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20-F 1 d715090d20f.htm FORM 20-F
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549
FORM 20-F
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
for the fiscal year ended December 31, 2013 Commission File
Number 0-99
PETRÓLEOS MEXICANOS(Exact name of registrant as specified in its
charter)
Mexican Petroleum United Mexican States(Translation of
registrant’s name into English) (Jurisdiction of incorporation or
organization)
Avenida Marina Nacional No. 329
Colonia Petróleos Mexicanos11311 México D.F., México
(Address of principal executive offices)
Rolando Galindo Gálvez(5255) 1944 [email protected]
Avenida Marina Nacional No. 329Torre Ejecutiva Piso 38 Colonia
Petróleos Mexicanos
11311 México D.F., México(Name, telephone, e-mail and/or
facsimile number
and address of company contact person)
Securities registered or to be registered pursuant to Section
12(b) of the Act. None
Securities registered or to be registered pursuant to Section
12(g) of the Act. None
Securities for which there is a reporting obligation pursuant to
Section 15(d) of the Act.
T itle of Each Class
9.50% Global Guaranteed Bonds due 2027
9 1⁄4% Global Guaranteed Bonds due 2018
8.625% Bonds due 2022
7.375% Notes due 2014
5.75% Notes due 2015
5.75% Guaranteed Notes due 2018
9 1⁄4% Guaranteed Bonds due 2018
8.625% Guaranteed Bonds due 2023
9.50% Guaranteed Bonds due 2027
6.625% Guaranteed Bonds due 2035
6.625% Guaranteed Bonds due 2038
8.00% Guaranteed Notes due 2019
4.875% Notes due 2015
6.000% Notes due 2020
5.50% Notes due 2021
6.500% Bonds due 2041
4.875% Notes due 2022
5.50% Bonds due 2044
3.500% Notes due 2018
Floating Rate Notes due 2018
3.500% Notes due 2023
4.875% Notes due 2024
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ¨ No x
If this report is an annual or transition report, indicate by
check mark if the registrant is not required to file reports
pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934.
Yes ¨ No x
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes x No ¨
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such
files).
N/A
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of “accelerated filer and large accelerated
filer” in Rule
12b-2 of the Exchange Act. (Check one):
Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated
filer x
Indicate by check mark which basis of accounting the registrant
has used to prepare the financial statements included in this
filing:
U.S. GAAP ¨ IFRS as issued by the IASB x O ther ¨
If “Other” has been checked in response to the previous
question, indicate by check mark which financial statement item the
registrant has elected to follow.
Item 17 ¨ Item 18 ¨
If this is an annual report, indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes ¨ No x
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TABLE OF CONTENTS
Item 1. Identity of Directors, Senior Management and Advisers
5
Item 2. Offer Statistics and Expected Timetable 5
Item 3. Key Information 5
Item 4. Information on the Company 14
Item 4A. Unresolved Staff Comments 125
Item 5. Operating and Financial Review and Prospects 125
Item 6. Directors, Senior Management and Employees 154
Item 7. Major Shareholders and Related Party Transactions
184
Item 8. Financial Information 186
Item 9. The Offer and Listing 190
Item 10. Additional Information 190
Item 11. Quantitative and Qualitative Disclosures About Market
Risk 199
Item 12. Description of Securities Other than Equity Securities
208
Item 13. Defaults, Dividend Arrearages and Delinquencies 209
Item 14. Material Modifications to the Rights of Security
Holders and Use of Proceeds 209
Item 15. Controls and Procedures 209
Item 16A. Audit Committee Financial Expert 210
Item 16B. Code of Ethics 210
Item 16C. Principal Accountant Fees and Services 210
Item 16D. Exemptions from the Listing Standards for Audit
Committees 212
Item 16E. Purchases of Equity Securities by the Issuer and
Affiliated Purchasers 212
Item 16F. Change in Registrant’s Certifying Accountant 212
Item 16G. Corporate Governance 213
Item 16H. Mine Safety Disclosure 213
Item 17. Financial Statements 214
Item 18. Financial Statements 214
Item 19. Exhibits 214
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Petróleos Mexicanos and its four subsidiary entities,
Pemex-Exploración y Producción (Pemex-Exploration and Production),
Pemex-Refinación (Pemex-Refining),Pemex-Gas y Petroquímica Básica
(Pemex-Gas and Basic Petrochemicals) and Pemex-Petroquímica
(Pemex-Petrochemicals and together with Pemex-Exploration
