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

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 of 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. 2

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 over 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. 3

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 Prospective resources MMboe Mmboe Conventional 20,589 18,222 Shallow waters 11,374 7,472 Southeast 11,238 7,472 North 136 - Onshore 8,818 5,913 South 4,379 5,371 Chicontepec 3,556 - Burgos 425 - Remaining North 459 542 Deepwater 397 4,837 Perdido - 5,225 Holok-Han 397 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 Concept Round 1 Round 2 1.1 1.2 1.3 1.4 2.1 2.2 2.3 Prospective 687 _________ __________ 2,907 1,586 643 251 resources (Mmboe) Certified 4,222 281 777 23,835 8,909 5,066 2,595 reserves (Mmboe) Block/Field 116-500 42-68 7-135 1,678-3,287 466-972 349-479 size (km2) Blocks/Fields 14 9 fields in 5 25 10 15 12 14 number contracts Category Shallow waters Shallow waters Conventional Deep waters Shallow waters Conventional Conventional terrestrial terrestrial terrestrial Type of Shared Shared License License Shared License License contract production production production Contracts Blocks 2 and 7 Contractual 25 contractual 8 contractual awarded areas 1, 2 and areas areas 4 15

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 2014 Before After Hydrocarbons Sector Hydrocarbons Sector + 44 private oil companies Electricity Sector Electricity Sector + 35 private electricity companies Oil products and gas pipelines Oil products & gas pipelines + 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 Natural Gas & Oil Products Electricity Exploration & Extraction Round 1 1 st Public auction: 2,600 MMusd Gas pipelines: 16,000 MMusd 1 st Bid: 2,700 MMusd 2 nd Public Auction: 4,000 MMusd 2 nd Bid: 3,100 MMusd Oil Products: 7,800 MMusd * 3 rd Bid: 1,100 MMusd Generation: 98,700 MMusd * 4 th Bid: 34,000 MMusd Transmission: 15,300 MMusd * 1 st Farm-out: 7,500,000 MMusd Distribution: 17,700 MMusd * Seismic: 2,500 MMusd * Estimated investments in following 15 years 19

National Hydrocarbons Commission (CNH) has concluded 1 st Round with 39 contracts and investments for more than 48,000 MMusd RESULTS ROUND 1 and FARMOUTS Bid tender Model Years N ° of Awarded Contract Contracts Companies date 1.1 Exploration 2 Shared 3 15-07-2015 25 + 2 periods of 5 Production Shallow waters years 1.2 Extraction 3 Shared 5 30-09-2015 25 + 2 periods of 5 Production Shallow waters years 1.3 Extraction 25 License 22 15-12-2015 25 + 2 periods of 5 Mature Fields years 11 01-03-2017 35-50 1.4 Extraction 8 License Deep waters Farm-out 1 License 1 01-03-2017 35-50 * Shared Production ** License Contract � The State is co-owner of produced � Contractor shall be entitled to onerous hydrocarbons transmission of the hydrocarbons produced � It considers compensation over operating � It considers compensation over gross profit profit � It does not consider cost recovery � It considers cost recovery � Adjustment mechanism with base in 20 � Adjustment mechanism with base on production volume and prices profitability

National Hydrocarbons Commission has launched Round 2 Bids On July 2016, National Hydrocarbons On August 2016, National Hydrocarbons Commission approved tender of 15 blocks in Commission has published bid tender of 14 shallow waters of the Gulf of Mexico terrestrial areas Round 2. Bid 1 Round 2. Bid 2 It comprises 15 contractual areas located in It comprises 12 contractual areas. 9 areas are shallow waters of the Gulf of Mexico, within located in Cuenca de Burgos, 2 areas in Cinturon provinces Tampico-Misantla, Veracruz and Plegado de Chiapas and 1 in Cuencas del Cuenca del Sureste oil provinces. Sureste. � License contracts for � License for 30 years 30-40 years � Dry and wet gas � Light crude oil and � Maximum production in natural gas 2025: 100,000 barrels � Water depth between daily equivalent 10 to 500 meters � 1st production in 2018 � 1ª production in 2020 � Estimated investments of � Estimated investments 5,000 MMusd, that will of 11,250 MMusd create 5,300 employments August, 2016 May 19, 2017 June 19, 2017 September, 2016 March 8, 2017 April 7, 2017 Data Room Opening Bidding terms and conditions & contract Contract awarding Data Room Opening Bidding terms and conditions & contract Contract awarding 21