Chicontepec - Contratos Integrales EP - PEMEX.com

Second Round, July 2012Preliminary83 bidding packages sold to 31 companiesBlocksCompany120100Production forecastMBDAltamiraCheiron(Pico Petroleum)8060ArenquePánucoTierra BlancaSan AndrésArenquewww.pemex.com/contratosPetrofac andSchlumbergerMonclova Pirineos Gasand AlfasidMonclova Pirineos Gasand AlfasidPetrofacEstimated investment of 3.3 billiondollars in the first six years4020Tierra BlancaPánucoAltamira02013 2017 2021 2025800700600500400300San AndrésInvestment forecastMillion dollarsArenque200San AndrésTierra Blanca100AltamiraPánuco02013 2017 2021 20256

Blocks’ CharacterisiticsPreliminaryBlockAreaCummulativeproduction3P ReservesProspectiveresourcesType ofhydrocarbon(sq.km) (mboe) (mmboe) (mmboe) °APIAmatitlán 128 103 403 74 44Soledad 125 40,376 134 128 32 – 37Humapa 128 588 341 157 27Miquetla 112 11,084 248 86 35Miahuapan 128 43 431 101 33Pitepec 128 94 648 74 32 - 38§ Reserves are related to the Terciary§ Prospective resources refer to the Mesozoic§ The six areas show high materialitywww.pemex.com/contratos9

ContentsPreliminaryv Backgroundv Blocksv Modelv Bidding processwww.pemex.com/contratos10

Main Contractual CharacteristicsPreliminary§ Hydrocarbon ownership. Pemex§ Reseves ownership. Nation§ Payment. Is subject to delivering production to PEP. Payments are in cashonly, not in kind. Remuneration acknowledges the contractor’s costs andprofits§ Infrastructure. PEP will be the sole owner of all infrastructure; thecontractor will have the rights to use all infrastructure to provide the services§ Block. Extension or relinquishment according to existing resources§ Term, periods, and investment. Based on the block’s economic limit§ Work obligation. In relation to undeveloped 2P reserveswww.pemex.com/contratos11

ScopePreliminaryComprises all required activites for hydrocarbonproduction in the block§ The contractor invests, executes and delivers production§ Work obligation is predetermined for each of the two phases; warrantiesfor 100% of the work value§ Payment subject to delivery of production§ The contractor submitts a development plan, budgets, and annualprograms§ The contractor should execute all services abbiding to common andprudent industry practiceswww.pemex.com/contratos12

GovernancePreliminary§ Steering group: integrated by two PEP membes and two companyrepresentatives§ Revision of the development plan, work programs, and budgets§ Participate on unitization, joint infrastructure, and other relevant issues§ Resolution of technical and administrative differences§ Creation of subcommittes: technical, financial procedures,subcontracting, among others§ Resolution by unanimity§ Possible participation of indepenent experts to support in technicaldifferences§ Arbitrationwww.pemex.com/contratos13

Premises of the Economic ModelPreliminary§ Alignment of the contractor’s and PEP’s interests throughmechanisms that provide incentives to increase production andexecution efficiency§ Positive net cash flow for Pemex each year§ Profits based on performance; mechanisms to limit windfall profits§ Development and use of technology for the project§ Lessons learned from the first two rounds§ Vision of a globally competitive modelwww.pemex.com/contratos14

Chicontepec is a Different Kind ProjectPreliminaryCummulative net cash flowmmmdls15Illustrative10502013 2018 2023 2028 2033 2038 2043Capex Opex Ingresos Income Ingresos Income minus menos taxes impuestosCash flow @ 12%MMdls500400300200§ Requires constant investments§ The production profile has highdecline rate in the first monthsand a lower rate in the secondphase§ Practically no base production§ Payout approximately 10 years§ Tax regime: royalties rate as afunction of oil prices (front-endloaded)1000-100-2001 6 11 16 21 26 31Year§ Possibility of increasing therecovery factor from 7 to 15%AmatitlánAverage Payout promedio payout CM-RSSoledadPayout Average promedio payout CM-RNwww.pemex.com/contratos15

Model: Key ComponentsPreliminary§ Payment based on a percentage of cost recovery plus profit§ Payment subject production delivery and limited by available income (after taxes)§Adjustment based on NPV/b:§ Allows for a simple application and follow-up§ Acknowledges the time value of money§ Does not inhbit additional investments§ More production or lower costs, yield greater return and investment value§ Provides a bidding variable other than a fee per barrelwww.pemex.com/contratos16

ModelPreliminaryRemuneration t = q t r t s tq t = production, barrelss t = estimate of available income in $/b (after taxes)r t = adjustment factor in function of a NPV/b;Maximum value 1; or percentage neccesary to get to ormaintain the maximum NPV/bwww.pemex.com/contratos17

