Moving towards Sustainability in the Mexican Petroleum Industry

Carlos Morales Gil

General Director, PEMEX Exploration & Production

May 2013

The energy that moves the world

90% of Mexicos energy supply comes from hydrocarbons

Worldwide energy consumption Energy consumption in Mexico
Biomass Coal, nuclear, solar 3% Hydroelectric 3% 6%

Coal 23%

Nuclear 6%

Biomass 8%

Hydroelectric 2% Solar, wind and biofuels1%

Gas 23%

60%
hydrocarbons

90%
hydrocarbons

Gas 26%

Oil 34%

Oil 65%

Source: Outlook for Energy: A View to 2030

Source: Estrategia Nacional de Energa, SENER 2013

PEMEX ranks high in the world

International comparison
Crude oil production 3.16 MMbd a Crude oil reserves (1P)* 10.025 MMMb Natural gas production 7.03 MMMcfd Natural gas reserves (1P)* 17.22 MMMMcf Refining capacity 1,540 Mbd Sales 80.6 billion dollars
* Las Reservas de Hidrocarburos de Mxico 2012, January 1, 2012. * PIW 2010 Rankings, December 2011. Petroleum Intelligence Weekly
a

Ranking 4th
17th

9th
33rd

14th 11th
Includes gas liquids

PEMEX has been a reliable oil supplier for Mexico and abroad
3,500 3,000 2,500 2,000

Thousands of barrels per day

Production plateau

Cantarell

1,500
1,000 500

Other offshore fields Ku-Maloob-Zaap Chiapas-Tabasco Mesozoic Tampico-Misantla Basin

60 62 65 67 70 72 75 77 80 82 85 87 90 92 95 97 00 02 05 07 10

Cantarells plateau

Production increases at Ku-Maloob-Zaap, Ixtal, Crudo Ligero Marino

Revitalization of mature fields (bano, Delta del Grijalva, 5 Presidentes) Integrated E&P Contracts

Replacement of proven reserves is the foundation for the future

Production and 1P and 3P reserves replacement rates
2,000
Millions of barrels of crude oil equivalent

129%

128% 104% 108% 104%

Production
1,500
66%
59%

102%

101% 86% 77%

1,000

Replacement
500
14%

45% 50%

26%

26%

-19% Replacement rate of existing projects

-500 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Source: BDI, POT-I 2012

1P reserves

3P reserves (only new discoveries)

6

GOALS
2013 - 2017

Strategic Plans reflect the vision

Maintain production costs in the first quartile and
optimize discovery and development costs to push them up also into the first quartile globally

Maintain average oil production

between 2.5 and 3.0 mmbd

Maintain average gas production

between 5.7 and 6.2 mmmcfd

Achieve zero accidents

Replace proven reserves at or

above 100%

Be perceived as a socially responsible company

Growth

Operating efficiency

Modernization of management Corporate responsibility

Increase reserves inventory through new discoveries and reclassification Increase hydrocarbon production Increase and improve execution capacity

Optimize investment Optimize operating expenses Optimize production operations, distribution and commercialization

Modernize technology management

Continue to implement best practices in HSE relations with the community

Acquire and develop talent Focus on business Improve project planning,

execution and control

Strengthen good

Management of the strategy

7

Knowledge management: essential to face challenges Strategic challenges

1. Increase the reserves replacement rate

Reserves

People

2. Increase the exploration success rate

Existing fields

3. Increase the recovery factor 4. Reduce costs

Technology

Processes

5. Reduce the decline rate

6. Accelerate the development of new production

New fields

Knowledge management

Organization focusing on value creation

E&P head office
Administration & Finances Planning & Evaluation

Main opportunities for improvement

I. Focus on projects
Management of Technical Resources Business Development

II. Technical quality

Project Services HSE Auditing

Exploration

Field Development

NE Offshore Region Produccin

Production

Distribution & Commercialization

III. Efficient allocation of resources

SW Offshore Region Produccin

South Region Produccin North Region

Drilling Unit

Maintenance & Logistics

IV. Flexibility in the assignment of resources to projects

Business units that support the operation 9

Resources and reserves: starting point for projects

Resources and reserves: starting point for the projects

Billions of barrels of crude oil equivalent
Reserves 1P 2P 3P Prospective resources Conv. Unconv.