andProduction, Pemex-Refining and Pemex-Gas and Basic
Petrochemicals, collectively referred to as the subsidiary
entities), comprise the state oil and gas company of theUnited
Mexican States, which we refer to as Mexico. Each of Petróleos
Mexicanos and the subsidiary entities is a decentralized public
entity of the Federal Government ofMexico, which we refer to as the
Mexican Government, and is a legal entity empowered to own property
and carry on business in its own name. In addition, a number
ofsubsidiary companies that are defined in Note 1 and listed in
Note 3(a) to our consolidated financial statements incorporated in
Item 18, including the Pemex ProjectFunding Master Trust (which we
refer to as the Master Trust) and Fideicomiso Irrevocable de
Administración No. F/163 (which we refer to as Fideicomiso F/163)
(whichare described below under “Item 5—Operating and Financial
Review and Prospects—Liquidity and Capital Resources—Commitments
for Capital Expenditures andSources of Funding”), are incorporated
into the consolidated financial statements; these subsidiary
companies are also identified with the corresponding
ownershippercentages in “—Consolidated Structure of PEMEX” on page
4. Petróleos Mexicanos, the subsidiary entities and the subsidiary
companies are collectively referred to as“PEMEX” or “we.”
References herein to “U.S. $,” “$,” “U.S. dollars” or “dollars”
are to United States dollars. References herein to “pesos” or “Ps.”
are to the legal currency of Mexico.References herein to “euros” or
“€” are to the legal currency of the European Economic and Monetary
Union. References herein to “pounds” or “£” are to the
legalcurrency of the United Kingdom. References herein to “Swiss
francs” or “CHF” are to the legal currency of the Swiss
Confederation. References herein to “Japanese yen”or “¥” are to the
legal currency of Japan. References herein to “Australian dollars”
or “AUD” are to the legal currency of Australia. The term “billion”
as used hereinmeans one thousand million.
Our consolidated financial statements included in this report
were prepared in accordance with International Financial Reporting
Standards as issued by theInternational Accounting Standards Board.
We refer in this report to “International Financial Reporting
Standards as issued by the International Accounting StandardsBoard”
as IFRS. In addition, these financial statements were audited in
accordance with the International Standards on Auditing, as
required by the Comisión NacionalBancaria y de Valores (National
Banking and Securities Commission, which we refer to as the CNBV)
for purposes of filing with the Bolsa Mexicana de Valores (whichwe
refer to as BMV or the Mexican Stock Exchange) and with the CNBV,
and in accordance with the standards of the Public Company
Accounting Oversight Board(United States) for purposes of filings
with the U.S. Securities and Exchange Commission, or SEC.
The regulations of the SEC do not require foreign private
issuers that prepare their financial statements on the basis of
IFRS to reconcile such financial statementsto United States
Generally Accepted Accounting Principles (which we refer to as U.S.
GAAP). Accordingly, while we have in the past reconciled our
consolidatedfinancial statements prepared in accordance with Normas
de Información Financiera Mexicanas (Mexican Financial Reporting
Standards, or Mexican FRS) to U.S. GAAP,those reconciliations are
no longer presented in our filings with the SEC. We do, however,
continue to provide the disclosure required under the U.S.
FinancialAccounting Standards Board Accounting Standards
Codification (ASC) Topic 932 “Extractive Activities—Oil and Gas”
(which we refer to as ASC Topic 932), as this isrequired regardless
of the basis of accounting on which we prepare our financial
statements.
We maintain our consolidated financial statements and accounting
records in pesos. Unless otherwise indicated, we have translated
all peso amounts to U.S.dollars in this Form 20-F, including all
convenience translations of our consolidated financial statements
included herein, at an exchange rate of Ps. 13.0765 = U.S.
$1.00,which is the exchange rate that Secretaría de Hacienda y
Crédito Público (Ministry of Finance and Public Credit, or the
SHCP) instructed us to use onDecember 31, 2013. You should not
construe these translations from pesos into dollars as actually
representing such U.S. dollar amounts or meaning that you
couldconvert such amounts into U.S. dollars at the rates indicated.
