Investor Presentation March 2017
Content 1 A Snapshot of Mexico & PEMEX E&P Midstream & Downstream Financial Outlook of PEMEX 2016 Results 1
Mexico Snapshot Today, Mexico s fundamentals are stronger, allowing to face external shocks in a better position 18 15 12 9 6 3 0 GDP per Capita, PPP USD thousand 2010 2011 2012 2013 2014 2015 Brazil Chile Colombia Mexico Peru LATAM 350 300 250 200 150 100 50 0 Foreign Direct Investment, Net Inflows USD billion 2010 2011 2012 2013 2014 2015 Brazil Chile Colombia Mexico Peru LATAM 14 12 10 8 6 4 2 0 Unemployment % of total labor force 2010 2011 2012 2013 2014 2015 Brazil Chile Colombia Mexico Peru LATAM 10 8 6 4 2 0 Inflation % 2010 2011 2012 2013 2014 2015 Brazil Chile Colombia Mexico Peru LATAM Source : The World Bank Group. 2
1989 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 1980 1983 1986 1988 1991 1993 1996 1999 2001 2004 2006 2009 2011 2014 Mexico s Revenues Diversification Since 1989, average oil revenues, as a percentage of total, represented approximately 29%. Today, Mexico has become less dependent on oil revenues, accounting 16% of total revenues in 2016 The manufacturing sector has offset oil exports Public Sector Revenues 1 % of GDP 25 20.9% 20 15 10 5 4.1% 0 Mexican Exports by Economic Sector 2 % of GDP 450 400 350 300 250 200 150 100 50 0 90% Non Oil Revenues 1 Source: Mexican Ministry of Finance 2 Source: INEGI Oil Revenues Oil Agriculture Mining Manufacturing 3
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Mexican Crude Oil Basket Price Mexico has decreased its reliance on oil revenues, as the public sector is adjusting its cost structure to the new oil price scenario 100 50 USD 56.4 Mexican Crude Oil Basket 1 USD/b Mexican Mix Average 0 CAPEX Reductions within the O&G Industry 2014-2016 2 % 0% -20% -40% -60% -80% -71% -68% -48% -45% -40% -37% -35% -30% -29% -27% 1 Source: PEMEX 2016 2 Source: Wood Mackenzie, May 2016; for PEMEX it includes cuts in investment in the whole company, not only in PEMEX Exploration and Production. 4
PEMEX has taken extraordinary measures to adapt its corporate governance and structure in the shortest time possible Constitution According to Art. 27, it is within the Nation s domain to exploit all national resources: crude oil; and all solid, liquid or gas hydrocarbons Regulatory Law According to Art. 4, the Nation will conduct through Petróleos Mexicanos and its Subsidiary Entities: the exploration and explotation of crude oil; and all other activities related to the oil industry that are considered strategic 2013 Energy Reform o o Strengthen PEMEX and establish a more efficient development of the hydrocarbon potential in Mexico Strengthen execution capacity through: Better corporate governance practices: 5 independent members Executive committees New contracting schemes: Profit and Production Sharing Contracts Licenses Increased financial and operational flexibility through: Risk sharing with third parties Liberalized downstream activities Reduced tax burden Greater managerial and budgetary autonomy 5
Pemex: The Most Important Company in Mexico 8 th Crude oil producer Main producer of oil, gas and refined products in Mexico 14 th Refining company worldwide Holder of 95% of the country's 1P reserves Key player in hydrocarbons logistics infrastructure More than 40,000 km of pipelines 29% Federal Government s revenues 1 MXN 1.6 billion annual revenues 1 8 th Drilling company 15 th Logistics company in the world by assets 5 th Producer of petrochemicals in Mexico 1 st Producer of phosphates in LATAM 74 Storage and distribution terminals Close to 1,500 tank trucks 16 Ships 258 Operating platforms 9,000 Wells 98 th largest company 2 7 th Trading company in the world 1 Last five years average. 2 Source: Fortune 500 ranking. 6
Content A Snapshot of Mexico & PEMEX 2 E&P Midstream & Downstream Financial Outlook of PEMEX 2016 Results 7
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 E&P: Current Status and Challenges PEMEX continues to be a main player in the O&G industry The challenge has been replacing Cantarell, a giant field that produced by itself 2 MMbd, to stabilize and eventually increase production Mbd 3,500 3,000 2,500 2,000 1,500 1,000 500 Crude Oil Production -38% +54% MXN bn 350 300 250 200 150 100 50-0 Source: PEMEX 2017 Other assets Ku-Maloob-Zaap Cantarell E&P Investment 8
