Mexico Energy Reform in motion How to do business in Mexico Where, - - PowerPoint PPT Presentation

Cycles & Trends 2017 Mexico Energy Reform in motion

How to do business in Mexico

Where, When, with Whom

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Background: The investment in the oil and gas offshore market in Mexico is expected to grow on the coming years. On December 20, 2013, President of Mexico has signed the Constitutional Amendment on the Energy Reform, avoiding monopoles in Oil & Gas Industry. This has been a depth and historical change since

• 1938. To get a Constitutional change or amendment is needed to have 66 % + 1 of the votes in the

Congress (Two Chambers: Senate and Representatives), and 50 % + 1 of the 32 local Congresses. On August 11, 2014, it has been signed the Decree to modify and adapt 21 Secondary laws, in order to have coincidence with the new text of the Constitution. Those secondary laws, are including the new roll

• f National Oil Company; on the Safety Authority, the National Hydrocarbon Commission, similar to the

Directorate in Norway, a Petroleum Fund, on Hydrocarbons Taxes, Budget, among other important topics. Once Constitution Energy Reform was approved, Mexican government has implemented five rounds to allocate blocks for exploration and production; their results represent new business opportunities for Norwegian industry. Round Zero: Pemex only, Rounds: One: exploration shallow water; Two; production, shallow waters; Three; On-shore – mature fields; Four: Deep waters. Farm-Outs: A first one for Pemex on December 2016. On going process: to migrate existing multiple services contracts to direct assignment to private companies, similar to exploitation licenses.

Round Zero: On 2014, SENER (Mexican Energy Ministry) has awarded Pemex 489 assignments, 108 for exploration and 381 for extraction, that allows to the company continue carry out exploration and extraction activities in the short, medium and long term. It has been assigned to Pemex a total area of 90,000 square kilometers. PEMEX, has obtained 100% of their 2P bids, which represent 83% of the country’s overall 2P reserves, and they were also granted 67% of their bids in terms of prospective resources, which represent 21% of Mexico’s total prospective resources. This would be an estimate of

• ver 20 billion BOE.

Round 1.1: On exploration shallow waters. Two contracts for blocks 2 and 7, were awarded in a shared production model to companies: Sierra Oil & Gas, S. de R.L. de C.V. in Consortium with Talos Energy, LLC and Premier Oil, PLC Round 1.2: On Extraction shallow waters. Three contracts for blocks were awarded in a shared production model to companies: Eni International B.V. Pan American Energy LLC, in consortium with E&P Hidrocarburos y Servicios S.A. de C.V., Fieldwood Energy LLC, in consortium with Petrobal.

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Pemex is working on new alliances and Farm Outs – the first of which occurred last December. BHP Billiton won the rights to tie-up with Pemex on its light oil Trion field, less than 50 miles from US-Mexico maritime border, under license model. Exploratory studies and wells will provide more certainty of the Trion field’s 3P reserves, currently estimated by Pemex at 485 million barrels of oil equivalent, and likely to be increased. Round 1.3: December 2015. On-shore and mature fields. Most of companies are local and it is their first time working as operators. Round 1.4 In December 2016 blocks 1 and 3 in the Saline Basin were awarded to a consortium consisting of Statoil (33.4%), BP (33.3%) and Total (33.3%). Statoil is the operator of the consortium and will in dialogue with partners and Mexican authorities decide on the way forward. New regulators: National Hydrocarbons Commission, (CNH) has been organizing bids for hydrocarbons blocks; ASEA, (Safety Authority); CRE, regulating hydrocarbons, fuels and electricity.

