Draft of bidding terms and Production Sharing Contract for the first Petróleos Mexicanos (Pemex) Shallow Water Farm-Out were published by the CNH

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1 March 8, 2017 ENERGY ALERT Draft of bidding terms and Production Sharing Contract for the first Petróleos Mexicanos (Pemex) Shallow Water Farm-Out were published by the CNH On March 7, 2017, the Mexican National Hydrocarbons Commission (CNH) published the drafts of the bidding terms for the election of a partner for Pemex s subsidiary Pemex Exploración y Producción (PEP), to jointly carry out exploration and extraction activities in the Ayin Batsil shallow water block, as well as the Production Sharing Contract and the Joint Operating Agreement (JOA) models. Below is a summary of the most important terms and conditions of the aforementioned documents. These documents are published and accessible to the public in the CNH s webpage ( Bidding Terms The interested participant will be able to participate as operator or non-operator, as an Individual or in the form of a Consortium, which will then enter into a Joint Operating Agreement (JOA) with PEP to jointly carry out exploration and extraction activities in the Ayin Batsil block. Consortiums will have to be incorporated with 1 Operator. Bidding and Contract terms might be subject to change at any point in time before their final publication. The bidding process will occur in the following stages: i) publication of bidding terms, ii) access to data rooms, iii) registration, iv) clarifications to the bidding terms, v) prequalification, v) filing of proposals, vi) awarding of Contracts and vii) execution of the Contract. The following payments will apply: Registry fee - $750,000 MXP. License for the use of information from the National Center of Information on Hydrocarbons (CNIH) - $2,500,000 MXP. This payment should only be made by the Operator. If an interested party prequalify as Non Operator, only the Registry fee payment should be carried out. It should be confirmed through the Q&A process if Registry fee will be waived for Non-Operators in case they prequalify jointly with an operator. Access to data room will be granted to companies engaged in exploration or/and extraction of hydrocarbon activities or those that show interest in participating as Non-Operators. Operators and Non-Operators are subject to different registration processes.

2 There will be two clarification stages: i) questions regarding payment process for the access to the information of the data room and registration and ii) questions regarding prequalification process, bidding structure, filing of proposals, JOA and Contract. The following timeline indicates the most relevant dates of the bidding process: To prequalify for the bidding process companies have to demonstrate, among others, the following: 1. Legal origin of the funds Should be filed either by parties interested to prequalify as Operator or Non Operator If the interested parties were prequalified for any of the bidding procedures corresponding to Round 1.1., 1.2., 1.4, 2.1, and/or Farmout for Trion block, this information will not have to be re filed. It will be only required to file Form CNH-8 in order to confirm to the CNH that the information previously submitted has not changed as of to the date of this bid procedure. As the prequalification list of Round 2.1 will be published until May 15, 2017, t should be requested clarification to the CNH through the Q&A process. 2. Technical requirements Operators Experience as Operator in at least 3 offshore projects with water depths equal or higher to 150 meters An annual average production equal or higher than 10,000 boed in offshore projects with water depths equal or higher to 150 meters in any year within the period of Capital investments in exploration and extraction projects of at least $2 billion USD within the period Experience in industrial and environmental, health and safety programs during the last five years in exploration and/or extraction projects. 3. Financial requirements Operators Operator shall demonstrate economic capacity, meaning any of the following 2 requirements: 1) shareholder s equity of at least USD $1 billion; or, 2) investment in assets of at least USD $10 billion and an investment credit rating. Non-operators Shall demonstrate economic capacity, meaning that their shareholder s equity shall be of at least USD $250 million. If the information provided by the participants in Round 1.1, 1.2, 1. 4, 2.1 and/or Farmout for Trion Block meets the financial, technical or experience requirements of this bid, no additional information will need to be provided. It will be only required to file Form CNH-8 in order to confirm to the CNH that the information previously submitted has not changed as of to the date of this bid procedure. PEP shall have a participation of 50% in the Consortium, while the Operator should have the following: a. at least 30%, in the case of a Consortium, b. 50%, in case of an Individual bidder. Pursuant to the bidding guidelines, the JOA should recognize a carry to PEP on contributions (costs, expenses and capital investments) to the joint account for an amount of USD $250 million.