Mexico has a free market for foreign exchange, and
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the Mexican Government allows the peso to float freely against
the U.S. dollar. There can be no assurance that the Mexican
Government will maintain its current policieswith regard to the
peso or that the peso will not depreciate or appreciate
significantly in the future. Due to the volatility of the peso/U.S.
dollar exchange rate, the exchangerate on any date subsequent to
the date hereof could be materially different from the rate
indicated above. See “Item 3—Key Information—Exchange Rates”
forinformation regarding the rates of exchange between pesos and
U.S. dollars.
SPECIAL NOTE REGARDING MEXICAN ENERGY REFORM
On December 12, 2013, the Permanent Commission of the Mexican
Congress approved amendments to Articles 25, 27 and 28 of the
Constitución Política de losEstados Unidos Mexicanos (Political
Constitution of the United Mexican States, or the Mexican
Constitution), which were subsequently approved by a majority
ofMexico’s state legislatures and signed into law by the President
of Mexico, Enrique Peña Nieto. On December 20, 2013, these
amendments were published as the Decretopor el que se reforman y
adicionan diversas disposiciones de la Constitución Política de los
Estados Unidos Mexicanos, en Materia de Energía (Decree that
amendsand supplements various provisions of the Mexican
Constitution relating to energy matters, which we refer to as the
Energy Reform Decree) in the Diario Oficial de laFederación
(Official Gazette of the Federation) and took effect on December
21, 2013.
The Energy Reform Decree includes transitional articles (or
artículos transitorios) that set forth the general framework for
the secondary legislation orimplementing laws, which have not been
enacted as of the date of this report. See “Item 4—Information on
the Company—History and Development—Energy Reform” formore details
regarding the Energy Reform Decree, transitional articles and
secondary legislation.
The transitional articles of the Energy Reform Decree outline a
process, commonly referred to as Round Zero, for the determination
of our initial allocation of rightsto continue to carry out
exploration and production activities in Mexico. Round Zero is
being administered by the Secretaría de Energía (the Ministry of
Energy), withtechnical assistance from the Comisión Nacional de
Hidrocarburos (National Hydrocarbons Commission, which we refer to
as the NHC). In connection with Round Zero,we have submitted to the
Ministry of Energy a request that we be assigned the right to
explore and develop areas in which we currently operate based on
our technical,financial and operational capabilities. As of the
date of this report, the Round Zero process has not yet been
completed. See “Item 4—Information on the Company—History and
Development—Energy Reform—Round Zero” for more details regarding
the Round Zero process and our submission.
PRESENTATION OF INFORMATION CONCERNING RESERVES
The estimates of Mexico’s proved reserves of crude oil and
natural gas for the five years ended December 31, 2013 included in
this report have been calculatedaccording to the technical
definitions required by the SEC. Although DeGolyer and MacNaughton,
Netherland, Sewell International, S. de R.L. de C.V. (which we
refer toas Netherland Sewell) and Ryder Scott Company, L.P. (which
we refer to as Ryder Scott) conducted reserves audits of our
estimates of the proved hydrocarbon reservesof Mexico as of
December 31, 2013 or January 1, 2014, as applicable, all reserves
estimates involve some degree of uncertainty. See “Item 3—Key
Information—RiskFactors—Risk Factors Related to Our Relationship
with the Mexican Government—Information on Mexico’s hydrocarbon
reserves in this report is based on estimates,which are uncertain
and subject to revision” and “—Our ability to maintain and increase
our oil production levels depends on our ability to successfully
develop provedhydrocarbon reserves, and failure to do so may limit
our ability to maintain and increase our production” for a
description of the risks relating to reserves and
reservesestimates.
We include these estimates of Mexico’s proved reserves in this
report and describe the reserves replacement rate by reference to
these proved reserves because,as of December 31, 2013,
Pemex-Exploration and Production
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had the right to extract, but not own, these reserves, and to
sell the resulting production under the Ley de Petróleos Mexicanos
(Petróleos Mexicanos Law). Following theadoption of the Energy
Reform Decree, our ability in the future to extract these reserves,
and to sell the resulting production, will be determined by Round
Zero, asdescribed above. See “Item 3—Key Information—Risk
Factors—Risk Factors Related to Our Relationship with the Mexican
Government—The Mexican nation, not us,owns the hydrocarbon reserves
located in the subsoil of Mexico and our right to continue to
exploit these reserves is subject to the approval of the Ministry
of Energy.”