Round Zero (PEMEX)

Assigned reserves and prospective resources

Type/Area 2P Reserves MMboe Prospective resources Mmboe Conventional 20,589 18,222 Shallow waters Southeast North 11,374 11,238 136 7,472 7,472

• Onshore

South Chicontepec Burgos Remaining North 8,818 4,379 3,556 425 459 5,913 5,371

• 542

Deepwater Perdido Holok-Han 397

• 397

4,837 5,225 1,824 Non-conventional

• 3,904

Total 20,589 23,447

Round 1.1

Round 1.2

Round 1.3

Round 1.4

Round 2.1

Round 2.2

Round 2.3

Pemex Farm-Out - Trion

Round 1 & 2

15 Concept Round 1 Round 2 1.1 1.2 1.3 1.4 2.1 2.2 2.3 Prospective resources (Mmboe) 687 _________ __________ 2,907 1,586 643 251 Certified reserves (Mmboe) 4,222 281 777 23,835 8,909 5,066 2,595 Block/Field size (km2) 116-500 42-68 7-135 1,678-3,287 466-972 349-479 Blocks/Fields number 14 9 fields in 5 contracts 25 10 15 12 14 Category Shallow waters Shallow waters Conventional terrestrial Deep waters Shallow waters Conventional terrestrial Conventional terrestrial Type of contract Shared production Shared production License License Shared production License License Contracts awarded Blocks 2 and 7 Contractual areas 1, 2 and 4 25 contractual areas 8 contractual areas

Round 1.4

Round 1.4

Energy Reform generates a new paradigm

Transition from a monopoly model to a competency model

Monopoly energy market Open energy market Hydrocarbons Sector Electricity Sector Oil products and gas pipelines Before After Hydrocarbons Sector Electricity Sector Oil products & gas pipelines

44 private oil companies

+

35 private electricity companies

2014

+

112 companies with 179 contracts and committed investments for more than 70,000 million dollars (MMusd) participate in Mexico

+

Energy Reform attracts large amounts of foreign and local investment

In last 3 years of energy reform implementation, great advances have been made on this regard: 4 Bids, 1 farm-out, exploration permits, 2 electric public auctions, liberalization of electric and oil market, awarded of contracts for gas pipelines construction, among other measures and national programs.

213,000 million US dollars (MMusd) of investment in energy sector

Exploration & Extraction Round 1

1st Bid: 2,700 MMusd 2nd Bid: 3,100 MMusd 3rd Bid: 1,100 MMusd 4th Bid: 34,000 MMusd 1st Farm-out: 7,500,000 MMusd Seismic: 2,500 MMusd

Natural Gas & Oil Products Electricity

Gas pipelines: 16,000 MMusd Oil Products: 7,800 MMusd * 1st Public auction: 2,600 MMusd 2ndPublic Auction: 4,000 MMusd Generation: 98,700 MMusd * Transmission: 15,300 MMusd * Distribution: 17,700 MMusd *

* Estimated investments in following 15 years 19

National Hydrocarbons Commission (CNH) has concluded 1st Round with 39 contracts and investments for more than 48,000 MMusd

RESULTS ROUND 1 and FARMOUTS Bid tender N° of Contracts Model Awarded Companies Contract date Years 1.1 Exploration Shallow waters 2 Shared Production

3 15-07-2015 25 + 2 periods of 5 years

1.2 Extraction Shallow waters 3 Shared Production

5 30-09-2015 25 + 2 periods of 5 years

1.3 Extraction Mature Fields 25 License

22 15-12-2015 25 + 2 periods of 5 years

1.4 Extraction Deep waters 8 License

11 01-03-2017 35-50

Farm-out 1 License

1 01-03-2017 35-50

* Shared Production The State is co-owner of produced hydrocarbons It considers compensation over operating profit It considers cost recovery Adjustment mechanism with base on profitability ** License Contract Contractor shall be entitled to onerous transmission of the hydrocarbons produced It considers compensation over gross profit It does not consider cost recovery Adjustment mechanism with base in production volume and prices

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National Hydrocarbons Commission has launched Round 2 Bids

Round 2. Bid 1

It comprises 15 contractual areas located in shallow waters of the Gulf of Mexico, within provinces Tampico-Misantla, Veracruz and Cuenca del Sureste oil provinces.