3 The value of the economic proposal in the bid process will only correspond to the percentage offered to the Government over the Operating Profit. In case of a tie, the highest offer corresponding to a cash amount will determine the winning proposal. As set for the previous farm-out, minimum and maximum values for the variables determining the economic proposal will be established in this bid. Such values will be determined by Hacienda before the CNH publishes the final version of the bidding terms and license Contract. In case of a tie, part of the cash payment will be paid as a signing bonus at the moment of the execution of the Contract. The signing bonus will be determined based on percentages and thresholds provided in the bidding terms. The rest of the cash payment will be added to the carry in favor of PEP. A USD $500,000 letter of credit should be submitted by the bidder as bid bond. Bond should be valid for 120 days following the day proposals are filed. Note that only bonds from the first and second place awarded bidders will have to be valid for the aforementioned period. A Minimum Work Program is established for the exploration period and as well as for the appraisal period corresponding to the discovery already declared by PEP. Contracts should be executed within 90 days after the awarding day. PSC for the Exploration and Extraction of Hydrocarbons in the Ayin Batsil Block The PEP s Asignación was migrated into an Exploration and Extraction Production Sharing Contract, which would be a similar Contract than the ones offered in the first call of Round 1 and Round 2. The initial term of the Contracts will be 30 years. The term may be extended for 2 additional periods of up to 5 years each. Contracts include a transition phase of 120 days following the effective date of the Contract. In such period the Contractors will have to document the status and integrity of the fields and equipment and initiate social impact and environmental studies. Contractors will have to file an Exploration Plan for approval within the 120 days following the effective date of the Contract. Late filing of the Exploration Plan will be subject to a conventional penalty of USD 10,000 per late day. Contracts include an initial exploration period of 4 years and may be extended for one additional period of 2 years to the extent that is requested and approved by the CNH, but additional work commitments will apply for the extension. The Contractor can request an extension of the additional exploration periods in case the activities contemplated in the Exploration Plan cannot be completed for causes that are not attributable to the Contractor. As in prior rounds, the Minimum Work Program is measured in Work Units. For purposes of this bid, the Minimum Work Program for Exploration and Appraisal activities are as follows: Contractors shall file a performance guarantee to cover their obligations related to the Minimum Work Program. The amount of said bond will be the result of multiplying the reference value of the Work Unit by 75% of the Work Units corresponding to the Minimum Work Program, which is indexed to the Brent crude oil price. Contractors will have to inform the CNH in case of a discovery within the subsequent 30 days the discovery is confirmed. Once that the Contractors notify the CNH, they will have 60 days to file the Appraisal Plan.

4 The Appraisal Plan should include the activities that the Contractor will carry out for a maximum period of 12 months. This Plan shall include the minimum scope of the appraisal activities established in the Contract. Within 60 days after the ending of any appraisal period, Contractors will have to inform if the discovery is a commercial discovery. Likewise within the following year after the confirmation of a commercial discovery Contractors will have to file a Development Plan. Provisions related to the relinquishment and unitization are included. Contractors will have to keep an Operating Account where transactions related to the Contract should be recorded. Additionally, Contractors will have the obligation to file budgets of the costs to be incurred during the implementation of each Work Program and shall comply with the requirements set forth in the annex 4 of the PSC and the corresponding guidelines published by the Ministry of Hacienda. Items included or excluded in the Cost Recovery and the applicable procedure are properly described in annex 4 of the PSC. For example, among the non-eligible and hence, non-recoverable costs established in the PSC, are the following: i)those not included in the budgets and Work Programs approved by the CNH or those in excess of the costs that were established in the budget elevate it in more than 5% or elevate the budget contemplated for the activity pursuant to the account catalogue over 10%, ii) financial costs, iii)donations, iv)costs for servitudes, rights of way and lease or acquisition of land, v) arbitration and dispute resolution costs, among others. Overhead expenses related to services received or activities carried out outside the Mexican territory will be recoverable up to a 1.5% of the authorized budget. It should be clarified with the CNH if the amount of the investment already incurred by PEP will be considered as recoverable. According to the JOA such expenses were recognized as recoverable by the Ministry of Economy, but in the PSC this fact is not clearly understood. Cost Recovery of the corresponding period (month) will be limited to the 60% of the Contractual Value of Hydrocarbons. However, in the case of Non Associated Gas, cost recovery limit will be of 80%. The outstanding balance not recovered on the corresponding period, can be carried forward up to the