FORWARD-LOOKING STATEMENTS
This Form 20-F contains words, such as “believe,” “expect,”
“anticipate” and similar expressions that identify forward-looking
statements, which reflect our viewsabout future events and
financial performance. We have made forward-looking statements that
address, among other things, our:
• exploration and production activities, including drilling;
• activities relating to import, export, refining,
petrochemicals and transportation of petroleum, natural gas and oil
products;
• projected and targeted capital expenditures and other costs,
commitments and revenues; and
• liquidity and sources of funding.
Actual results could differ materially from those projected in
such forward-looking statements as a result of various factors that
may be beyond our control. Thesefactors include, but are not
limited to:
• changes in international crude oil and natural gas prices;
• effects on us from competition;
• limitations on our access to sources of financing on
competitive terms;
• the outcome of Round Zero and our ability to find, acquire or
gain access to additional reserves and to develop the reserves that
we obtain successfully;
• uncertainties inherent in making estimates of oil and gas
reserves, including recently discovered oil and gas reserves;
• technical difficulties;
• significant developments in the global economy;
• significant economic or political developments in Mexico,
including developments relating to the implementation of the Energy
Reform Decree;
• developments affecting the energy sector; and
• changes in our legal regime or regulatory environment,
including tax and environmental regulations.
Accordingly, you should not place undue reliance on these
forward-looking statements. In any event, these statements speak
only as of their dates, and weundertake no obligation to update or
revise any of them, whether as a result of new information, future
events or otherwise.
For a discussion of important factors that could cause actual
results to differ materially from those contained in any
forward-looking statement, you should see“Item 3—Key
Information—Risk Factors.”
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PART I
Item 1. Identity of Directors, Senior Management and
Advisers
Not applicable.
Item 2. Offer Statistics and Expected Timetable
Not applicable.
Item 3. Key Information
SELECTED FINANCIAL DATA
The selected statement of comprehensive income, statement of
financial position and cash flows data set forth below as of and
for the three years endedDecember 31, 2013 have been derived from,
and should be read in conjunction with, our consolidated financial
statements as of December 31, 2012 and 2013 and for theyears ended
December 31, 2011, 2012 and 2013, which are included in Item 18 of
this report. Our consolidated financial statements for each of the
two fiscal years endedDecember 31, 2012 were audited by KPMG
Cárdenas Dosal, S.C., an independent registered public accounting
firm. Our consolidated financial statements for the fiscalyear
ended December 31, 2013 were audited by Castillo Miranda y
Compañía, S.C. (which we refer to as BDO Mexico), an independent
registered public accounting firm.
Selected Financial Data of PEMEX
Year ended December 31,(1)(2)
2011 2012 2013 2013(3)
(in millions of pesos, except ratios)
(in millions of
U.S. dollars)
Statement of Comprehensive Income Data Net sales Ps. 1,558,454
Ps. 1,646,912 Ps. 1,608,205 U.S. $122,984 Operating income 861,311
905,339 727,622 55,644 Financing income 30,584 23,215 24,527 1,876
Financing cost (63,236) (72,951) (54,067) (4,135) Exchange (loss)
gain—Net (60,143) 44,846 (3,951) (302) Net (loss) income for the
period (106,942) 2,600 (170,058) (13,005)
Statement of Financial Position Data (end of period) Cash and
cash equivalents 114,977 119,235 80,746 6,175 Total assets
1,981,374 2,024,183 2,047,390 156,570 Long-term debt 672,657
672,618 750,563 57,398 Total long-term liabilities 1,624,752
2,059,445 1,973,446 150,915 Total equity (deficit) 103,177
(271,066) (185,247) (14,166)
Statement of Cash Flows Depreciation and amortization 127,380
140,538 148,492 11,356 Acquisition of wells, pipelines, properties,
plant and equipment(4) 167,014 197,509 245,628 18,784
Other Financial Data Ratio of earnings to fixed charges(5)(6) —
1.14 — —
(1) We have not included selected consolidated financial data as
of and for the years ended December 31, 2009 and 2010, as we began
presenting our financial statements in accordance with IFRS for the
fiscal year ending
December 31, 2012, with an official IFRS “ adoption date” of
January 1, 2012 and a “ transition date” to IFRS of January 1,
2011. Based on such adoption and transition dates, we were not
required to prepare financialstatements in accordance with IFRS as
of and for the years ended December 31, 2009 and 2010 and therefore
are unable to present selected financial data in accordance with
IFRS for this period without unreasonable effortand expense.
