1. MEXICO’S ENERGY REFORM

2. WHY DOES MEXICO NEED AN ENERGY REFORM?

3. WEAKNESSES AND THREATS
Oil production in Mexico has dropped, hence the importance of increasing investment in exploration and production
Millions of pesos
Dollars per Barrel

4. WEAKNESSES AND THREATS
Production in the Cantarell field at one time represented 63% of the country’s total production; today the figure stands at 18%
The Cantarell field has experienced a drop in production of 835 thousand daily barrels since 2004
Millions of barrels per day (MBD)

5. WEAKNESSES AND THREATS Millions of cubic feet per day
The demand for gas has risen while at the same time its production has dropped; this has led to imports reaching 34% of national consumption in 2013.
Millions of cubic feet per day

6. MEXICO’S ENERGY POTENTIAL
The country’s exploration potential is based on the resources yet to be discovered, known as prospective resources.
Total prospective resources rose to 114,812 million barrels of crude oil equivalent (MMBPCE)
Documented Resources
Additional Resources
Total
Cuenca
MMB
Oil
MMMOC
Gas
Total MMBPCE
MMBPCE
Southeast
12,094
5,250
13,146
6,937
20,083
Tampico-Misantla
931
4,257
1,783
742
2,525
Burgos Y Sabinas
327
11,633
2,654
673
3,327
Veracruz
139
5,335
1,206
383
1,589
Yucatan
447 94
541
13,938
26,475
19,236
8,829
28,065
Conventional

7. MEXICO’S ENERGY POTENTIAL
75% of all prospective resources are NON-CONVENTIONAL
Interior
MMB
Oil
MMMPC
Gas
Additional MMMPCE
Total MMBPCE
Deep water
10,429
29,700
10,178
26,547
Lutite
31,900
141,500 -
60,200
Tampico-Misantla
30,700
20,700
34,800
Burgos
53,800
10,800
Burro-Picachos
600
18,000
4,200
Sabinas
49,000
9,800
Veracruz
Total
42,329
171,200
86,747
Non -
Conventional

8. OBJECTIVES OF THE REFORM
Economic
Greater investment
Increase Production
Greater competitiveness
Public Policy
Independent Regulators
Stronger Institutions
New Production Companies
Social
Energy Security
Reducing Costs
Transparency
Environment
Sustainability and improvement of the environment
Energy Efficiency
Better Use of Resources

9. Background of the Energy Reform

10. History of Reforms 1995 Energy Reform
Amendment to the exclusivity of the State regarding the development of activities related to hydrocarbons.
Activities relevant to the transportation, storage and distribution of gas are permitted; these can be carried out through contracts, without PEMEX losing any ownership of said hydrocarbons.
The Ministry of Energy and the−then−new Energy Regulatory Commission were granted powers to enforce the Law for the Oil Sector.
The Energy Minister was authorized as the institution responsible for confers the permits to individuals.
1995 Energy Reform

11. RULES FOR UNDERSIGNING CONTRACTS
2008 Energy Reform
PEMEX maintains control of exploration activities and the development of oil resources
The Nation exercises the direct and inalienabe dominion of hydrocarbons in Mexican territory and its sea extensions
Strengthen the Commission to Regulate Energy
Creation of the National Hydrocarbon Commission for the regulation and supervision of the exploration and utilization of hydrocarbons
PEMEX given corporate regime status
Possible contracts in areas not reserved in the Constitution
Changes in the way the Board of Administration is set up
Ensure that the income generated from oil during periods of high oil prices benefits the nation and that PEMEX might have sufficient resources to operate during moderate−price−level periods.
TAX ASPECTS
NEW PEMEX LAW
RULES FOR UNDERSIGNING CONTRACTS
NEW REGULATORS
2008 Energy Reform
Undersigning shared production contracts or those that compromise the value of the sales stands forbidden

12. THE 2012 REFORM Lines of this reform: Line Six: Miscelaneus Line One:
New Rules
Line Two: Regulator
Line Three: Fiscal
Line Four: State-Owned Production Companies
Line Five: Green
Line Six: Miscelaneus

13. Highlights of Line One Reduction of market concentration New Rules
Liberalization of the Electric and Hydrocarbon Sectors
New Contract Models
Payment of profit−sharing for the use of land and subsoil
Reduction of market concentration

