Mexico's Energy Reform - New Legal Framework

Unidad de Asuntos Internacionales y Promocin de Inversiones
Forward-looking statements and cautionary notes

This national energy sector presentation contains forward-looking statements. Statements that are not historical facts, including statements about our beliefs and expectations, are forward looking-statements. These are good faith statements based on current plans, estimates and projections and therefore you should not place undue reliance on them. Forward-looking statements speak only as of the date they were made, and we undertake no obligation to update publicly any of them in light of new information or future events. Forward-looking statements involve inherent risks and uncertainties. These risks and uncertainties include crude oil price volatility; production, equipment, and transportation risks inherent in the oil industry; environmental regulations in Mexico; actions of the Mexican government with respect to our operations, budget, taxation, commercial activities, control of hydrocarbon reserves, or debt service payments; any limitations on exports resulting from agreements of the Mexican government; and economic, political, and foreign exchange risks affecting Mexico. These risks and uncertainties are more fully detailed in Pemex most recent Form 20-F filing with the US Securities and Exchange Commission and the Pemex Prospectus filed with the National Banking and Securities Commission (CNBV) and available through the Mexican Stock Exchange. These factors could cause actual results to differ materially from those contained in any forward-looking statement. The US Securities and Exchange Commission (SEC) permits oil and gas companies, in their filings with the SEC, to disclose only proved reserves that a company has demonstrated by actual production or conclusive formation tests to be economically and legally producible under existing economic and operating conditions. We use certain terms in this presentation, such as total national reserves, probable reserves and possible reserves, that the SEC's guidelines for individual companies strictly prohibit from including in filings with the SEC. Investors are urged to consider closely the disclosure in the Mexican state owned company Pemex Form 20-F, File No. 0-99, available from them at www.pemex.com or Marina Nacional 329 Floor 38 Col. Huasteca, Mexico City 11311 or at (+52 55) 1944 9700. You can also obtain this Form from the SEC by calling 1-800-SEC-0330.
Unidad de Asuntos Internacionales y Promocin de Inversiones 2
I. II.
The road to Mexicos energy reform The reform in brief 1. The reforms two pillars 2. 3. Affected energy laws and bills New provisions in the energy laws Expected results
III.
IV. Conclusions
I. II.
III.
IV. Conclusions
Pemex has operated under a legal framework which has not been revised since the end of the 1970s.
The Office of the President requested in 2007 a diagnose of Pemexs operations. The diagnose, prepared by the Secretariat of Energy, identified two main areas of concern:
1. Challenges internal to Pemex
2. Challenges associated with recent trends in the global oil industry
Source: Sener with data from the approved reform initiatives Unidad de Asuntos Internacionales y Promocin de Inversiones 5
1. Challenges internal to Pemex
Production drop
Reserves decrease
Reduced restitution rate
Low field recovery rate
Growth in imports of refined products
Insufficient transport, storage and distribution infrastructure Unidad de Asuntos Internacionales y Promocin de Inversiones
2. Challenges associated with recent trends in the global oil industry
Lack of oil fields with low complexity easy oil is no longer available
Rise in production costs
Insufficient human capital
Transformation in the infrastructure industry
The need to advance in the process of energy transition, taking advantage of renewable sources of energy and energy efficiency
7
2007 President Calderon requests a Pemex diagnose
Mar 2008
March 31st: Senerpublishes the Diagnose of the national oil industry April 8th: The Executive Power delivers the Senate reform
Apr May
proposals associated to the oil industry April 9th: The Senate initiates the discussion to celebrate a national debate with the topic of an energy reform May 13th through July 22nd: The Senates discussion forums
May 19th: The Executive Power sends a proposal to the Senate with a new fiscal regime for Pemex for complex oil fields
Jun
take place
June 23rd through 27th: The National University (UNAM) organized forums on the energy reform
Jul
Senate forums
July 23rd: The PRI presents its proposal for an energy reform
August 13th: The PVEM presents its proposal on renewable sources of energy August 25th: The FAP presents its reform initiative
Aug
August 20th: The PRI modifies its Party Statements on energy matters
Sep Oct
October 9th through 23rd: The Congress discusses the different reform proposals
September 2nd: Senators from the PAN present an initiative for a new law on sustainable use of energy
Reform initiatives discussions at Congress

Nov
October 23rd through 28th: THE CONGRESS APROVES THE LAW AND REFORM INITIAVIVES
I. II.
III.
IV. Conclusions
CHALLENGES
Oil pillar
To increase execution capacities and efficiency
Transition pillar
To incorporate State of the Art technology To achieve the Energy Transition
To increase investment capacities
Pemex strengthening
CHANGES
Regulator strengthening and change in Fiscal Regime
Sustainable energy Management autonomy