On July 2016, National Hydrocarbons Commission approved tender of 15 blocks in shallow waters of the Gulf of Mexico

License contracts for 30-40 years Light crude oil and natural gas Water depth between 10 to 500 meters 1ª production in 2020 Estimated investments

• f 11,250 MMusd

August, 2016 May 19, 2017 June 19, 2017 Data Room Opening Bidding terms and conditions & contract Contract awarding

On August 2016, National Hydrocarbons Commission has published bid tender of 14 terrestrial areas Round 2. Bid 2

It comprises 12 contractual areas. 9 areas are located in Cuenca de Burgos, 2 areas in Cinturon Plegado de Chiapas and 1 in Cuencas del Sureste. License for 30 years Dry and wet gas Maximum production in 2025: 100,000 barrels daily equivalent 1st production in 2018 Estimated investments of 5,000 MMusd, that will create 5,300 employments

September, 2016 March 8, 2017 April 7, 2017 Data Room Opening Bidding terms and conditions & contract Contract awarding

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Mexico will revert its oil production fall

A recovery in Mexico's oil production is expected in the medium and long term with private companies participation in addition to PEMEX's strategic alliances with large international and national corporations.

2,601 2,577 2,553 2,548 2,522 2,429 2,267 2,130 1,944 2,006 2,037 2,072 2,196 500 1,000 1,500 2,000 2,500 3,000 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Crude oil production in Mexico, 2009-2021

(Thousand barrels daily)

PEMEX Business Plan, 2017-2021

0.5 1 1.5 2 2.5 3 3.5 4 2000 2005 2015 2020 2025 2030 2035 2040 Aguas profundas Deep water Aguas someras Sallow water En tierra Onshore

3.5 3.8 2.6 2.4 2.6 3.0 3.2 3.4

Crude oil production and liquids in Mexico, 2000- 2040

International Energy Agency, Mexico Energy Outlook

(Million barrels daily) 22

1st and 2nd Public auctions on clean energies at long term

Results of electric auctions have been committed investments of $ 6.6 billion by 34 companies from 11 countries to build 52 new clean energy plants.

Sonora Chihuahua Coahuila Nuevo León Tamaulipas Yucatán San Luis Potosí Puebla Oaxaca Morelos Guanajuato Jalisco Aguascalientes Baja California Sur Baja California Norte Solar Eólica Hidroeléctrica Solar-Eólica

Source of Investment

31,050 50,535 94,500 97,828 135,000 307,800 331,760 368,392 389,732 517,297 524,475 790,426 895,561 1,019,874 1,060,949

200,000 400,000 600,000 800,000 1,000,00 1,200,00

Baja California Sur Baja California Norte Morelos Puebla Jalisco Chihuahua Nuevo León Oaxaca San Luis Potosí Sonora Guanajuato Aguascalientes Yucatán Coahuila Tamaulipas

Investments on clean energies at long term by entity

Wind technology Solar Solar-Wind Solar Solar Solar Solar Wind Wind Solar Solar Hydro Solar Solar Solar

Mexico will increase its electric offering

Transmisión, 15,300 MMusd, 12% Distribución, 17,700 MMusd, 13% Generación, 98,700 MMusd, 75%

Estimated investments by electric segment, 2016-2030 (MMusd y %)

56 583 2,805 12,489 24,043 6,905 7,627 15,101 16,976 42,643

10,000 20,000 30,000 40,000 50,000 Solar Generación Eficiente Eólica Hidroeléctrica Ciclo Combinado

2030 2015 Development Program of National Electric System. (PRODESEN) 2016-2030

Increments in power generation capacity by type of clean energy (MW), in following 15 years

75%

growth in capacity of combine cycle (natural gas)

200%

growth on installed capacity of clean energies

Power plants will be built in most of the country's

• entities. States of Veracruz, Nuevo León,

Tamaulipas, Oaxaca, Sonora and Chihuahua, together will concentrate 47% of the new capacity to be developed in following 15 years

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Extension of Gas Pipeline National System

Two years after Energy Reform, 78% of pipeline kilometers planned for 2019 are registered, with a total investment in process of 12 billion dollars (MMUSD). Goal was to move from 11,000 to 21,000 kilometers (km)