end of the Contract. Please be aware that as in the first call of Round 1 and Round 2, in this Contract is as well granted for the determination of the recoverable costs, an additional premium of 25%. However, in this particular Contract, such 25% is not only applied to the eligible costs corresponding to the Minimum Work Program, but also to all the investment made in exploration activities to the extent that those expenses are included in the Budgets and Work Programs and comply with the requirements established in Annex 4 and the guidelines. As in the prior PSC s, the considerations that the Mexican Petroleum Fund will pay in kind to the Government, is the Government Operating Profit Share (which will be the bid variable offered by the interested parties) and the Base Royalty determined per type of hydrocarbon. In addition, the Government should receive in cash from the Contractor, the Contractual Quota for the Exploration Period and the Exploration and Extraction Tax. It is important to mention that Government Operating Profit Share may be increased according to the R Factor formula included in this Contract, which is similar to the one included in the first call of Round 1 and Round 2. On the other hand, the considerations that the Mexican Petroleum Fund will pay in kind to the Contractor, will be the remaining percentage on the Operating Profit and the Cost Recovery according to the procedure and requirements described above. The volume of hydrocarbons will be measured at the measurement point which may be inside or outside the blocks. Simultaneous to the filing of the Development Plan, Contractors will have to propose the procedures to store, measure and monitor the quality of the hydrocarbons. Immovable property generated or acquired by the Contractors to carry out the exploration and extraction activities will be automatically be transferred to the Government when the Contract is terminated. The immovable property that provides services to more than one Contractual Area will be exempted from being transferred until the provision of said service is completed. Contractors will be able to commercialize the production by themselves or using other parties. Ownership of sub products obtained from the production will remain property of the Government. The consideration for the Government will include i) signing bonus, ii) quota for exploration phase, iii) royalties and iii) the percentage of the operating profit that will be adjusted according to an R-factor included in the Contracts. The consideration for

5 the Contractor will include i) The costs reimbursement (subject to the recoverable cost limit), and ii) the remaining percentage of the operating profit after the payment allocated to the Government. R-factor should be computed on a quarterly basis and is based on and adjusted IRR before Corporate Income Tax of the Contractor as in first call of Round 1 and Round 2. However, there are two main differences than said R Factor formula: It is recognized as an expense the value of the assets already invested by PEP in this block, which according to Annex 14, the value of said assets is USD $250 million, subject to verification by Hacienda. It is provided a premium to the Contractor of 4 times the investment made in exploration activities to the extent that those expenses are included in the Budgets and Work Programs and comply with the requirements established in Annex 4 and the guidelines. Please be aware that in the first call of Round 1 and 2, such premium was only applied on the amount of the Minimum Work Program and its increase. The Contracts include in its Annex 3, the provisions to determine the value of hydrocarbons similar to the ones included in prior contracts. Contractors should also provide a Corporate Guarantee issued by its ultimate holding company, or by another entity. In case the Corporate Guarantee is not issued by the ultimate holding company, the Contractors should elect to provide its audited consolidated financial statements that demonstrate a shareholder s equity equal to its Working Interest times an amount that has not been published yet. Decommissioning provisions are included. Contractors will have to incorporate a trust to fund the decommissioning activities on quarterly basis. Local Content obligations are included: 15% during the initial exploration phase and the extension of the exploration phase. For the activities corresponding to the appraisal period, a percentage of 17% should be applicable. For purposes of the activities carried out during the development phase the percentages will be of 26% during the first year and should increase periodically up to 35% on Penalties will be applicable in case that the Ministry of Economy determines in an audit the noncompliance of said percentages. Contractors shall have insurance policies that cover civil liability, well control and damage to the materials generated or acquired during the exploration and production activities. Administrative and contractual rescission clauses are included in the Contracts as well as provision related to dispute resolution mechanisms under ICC rules as in prior rounds. Shared infrastructure regulations were also included in Annex 13 of the Contract. Joint Operating Agreement with PEP It is important to note that the applicable JOA should meet international standards, since it follows the 2012 Model International Joint Operating Agreement of the Association of International Petroleum Negotiators (AIPN). A careful review should be made for the elections made by PEP based on the model and review any deviations from it. The main relevant aspects of the JOA, are among others, the following: The definition of Hydrocarbons of Cost was included. It