National content promotion
Transparency and accountability Renewables
Flexible contracts
I. II.
The road to Mexicos energy reform The reform in brief 1. The reforms two pillars 2. Affected energy laws and bills 3. New provisions in the energy laws Expected results
III.
IV. Conclusions
Eight energy laws and bills new or reformedconstitute the essence of the reform
Promotion of renewable sources of energy and the sustainable use of energy:
1. New Law for the Sustainable Use of Energy 2. New Law for the Use of Renewable Energy and the Financing of the Energy Transition
Better strategic planning and control capacities:

3. Article 33rd of the Federal Public Administration Organic Law (new attributions to SENER) 4. Law of the Energy Regulatory Commission (CRE) 5. New Law of the National Hydrocarbons Commission (CNH)
Pemex strengthening:
6.-New Law of Pemex 7. Regulatory Law of the Constitutional Article 27 relating to Oil Matters 8. Law of Federal Rights
Source: Sener with data from the approved reform initiatives Unidad de Asuntos Internacionales y Promocin de Inversiones
I. II.
III.
IV. Conclusions
1. Law for the Sustainable Use of Energy
Created with the purpose of promoting the use of sustainable energy and energy efficient processes and activities, from exploitation to consumption
Creates the National Commission for the Efficient Use of Energy (CNUEE, previously Conae) and mandates government institutions into energy efficiency
Gives CNUEE regulator attributions
2. Law for the Use of Renewable Energy and the Financing of the Energy Transition
Created to promote the use of the renewable energy sources and clean technologies to generate electric power with purposes other than providing the public service of electric power, as well as to establish the national strategy and the instruments for the financing of the energy transition Gives the Secretariat of Energy and the Energy Regulatory Commission new attributions to make rules and strategies to include more renewable energy in the national portfolio Creates the Energy Transition and Sustainable Energy Use Fund, with 3,000 million pesos per year from 2009 to 2011, to achieve the energy transition
15
3. Amendment to Article 33rd of the Organic Law of the Federal Public Administration
Extends the capacity of the Ministry of Energy to promote private participation in areas permitted under the Constitution, as well as to grant, refuse, modify and, if applicable, to cancel the allocations for the exploration and exploitation of hydrocarbons
Provides tools to develop long-term planning, energy efficiency and renewable energy strategies,and to set the oil production platform and the reserves policy Supported by a new technical arm - the National Hydrocarbons Commission
4. Amendment to the Law of the Energy Regulatory Commission

Expanded role and mandate of the Energy Regulatory Commission Presentsandapproves terms and conditions Regulation of fuel oil, refined products and basic petrochemicals First hand sale prices for fuel oil and basic petrochemicals
Improved guidelines for the alignment of market incentives in the industrialization of hydrocarbons When terms and conditions for first hand sales are in place, the seller will have no discretion Efficiency-based pricing More certainty to participants and buyers
5. Law of the National Hydrocarbons Commission
Creates the National Hydrocarbons Commission (CNH) Promotes the optimal use of oil wealth The new entity will regulate and supervise the exploratory and extractive activities associated with hydrocarbons (except for coal bed methane) It will also regulate transport and storage of hydrocarbons related with exploration and extraction projects
The CNH will support Sener in defining the oil production platform Source: Sener with data from the approved reform initiatives and the reserves policy
6. Law of Pemex (1/5)
Replaces the old Pemex Organic Law Pemex transforms into a real company
New and explicit mandate: to add value Freedom to adjust or redesign its organizational structure Elimination of the requirement that the Finance Ministry approves investment projects and debt, and greater flexibility in the setting of budgetary priorities Rewards linked with results Procurement and work schemes determined by the company Independent Counselors The Director General has freedom to appoint Directors of subsidiary firms The Board may recommend the removal of the DG to the Executive Power

Transparency and accountability Internal Control: Auditing Committee (Independent Professionals) Internal Control Organ to review the law obeying Interaction between entities
External Control : Citizen Bonds Commissary DG reports to Congress/Council/Commissary Improved Transparency and Efficiency

Contracts Efficiency focus Contractors now have incentives to show their full capacity and skills Pemex will use, when appriopriate, services support Pemex will use, in other cases, contractors subjected to performance payments Equal conditions comparison Pressure to improve and raise efficiency
Increased execution capacity (operational and financial) Third parties allowed in exploratoryworks Additional investment capacity attracted by third parties