Progress: In operation: 2,386 Km In construction: 1,278 Km In development process: 4,098 Km 12,000 MMusd

Regasification terminal Gas pipelines in operation Gas pipelines concluded (2013-2015) Gas pipelines in construction (2015-2016) Gas pipelines in Five Year Plan Compression in Five Year Plan Social Gas pipeline in Five Year Plan Interconnections

To 2019: 21,000 Km of gas pipelines 10,000 Km additional 16, 000 MMusd of investments, 2016-2019 New gas pipelines infrastructure, accordingly Five Year Plan 2015-2019: 10 gas pipelines 2 social gas pipelines 7 interconnection points with US 1 interconnection point with Central America 25

Investment opportunities in whole energy sector value chain

Exploration and exploitation of oil and natural gas Gas pipelines expansion (auction and gas open seasons) Commercialization of natural gas and LPG Regasification plants by imports and export of gas Fuels transportation by rail, ships and trucks Petrochemicals production Refining Projects of power cogeneration in refineries Infrastructure for oil products storage Service stations for gasolines, diesel and gas Modernization of power plants from oil products to natural gas New centrals of combined cycle New plants on renewables Energy efficiency projects

Upstream Midstream Downstream Electricity

Energy Regulatory Commission (CRE) granted-permits in

• il, petroleum products and petrochemicals:

1,644 Transport 269 Distribution by other means than pipelines 66 Provisional permits Natural Gas permits: 249 Transport 38 Distribution 30 Compression and decompression 1 Liquefaction plant 1 Regasification plant 209 LPG Transport 1,206 LPG Distribution Energy Regulatory Commission (CRE) granted- permits in storage, commercialization and service to public: 11,801 Selling at gas stations 148 Oil products and petrochemicals storage 402 Fuel import permits 27 Natural gas service station 3,248 Selling at public of LPG 199 Commercialization centers

• f
• il

products, petrochemicals and gas Energy Regulatory Commission (CRE) granted- permits in power generation, distribution and transmission: 1,397 Power generation permits 2 Qualified users registration 19 Qualified supply permits 351 Load centers In the first quarter, CENACE (National Center of Energy Control) will carry out: Third Long-Term Clean Energy Auction First Medium Term Clean Energy Auction Auction of the direct transmission line Oaxaca-Mexico City 2017 Fuel and diesel free market National Hydrocarbons Commission (CNH) granted-permits: 35 Authorizations for Recognition and Surface Exploration in the Gulf of Mexico Oil Bid Public Tenders 1st Round (completed) 2nd Round (in process) 3rd Round 4th Round 5h Round PEMEX Farm-outs Migration of PEMEX CIEP’s (Comprehensive Contract for Exploration and Production) to license contracts with private companies

Impact of reforms on GDP growth after 5 years of implementation

Telecommunications Electricity and gas Oil Employment protection Tax structure Legal reform Additional Reforms Judicial reform Reforms in favor of formality Women participation “Pact for Mexico” reforms

OECD Economic Survey of Mexico 0.0 0.1 0.2 0.3 0.4 0.5 0.6

Mexican Government has carried out fast and important economic changes during last two years due to structural reforms

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Early this year, International Monetary Fund (IMF), World Bank, and private sector agencies have adjusted downgrade Mexico's economic growth, due to uncertainties related to US policies.

Citibanamex, Bancomer, BBVA, Deutsche Bank, JP Morgan, Credit Suisse, OCDE, FMI, Banco Mundial, Banco de México, Encuesta sobre las Expectativas de los Especialistas en Economía del Sector Privado, SHCP

1.20% 1.50% 1.00% 1.74% 1.70% 1.80% 2.30% 1.70% 2.50% 3.00%

0.00% 0.50% 1.00% 1.50% 2.00% 2.50% 3.00% 3.50%

BanamexBanamex (encuesta) BancomerPromedio de diversas corredurías FMI Banco Mundial OCDE Encuesta Banco de México Banco de México SHCP

