1. T HE N EW M EXICAN U PSTREAM L EGAL R EGIME A CHANGE OF PARADIGM TOWARDS PRIVATE VENTURE

2. I. M EXICO ’ S U PSTREAM : A N I NDUSTRY ’ S O VERVIEW.

3. Trends Declination of Mexico’s oil reservoirsDeclination in the production of Mexico’s gigantic oil field –Cantarell. Mexico’s oil production has noticeably fallen and it currently equals to approximately 2.6M b/d ), approximately 22% less than in 2004.

4. Trends Declination will not only affect Mexico’s public revenues but it will also have an impact on Mexico’s energy security and the satisfaction of the domestic demand of hydrocarbons with Mexico’s own resources. Exportations of crude oil have proportionally decreased since 2005 at the same level of the national production.

5. II. T OWARDS A CHANGE IN THE CONCEPTION OF M EXICO ’ S OIL & GAS INDUSTRY.

6. A new conception January 1st, 2010: 2010, proven hydrocarbon reserves (1P) totaled about 14.0 billion barrels of crude oil equivalent (MMMboe). There are 3P crude oil reserves which PEMEX estimates in about 43.1 MMMboe located in both, offshore and offshore basins

7. A new conception The future of Mexico as an oil exporter no longer will depend on super giant oil fields but instead on a mixed portfolio which among other includes: Deep waters projects Complex giant onshore fields such as Chicontepec Existing mature fields A broad variety of large and medium- sized projects in both shallow waters and medium shallow waters.

8. Strategic projects It is widely accepted that mature fields are those (a) which have reached the peak of production, (b) that commence their declination phase, and (c) that present problems in the extraction of oil when applying conventional technology and thus require better recovery procedures to increase the recovery factor. Existing mature fields Complex geological features and low permeability. Implies high production costs and technological challenges. It is on an initial stage of production. Chicontepec is considered as one of the largest field in the Americas. Chicontepec field PEMEX estimates that approximately 56% of the prospective hydrocarbons’ resources are located in deep waters of the Gulf of Mexico while an additional 32% of such prospective resources is located in the Southeastern of Mexico Deep waters projects

9. III. T HE UPSTREAM NEW LEGAL REGIME AND ITS IMPLEMENTATION.

10. New contractual arrangements November 28, 2008 A set of reforms was enacted by the Federal Congress aiming to provide PEMEX with an E&P legal regime closer to international best practices. The reform involved the suppression, amendment and enactment of numerous statutes in different matters such as: Positive goals: strengthening corporate governance, institutional design and best industry practices. incorporating an upstream regulatory agency; fostering various sources of sustainable energy; developing public policy in terms of energy transition and its financing; strengthening the role of the PEMEX’s Board of Directors.

11. Contractual Operator - ED&P agreements: Deliverable: Oil Chicontepec [on shore / super giant] Matured fields [mixture / < 0.7 COEB] Medium shallow waters [trend] Deep waters Technical Operator – Services Agreements: Deliverable: Services All other projects E.g. Integrated services [field development] Isolated services [rig hiring] IOCs / Independent OCs  All risks Oil service companies  “No risks” New contractual arrangements

12. Some of the most relevant elements in the model to be equally used for Matured Fields as well as for Chicontepec (once the field laboratories show initial results) are the following: A pilot phase of two to three years in which the field will be commercially assessed before development and production are initiated. Duration: 20 years subject to unlimited extensions. Each block may be of over 75 square kilometers, that can be further amplified. Risks: on the side of the contractor. New contractual arrangements

13. The deliverable is oil and gas production as opposed to services. The bid will be directed to pre- qualified relevant companies. Payment depends on the project’s available cash flow. The financing of the project will be the sole obligation of the contractor. New contractual arrangements

14. Fee per barrel 75% reimbursement of the contractor’s cost Compensation cap (determined according to the size of the field and the creation of economic value for PEMEX) Capital and operational cost will be fully paid during the pilot phase only. New contractual arrangements

15. Although restricted invitations and direct awarding may be decided by the PEMEX’s Board, public bids will continue to be the general rule. Substantial operative experience of over 40M b/d and over $100M USD of annual investment within the previous year is required. The winner bidder will be the one offering the largest fee discount for the service. All non- movable assets will be owned by PEMEX (i.e. pipelines). New contractual arrangements

16. Contracts may be subject to arbitration abroad (i.e. ICC rules). Minimum work obligations and investments in both phases will be carried out according to development plans to be approved by PEMEX. The performance indicator will include: productivity, budgetary efficiencies, safety and national content. Subcontracting operations to be authorized by PEMEX. Direction and management are not possible to subcontract. New contractual arrangements

17. S ECURING PAYMENT STRUCTURE Lender Contractor Trust agreement Project 1. Grants a loan 2. Has a collection right which must be assigned to the trust agreement. 4. Payments to be made (1) to the lender, and (2) the remaining amounts to the contractor. (1) (2) 3. Upon assignment, the Project will directly pay to the trustee.

18. D AVID E NRÍQUEZ R OSAS G OODRICH, R IQUELME Y A SOCIADOS denriquez@goodrichriquelme.com denriquez@gra.com.mx