14. Highlights Regarding Allocations and Contracts
LINE ONE
Highlights Regarding Allocations and Contracts
ALLOCATIONS
PEMEX received, through Round Zero, 71% of the domestic oil production and 73% of domestic gas production in order to compete at the same levels with all companies.
For strategic projects, allocations will be directly.
In the case of crossborder fields, the mandatory PEMEX participation shall stand at at least 20%.
CONTRACTS
The State undersigns contracts with:
PEMEX
PEMEX + private entities
Private Entities
(Whosever offers the best conditions for the State secures the contract)
Oil from underground fields always belongs to the Nation; the expected financial benefit is recorded solely for bookkeeping purposes.

15. Highlights Regarding Natural Gas
LINE ONE
Highlights Regarding Natural Gas
Natural gas is crucial if we are to reduce the cost of electricity and for industry to prosper.
OFFER MORE COMPETITIVE PRICING
REDUCE THE COST OF ELECTRICITY
OBJECTIVE:
EXPAND THE PIPELINE NETWORK
Open access, subject to CRE (Energy Regulatory Commission) certifiction and regulation.
Reserve capacity not used shall be made available to the market through open season.
CHARACTERISTICS:
CENAGAS
To be created 12 months after the Law enters into force.
PEMEX shall transfer its infrastructure and contracts.
Shall fall under the responsibility of the National Pipeline System.
To be supervised by the Energy Regulatory Commission
ABATING MARKET CONCENTRATION
100%
50%
20%
The Law on Hydrocarbons only applies to hydrocarbons requiring pipelines for their transportation.

16. Highlights for the New Electrical Industry
LINE ONE
Highlights for the New Electrical Industry
STATE CONTROL
TRANSPORTATION AND DISTRIBUTION
CENACE operates the Wholesale Electrical Market (SPOT market and auctions)
Obligated to interconnect networks
Can establish partnerships
Can suspend services
PLANNING AND CONTROL OF
NATIONAL ELECTRICAL SYSTEM
TRANSMISSION
DISTRIBUTION
GENERATION
COMMERCE
The CFE builds and operates networks, with the possiblity of hiring third parties.
BUSINESS DEALINGS
SENER can separate or break up companies and COFECE can penalize antitrust practices
Over 1.5 MW requieres permission.
Entry barriers are eliminated.
Can commercialize.
In an emergency, the State can request the generation of electrical power.
Basic users
Skilled Users
Wholesale Electricity Market

17. + + + Line Two: Regulators COORDINATED REGULATORY BODIES
COORDINATION BOARD FOR THE ENERGY SECTOR
ENERGY REGULATORY COMMISSION
NATIONAL COMMISSION FOR HYDROCARBONS
Evaluates the development of work programs carried out by the coordinated bodies.
Issues recommendations and approves coordination mechanisms.
Regulates, supervises and sanctions.
Contributes technical elements to draft energy policies.
Approves the draft project for the budget and carries out technical studies. +
HEAD OF SENER+
3 UNDERSECRETARIES +
COMMISIONERS PRESIDENTS FOR CNH AND CRE +
DIRECTORS GENERAL FOR CENEGAS AND CENACE
7 COMMISSIONERS EACH, 7−YEAR PERIODS (STAGGERED)

18. Contracts for public tender except for strategic areas
Line Three: Fiscal
Contracts for public tender except for strategic areas
Attributes – Functions regarding monitoring and supervision
Institutions responsible
Origin of capital
Contracts
Mexican Oil Fund
Collect information on contractors
Recieve payment of royalties; Contract quotas in favor of the State as established in the Contracts.
Calculate and pay considerations (based on contracts)
Ministry of Finance and Public Credit / Tax Authority
Determine the basis and rules for registering costs, expenses and investment for contract
Determine the basis and rules for procurement of goods and services for activities carried out pursuant to each Contract
Verify the correct payment of Royalties and Contractual Fees for the Exploratory phase and other Considerations

19. 1 2 3 4 Oil income flowing into the budget LINE THREE
Every year the definitive amount in pesos is determined in the General Criteria for Economic Policy 2
The amount is subtracted from the estimated Income Tax to be collected on the contracts 3
The missing amount is secured from the Mexican Oil Fund 4
The resources that the Fund obtains above this amount are allocated for long−term savings