refers to the portion of the Total Available Production distributed to the Parties for the recuperation of the incurred and recoverable costs. In this regard, it is provided a mechanism in order to distribute among the Parties the recoverable costs paid to the Consortium as part of its considerations received by the Mexican Petroleum Fund. The definition of Estimated Production was included and it refers to the daily average rate of production for every type and grade of hydrocarbons during a Calendar Month. The subject matter of the JOA is to establish the joint rights and obligations regarding the development of (i) the operation activities under the contract, including exploration, evaluation, extraction, treatment, storage and management of Hydrocarbons; (ii) the determination of the parties respective interest at the Measurement Point; and (iii) the decommissioning and final remediation of the fields. According to the JOA, the Participation Interest of the Parties is 50% for PEP and 50% for the Operator. Any Party is allowed to transfer the totality or a part of its Participation Interest, however if as a result of a transfer of shares, the total Participation Interest of the Operator and its Affiliates decreases below 30%,and this percentage is allowed by the Applicable Laws or the Exploration and Extraction Contract, the Operator must notify such circumstance to the other Parties, who will in turn vote during the next 60 days in order to decide whether the Operator should remain or if they appoint another Operator. In order to remove the Operator in such circumstance, the affirmative vote of one or more of the Non-Operators representing at least 65% of the Participation Interest is required.

6 As in the prior JOA, the costs and responsibilities in which the Operator or PEP might incur will be charged to the Joint Account and shared by the Parties according to their Participation Interest. Obligations during Carry Period : Carrying Parties shall assume any cost or obligations to be charged to the Joint Account during the carry period. The carrying obligations shall not imply (i) the disposal, purchase or transfer of any assets between the carried Party and the carrying Parties; or (iii) the transfer of assets in favor of the carried Party, or a payment from the carried Party. If during the Carry Period the JOA is terminated by any cause (excluding the breach of the carried Party), or a carrying Party withdraws from the JOA before the payment of the Total Carry obligations, the carrying Parties must pay to the carried Party the corresponding amount according to the established formula. Each of the carrying Parties, must pay the corresponding amount in relation to its Participation Interest in regard to the total Participation Interest of the carrying parties. During the next 90 days following to the first Day of the Month in which the Minimum Work Obligations have been fulfilled, any carrying Party shall be able to withdraw from the agreement. PEP shall be responsible for payments arising from the restauration, compensation, characterization and remediation of the preexisting damages. However, if any of the existing wells are used for purposes of the exploration and extraction activities under the JOA, all costs including the final remediation and decommissioning thereof shall be charged to the Joint Account. Some of the most representative Operator s obligations are: Establish and carry out an Administration System according to the Industry s best practices. Prior to appointing or hiring an independent contractor, an audit must be carried out to determine that (i) the proposed contractor has the required capabilities; (ii) the cost its service may be included in the budget; and (iii) it complies with the procurement procedures. Supervising that the contractors comply with all requirements regarding tax withholding and payments, the Administration System, imports and exports, and commercial and migration obligations. Operator s Personnel: The Operator may determine the number of employees, Commissioned Personnel, contractors, consultants and agents that are reasonably needed to carry out the Joint Operations. Within 120 days from the Effective Date and any time later, PEP may appoint up to 10% of the Commissioned Personnel. Such Commissioned Personnel will not be considered employees of the Operator. Operator can reject any nominations proposed by PEP with due cause. Personnel Commission may be implemented in such cases where there is a need of special knowledge or the projects represent a technical, operational or economical challenge. A training program (to be developed by PEP and the Operator) is included for Commissioned Personnel at the expense of each Party. Claims and Proceedings regarding Joint Operations: Any claim in excess to $350,000 USD is not subject to settlement. Operator s Insurance: The JOA allows the Parties more freedom for choosing their insurance companies and they may opt for self-insurance. If the Parties are not willing to participate in a common insurance, the JOA provides for special processes. Operator s removal: The voting percentage for Operator removal is 90%. The Operator cannot be removed without cause. The possibility by a non-operating Party to remove the Operator after 3 years with grounds on more favorable condition is considered. Calls to Meetings. The Operative Committee must meet at least quarterly. However, a non-operator may request a meeting of the Operative Committee out of schedule with notice to the other parties. Calls to the meetings must include an agenda. Voting Procedure. The voting procedure establishes the requirements to be met for Exclusive Operations and Non-exclusive Operations.