Change-oriented continuity and economical spill Technological Research and Training funds Banobras-CONACYT Fund with $4,000 Mdp per year (2012) Research resources for:
v Hydrocarbons v Renewable energy
National Content policy Nafin Fund with $5,000 Mdp Diagnose and Plan with goals of improving the national content
v Points in tenders that contemplate domestic content v To reach a minimum 25% domestic content
Plan to incorporate small and medium companies

22

Additional provisions
Pemex will offer a stable supply and feedstock to the national fertilizer industry, as well as long term contracts with fixed prices
Secondary petrochemical producers are granted permission to sell basic petrochemicals only when they do not exceed 25% of the companys sales
23
7. Amendment to the Regulatory Law of Constitutional Article 27 relating to Oil Matters

Strengthens the definitions of the oil industry, refining, petrochemicals, transboundary oil fields and hydrocarbon sovereignty Allows the exploitation of transboundary oil fields under the rules defined by international treaties signed by Mexico and sanctioned by the Senate Redefines the characteristics of works and services contracts and excludes any property over hydrocarbons, shared production nor revenues over sales Defines that specific regulation shall be elaborated and sanctioned by the Energy Regulatory Commission and the National Hydrocarbons Commission
24
8. Amendment to the Law of Federal Rights
Modified in 2005, 2007 and 2008. Base shifts from gross to net Efficiency
Recognizes differences in oil returns: Gas vs. oil Chicontepec vs. deep waters
Follows international practices
I. II.
III.
IV. Conclusions
The reform will provide an estimated 218 thousand new job Public Investmen spending openings per year, reaching a total of 3.6 by 2025. t
Net exports
Additional economic growth due to the reform might add one percentage point to projected annual economic growth
Employment (thousand jobs accumulated by 2025)
2,000
3697
3,697
Strengthening of economic growth (GDP additional points, %)
Total
1575
Selected States
1,000
602 334
259
193
118
Mich
191
121
Tam
110
Coah
98
Chia
63
Tab
33
Cam Otros
D.F.
Source: Sener with prospective data**
Mex
Jal
N.L.
Ver
Nacional
The reform has the potential to generate additional investments, averaging 70 thousand million pesos from 2010 to 2025.
The Government and Pemex might receive 194 and 83 thousand million pesos each of additional resources in the same period.
Additional investments with the reform (thousand million pesos)
90,000 80,000 70,000 60,000 50,000 40,000 Average 30,000 300 20,000 10,000 0 2013 2015 2023 2012 2011 2009 2008 2017 2010 2016 2018 2019 2014 2020 2021 2022 2024 2025 200 100 0 2013 2015 2023 2012 2011 2009 2008 2017 2010 2016 2018 2019 2014 2020 2021 2022 2024 2025 400 1,000 900 800 700 600 500
Government resources by origin (thousand million pesos)
Source: Sener with prospective data** Unidad de Asuntos Internacionales y Promocin de Inversiones
Pemexs new tools and control mechanisms will help increase production levels and oil returns
Crude oil production per capita (barrels)
11 10
Crude oil production (thousand barrels per day)

4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 2009 2008 2010
9 8 7 6 5 4
With reform
Inertial
With reform
3 2 1 Tasas 05-15 2013 2009 2011 2012 2015 2008 2017 2010 2014 2016 2018
Inertial
2013 2011 2012 2015 2017 2014 2016 2018
The reform will help in replacing declining fields with prospective resources
Production from new projects with the reform (thousand barrels per day)
750
600
450
Production value from new projects with the reform 250,000 (millions of pesos)
200,000
300
150
150,000 100,000 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 50,000 0 Aguas Profundas Chicontepec
Cuencas del Sureste y otros campos
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
*MME: 75 d/b and exchange rate of 13 pesos per dollar
The reserve restitution rate is also expected to increase due to the reform
3P reserves discoveries with the reform (million barrels of oil equivalent)

2,000 140%
3P reserves restitution rates with the reform (percentage)
120% 1,600 100% 1,200
1.0821.0891.098 1.0811.0931.114 0.9 0.74 0.7910.812
1.142
80%
800
60%
40% 400 20% 0 2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
0%
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Additional energy infrastructure will contribute to energy security

