Next Steps for the Successful and
Sustainable Development of Mexico’s
Most Promising Resources
PEMEX Investor Day Tokyo – November 10, 2014
Gustavo Hernández-García
PEMEX-Exploration & Production General Director
Content
Energy Reform in the context of Mexico´s transformation
agenda
PEMEX´s Partnership Strategy
Initiative of Migration of current service Contracts to the
new E&E Contracts
Farm Outs
Round One
1
Key Reform Elements for Upstream
Description
Private
participation
• The State retains ownership of sub-surface hydrocarbons
• Private ownership of hydrocarbons at wellhead conditions is allowed
• Four types of E&E contracts to be considered: service contracts, profit sharing,
production sharing and licenses
Regulators
• SENER (Ministry of Energy) will define areas to be tendered and create model
contracts
• CNH (National Hydrocarbons Commission) will execute tender process and will
manage contracts with bidders
• SHCP (Ministry of Finance) will define fiscal terms of contracts (royalties, tax rates,
etc.)
Changes to
PEMEX
• PEMEX will have budgetary autonomy
• Its organization and structure will be based on international best practices
• More freedom regarding procurement will be allowed
Source: SENER
2
Content
Energy Reform in the context of Mexico´s transformation
agenda
PEMEX´s Partnership Strategy
Initiative of Migration of current service Contracts to the
new E&E Contracts
Farm Outs
Round One
3
The Benefits of Round Zero
+
Too small
• Limited options for growth
• Inability to meet goals
• Unavoidable production
decline
Too big
• Complexity to prioritize
• Difficulty reaching efficiency
• Financial resources
restricted
• Size reduction is needed
Business
complexity
Optimal
• Keep core assets
• Strategic growth (DW and unconventional)
• A balanced E&E portfolio
-
Size of portfolio
+
4
Developing a Significant Amount of Resources
These resources will allow PEMEX an organic growth
Mexico´s Prospective Resources:
112.8 Bboe 1
Mexico’s 2P Reserves:
24.8 Bboe
State
PEMEX
23.4,
21%
4.2,
17%
State
PEMEX
89.4
23.4
89.4,
79%
20.6,
83%
It represents 93
percent of
Proved Reserves
PEMEX will increase efficiency taking advantage of the existing infrastructure
1. Include Conventional and Unconventional Resources
5
PEMEX will transform itself to be able to compete and
maintain a leading position in a competitive landscape…
PEMEX expectations post-Reform
Strategic themes for E&E
• Be the best investment option for the
monetization of Mexico’s hydrocarbon
resources and national development
• Human resources excellence
• Continue to be one of the industry leaders
• Excellence on HSSE and Social
Responsibility performance
• Fast transformation to compete and
capture opportunities in an environment
with increasing technical complexity
• Value-driven capital allocation
• Aggressive partnership
• Develop capabilities for complex projects
• Strategic partnerships aimed at
maintaining PEMEX’s relevant position
6
PEMEX maintaining its leadership through JVs
JVs and JOAs hold 35% of Contracted Acreage and 71% of Total Reserves
Source: IHS
7
PEMEX strategy in partnerships is focused on three
main major objectives
Migrate the current E&P
Service Contracts (FPWC1
and EPIC2) into Exploration
and Extraction Contracts
(EEC)
• Under the new legal framework, the existing contracts with the corresponding
contractors will be migrated into EEC
• By improving fiscal terms, contractors will gain access to additional resources,
currently classified as prospective or contingent, hence enhancing the reserves
and production for the contractor as well as earnings and taxes for the State
• A farm-out process will be implemented for select fields assigned to PEMEX in
Establish partnerships for
selected assigned fields to
PEMEX in Round Zero
Position PEMEX for
partnerships
in next rounds
•
Round Zero
The farm-outs will enable the development of fields with high technical
complexity or high CAPEX requirements which otherwise would remain
underutilized
• PEMEX will develop technical and organizational capabilities to compete for
•
new blocks
Capabilities acquired will allow to improve PEMEX’s position to compete for
blocks in future bidding rounds
1. FPWC. Financed Public Work Contracts
2. EPIC. Exploration and Production Integrated Contracts
8
The span of ~14 month which started after the enactment of
the Reform will be key in the transition to an open market
