42 API 44 API 54 API 32 API 31 API Recovery factor Drilled wells Oil All geological formations es / Oil API Exploration es API Oil: 37.6% Oil: 44.6% Oil: 47.4% Oil: 26.0% Oil: 11.5% Gas: Gas: Gas: Gas: Gas: 70.3% 66.8% 56.2% 44.8% 16.0% 55 drilled 30 drilled 35 drilled 11 drilled 37 drilled (10 (8 (6 (4 (10

On April 3rd, 2018, CNH approved SENER s proposal of migrating this Cluster into one single Exploration and Extraction Contract under a License model regime.

6 On April 3rd, 2018, CNH approved SENER s proposal of migrating this Cluster into one single Exploration and Extraction Contract under a License model regime. However, CNH has not yet published the dates in which the bidding process will be launched. It is worth mentioning that from the 7 Asignaciones that form this Cluster, 5 of them (i.e. Giraldas, Chiapas-Copanó, Muspac, Comoapa y Sunuapa) are Extraction blocks, while the last two (i.e. Mezcalapa y Grijalva) are Exploration blocks. The Asignaciones are bounded by a surface area of 1,724 Km2 and currently possess 37 production wells, in which gas and condensates are the predominant types of hydrocarbons. 5) Bedel - Gasífero On March 5th, 2018, CNH approved the migration request of the Bedel Gasífero Cluster to an Exploration and Extraction Contract. With this in mind, Pemex is looking for a Non-Operator partner that contributes economic resources to the project that will consequently lead to a greater recovery of hydrocarbons. The Bedel Gasífero Cluster is formed by 4 Asignaciones located in the South Tertiary Basin of Veracruz and covers a surface area of 1,165 km2. Relevant information on the Cluster can be analyzed in the following table: Bedel - Gasífero Cluster Asignaciones Eltreinta Bedel Gasífero Tesechoacan Surface Km Km Km Km 2 Field Mid Miocene (sands) Inferior Pliocene (sands) Mid Miocene (sands) Late Miocene (sands) All geological formations Type of Activity Extraction Exploration Oil: Oil: Oil: Original Volume Gas: 218 Gas: Gas: P reserves Oil: 27.7 Oil: 23.7 Oil: 18 (January 1 st, 2017) Gas: Gas: 14.1 Gas: Hydrocarbon type Black Oil / Dry Black Oil / Humid Non - Black Oil / Dry Gas Gas Associated Humid Gas API density 29 API API API Recovery factor Oil: 1.8% Oil: 1.4% Oil: 6.4% Gas: 2.5% Gas: 0.9% Gas: 16.1% Drilled wells 12 drilled (8 9 drilled (6 25 drilled (22 8 drilled (5

On April 3rd, 2018, CNH approved SENER s proposal of migrating the Asignaciones into one single Exploration and Extraction Contract under a License model regime.

7 On April 3rd, 2018, CNH approved SENER s proposal of migrating the Asignaciones into one single Exploration and Extraction Contract under a License model regime. However, CNH has not yet published the dates in which the bidding process will be launched. It is worth mentioning that the form the 4 Asignaciones that form this Cluster, 3 of them (i.e. Eltreinta, Bedel and Gasífero) are Extraction blocks, while only one (i.e. Tesechoacan) is an Exploration block. The Asignaciones are bounded by a surface area of 1,165 Km2 and the 3 Extraction blocks are inside the exploration area of Tesechoacan. 6) Artesa On March 6th, 2018, CNH presented its technical opinion in a favorable manner to SENER for the request for the migration on the following onshore Cluster which is located in the States of Chiapas, 35 km south from the city of Villahermosa, Tabasco to an Exploration and Extraction Contract. Asignaciones Níspero Sitio Grande Artesa Cluster Rio Nuevo Artesa Gaucho Mezcalapa 08 Surface 54.5 Km Km Km Km Km Km 2 Field Inferior - Mid Pliocene, Late, Mid Inferior - Mid Late Pliocene, Mid Mid - Late All geological formations Type of activity Extraction Exploration Oil: Oil: Oil: Oil: 1,152.6 Oil: 45.9 Original Volume Gas: Gas: 1,837.9 Gas: Gas: Gas: P reserves Oil: 8.7 Oil: 0.4 Oil: 0.8 Oil: 2.8 Oil: 2.8 (January 1 st, 2017) Gas: 16.7 Gas: 4.2 Gas: 2.3 Gas: 1.7 Gas: 7.4 Hydrocarbon type Black Oil Black Oil Black Oil Black Oil Black Oil API density 35 API 34 API 35 API API 25 API Recovery factor Oil: 34.1% Oil: 31.7% Oil: 35.8% Oil: 31.3% Oil: 33.5% Gas: 55.5% Gas: 32.5% Gas: 46.2% Gas: 30.0% Gas: 41.9% Drilled wells 30 drilled (5 48 drilled (4 15 drilled (2 60 drilled (20 (2 Moreover, on April 3rd, 2018, CNH approved SENER s proposal of migrating the Asignaciones into one single Exploration and Extraction Contract under a License model regime. However, CNH has not yet published the dates in which the bidding process will be launched.