Oil and gas basins

Basin

Cumm. prod.

Southeast 45.4
Tampico Misantla Burgos

12.2
1.0 0.4

18.2
7.0 0.6

25.1
17.7 0.8

20.1
2.5 2.9 34.8 15.0

6.5 2.3

Veracruz
28.4

0.7 0.1
0.0

0.2 0.0
0.1

0.2 0.0
0.2

0.2 0.0
0.7

1.6 0.4
26.6 0.5

0.6 9.8

Sabinas
Deep Waters Yucatan Platform

Unconventional (shale gas)

Total 55.0

13.9

26.2

44.5

54.6

60.2

Production projects

Exploration projects 11

The exploration and production process demands deep knowledge of multiple disciplines
Exploration
Evaluation of the petroleum potential

Development

Production

Build facilities Reserves incorporation Delineation Design Drilling

Exploitation/ Reservoir management

Distribution and Commercialization

PROJECTS
12

E&P project portfolio

Projects
Exploration 20 Exploration Facilities 30 Production 29 Production

80
Integrales 2

Exploration 7 shallow water 6 deep water 7 onshore Production 22 light oil 4 heavy oil 3 gas Integrated 2 gas

The investments aim to increase oil and gas production and to continue increasing the proven and 3P reserves replacement rates

[
13

The project is foremost in the generation of value

Execution capacity

Maximization of economic value

Investment
Production

Reserves replacement

Technology

Proyectos
PROJECTS

Recovery factor

Costs Reservoir declines

Human Resources

Development times

[
14

Continuous and efficient allocation of resources during the life of a project

Documentacin de Project documentation
proyectos

Portfolio Anlisis deanalysis cartera

Integration of profitable/strategic projects Strategic elements and opportunities to optimize

Quality of the information

Reliable documentation

Portfolio integration

Deterministic economic evaluation

Quantify expenses and benefits

Defining the critical elements of the model

Stochastic analysis

Quantify the uncertainty of key variables

Portfolio optimization

Maximization of economic value

Assessment of flexibility

Alternative evaluation methodologies

Allocation of resources

Analysis and allocation of tecnical and financial resources

15

PEMEX E&P has established contracting strategies per project, asset and region
Scope of the contract

Example
Cantarell Ku-Maloob-Zaap Litoral de Tabasco

With technology and human resources

With financial resources

Transactional contracts

Contracting

Without technology and human resources

Comprehensive contracts without financing

Burgos Chicontepec Complejo A.J. Bermdez Jujo-Teco

Without financial resources

Comprehensive contracts with financing

Deep water Chicontepec Mature fields

Goods and services Technology and human resources Financial resources Execution capacity

16

Technology and human resources

Technology strategy
We developed the concept of a three-tier hierarchy, but based around probability of market innovation and need for specialist adaptation (rather than competitive advantage or importance, used by IOCs)
Forcing the pace of innovation in those few critical technologies where the industry cannot be relied upon to do so (2 areas) Following the pace of innovation in selected critical technologies where specialist adaptation is required (6 areas)

Flagships
Adapter

Intelligent Buyer

To achieve excellence in all key attributes, PEMEX needs to be an intelligent buyer (8090% of technology needs) Requires excellent capabilities, but very different from those needed for invention or lab R&D
18

Delivering the strategy: manage technology development & demonstrate value

1. Create the link between asset needs and technology development

2. Maintain the link throughout development and deployment

3. Evaluate performance of technology delivery and demonstrate value

19

Re-cap of technology strategy

Only two flagship areas (at present), plus six adapt & deploy technology themes. In everything else, PEP seeks to become a (better) Intelligent Buyer
EOR/ IOR in naturally fractured carbonates
Deepwater technology Difficult sandstone reservoirs

Flagships

Offshore extra-heavy oil

HPHT drilling and completion Gas reservoirs near critical point

Adapt & Deploy

Reservoir imaging

Reservoir monitoring

Intelligent Buyer

Fluid characteristics

Drilling equipment and chemicals

Processing facilities Water handling Pipeline and riser systems

Shale gas

Petrophysics Stimulation and acid injection

Sand control
Completion equipment

Artificial lift Flow assurance

Subsurface

Drilling & completions

Facilities

Production operations 20

Talent management: the key to success

Recruit 200 recent graduates in earth sciences and petroleum engineering per year

How can we access talent?