Mexico’s upstream sector future detailed timeline
2014
Activity
2015
08 09 10 11 12 01 02 03 04 05 06 07 08
Comments
PEMEX partnerships
Round One and subsequent
Round Zero results and
Round One publication
Definition of assets awarded to PEMEX and
assets to be tendered in Round One
Round One feedback
FPWC & EPIC Migration
1st stage
2nd stage
Publication of terms and
conditions
Publication of model contracts between
Mexican State and operators
Terms and conditions
feedback
Bidding process and data
Room access
Bidders allowed to participate in the bidding
process. The ITT’s will be available by
phases according the type of play
Bidding process and
decision
Bidders submit proposals and bidding
process is undertaken
Shallow waters
Source: SENER
Extra-heavy oil
Unconventional and Chicontepec
Onshore
Deepwater
9
PEMEX intends to establish a cooperation framework with a number of
entities, through MOUs and/or Collaboration Agreements (CAs)
This strategy is aimed at exchanging technical knowledge, information, experiences, and practices
regarding oil & gas opportunities
Activities
Description
Upstream
• Cooperation in academic, scientific, technical and business areas, related to deepwater
projects, revitalization of mature fields, offshore extra-heavy oil fields, and others
upstream activities
• Exchange of experiences and best practices through visits, conferences and workshops
• Evaluation and cooperation regarding national and international business opportunities
of mutual interest
Natural Gas and
Midstream
• Identification and analysis of possible joint cooperation opportunities on the development
of natural gas processing, transportation and storage projects, as well as liquefaction
and regasification facilities;
• Exchange of experiences and best practices through visits, conferences and workshops
• Evaluate areas of common interest and cooperation related to the marketing and trading
of products in international markets;
• Develop exchange programs of specialists through training programs
Source: SENER
10
PEMEX intends to establish a cooperation framework with a number of
entities, through MOUs and/or Collaboration Agreements (CAs)
Activities
Description
Safety &
Environmental
• Exchange of best practices related to industrial safety and health at work
• Exchange experiences and best practices on the development and use of technology to
reduce greenhouse emissions and on sustainability initiatives
Human Capital
• Cooperating and exchanging knowledge and experiences on the design and creation of
learning and training programs that encourage human capital specialization, facilitating
exchanges of professionals, technicians and specialists including study visits on agreed
matters of interest, as well as exchange of best practices on talent management
• Organizing joint conferences, seminars, workshops, meetings, training sessions,
outreach and educational programs
• Facilitating the relationship amongst representatives of academia, industry and
government to promote best practices and technical solutions to matters of common
interest to the Parties; engaging in such other activities as the Parties consider
appropriate
• MOUs and CAs constitute an expression of non-binding intent and are not intended to create, nor shall it be
deemed to create, any legally binding obligations enforceable between the Parties
Source: SENER
11
PEMEX intends to establish a cooperation framework with a number of
entities, through MOUs and/or Collaboration Agreements (CAs)
Upstream
General
Purpose
Agreements
MOUs
Collaboration
Agreements
Cooperation
Agreement
12
Pemex has diverse infrastructure strategically distributed
along the different regions across the country
1 Storage terminal
258 platforms
Northern Region
Marine Regions
1 FPSO, 1 FSO
9,449 operating wells
Southern Region
773 production facilities
41,577 km of pipelines
13
New era in Mexico presents significant opportunities
to grow
Million barrels per day
Long Term
Medium Term
2.6-3.0
• Round Zero plus future
Rounds
2.4-2.6
• E&E Contracts
Short Term
• Round Zero plus future
 Extra-heavy oil
Rounds
 Unconventional
2.3-2.4
• E&E Contracts
 Chicontepec
 Extra-heavy oil
• Round Zero
 Deepwater
 Unconventional
• E&E Contracts
 Chicontepec
14
The State decision to grant resources in
deepwater and shale areas allows PEMEX
to diversify its portfolio of E&P projects as
well as to improve capabilities to compete