E&P: New Production Frontiers Underinvestment and reduced access to know-how has limited intensive exploitation of new complex frontiers to stabilize and increase production Deepwater Infrastructure 1 Shale Potential 2 1 Source: National Geographic 2 Source: CNH with information from North Dakota Department of Mineral Resources, Oklahoma Geological Survey, Texas Railroad Commission, Bureau of Ocean Energy Management, Oil &Gas Journal 9
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2,601 2,577 2,553 2,548 2,522 2,429 2,267 2,130 1,944 1,811 1,780 1,805 1,880 195 257 267 316 E&P: Business Plan With profitability as its ultimate goal, the Business Plan contemplates increased production and investment through different business schemes such as JV s, farm-outs and migrations without a partner to maintain and gradually increase the production platform Aggressive farm-out program Business Plan Scenario Concentrates on assignments that are profitable after taxes Development of fields that are profitable for the country and which, under similar fiscal conditions than privates, are profitable for PEMEX after taxes Improved Scenario Incremental income from farm-out production is shared between PEMEX and the Federal Government 2,500 2,000 Crude Oil Production Mbd Improved Business Plan 1,500 1,000 500 0 10 10 10
E&P: Recent Developments (Trión & Block 3) Trión Perdido Fold Belt Block 3 PEMEX s Assignments Trión Farm-Out Round 1.4 Deep Waters Matamoros 179 Km 3 28 Km 1 1 Great White Maximino Exploratus Oil and Gas Field 3D Seismic Block 3 North 4 2 Trión Blocks awarded in Round 1.4 BHP Billiton will invest up to USD 1.9 billion before PEMEX makes additional contributions Joint operating agreement was signed on March 3, 2017 PEMEX expects to invest USD 600 million by the time initial production is achieved Joint Venture with Chevron and Inpex The contract considers 3,374 work units, equivalent to USD 3.4 million No wells were committed for this contract Contract was signed on February 28, 2017 11
E&P: Upcoming Developments PEMEX will focus on the development of projects through joint ventures and migrations to share risks, obtain technology, know-how and improvements within the upstream division Farm-outs (Round 2) Ayín-Batsil: Shallow Waters, Jun. 19, 2017 Ogarrio & Cárdenas-Mora: Onshore, Jul. 12, 2017 Ayín-Batsil Ek-Balam San Ramón & Basilio Migrations without a partner During the first quarter of 2017, PEMEX expects to migrate Ek-Balam CSIEE 1 San Ramón and Blasillo are expected to be signed during the 1H17 Ogarrio & Cárdenas-Mora 1 Exploration and Extraction Integrated Service Contracts. 12
Content A Snapshot of Mexico & PEMEX E&P 3 Midstream & Downstream Financial Outlook of PEMEX 2016 Results 13
Midstream: Current Status and Challenges Further gasoline storage capacity and pipelines are required in Mexico. The U.S. has 27 times more infrastructure to supply fuel and 45 times more storage terminals than Mexico Gasoline Storage Days by Country 1 2016 France 99 Pipelines in the United States 2 and in Mexico 3 2016 USA 90 China 90 Japan 70 South Africa 60 India 3 Mexico 2 Iran 1 Source: Strategy&, PwC 2017 2 Source: http://pipeline101.com/where-are-pipelines-located 3 Source: EIA 2017 14
15 10 5 0 Downstream: Current Status and Challenges The challenge is to reverse the economic and operational losses of close to MXN 100 billion Non-Scheduled Shutdowns Index % 5.7 4.2 3.4 9.2 12.2 10.7 10.1 11.2 12.7 2007 2008 2009 2010 2011 2012 2013 2014 2015 International reference (goal) Equivalent Distillation Capacity Usage % 90 80 70 60 50 77.7 76.9 76.9 71.0 68.6 66.1 61.3 2004 2006 2008 2010 2012 2014 2015 International reference (1Q) International reference (4Q) Main Causes for Non-Scheduled Shutdowns 2016 1 3% 3% 11% 20% 63% Hidrogen supply Equipment and proceses CFE Repairement delays 1 From January to August 2016 Service supply (vapor, water, electricity) 15
Midstream & Downstream: Business Plan Underinvestment, supply mandates and cost recognition are being and will continue to be addressed in the upcoming years to reverse the accumulated losses in the midstream and downstream divisions Business Plan scenario PEMEX Industrial Transformation Partnerships in operation of auxiliary activities and revamps of refineries Operational discipline and reliability Timely attention to risk factors Cost efficiency and gradual acknowledgment of opportunity costs in transportation prices Pipeline custody Illicit markets PEMEX Logistics Open season Concentrates on profitable business lines 40 0-40 -80-120 -108.9 Financial Balance 2025 (Equivalent to -96.3 in 2017) Impact of the Strategic Initiatives on the Financial Balance until 2025 (MXN billion in cash flow) 41.9 Partnerships 49.2 Safe and reliable operations 36.2 Acknowledgment and efficiency in transportation costs 11 Stolen Product 29.4 Result 16