20. Approved by the Senate of Mexico
Mexican Oil Fund
LINE THREE
FUNCTIONS
Receive
Pay
Manage
Recommend
Contractors and transfer the funds so that income from oil will be maintained at a steady 4.7% of PIB.
Income assigned to the State through allocations and contracts (less Income Tax, VAT, etc.)
Long−term savings.
To the Lower Chamber amount for expenditure pursuant to the Constitution when savings surpasses 3% of GDP.
Technical Committee
Governor
BANXICO
Members of the
Federal
Government
Approved by the Senate of Mexico
Independent Members

21. TAXATION ON CONTRACTS LINE THREE For oil exploration
Monthly payment for the right to explore hydrocarbons, not in the production phase, on behalf of the Allocation Department, pursuant to the following fees:
During the first 60 months while the Allocation of 1,150 pesos per square kilometer is in force.
As of month 61 of the in-force period of the Allocation, and thereafter 2,750 pesos per square kilometer.
These fees shall be updated every year in the month of January, pursuant to the variation established in the National Consumer Price Index for the immediately preceding year.
For oil exploration
Calculated on a monthly basis, applying to each square kilometer that the Contractual Department or Allocation Department comprises, based on the following fees:
During the exploration phase 1,500 pesos, and during the mining phase 6,000 pesos.
Tax on exploration and mining of hydrocarbons
Contractors shall deliver the full Contractual Production to the State; the State, in turn,delivers the considerations agreed on in the contract(s).
For Services
A 65% rate is applied to the difference resulting from reducing the value of the hydrocarbons extracted during the fiscal period in question, including the consumption of products by the Assignee, as well as any shrinkage owed to spills or burning off of said products.
For Shared Profits
Differentiated rates as determined by type and price of hydrocarbons in dollars per unit.
On mining of Hydrocarbons

22. Line Four: State−Owned Production Companies OVERSIGHT AND AUDITING
PEMEX and CFE become State−Owned Production Companies, adhering to their own legislation and NOT to the Law for Acquisitions fo the Public Sector Law.
SPECIAL REGIME
Information standards, such as any other company listed on the Stock Exchange
The State goes from being an administrator to a proprietor. The investers: the Mexican people.
TRANSPARENCY
STATE AS PROPRIETOR
Design pursuant to international best practices. The objective: to drive economic value.
CORPORATE GOVERNMENT
System for tracking and auditing results, management and responsibility to avoid corruption.
OVERSIGHT AND AUDITING
FLEXIBILITY
Flexible Legal Framework. Respective legislations shall be the main regulation, with civil and mercantile law supplementing the foregoing (no longer the administrative framework).

23. Line Five : Sustainability
Reduce emissions and comply with the goals committed to in the General Law on Climate Change.
Increase Energy Efficiency
Use clean fuels : reduce emissions of critical pollutants, increase the ue of new vehicle technologies, and bring down costs linked to respiratory diseases.
Add large−scale renewable energy capabilities through creating a competitive production environment, managed by the State through an independent operator and establishing the use of clean energy certificates.
In the coming months there will be discussion on the Law for Energy Transition at Congress

24. Proposed Bill for Law on Energy Transition (LTE)
Line Five
Submitted by Congressmen/women and Senators of the PAN party
It is expected that in coming weeks the Federal Government will send its proposal to Congress
It is expected that the “green package” for the energy reform will be passed before the end of the year
Aspects related to LTE with regard to the develoment of renewable energy
Establishment of goals for the use of clean energy
Underscores the modalities and requierments for electricity generators
Specifies the attributes of SENER, CRE, CONUEE and SEMARNAT in terms of planning instruments
Institutional Strengthening
Turns the Institute for Electrical Investigation for the National Institute for Electricity and Clean Energy (INEEL) into an APF decentralized public agency
Creates and defines the attributes and organization of the Advisory Board for Clean Energy and for the Advisory Boad for the Sustainable Use of Energy.
Conditions for private and mixed investment
The SHCP (Tax Authority) guarantees the availability of the necessary public resources to ensure the investment needed to meet goals
Creates funds: a) for the Energy and Sustainable Utilization of Energy; b) Energy Sustainability; and c) for renewable energy sources
Encourages private investment to generate electrical power through clean energy sources (wind, photovoltaic, and hydraulic)
Stipulates that the CRE will create a program for providing monthly certificates as proof of generation of clean energy
Promotes applied research and the development of technologies in the matter through SENER and the participation of CONACYT.
Transparency
Establishes the National Subsystem of Information on the Utilization of Energy within the framework of the National System for Statistical Information and Geography, whose objective is to register, organize, update and disseminate information on energy;
Specifies that the CRE (Commission for the Regulation of Energy) and PROFEPA (Federal Bureau for the Protection of the Environment), will inspect and monitor all those involved in the National Electricity Industry.