and develop additional areas in the future
15
Content
Energy Reform in the context of Mexico´s transformation
agenda
PEMEX´s Partnership Strategy
Initiative of Migration of current service Contracts to
the new E&E Contracts
Farm Outs
Round One
16
Given the new
legislation, FPWC &
EPIC will be migrated
to joint ventures
between PEMEX and
operators, with E&E
Contracts with the
State
Asset valuation and JV
model creation
• Negotiation and
agreement between
PEMEX and operator
• Authorization and
signing of E&E
Contract
Migration initiative
Three rounds of EPIC
were held with mixed
results
South Region mature
fields: Two of the three
tendered areas created
widespread interest, all of
them were awarded
• North Region mature
fields: One of the six
tendered areas failed to
create widespread
interest; the area was not
awarded
• Chicontepec tight plays:
All of the six tendered
areas were awarded
Results
E&P Service Contracts
were created to promote
private capital investment
in key assets
25 to 35 years term
including exploration,
development and production
• Fee per barrel plus partial
cost reimbursement
• Minimum CAPEX
commitment
• Contracts were tendered
using the fee per barrel as
the bid awarding variable
Background
An initiative, already in progress, is related to the migration
of E&P Service Contracts into the new E&E Contracts
17
11 E&P Service Contracts will be migrated within the
next 6 months
Nejo
Olmos
Asset
Fields
Misión
Burgos
APPRA
BellotaJujo
Altamira
Cinco
Presidentes
Aranque
Panuco
Tierra Blanca
San Andrés
Ébano
Magallanes
Santuario
Years under
contract
execution
Area
(km2)
2P Reserves
(MMBBOE)
3P Reserves
(MMBBOE)
Resources
(MMBBOE)
Production
(As of may 2014)
Investment
(USD MM)
Oil
(MBD)
Gas
(MMCFD)
2013
20142015
Cinco
Presidentes
Magalla
nes
2.7
169
36
93
-
7.4
10
138
133
Bellota-Jujo
Santua
rio
2.7
130
41
41
-
8.0
4
200
133
APPRA
Altamira
1.8
1,625
6
13
13
2.1
0
50
72
APPRA
Arenque
1.6
2,035
66
82
994
5.4
0
241
215
APPRA
Pánuco
1.8
1,839
29
37
132
1.6
8
155
331
APPRA
San Andrés
1.8
209
202
531
100
3.2
0
86
177
APPRA
Tierra Blanca
1.8
358
36
60
37
1.4
0
137
103
Burgos
Nejo
7.3
1,165
32
44
-
9.9
210
450
602
Burgos
Olmos
10.5
358
13
45
-
0.0
3
20
108
Burgos
Misión
10.6
1,972
68
81
-
0.0
110
110
179
APPRA
Ébano
10.9
1,584
40
56
-
0.3
0
249
575
569
1,083
1,276
39
345
Total
11,444
1,836 2,628
18
11 additional E&P Service Contracts will be updated
during the second stage
Asset
Field
Years under
contract
execution
Area
(km2)
2P Reserves
(MMBOE)
3P Reserves
(MMBOE)
Resources
MMBOE)
Production
Oil
(MBD)
Gas
(MMCFD)
Historical
investment
(USD MM)
Burgos
Pirineo1
9.3
3,840
11
16
-
0
24.3
525.5
Burgos
Cuervito1
10.6
231
58
68
-
0.65
30.6
311.1
Burgos
Fronterizo1
10.6
231
31
35
-
0.41
26.6
270.4
Burgos
Monclova1
7.3
3,358
3
4
-
0
17.9
490.6
ATG
Amatitlán
0
230
368
929
252
0.1
0.1
-
ATG
Miahuapan
0
128
88
279
101
0.3
0.4
-
ATG
Miquetla
0.7
112
195
224
86
0.9
2.5
ATG
Pitepec
0.1
230
440
1,049
252
0.1
0.1
-
ATG
Humapa
0.7
128
260
503
157
1.1
2.1
-
ATG
Soledad
0.7
125
179
281
128
3.4
8.1
-
Samaria
Carrizo2
2.4
13
6
51
-
-
-
-
1,639
3,439
976
7
113
1,598
Total
8,626
1. Oil production is referred as condensate production
2 Suspended
19
Content
Energy Reform in the context of Mexico´s transformation
agenda
PEMEX´S Partnership Strategy
Initiative of Migration of current service Contracts to the
new E&E Contracts
Farm Outs
Round One
20
The JV process could occur within a wide variety of assets
such as mature fields, extra-heavy oil and deepwater (1/2)
Asset group
(approximate location)
Assets considered for partnership with PEMEX
Fields
Mature onshore
Mature offshore
(shallow waters)
Description
• Onshore fields producing for more than 10 years
Rodador
• Require secondary-recovery and improved-recovery methods
Ogarrio
Cárdenas – Mora • Access to capital to accelerate hydrocarbons recovery
Samaria (Tertiary)
Bolontikú
Sinán
Ek (UOJ)
•
•
•
•
Shallow water fields
Producing fields for more than 10 years
Require secondary-recovery and improved-recovery methods
Access to capital to accelerate hydrocarbons recovery
21
The JV process could occur within a wide variety of assets
such as mature fields, extra-heavy oil and deepwater (2/2)
Asset group
(approximate location)
Assets considered for partnership with PEMEX
Fields
Extra-heavy oil
Ayatsil
Tekel
Utsil
• Shallow water fields close to the Ku-Maloob-Zaap complex
• Extra-heavy oil in the range of 6.5 to 13.5° API.