Reconfiguration of existing refineries New refinery New refinery New refinery New refinery
An increase in the refining, transport and storage activities will contribute to energy security by guaranteeing the timely supply and quality of refined products.
Production and internal demand of gasoline 1,600 (thousand barrels per day)
1,400 1,200 1,000
This will allow to maintain a positive trade balance for the sector.
800 600 400 200 0
2013
2015
2023
Produccin con reforma
Demanda interna
2025
2012
2022
2011
2021
2009
2019
2017
2008
2016
2018
2010
2020
2014
2024
Due to the additional refining capacity, the reform will allow the provision of more feedstock for the petrochemical industry.
Feedstock for the petrochemical industry with the reform (thousand barrels per day) Feedstock for the petrochemical industry with reform 4.0 (thousand million US dollars)
3.5 3.0 2.5 80 2.0 60 1.5 40 1.0 20 0 2013 2015 2023 2012 2011 2009 2008 2017 2010 2016 2018 2019 2014 2020 2021 2022 2024 2025 0.5 0.0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
140 120 100
Feedstock includes light naphtha and propane. Source: Sener with prospective data** Unidad de Asuntos Internacionales y Promocin de Inversiones
Executive summary
On October 28th, 2008, the Mexican Congress passed several amendments to Mexican laws related to the energy sector. 1. 2. Four law decrees Four law amendment decrees
These amendments will enter into force as soon as they are published in the Official Gazette The amendments provide the necessary mechanisms to allow Mexico's stateowned oil company (Pemex), and other Mexican energy authorities, to face the new technological, economic and environmental realities of the world. Their aim is to increase the production of oil, gas, byproducts, refined products and reserves restitution rates, as well as to encourage the sustainable use of energy and of renewable sources. Source: Sener
I. II.
III.
IV. Conclusions
Conclusions
Pemex faces a drop in the production rate, a drop in the reserves restitution rate and the effects of a limited refining, transport, storage and distribution infrastructure. The world is facing several challenges derived from the lack of low complexity oil fields, the need to change the sectors industrial organization to embrace technological development and to move towards a sustainable energy transition. After a process that almost took a year, the different political forces in Mexico agreed on a reform that allows the strengthening of Pemex and promotes energy efficiency and renewable sources of energy: Regulators strengthening to improve the sector planning and private investors certainty Mechanisms to help Pemex evolve into a better company Better internal and external control as well as transparency within Pemex Efficiency-oriented flexible contractual schemes A new Fiscal Regime for Pemex
Change continuity and economic spill
Conclusions
Ethylene XXI is a 100% private project to produce polyethylene.

It is estimated that the Ethylene XXI project will generate between 2,400 and 6,500 jobs during its construction and 3,000 permanent jobs. The resulting production will reduce de petrochemical imports to have local supply of 75% in high density polyethylene, 87% in low density polyethylene and 11% in polypropylene. Ethylene XXI investment per line Imports covered with Ethylene XXI
(million pesos)
This equals 53% of the total investments executed by the state and private investors in the sector between 2000-2006.
production (percentage from 2006 imports)
21835
0.75 0.87 0.11
13200
4400
Etileno
Polietileno AD y BD
2585
Otros productos
1650
Polipropileno Total
Polietilenos alta densidad
Polietilenos baja densidad
Polipropileno
Source: Sener Unidad de Asuntos Internacionales y Promocin de Inversiones
The new contractual schemes protect sovereignty and give Pemex flexibility.
Pemex payments addressed in contracts with physical or moral people will always be in cash and will never transfer the hydrocarbon property, nor production or profit shares. Contractors may not register oil reserves as their own. Contractual payments will follow a predetermined formula or scheme that will allow performance incentives. There will not be any contracts that include shared production schemes nor strategic alliances in the exclusive and strategic sectors. Signing contracts with a single contractor that unite exploration and production activities in a determined area will be possible. Source: Sener with data from the approved reform initiatives
Pemex will establish a strategy to support local suppliers and contractor's development.
Pemex will establish a strategy to support national suppliers within the Integral Strategic Business Plan. This strategy will include a diagnose of the current scenario of local supply and yearly goals. Local content will be, at least, 25%. The strategy shall emphasize small and medium companys (PyMES) development. Pemex will present an annual purchase plan from this sector. Pemex will promote the strategy and propose policies and actions to accomplish the goals. The Federal Government, through SHCP, will create a Fund within Nafin to support and finance Pemex suppliers and national contractors. Source: Sener with data from the approved reform initiatives The Fund will receive 5 thousand million pesos in 2009 and 2.5 Unidad de Asuntos Internacionales y Promocin de Inversiones thousand million pesos in 2010.
The new law allows Pemex to use the excess revenues from oil sales.
This law allows Pemex to gradually use the excess revenues from oil sales (in 6 years) and gives them the autonomy to manage their budget and debt.
1st year: 20% of the excess revenues will be returned to Pemex (at least, 10 thousand million pesos) and budgetary autonomy will be executed as long as Pemex respects the financial and primary balances and there is no budget increase in personal services nor pensions. 2nd& 3rd years: 35% (at least, 11 thousand Mdp) from the excess revenues, budgetary autonomy and the mandate to meet the Pemex Business Plan goals. From the 2nd year on, Pemex has freedom to allocate debt, under the budgetary roof authorized by Congress. During the 3rd year, Pemex shall put out bonds that represent 3% of the total debt and the primary balance restriction is released. 4th& 5th years: 62.5% (at least, 14 thousand Mdp) and 75% (at least,15 thousand Mdp) from the excess revenues and budgetary freedom, while meeting the restrictions for the previous years. During the 5th year Pemex shall put out bonds that represent 5% of the total debt and the pensions restriction is released.
6th year: 87.5% (at least, 15 thousand Mdp) from the excess revenues and 100% during the 7th year; both years with budgetary freedom. Pemex must use the revenues to meet the Business Source: Sener with data from the approved reform th Plan goals (except in the 6 initiatives year), the financial balance and to avoid increase the personal Unidad de Asuntos Internacionales y Promocin de Inversiones expenses budget.