When should we retain or replace talent?

Retain 30 specialists and experts yearly and replace all personnel ready for retirement

What do the projects call for?

Plan 1

Recruit 2 3 Develop

Succession plan

5
Increase skill levels from 2.16 to 2.50

Evaluate

Projects

How can we teach skills?

Application of the skills model in the E&P value chain 30 professionals doing graduate work abroad and 26 in Mexico

How should we measure and recognize performance?

4 Assign
To whom should we assign the projects?

900 specialists in geosciences 1200 specialists in petroleum engineering

Governance model

21

Training portfolio
Workshops

Integrated Training Programs

Mentoring

Training
Graduate studies
41 masters 15 doctoral

Traditional courses Self-study

22

Developments in progress

Exploration results on the right track

Name Tsimin-Xux Ayatsil-Tekel Pit- Baksha Lakach Challenges Development of gas and condensate reservoirs, maximizing the recovery factor Development of extra-heavy oil reservoirs Development of extra-heavy oil reservoirs First development in deep water
Ayatsil-Tekel-Pit-Baksha

Size of discoveries in the Gulf of Mexico Number of fields

Tsimin Xux

These discoveries are among the largest in the Gulf of Mexico

11
14

119

132

158 147 148 150 98

1P

2P
69 28
10 1

68
35

< < < 0.5 0.125 0.25

<1

<2

<4

<8

< 16 < 32 < 64 < 128 < 256 < 512

Proven reserves, MMBOE

< < 1,024 2,048

* Source: Mineral Management Service, Department of the Interior, U.S. Federal Government.

24

New exciting development projects offshore

Oil production mbd
350 300 250 200 150 100 50 0
2012 2013 2014 2015

Main challenges

Ayatsil Tekel
Development of extra-heavy oil reservoirs
Tsimin -Xux

Tsimin Xux Development of gas and condensate reservoirs maximizing the recovery factor
2017

Ayatsil-Tekel
2016

Lakach First development in deep water

Gas production mmcfd

1,200 1,000 800 600 400 200 0 2012 2013 2014 2015 2016 2017

Main activities 2013-2017

Lakach Project Ayatsil-Tekel

Number wells
30

Number platforms
5

Investment (millions of dollars)

4,029

Tsimin -Xux

Tsimin-Xux
Lakach

48
6

7,140
2,015

25

Lakach Field
Lakach 1
Depth Reservoir (meters bsl) Production tests Qg (Mcfd) 30 25 29 302 BDP

Lakach 1 Sup.
Lakach-1Inf. Lakach 2DL Lakach 2DL

3,047 a 3,095 3,173 a 3,193 3.073 a 3,100 Condensate 45 API

Lakach Field Reserves:

257000 257500

258000 258000

258500

259000

259500

260000 260000

260500

261000

261500

262000 262000

262500

263000

263500

264000 264000

264500

265000

265500

2112800

2112800

-3000 -3040 -3080

-3120

-3120

-3200

2P=866 Tcf

2112000

2112000

2112000

2112000

-304 0

-3120 -3160 -3200

2111200

2111200

-3240

Lak-114
2110400
2110400

2110000

257000

257500

258000 258000

258500

259000

259500

260000 260000

260500

261000

261500

262000 262000

262500

263000

263500

264000 264000

2110000

264500

265000

265500

2112800

2112800

2109600

Lak-2DL
-3120

-3000

0 -304

2109600

-312

-3120

-3040 -3080

-3120

-3200

-3200

2112000

2112000

-3040

2112000

2112000

2111200

2108000

2108800

2108000

Lakach-2DL

-304

-3120

2108800

-3160 -3200

2111200

-3240

2108000

2110000

--2DL LL 2DL
Reservareserves Proven Posible Reserva Probable Probable reserves

Lakach --1 1 Lakach

Reservareserves Proven probada PP III III, Productor gas producer de gas PP II, Productor gas de gas producer