25. COMMITMENT TO GENERATE CLEAN ENERGY
Form 2008, our country —in order to contribute to the conservation of the environment— self-imposed specific dates by which to produce clean energy.
Year 2020
Reduce greenhouse gas emissions by 30%
Year Generate 35% of electricity through clean energy
Year 2035
Generate 40%
of electricity through clean energy
Year Generate 50% of electricity through clean energy

26. Line Six: Miscellaneous
Transparency
New Rights
New Institutional Design
Rounds Zero and One

27. LINE SIX
ROUND ZERO
Round Zero refers to areas that PEMEX may retain for exploitation; Round One refers to zones that will be set out to tender for private initiative.
ROUND ZERO
In terms of proven and probable reserves (1P) Pemex is assigned a volume of 20,589 million barrels of crude oil equivalent, that is, practically 100% of the volume requested as concerns reserves.
Petróleos Mexicanos was given 120 allocations, covering 71% of national oil production and 73% of national gas production.
In terms of prospective resources, Pemex is assigned 23,447 million barels of crude oil equivalent, which is only 68% of the requested amount.
PEMEX COULD PRODUCE UP TO 2.5 MILLION BARRELS PER DAY IN THE COMING 20.5 YEARS.

28. To be made known before November 14 of this year
LINE SIX
Round One
ROUND ONE
To be made known before November 14 of this year
The tender will include 169 blocks, of which 109 belong to areas for exploration and 60 for drilling fields.
2P reserves and prospective resources represent a volume of 3,882 and 14,606 million barrels of crude oil equivalent, (MMbpce), respectively.
It is expected that these projects represent annual investment in approx. $8,525 million dollars between 2015 and 2018.

29. WHAT WE EXPECT FROM THE REFORM

30. WHAT WE EXPECT FROM THE REFORM
Between 2015 and 2018, a total investment of up to 50 Billion US Dollars, per year.
The 10−year goal is 700 Billion US Dollars for the electricity sector and 600 Billion US Dollars for hydrocarbons.
INCREASED INVESTMENT
Half a million more formal jobs by 2018, and 2.5 million by 2025.
Increase oil income, which is the difference between the sales price of oil and/or natural gas and the cost of extracting it.
It is forecast that GDP in Mexico will grow 1 additional percentile point by 2025.
ECONOMIC DEVELOPMENT
It is estimated that oil production will increase by 2.5 million barrels per day at present to 3 million in 2018 and 3.5 million by 2025.
3.9 billion pesos to be invested in the energy sector, thus contributing to quaity energy at competitive prices.
COMPETITIVE ENERGY INDUSTRY

31. WHAT WE EXPECT FROM THE REFORM
In a Constitutional law and secondary level, it is guaranteed that the exploitation of natural resources is carried in a sustainable manner.
The National Agency of Industrial Safety and Environmental Protection of Oil Sector will be created to monitor the activities of oil companies.
PROTECTING THE ENVIRONMENT
This reaffirms that the nation owns all natural resources of the subsoil, including hydrocarbons .
Reduce imports of Hydrocarbons.
The Reformation also ensures that Pemex and CFE will remain public companies, under the guise of "state-owned production companies.”
PROTECTING THE SOVEREIGNTY OF MEXICO
The Mexican Oil Fund will manage the incomes from oil in an impartial and transparent manner. It shall report the money transferred to the investing companies and other funds.
YIELD AND TRANSPARENCY OF INCOME FROM OIL

32. THANK YOU