Midstream & Downstream: Upcoming Developments Logistics opened the utilization of its non-used storage and distribution capacity, which will yield additional revenues that capture fair prices for fuels in Mexico Open season auction result: March 2017 Price liberalization: March 30,2017 1 Open season auction result: May 1, 2017 Price liberalization: June 15, 2017 Open season auction result: Sep. 14, 2017 Price liberalization: October 30, 2017 3 2 Open season auction result: November 15,2017 Price liberalization: December 30, 2017 Open season auction result: October 16, 2017 Price liberalization: November 30, 2017 4 5 17
Content A Snapshot of Mexico & PEMEX E&P Midstream & Downstream 4 Financial Outlook of PEMEX 2016 Results 18
Financial Outlook: Conservative Assumptions 2017 marks an inflection point in recent trends Does not consider additional revenues from divestments Maintain cost reduction discipline implemented in 2016. Increase in productivity is documented individually Additional cash flow from the execution of JVs will be used to improved the company s cash position 80 Crude Oil Price 1 USD per barrel BRENT futuros PEMEX PETROBRAS 5.8% PEMEX s Funding Cost 70 60 50 40 71 71 68 59 60 61 56 55 58 48 57 54 55 56 42 2017 2018 2019 2020 2021 5.6% 5.4% 5.2% 5.6% 5.6% 5.5% 5.4% 5.2% 2017 2018 2019 2020 2021 1. Source: Bloomberg (October) & PEMEX 2017 1. Primary surplus: MXN 8.4 billion 2. Reachable production goal: 1,944 Mbd 3. Conservative price projection: 42 USD/b 19
632 665 783 787 841 1,143 1,493 2,024 2,015 2,021 1,937 1,799 1,955 2,024 2,065 2,139 2,151 2,117 Financial Outlook: Business Plan 2016-2021 The improvement of PEMEX s financials is not a zero-sum game. The initiatives in the Business Plan allow the company to improve its future cash flow, while the Federal Government s earnings increase 150 Financial Balance MXN billion 145 2,300 Consolidated Debt MXN billion 100 50 3 92 43 2,100 1,900 1,700 0-50 -100-150 -200-32 -58-40 -49-36 -133-35 -147-149 -94-84 -64 2009 2011 2013 2015 2017 2019 2021-1 1,500 1,300 1,100 900 700 500 2009 2011 2013 2015 2017 2019 2021 Business Plan Improved Business Plan Improved 20 20 20
2017 Expenditure Program CAPEX for 2017 and its allocation is in line with 2016 s figures CAPEX & OPEX 100% = 391.9 MXN MMM CAPEX 100% = 204.6 MXN MMM 0.9% 2.6% 0.2% 2.2% 1.3% 10.4% Corporate OPEX Ethylene 48% 52% Fertilizers Logistics 82.3% Perforation Industrial Transformation E&P CAPEX 21
Net Indebtedness Reduction in 2017 Along with the dollar transaction carried out in December and the euro one in February, minimum financing needs for 2017 have been covered, providing flexibility and leeway towards the rest of the year, without any pressure to tap into any other market. Net Indebtedness MXN billion 250 150 50 223 195 232 150 2014 2015 2016 2017e MXN billion USD 5.5 bn 118.3 EUR 4.25 bn 96.7 2016 Ceiling 2017 Ceiling Total raised as of Feb. 27, 2017 215.0 Approved net indebtedness 2017 150 Debt ceiling consumed 2017 96.7 Premises: Financial Deficit = MXN billion 93.8 + Amortizations = 116.1 Available debt ceiling 2017 53.3 2017 Minimum Needs = 209.9 e. Net indebtedness approved by Congress. Note: Exchange rate 21.5 MXN/USD. Indicative figures subject to market conditions. Numbers may not total due to rounding. 22
Content A Snapshot of Mexico & PEMEX E&P Midstream & Downstream Financial Outlook of PEMEX 5 2016 Results 23
Achieving Financial Stabilization and Energy Reform Implementation First Alliance in Refinery Auxiliary Services for the Supply of Hydrogen 2017 During 2016 and 2017, PEMEX has focused on restoring its financial stability, taking advantage of the opportunities offered by the Energy Reform, and strengthening relationships with the financial and oil and gas industry Apr-Aug Dic Financial deficit reduced to MXN 102 bn Farmout Trión JV Chevron/Inpex Business Plan Gasoductos Chihuahua divestment Working capital improved Overdue obligations to suppliers fully paid Nov Federal Government support measures Crude Oil Prices @ USD 25/b Financial Deficit MXN 149 bn Strict implementation of the Budget Adjustment Plan Feb 1. The financial balance considers the result from subtracting total expenses (including financing costs) from total revenues 24