Lak-52 Lak-114

2108000

LL-41 41
2106000

2110400

2110400

2107200

2107200

2110000

2109600

Lak-32 Lak-2DL
-304

-3 04 0

0 -312 -3200 0 0420 -31 -3

2109600

Y, [m]

-31

-3120

-3040 40 -30

-3200

2106400

2106400

20

2106000

2108800

Lak-11
2105600

2108800

2105600

2108000

2108000

2108000

Lak-52
2104800

2108000

2104800

Lak-2
-3040

2104000

2104000

-3120

2106400

Lak-21

-3200

Arena2 Shallow reservoir

Arena1 Arena1
Falla

Lakach-1 Lak-32
0 -304

2107200

2107200

2104000

-3

2104000

0 12 -312-3

-3040

04

-3200 -3120

Y, [m]

-3040

2106400

2106000

2106000

2103200

2103200

Lak-11
2105600

2105600

2102400

2102400

-3040

2104000

L.F.@ -3186mbnm

2101600

Deep reservoir
Falla

2102000

2104800

Lakach-1

Lak-41
Lak-2

2102000

2104800

2101600

Lakach-1
-3040

2104000

2104000

2104000

-312

2100800

2100800

-3120

2102000

Proven

2100800

257000

257500

258000

258000

258500

259000

259500

260000

260000

260500

261000

261500

X, [m]

262000

262000

262500

263000

-320

L.F . .

Probable

Limite f Limite convencional

2101600

Probable Probada Posible Possible

2103200

-320

Lak-21

-3200

2103200

257000

257500

258000
2102400

258000

258500

259000

259500

260000

260000

260500

261000

261500

X, [m]

262000

262000

262500

263000

263500

264000

264000

264500

265000

265500

2102400

400 800 1200 1600 2000m 1:20000

Lak-41

2102000

2101600 2100800

263500

264000

264000

264500

265000

265500

400 800 1200 1600 2000m 1:20000

26

Scope of Lakach project

The objective is to begin production in March 2015, reaching 400 Mscfd in 2016 and a total recovery of 866 Tcf in 2025

6 development wells Two 18 x 60 km transport

pipelines
Install subsea equipment and

manifolds
60 km of umbilicals Install a monitoring and control

system
Construct a gas treatment station

with a capacity of 400 Mcfd

Illustrative 27

The new plays in Mexico: Unconventional Deep water

Main shale gas/oil plays in North America

In the U.S. more than 20% of natural gas production and reserves are associated with shale gas reservoirs.

5 geological shale gas provinces have been identified in Mexico: Chihuahua, Sabinas Burro Picachos,Burgos,TampicoMisantla and Veracruz

29

Key elements in the geological and economic evaluation of shale gas

Organic richness Rock maturity Thickness and area Free gas and absorbed gas Susceptibility to fracturing

The price of gas

Availability of facilities/infrastructure

The market

Proximity to consumers

Horizontal drilling

Profitability

Extensive fracturing Intensive development and production

Characteristics of the play

Technology

Sustainable development

30

Time spans affect the intensity of investment and activities

Scenario

Well cost (MM Dls)

Gas production (BCFD)**

Condensate production (MBD)

Average wells per year

Total number of wells

Total investment (billion USD)

50 years 100 years 150 years

5 5 5

16.27 8.14 5.43

465 232 155

1,320 613 397

65,990 61,329 59,538

400 360 352

*TCF = MMMMcf

**BCFD= MMMcfd
31

Timeline of deep water developments

3D seismic Holok area Discovery of Noxal

2004 2005 2007

Drillable prospects approved

Lakach -1 drilled

3 rigs: 10,000 ft. contracted

Delineation and conceptual development of Lakach

2010
First reserves Going deeper with
the drilling rigs

Discovery of Piklis
and Nen

2011
2012 2013

certification

Discovery of Trin and

Supremus

Discovery and delineation

of Kunah

Drilling of Maximino 1 and PEP 1 at

a water depth of 9,580 ft.