Fiscal Regime for ChicontepecPreliminaryRoyaltiesTax based resultsand deductionsCost cap Additional taxRingfencingExtraction:15%Special:30% or 36%if q cum > 240mmboeMinimum:§ 36.53 dls/boe§ 60% priceAdditional52%(p - 67.45)Yes10080604020Pemex tax burden, dollars per barrel564738281911 146675050 60 70 80 90 100 110 120 130Available income (variable s)Oil price, dollars/b39 46 51 52 52 53 54 54 55www.pemex.com/contratos18

Available Cash Flow: s VariablePreliminarys t = min [39.13 + 0.059p, 0.654p] ; Q ≤ 240 mmboes t = min [41.00 + 0.016p, 0.642p] ; Q > 240 mmboep=(0.00838 ×(°API+h)+0.68)×WTS+0.1607×(°API+h)-­‐7.03°API Average weighted value of °APIWTS Spot, reference price$/b5040Variable sh = 1, si °API34⎨⎪⎩ 0, si °API=34Q = Cummulative production in the blockstarting January 1, 2011Note: The parameters 41.00 and 39.13 will beupdated in January of each year based on the U.S.PPI.www.pemex.com/contratos302050 54 58 62 66 70 74 78 82 86 90 94 98Note: This example applies only tocummulative production below 240mmboePrice USD/b19

Variable s and r Adjustment FactorPreliminary§§r adjustment factor = algebraic expression, which determines the monthlyavailable income neccesary to reach or maintain the bid NPV/bConsiders a percentage of eligible costs, revenues, the bid NPV/b, and a discountrateCummulative cash flows @ 0%Million dollarsr adjustment factorNPV/PVq$/b, @4%1sqsqrwww.pemex.com/contratosYear20

Adjustment FactorPreliminaryVPE t=Cost recoveryTarifa = fee per barrel in present valueVPQVPEVPPi= present value of production(cummulative and discounted volumes)= present value of cost recovery= present value of the payments tocontractor= monthly discount rateCost recovery t= λ teligible costs tλ Cost recoveryYearswww.pemex.com/contratos21

Eligible Costs and Cost RecoveryPreliminary§§Eligible costs: directly related to activities approved in the work programsand budgetsCost recovery: a percentage of the eligible costs incurred by the contractorand approved by PEP, which are based on established accounting procedures§§Does not include: interests, costs that exceed their market value,items not considered in the work programs, some corporate expenses,expenses related to fines, penalties, etc.All transactions are subject to auditswww.pemex.com/contratos22

Other Economic TermsPreliminary§§§§§Term of 35 years divided in three periods:§ Transition. 3 months§ Initial. 24 months for evaluation and technological solutions, with theoption of 12 additional months. Investment commitment§ Development. The work commitment is determined by the undeveloped2P reservesExtension and relinquishment of block area. Determined by potential anddevelopment planAbandonment. Obligation to abandon and fundSustainable Development. Commitmment according to defined programTraining of PEP employees§ National Content. Minimum 25%§Warranties. Corporate (per contract) and deliverables (100% of the anualcommitment)www.pemex.com/contratos23

ContentsPreliminaryv Backgroundv Blocksv Modelv Bidding processwww.pemex.com/contratos24

QualificationPreliminary§ The bidder must prove experience as an operator, preferably inunconventionals* fields§ Minimum production: 5 mbd§ Minimum investment: 15 million dollars in E&P projects§ HSE certification§ Two credit ratings of the company or consortium, issued by creditagencies that are certified under the Mexico’s CNBVCompanies that appear in the Petroleum Intelligence Weekly Ranks World´sTop 50 Oil Companies are exempted from presenting documentation onproduction, investment, and HSENote: investment and production requirements subject to revisionwww.pemex.com/contratos25

AwardPreliminaryAward to bidder that obtains the highest indexÍndice= !w " Tarifa menorTarifa propuesta# +(1-w) " Factor propuestaFactor mayor#& ×100w= weighted fee per barrel in present valueTarifa menor = bidding proposal that has the lowest fee per barrel inpresent valueFactor mayor = bidding proposal that has the maximum work commitmentincrease factor for the initial and development periodsWhere: Tarifa > 0.00 ; Factor >1.000www.pemex.com/contratos26

Award ExamplePreliminaryTarifa ($/b)Index CIndex BIndex AwMinimumfeeMaximumfactorBiddingproposalIllustrativeFactorproposedIndexCummulative productionCBAInvestment0.55 3.41 2.320 3.41 1.521 84.50.55 3.41 2.320 3.87 1.950 86.30.55 3.41 2.320 4.15 2.320 90.20.55 3.41 2.320 5.23 1.900 72.70.55 3.41 2.320 6.50 1.521 58.4Note: w is pendingIndex A > Index B > Index Cwww.pemex.com/contratosInvestment27

Preliminary CalendarPreliminaryOct Nov Dec Jan Feb Mar Apr May Jun JulPreliminarymodelBidding process§ Workshops§ Field tour§ Q&A events§ QualificationBid andawardThe calendar is subject to approvals and modificationswww.pemex.com/contratos28

Preliminary