Mexico&#39;s Energy Reform - New Legal Framework

Transféré par

Informations du document

Copyright

Formats disponibles

Partager ce document

Partager ou intégrer le document

Options de partage

Avez-vous trouvé ce document utile ?

Ce contenu est-il inapproprié ?

Droits d'auteur :

Formats disponibles

Mexico&#39;s Energy Reform - New Legal Framework

Transféré par

Droits d'auteur :

Formats disponibles

Unidad de Asuntos Internacionales y Promocin de Inversiones

Forward-looking statements and cautionary notes

Unidad de Asuntos Internacionales y Promocin de Inversiones

Unidad de Asuntos Internacionales y Promocin de Inversiones

1. Challenges internal to Pemex

2. Challenges associated with recent trends in the global oil industry

1. Challenges internal to Pemex

Reduced restitution rate

Low field recovery rate

Growth in imports of refined products

2. Challenges associated with recent trends in the global oil industry

Rise in production costs

Insufficient human capital

Transformation in the infrastructure industry

Unidad de Asuntos Internacionales y Promocin de Inversiones

2007 President Calderon requests a Pemex diagnose

Reform initiatives discussions at Congress

Unidad de Asuntos Internacionales y Promocin de Inversiones

Unidad de Asuntos Internacionales y Promocin de Inversiones

To increase investment capacities

Regulator strengthening and change in Fiscal Regime

Sustainable energy Management autonomy

Transparency and accountability Renewables

Unidad de Asuntos Internacionales y Promocin de Inversiones

Unidad de Asuntos Internacionales y Promocin de Inversiones

Better strategic planning and control capacities:

Unidad de Asuntos Internacionales y Promocin de Inversiones

1. Law for the Sustainable Use of Energy

Gives CNUEE regulator attributions

4. Amendment to the Law of the Energy Regulatory Commission

5. Law of the National Hydrocarbons Commission

6. Law of Pemex (1/5)

6. Law of Pemex (2/5)

6. Law of Pemex (3/5)

6. Law of Pemex (4/5)

Plan to incorporate small and medium companies

6. Law of Pemex (5/5)

Unidad de Asuntos Internacionales y Promocin de Inversiones

7. Amendment to the Regulatory Law of Constitutional Article 27 relating to Oil Matters

8. Amendment to the Law of Federal Rights

Follows international practices

Unidad de Asuntos Internacionales y Promocin de Inversiones

Strengthening of economic growth (GDP additional points, %)

Source: Sener with prospective data**

Unidad de Asuntos Internacionales y Promocin de Inversiones

Government resources by origin (thousand million pesos)

Crude oil production (thousand barrels per day)

*MME: 75 d/b and exchange rate of 13 pesos per dollar

3P reserves discoveries with the reform (million barrels of oil equivalent)

3P reserves restitution rates with the reform (percentage)

120% 1,600 100% 1,200

1.0821.0891.098 1.0811.0931.114 0.9 0.74 0.7910.812

40% 400 20% 0 2009

Additional energy infrastructure will contribute to energy security

800 600 400 200 0

Produccin con reforma

140 120 100

Unidad de Asuntos Internacionales y Promocin de Inversiones

Change continuity and economic spill

Unidad de Asuntos Internacionales y Promocin de Inversiones

Unidad de Asuntos Internacionales y Promocin de Inversiones

Ethylene XXI is a 100% private project to produce polyethylene.

production (percentage from 2006 imports)

Source: Sener Unidad de Asuntos Internacionales y Promocin de Inversiones

Mexico's Energy Reform - New Legal Framework

Mexico's Energy Reform - New Legal Framework