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(2) Includes Petróleos Mexicanos, the subsidiary entities and
the subsidiary companies listed in Note 3(a) to our consolidated
financial statements included herein.(3) Translations into U.S.
dollars of amounts in pesos have been made at the exchange rate
established by the SHCP for accounting purposes of Ps. 13.0765 =
U.S. $1.00 at December 31, 2013. Such translations should
not be construed as a representation that the peso amounts have
been or could be converted into U.S. dollar amounts at the
foregoing or any other rate.(4) Includes capitalized financing
cost. See Note 10 to our consolidated financial statements included
herein and “ Item 5—Operating and Financial Review and
Prospects—Liquidity and Capital Resources.”(5) Earnings, for this
purpose, consist of pre-tax income (loss) from continuing
operations before income from equity investees, plus fixed charges,
minus interest capitalized during the period, plus the amortization
of
capitalized interest during the period and plus dividends
received on equity investments. Pre-tax income (loss) is calculated
after the deduction of hydrocarbon duties, but before the deduction
of the hydrocarbon incometax and other income taxes. Fixed charges
for this purpose consist of the sum of interest expense plus
interest capitalized during the period. Fixed charges do not take
into account exchange gain or loss attributable toour
indebtedness.
(6) Earnings for the years ended December 31, 2011 and 2013 were
insufficient to cover fixed charges. The amount by which fixed
charges exceeded earnings was Ps. 108,098 million and Ps. 163,803
million for the yearsended December 31, 2011 and 2013,
respectively.
Source: PEMEX’s consolidated financial statements, prepared in
accordance with IFRS, as it relates to the Selected Statements of
Comprehensive Income, Statement of Financial Position and Statement
of Cash FlowsData; and Petróleos Mexicanos, as it relates to Other
Financial Data.
EXCHANGE RATES
The following table sets forth, for the periods indicated, the
high, low, average and period-end exchange rates for the purchase
of U.S. dollars, expressed in pesosper U.S. dollar. These rates
have not been restated in constant currency units.
Period Exchange Rate
High Low Average(1) Period End
Year Ended December 31, 2009 15.406 12.632 13.578 13.058 2010
13.194 12.156 12.635 12.383 2011 14.254 11.505 12.464 13.951 2012
14.365 12.625 13.140 12.964 2013 13.433 11.976 12.857 13.098
November 2013 13.243 12.871 13.060 13.111 December 2013 13.217
12.851 13.010 13.098
2014 January 2014 13.456 12.997 13.222 13.359 February 2014
13.509 13.204 13.293 13.226 March 2014 13.332 13.056 13.193 13.056
April 2014 13.143 12.950 13.067 13.084 May 2014(2) 13.053 12.946
12.996 12.986
(1) Average of month-end rates, except for 2013 and 2014 monthly
exchange rates.(2) For the period from May 1, 2014 to May 9,
2014.Source:Noon buying rate for cable transfers in New York
reported by the Federal Reserve.
The noon buying rate for cable transfers in New York reported by
the Federal Reserve on May 9, 2014 was Ps. 12.986 = U.S. $1.00.
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RISK FACTORS
Considerations Related to Mexico
The effects of the Energy Reform Decree and its implementation
are uncertain but likely to be material.
The Energy Reform Decree, which was enacted in December 2013,
included transitional articles that set forth the framework for the
implementation of secondarylegislation and provided for certain
transitional steps, including the Round Zero process described
below. We expect that the effects of these developments on
ourbusiness and operations will be material. Among the features of
the Energy Reform Decree that could have an effect on our
operations are the following:
• the Mexican Government will carry out the exploration and
extraction of hydrocarbons in Mexico through assignments to us, as
a productive state-owned
company, as well as through agreements with us and with private
sector;
• the Comisión Reguladora de Energía (Energy Regulatory
Commission) will have the authority to grant permits to us and
private sector companies to
engage in natural gas processing, oil refining and transport,
storage, distribution and selling of hydrocarbons and
petrochemicals and their derivatives inMexico;
• the transfer of certain of Pemex Gas and Basic Petrochemicals’
assets related to the national gas pipeline system to a separate
decentralized public entity that
will be created in the future; and
• the grant of additional technical and administrative authority
to the Ministry of Energy, the NHC and the Energy Regulatory
Commission.