• Ayatsil field under development. First production in the 4Q-2014
Kunah
•
•
•
•
Deepwater gas
Piklis
Deepwater oil
Description
Trión
Exploratus
Non-associated gas fields located southward the Mexican GOM
Water depth lower than 2,000 meters
Undeveloped fields
Close to the Lakach field, the first Mexican gas field developed
in deepwater
• Light oil fields located at the Perdido Area in deepwater of the
Mexican GOM
• Water depth greater than 2,500 meters
• Undeveloped fields
Maximino
22
The Energy Reform has defined new roles for key
authorities which set policies and rules in the sector
Authorities responsibilities
Authority / Company
Roles and responsibility
• Approves migration of assignments to E&E Contracts
• Select areas for bidding processes
Ministry of Energy
(SENER)
• Develop technical design of exploration and extraction contracts and guides to execute bidding
processes for areas
• Define prequalification criteria
• Participates in promotion events
• Prepare data rooms
National
Hydrocarbons
Commission
(CNH)
• Issue bidding packages
• Execute bidding processes for fields and areas
• Subscribes the contract representing the State
• Management of exploration and production contracts with O&G companies
Ministry of
Finance (SHCP)
• Establish fiscal terms and economical conditions (royalties, taxes, etc.) of exploration and
extraction contracts
• Defines bidding award variables
23
According to the law, PEMEX will have key responsibilities in
this process to ensure success in building JV partnerships
Assignment Migration with Partners
• Determine areas that will be migrated to E&E contracts
Select JVs areas
Request migration
• Determine whether PEMEX intends to have a sole operatorship role in the
contract or a partnership strategy
• Request to SENER to formally migrate entitlements to Exploration and
Extractions contracts
Favorable Opinion on
technical elements,
etc.
• Prepare favorable opinion on technical, financial, execution and experience
elements that legal entities should comply and be converted to technical criteria
to be used in SENER’s bidding process
Opinion on candidate
prequalification criteria
• Opinion on prequalification of partners in the bidding processes to be executed
by CNH
24
Content
Energy Reform in the context of Mexico´s transformation
agenda
PEMEX´s Partnership Strategy
Initiative of Migration of current service Contracts to the
new E&E Contracts
Farm Outs
Round One
25
Round One will focus heavily on partnerships for
technology and execution capacity
Assets up for tender under Round One
Opportunities
Strategy
Shallow water
• Access additional areas to complement portfolio to take advantage of technical and
operational knowledge and existing infrastructure
Extra-heavy oil
• Develop clusters to take advantage of existing infrastructure
Unconventional
and Chicontepec
Onshore
Deepwater
• Oil and rich gas areas
• Existing infrastructure
• Management of mature fields through improved processes and existing infrastructure
• Frontier exploration to diversify PEMEX portfolio
• Access to low risk areas
26
Both PEMEX and Partners can benefit from a JV in
Round Zero and Round One assets (1/2)
Expected value proposition from partners in a JV
Strategic Objectives
• Accelerate development of deepwater, extra-heavy oil and unconventional
projects
• Improve financial returns
• Gain access to new markets
• Acquire new technical and operational capabilities
• Minimize/share risk
• Improve project management and supply chain management skills in
complex projects and new plays
27
Both PEMEX and Partners can benefit from a JV in
Round Zero and Round One assets (2/2)
Why Mexico?
• Mexico is the 9th world oil producer with a
large and diversified endowment of resources
• Mexico is a country integrated to the global
dynamics, with a high diversity of international
trade agreements and member of the NAFTA.
Free flow of people and goods
• Existing local supplier base and proximity to
one of the more sophisticated supply industry
hubs in the world
• Macroeconomic and political stability for
investments
Why PEMEX?
PEMEX is a well established operator with long
history, good track record and experience, as
well as:
• Unparalleled understanding of the country’s
geology
• Knowledge of domestic E&P regulation
• Existing production infrastructure to expedite
commercializing
• Well established supply chain
• Expertise in stakeholder and community
management
28
Investor Relations
(+52 55) 1944-9700
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