Mexican Economy Perspectives, 2017

(real GDP growth) SHCP, 2017-2018, CGPE 2017

Macroeconomic framework, 2017

3% 2% 3% 0.1% 18.20 pesos per dollar 5.3% CETES 42 dollars per barrel 1.92 MMbd 775,000 barrels daily GDP Inflation Public Deficit /GDP Exchange rate Interest rates Oil price Crude oil production Crude oil Exports 28

PEMEX Bid tenders and Contracts The State Productive Company seeks to reduce contracting through direct and restricted allocation (by invitation to 3 companies) and increase public tenders, endorsing the best global practices

Source: Study on PEMEX public procurement. “Adapting to change in the Oil Industry” OECD, 2016 31% 49% 37% 73% 30% 55% 9% 6% 27% 5% 29% 6% 60% 45% 36% 22% 41% 39% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Cantidad Monto Cantidad Monto Cantidad Monto Refineria Exploración y Producción Gas y Petroquímicos Adjudicacion es directas Invitación a por lo menos 3 proveedores Licitación Pública

Type of contract used by PEMEX subsidiaries, 2014-2015

(Percentage of total number and value of goods, services and leases)

Quantity Quantity Quantity Amount $ Amount $ Amount $ Refinería Refining Exploration & Production Gas & Petrochemicals

Direct Allocation Restricted allocation (Invitation to 3 companies) Public tenders Restricted allocation (Invitation to 3 companies)

Currently PEMEX, through the Corporate Direction of Procurement and Supply (DCPA), is giving higher priority to contracts and / or integral projects than to acquire a single good or service. It also supports small and medium-sized Mexican companies to comply with national content of the new legislation, so that international companies have sought alliances with local firms to take advantage of new legal framework

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Energy transformation. Implications for power sector Future of demand? Forget demand growth

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Future is Zero Net Energy Office parks, shopping malls, hospitals, universities, whole cities

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New electric company: Your home Wall Street Journal 21 Jan 2015

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New electric company: Your home Wall Street Journal 21 Jan 2015

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Solar roofs Makes no sense to build a roof and add solar panels Solar windows & side panels Sun shines not just on the roofs

Business Mission Preliminary Program

Date Items: Venue and remarks Sunday 7th Lobby Hyatt Hotel, Polanco. Campos Eliseos Street Welcome to Mexico Monday 8th AMEXHI & SENER meeting. Objective: To have a global panorama on progress for current and coming O&G projects, from private as government views AMEXHI, which is a Mexican Organization (Industrial Chamber) having 50 Operators –non services companies-, including Statoil, Pemex, ENI, Shell, BP, Exxon, Lifting among others Statoil Mexico Statoil Mexico’s Head Quarters PETROBAL Operator, have been awarded with one offshore block Reception and networking Embassy of Norway in Mexico, will invite companies included into our Agenda, like international and local

• perators, PEMEX, service companies, EPC, and

regulators, among others. Tuesday 9th Flight down to Ciudad del Carmen Meeting with Pemex Offshore shallow waters Pemex offices Meeting with Norwegian companies, already established in Ciudad del Carmen Flight down Mexico City Venue: Fiesta Inn Companies: BW Offshore, DeepOcean, ApiTech, Seadrill Wednesday 10th Meetings with Grupo CARSO CARSO is having shipyards, operator company, EPC Pemex, E&P Meeting with Director of Strategic Alliances Meetings with International Operators I.e ENI, Chevron, Exxon (TBD) Thursday 11th Mexican Petroleum Institute Technip ICA Meetings with Engineering and EPC companies, having experience as contractors for Pemex, and now looking to provide to new operators. This would a vehicle to get contracts from operators, via Engineering companies. Closing remarks and further steps Hyatt Hotel

ints intsok@intsok.com int intsok.com

PROMOTING

NORWEGIAN OIL AND GAS CAPABILITIES IN INTERNATIONAL MARKETS

Presented by by Se Sergio Riv Rivas, s, Cou

• untry Man

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