As of the date of this report and until the secondary
legislation related to the Energy Reform Decree becomes effective
and private sector companies enter into contractualagreements to
operate in the Mexican energy sector, we are the only entity that
conducts the petroleum industry in Mexico on behalf of Mexico.
As of the date of this report, one key aspect of the Energy
Reform Decree—our initial allocation of oil and gas exploration and
extraction rights—is beingimplemented pursuant to a process
outlined in the transitional articles and referred to as Round
Zero. As part of Round Zero, we have submitted a request that
theMinistry of Energy assign to us certain oil and gas exploration
and extraction rights. The Ministry of Energy has a deadline of
September 17, 2014 to respond to ourrequest. See “—Risk Factors
Related to Our Relationship with the Mexican Government—The Mexican
nation, not us, owns the hydrocarbon reserves located in thesubsoil
of Mexico and our right to continue to exploit these reserves is
subject to the approval of the Ministry of Energy” below in this
Item 3.
The secondary legislation implementing the Energy Reform Decree
is expected to include, among other things, additional details
regarding the contractual andfiscal regime that will be applicable
to us and changes to our corporate structure as part of Petróleos
Mexicanos’ conversion from a decentralized public entity to
a“productive state-owned company” by December 2015. As of the date
of this report, this secondary legislation has not been adopted.
The impact of the Energy ReformDecree on us will largely depend on
how it is implemented by the secondary legislation and on the
outcome of Round Zero. It would therefore be premature to predict
thelong-term effects of the Energy Reform Decree and the new
framework it contemplates, but these effects could be adverse to
our interests in significant respects. Inaddition, as a result of
longstanding restrictions included in certain of our financing
agreements that were based on the legal framework in effect before
the Energy ReformDecree was enacted, these effects may cause us to
default on these agreements in the event that we are unable to
obtain waivers from our lenders or bondholders, asapplicable. For
more information, see “Item 4—Information on the Company—History
and Development—Energy Reform.”
Economic conditions and government policies in Mexico and
elsewhere may have a material impact on our operations.
A deterioration in Mexico’s economic condition, social
instability, political unrest or other adverse social developments
in Mexico could adversely affect ourbusiness and financial
condition. Those events could also
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lead to increased volatility in the foreign exchange and
financial markets, thereby affecting our ability to obtain new
financing and service our debt. Additionally, theMexican Government
may cut spending in the future. These cuts could adversely affect
our business, financial condition and prospects. In the past,
Mexico hasexperienced several periods of slow or negative economic
growth, high inflation, high interest rates, currency devaluation
and other economic problems. These problemsmay worsen or reemerge,
as applicable, in the future, and could adversely affect our
business and our ability to service our debt. A worsening of
international financial oreconomic conditions, including a slowdown
in growth or recessionary conditions in Mexico’s trading partners,
including the United States, or the emergence of a newfinancial
crisis, could have adverse effects on the Mexican economy, our
financial condition and our ability to service our debt.
Changes in exchange rates or in Mexico’s exchange control laws
may hamper our ability to service our foreign currency debt.
The Mexican Government does not currently restrict the ability
of Mexican companies or individuals to convert pesos into U.S.
dollars or other currencies, andMexico has not had a fixed exchange
rate control policy since 1982. However, in the future, the Mexican
Government could impose a restrictive exchange control policy, asit
has done in the past. We cannot provide assurances that the Mexican
Government will maintain its current policies with regard to the
peso or that the peso’s value willnot fluctuate significantly in
the future. The peso has been subject to significant devaluations
against the U.S. dollar in the past and may be subject to
significantfluctuations in the future. Mexican Government policies
affecting the value of the peso or preventing us from exchanging
pesos into U.S. dollars could prevent us frompaying our foreign
currency obligations.
Most of our debt is denominated in U.S. dollars. In the future,
we may incur additional indebtedness denominated in U.S. dollars or
other currencies. Declines in thevalue of the peso relative to the
U.S. dollar or other currencies may increase our interest costs in
pesos and result in foreign exchange losses to the extent that we
havenot hedged our exposure with derivative financial instruments,
which we refer to as DFIs.
For information on historical peso/U.S. dollar exchange rates,
see “—Key Information—Exchange Rates” in this Item 3.
Political conditions in Mexico could materially and adversely
affect Mexican economic policy and, in turn, our operations.