Developing Lakach

32

6th generation drilling rigs and technical skills enable Pemexs deep water program
The Maximo-1 and PEP-1 wells are being drilled at a water depth of 9,580 ft. below sea level, placing them among the 10 deepest offshore wells in the world.
Deep water
Max Worker Smith Worker Voyager Voyager Voyager Worker Voyager Voyager Worker Bicent. Max Worker Smith Max West Max Smith Pegasus Smith Max Smith

Ultra-deep water
Max Muralla Cent. Smith Bicent. Centenario Centenario IV Bicent. West Pegasus Bicent.

1230 m

1493 m

1698 m

1803 m

1928 m

2147 m

2532 m

2874 m

2919 m

1785 m

1933 m

2185 m

1194 m

Chuktah 2004 Puskon Tamil 2011 2008

Nab 2008

Etbakel 2008

Kabilil 2009

Lalail 2007

Chelem 2007

Leek 2009

Noxal 2005

Talipau 2012 Lakach 2006

Holok 2009

Tamha 2008

Hux 2012

Lakach 2DL Catamat 2010 2009 Nen 2011

500 m
Shallow water Deep water

1500 m

S.L. Ultra-deep water

Labay 2009

Piklis1DL
Caxa 2012 Piklis Ahawbil 2010

Completed Currently being drilled/completed

Kunah Kunah2012 1DL 2012 Trion-1 2012 2500 m

Wells in Mexicos deep water

33

Supremus-1 2012

3000 m Maximino PEP-1

2919 m 500 m 1000 m 1500 m 2000 m

1029 m

1122 m

1186 m

988 m

513 m

623 m

660 m

670 m

681 m

739 m

805 m

810 m

851 m

936 m

945 m

Integrated contracts

Execution capacity to seize the potential

800 600 Cumulative NPV 500 300 200 100 0

Chicontepec

Mature fields

400

Extraheavy oil

Deep waters

Gas

700

Project portfolio, mmdls

Enormous potential
Limited execution capacity
175 200 225 250

Execution limitations 0 25 50 75 100 125 150

Cumulative NPI

MMMboe, @ January 1, 2012

Prospective resources 3P reserves 1P reserves Southeast Tampico- Misantla Burgos Veracruz Deep waters 12.2 1 0.4 0.2 1 13.8 44 24 18 1 20 3 3 2 27

Attract additional suppliers to increase capacity and diversify risk

Additional needs: capital, technicians, personnel, management abilities

Shale
Total

60
115 35

Developments to PEMEX E&P contracts

Funded Public Works (2003-2007)

E&P Incentivized Contract Mature fields (2011-2012)

E&P Incentivized Contract Chicontepec (2013)

100% cost recovery + fee per barrel, dependent on profit per barrel 6 in bidding process

Characteristics

Unit price with financing

75% cost recovery + fee per barrel, dependent on available cash flow
8

Number of contracts Initial 3P reserves (mmboe) Total initial area (km2)

193

412

3,194

16,042

312

953

36

Program of upcoming rounds

Illustrative
Chicontepec Mature fields RS -2 6 blocks, in bidding process 3 to 6 blocks

2013

2014

2015

Heavy oil offshore* Natural gas*

Deep water ** Shale ** Litoral de Tabasco Terciario* Chicontepec II

Kayab and Pit

Burgos and shallow Veracruz To be defined To be defined

To be defined
Design
Approval Bidding 37

* Fiscal regime subject to modification ** Fiscal regime and legal framework subject to modification

Execution of the strategy

Planned investment best case scenario

Millions of boe

Billions of USD

33.5 29.8 25.6 1.6 0.3 2.8 25.4 1.4 0.5 0.2 3.0 27.2 1.1 2.9 0.6 3.3 1.4 28.7 1.3 5.9 1.8 4.0 2.9 3.8 4.2 3.8 21.0 20.3 4.2 19.3 18.3 15.6 13.2 4.2 6.6 7.9 8.2 29.4 1.3 7.8 30.3 28.1 1.4 8.7 7.8 31.4 1.3