It is worth mentioning that the first 5 Asignaciones (i.e. Nispero, Sitio Grande, Rio Nuevo, Artesa, and Gaucho) are Extraction blocks, while the last (i.e. Mezcalapa) is an Exploration block.

The Asignaciones are bounded by a surface area of 870 Km2 and have average recovery factors of 34% for oil and 46% for gas.

8 It is worth mentioning that the first 5 Asignaciones (i.e. Nispero, Sitio Grande, Rio Nuevo, Artesa, and Gaucho) are Extraction blocks, while the last (i.e. Mezcalapa) is an Exploration block. Additionally the CNH proposed to SENER to include the Cactus block in the migration. The Asignaciones are bounded by a surface area of 870 Km2 and have average recovery factors of 34% for oil and 46% for gas. 7) Juspí - Teotleco Cluster Also on March 6th, 2018, CNH approved the migration request of the Juspí Teotleco Cluster to an Exploration and Extraction Contract. This Cluster is also located in the oil province Chiapas - Tabasco. The Asignaciones will be merged into one single block, which will be subject to a Farm Out bidding process for selecting a partner for Pemex. Some key facts may be observed in the following table: Juspí - Teotleco Cluster Asignaciones Juspí Teotleco Mezcalapa 07 Surface km km km 2 Field Mid - Late Late and Inferior - Mid All geological formations Type of activity Extraction Exploration Oil: 39.9 Oil: Original Volume Gas: Gas: 1, P reserves (January 1 st, 2017) Oil: 0.3 Gas: 2.8 Oil: 40.1 Gas: Hydrocarbon type es / Oil es es API density 42 API API Recovery factor Oil: 29.19% Oil: 8.43% Gas: 41.87% Gas: 8.55% Drilled wells 20 drilled (2 19 drilled (11 Moreover, on April 3rd, 2018, CNH approved SENER s proposal of migrating the Asignaciones into one single Exploration and Extraction Contract under a License model regime. However, CNH has not yet published the dates in which the bidding process will be launched. It is worth mentioning that the first 2 Asignaciones (i.e. Juspí and Teotleco) are Extraction blocks, while the last (i.e. Mezcalapa 07) is an Exploration block. Additionally the CNH proposed to SENER to reduce the area from 450 km2 to 282 km2 to avoid exploration activities near the Asignaciones Arroyo-Zanapa and the Cacho-Lopez.

9 8) Remolino Moreover, on March 8th, 2018, CNH also approved the amendments of Asignacion Remolino to adjust its surface area. Then, CNH approved the merger of Remolino with several other Asignaciones (i.e. Morelos, Hallazgo and Riachuelo) in order to form a Cluster that constitutes a complete geological column. However, CNH has not yet approved the migration of this Cluster. Contacts: Alfredo Álvarez Mexico City Office - Energy Leader alfredo.alvarez@mx.ey.com Rodrigo Ochoa Mexico City Office Oil & Gas Tax Leader rodrigo.ochoa@mx.ey.com Enrique Pérez Grovas New York City Office - Tax enrique.perezgrovas@mx.ey.com Javier Noguez Houston Office - Tax javier.noguez@ey.com Yuri Barrueco Mexico City Office Tax yuri.barrueco@mx.ey.com Mario Karim Mexico City Office Tax mario.karim@mx.ey.com Jimena González de Cossío Mexico City Office - Legal jimena.gonzalez@mx.ey.com Jeffrey Helm Mexico City Office Tax Modelling jeffrey.helm1@mx.ey.com Rodrigo Mondragon Houston Office Tax Modelling rodrigo.mondragon@ey.com EY Assurance Tax Transactions Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com. How EY s Global Oil & Gas Center can help your business The oil and gas sector is constantly changing. Increasingly uncertain energy policies, geopolitical complexities, cost management and climate change all present significant challenges. EY s Global Oil & Gas Center supports a global network of more than 10,000 oil and gas professionals with extensive experience in providing assurance, tax, transaction and advisory services across the upstream, midstream, downstream and oilfield service sub-sectors. The Center works to anticipate market trends, execute the mobility of our global resources and articulate points of view on relevant key sector issues. With our deep sector focus, we can help your organization drive down costs and compete more effectively EYGM Limited. All Rights Reserved. This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice. ey.com/oilandgas

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