2016 Key Highlights Crude oil production goal of 2,130 Mbd was met and exceeded for the first time in five years, reaching 2,154 Mbd Gas flaring reduced by year-end Frequency and severity indexes decreased by more than 20% Operating expenses decreased by 26% Reversal of impairment of fixed assets by 52% Reversed operating loss Net result improved by 58% Liquidity improved, cash position increased by 50% Improved debt profiled 25
Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 1Q12 3Q12 1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q12 3Q12 1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 Positive Trend During 2016 operating losses were turned into income, net result was improved by 58% and the liquidity position was substantially improved. Debt s maturity profile was extended to 7.6 years. 20,000 10,000 0 Operating Income USD millions 3,000-2,000 Net Result USD millions -10,000-7,000-20,000-12,000 8.00 Average Duration of Debt Years 7.60 8,000 Consolidated Historical Cash Balance USD million 7.50 7.00 6,000 6.50 4,000 6.00 5.50 2,000 5.00 0 26
Investment Considerations The joint efforts have finally begun to bear fruit and to reflect in the results of the year. PEMEX has now stable finances, with positive trends, however, there is still room for improvement. As a result of the implementation of a Business Plan focused on profitability, the administration has very clear what will be the next steps taken to achieve financial equilibrium. PEMEX reiterates its commitment to prioritize profitability and sustainability. Production goals met & exceeded Energy Reform: historic opportunity 2016: Stable finances Today Financial Balance 2020-2021 Strategic company in Mexico and worldwide Net result improved by MXN 400bn in 2016 Business Plan focus: Profitability 2017: Inflection point & attractive investment opportunities 27
Investor Relations (+52 55) 1944-9700 ri@pemex.com www.pemex.com/en/investors
First Deep Water Farm-Out Trión USD million Base royalty 7.5% Additional royalty 4.0% Great White Minimum investment 570.0 28 Km Tie-break criteria 624.0 Matamoros 179 Km 1 Maximino Signing bonus payable to the Mexican Oil Fund 62.4 Exploratus Additional carry in favor of PEMEX 561.6 3 1 4 2 570 561.6 USD 1,974 0.4 million 2 Trión Blocks awarded in Round 1.4 BHP Billiton will invest up to USD 1.9 billion before PEMEX makes additional contributions Joint operating agreement should be signed during the first week of March of 2017 PEMEX expects to invest USD 600 million by the time initial production is achieved 1. According to provision 17.4 of the bidding packages. 2. As established in the Joint Operations Agreement. 29
Farm-Out Ayín-Batsil Ayín-Batsil Year of discovery 3P Reserves Water depth Estimated Investment Type of hydrocarbon 1991 Ayín & 2015 Batsil 359 Mmboe Up to 180 m USD 4.2 billion Heavy crude oil Located in the Campeche Sound, 70 km from Cantarell and Ku-Malob-Zaap Initial production expected by 2020, of up to 80 Mbd. 30
Farm-Outs of Ogarrio and Cárdenas-Mora Ogarrio (Mature onshore field) Cárdenas Mora (Mature onshore field) Location Tabasco, 65 km from Coatzacoalcos Location Tabasco, 62 km from Villahermosa Estimated oil production 7.9 Mbd Estimated oil production 8.1 Mbd Estimated gas production 24.7 MMpcd Estimated gas production 30.5 MMpcd 3P Reserves 54 MMboe 3P Reserves 94.3 MMboe Type of hydrocarbon Light crude oil Type of hydrocarbon Extra-light crude oil Onshore mature fields with significant development in development and exploitation High-quality oil producers 31
Fundamentals of Gasoline and Diesel Prices Maintaining low gasoline prices would have implied a cost of MXN 200 bn for the public sector and a barrier for competition New Gasoline Price Structure VAT IEPS tax Rational FIXED by the Ministry of Finance / Legislation Commercial margin Transportation Storage Logistics Quality adjustment International reference price, Houston, TX Allows competitors to open new petrol stations (i.e. BP plans opening around 1,500 retail sites) Recognises the logistic cost, which will generate the incentives to create new infrastructure This price scheme recognises the total expenses incurred in the sale of petroleum products Opening the market to new competitors, will allow PEMEX to focus on more profitable markets It will create the incentives to attract more investments and partners in the refining activities 32