7 Awarding of the Contract. The JOA foresees a procurement procedure, however, in the event of a change of law the Parties must comply with the new procurement amounts for each proceeding: Procedure A, Procedure B and Procedure C. Natural Gas Disposition. The Parties agree that there can be imbalances that may cause a Party to temporarily dispose of more than the corresponding share of gas according to its participation. For such purposes, the Parties must negotiate a Natural Gas balancing agreement. Abandonment of Wells drilled under Joint Operations. If the Operative Committee decides to close and abandon an Exploration or Delimitation Well, any Party voting against such decision may propose an Exclusive Operation. Resignation, reduction or devolution. Given the case that Hydrocarbons are found in an area resigned, reduced or returned, each Party shall resign to any claims or actions against the Operator and against any Party regarding such area. Industrial Property. Unless otherwise agreed all industrial property rights shall belong to the parties that have legal right to them. However, any of the Parties to the JOA may use, without authorization, all the rights of industrial property in the Joint Operations, and any E&P contract subscribed by any Party or its subsidiaries thereunder. The decisions related to the gathering, maintenance and granting of intellectual or industrial property rights must be adopted by the Operative Committee and the associated costs will be charged to the Joint Account. Allocation of the Total Available Production. The total amount of produced and measured Hydrocarbons in each Exploration Area, will be determined by the Hydrocarbons of Cost and the Total Available Production. The Operator shall develop procedures for the distribution of any applicable Compensation on quarterly basis among the individual Exploitation Areas. Allocation of Hydrocarbons to the Parties. The Hydrocarbons of Cost and the Total Available Production assigned to each Exploitation Area must be distributed between the Parties in proportion to their Participation Interest in those areas. If the Hydrocarbons of Cost cannot be attributable to a specific Exploration Area, they will be assigned to the Parties according to their Participation Interest in the operations related to the Hydrocarbons of Cost. Estimation Use. The initial distribution of Hydrocarbons must be based on the estimations delivered by the Operator and their adjustments. Principles. A set of principles are established and must be used in case the Operative Committee does not approve any procedure for the allocation of Hydrocarbons of Cost. Liability. None of the Parties shall be liable for indirect damages, consequential damages or losses of business opportunities, unless the Law establishes the contrary. In addition to the above, several exhibits have been included: Exhibit A. Contractual Area. Exhibit B. Accounting Procedures. The JOA includes the Accounting Procedures under which the Joint Operations must be performed, with intention to provide a fair allocation of profits and losses. Exhibit C. Technical Positions for the Commission Personnel. Exhibit D. Service Agreement. It regulates rights and obligations of the Commissioned Personnel pursuant to the scope of work Exhibit E. Integral Teams for the Project. It regulates the right of the Parties to conform working teams in order to perform the scope of the work. Exhibit F. Powers of Attorney. Exhibit G. Powers of Attorney. It includes a template for granting of Powers of Attorney in relation to the JOA. Contacts: Alfredo Alvarez alfredo.alvarez@mx.ey.com Rodrigo Ochoa rodrigo.ochoa@mx.ey.com Enrique Perez Grovas enrique.perezgrovas@.ey.com Javier Noguez javier.noguez@.ey.com Jimena González de Cossío jimena.gonzalez@mx.ey.com José Fano jose.fano@mx.ey.com Yuri Barrueco yuri.barrueco@mx.ey.com Elizabeth Ceballos elizabeth.ceballos@mx.ey.com Salvador Melejm salvador.meljem@mx.ey.com