1.3

33.7 1.2

35.7 1.2

36.3 1.2

35.3 1.3

32.9 1.2

5.2
1.3 3.7

1.3
9.4

11.6 11.6 11.4

12.1

11.6

9.9

9.2

10.2

10.6

11.2

11.4

4.0

4.2

4.2

4.3

4.8

4.7 5.6

11.3

9.4

8.6

8.4

7.7

8.5

8.0

6.5

2014

2015

2016

2017

2018

2019

2020

2021

2022
Shale gas/oil

2023

2024

2025

2026

2027

2028

Exploration

Future Development

Integrated Contracts

39

Operational targets 2014-2028

Wells to be drilled
Development Shale gas/oil Exploration

34,740
21,654 11,900 1,186

Workovers
Major
Minor

37,109
17,818
19,291
40

A growing number of drilling rigs is needed

Offshore drilling rigs Annual average (#)

Jackups
47

Well drilling 1 Annual average (#)

28

Only leased Jackups are used. PEMEX currently owns and uses 15 modular rigs; the rest are leased.

84

56
2008-2012 2013-2017

Modular rigs
41

2008-2012

2013-2018

27

Since the modular rigs that are owned are all over 25 years old, they must be replaced within the next few years.

2008-2012 Actual 2013-2017 Projected

1 Does not include completions or major or minor workovers

2008-2012

2013-2017

41

Operational targets 2014-2024 Number of offshore facilities

Octopods Drilling Production Residential 66 31 18 8

Compression Treatment / Pumping

Service

5 2
2

Pipelines
Oil and gas Gas Oil Water

4,325
3,855 356 95 19

Tripods/Tetrapods
Well recovery Residential Service

7
5 1 1

Other
Sea Horse, Sea Pony, T Horse FPSOs

14
6 8

42

Offshore logistics
Under current contract
Vessels
In operation Total 1. Transportation of personnel 2. Distribution of materials and harbor operations 3. Mainenance and construction 4. Flotels 5. Other 158 23 83 30 4 18 Embarcaciones 1. Transportation of personnel 2. Distribution of materials and harbor operations 3. Maintenance and construction 4. Flotels 5. Other

New contracts 2013

Vessels
To be renewed 60 2 Dec 2013 183 25

28
19 4 7

96
35 6 21

Helicopters
In operation Helicopters 42 Helicopters

Helicopters
To be renewed 15 Dec 2013 48

43

Expected results

3P reserves to be incorporated- best case scenario

Millions of boe
2,695
2,755 2,759 2,778

2,349 2,136 1,960 1,835 1,681 215 250 346 794 784 889 327 2,149 346 418

2,455 534

2,566

2,685

2,687

2,681

656

716

721

736

758

753

758

772

855

916

873.4

901.5

763.3

831.6

855.2

885

888.6

693
763

622

527
408 295 2014 364 2015

612

595

620

555

545

537

559

567

633

629

675

653

714

379 2016

420 2017

399 2018 Onshore

488 2019

521 2020

457 2021

537

497 2023

548

477 2025

472
2026

463
2027

403 2028

2022

2024

Shallow water

Deep water

Shale gas/oil

45

Production scenarios
Define the monetization rate for the countrys resources Oil production, MBD
4,000 3,500 3,000 8,000 2,500 2,000
2013 2015 2017 2019 2021 2023 2025 2027 Low Expected High

Gas production, MMCFD

14,000 12,000 10,000

6,000
4,000
2013 2015 2017 2019 2021 2023 2025 2027 Low Expected High

Case Low Expected

Annual investment 24 MMMUSD 30 MMMUSD

High

37 MMMUSD
46

Execution plan of the strategy

Business plan

Expected results Reserves Production

Focus on main projects Flexibility for the optimal allocation of resources

Execution efficiency
Technical excellence

Recovery factor
Costs

47

Talent of excellence and suppliers with financial and technical strength will ensure strategic success