Political events in Mexico may significantly affect Mexican
economic policy and, consequently, our operations. On December 1,
2012, Enrique Peña Nieto, a memberof the Partido Revolucionario
Institucional (Institutional Revolutionary Party, or PRI), formally
assumed office for a six-year term as the President of Mexico. As
of thedate of this report, no political party holds a simple
majority in either house of the Mexican Congress.
Mexico has experienced a period of increasing criminal violence
and such activities could affect our operations.
Recently, Mexico has experienced a period of increasing criminal
violence, primarily due to the activities of drug cartels and
related criminal organizations. Inresponse, the Mexican Government
has implemented various security measures and has strengthened its
military and police forces. Despite these efforts,
drug-relatedcrime continues to exist in Mexico. These activities,
their possible escalation and the violence associated with them, in
an extreme case, may have a negative impact on ourfinancial
condition and results of operations.
Risk Factors Related to Our Relationship with the Mexican
Government
The Mexican Government controls us and it could limit our
ability to satisfy our external debt obligations or could
reorganize or transfer us or our assets.
Each of Petróleos Mexicanos and the subsidiary entities is a
decentralized public entity of the Mexican Government, and
therefore the Mexican Governmentcontrols us, as well as, as of the
date of this report, our
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annual budget, which is approved by the Cámara de Diputados
(Chamber of Deputies). The Energy Reform Decree provides that by
December 2015, Petróleos Mexicanoswill be converted from a
decentralized public entity to a productive state-owned company.
Moreover, the proposed secondary legislation implementing the
Energy ReformDecree provides us with, among other things,
additional technical, managerial and budgetary autonomy designed to
increase our production and allow us to competeeffectively with
other oil and gas companies that enter the Mexican energy sector.
See “Item 4—Information on the Company—History and
Development—EnergyReform.” Notwithstanding this increased autonomy
and our conversion to a productive state-owned company, Petróleos
Mexicanos will continue to remain under theMexican Government’s
control, as the Mexican Government has (and, following the
implementation of the Energy Reform Decree and related proposed
secondarylegislation, will continue to have, albeit to a lesser
extent) the power to intervene directly or indirectly in our
commercial and operational affairs. Intervention by theMexican
Government could adversely affect our ability to make payments
under any securities issued by us. Although Petróleos Mexicanos is
(and following itsconversion to a productive state-owned company
will remain) under the Mexican Government’s control, its financing
obligations do not constitute obligations of and arenot guaranteed
by the Mexican Government.
The Mexican Government’s agreements with international creditors
may affect our external debt obligations. In certain past debt
restructurings of the MexicanGovernment, Petróleos Mexicanos’
external indebtedness was treated on the same terms as the debt of
the Mexican Government and other public sector entities.
Inaddition, Mexico has entered into agreements with official
bilateral creditors to reschedule public sector external debt.
Mexico has not requested restructuring of bonds ordebt owed to
multilateral agencies.
The Energy Reform Decree contemplates the transfer of certain of
Pemex-Gas and Basic Petrochemicals’ assets to another decentralized
public entity of theMexican Government that will be created in the
future. The Mexican Government has the power, in connection with
the implementation of the secondary legislationrelating to the
Energy Reform Decree or if the Mexican Constitution and federal law
were further amended, to reorganize us, including a transfer of all
or a portion ofPetróleos Mexicanos and the subsidiary entities or
their assets to an entity not controlled by the Mexican Government.
The reorganization and transfer of assetscontemplated by the Energy
Reform Decree or any other reorganization or transfer that the
Mexican Government may effect, could adversely affect our
production, causea disruption in our workforce and our operations
and cause us to default on certain obligations. See
“—Considerations Related to Mexico” above in this Item 3.
Petróleos Mexicanos and the subsidiary entities pay special
taxes and duties to the Mexican Government, which may limit our
capacity to expand our investment
program.
We pay a substantial amount of taxes and duties to the Mexican
Government, particularly on the revenues of Pemex-Exploration and
Production, which may limitour ability to make capital investments.
In 2013, approximately 53.8% of our sales revenues was used to pay
taxes and duties to the Mexican Government. These specialtaxes and
duties constitute a substantial portion of the Mexican Government’s
revenues. For further information, see “Item 4—Information on the
Company—Taxes andDuties” and “Item 5—Operating and Financial Review
and Prospects—IEPS Tax, Hydrocarbon Duties and Other Taxes.” The
Energy Reform Decree contemplates that thesecondary legislation
implementing it will include a new fiscal regime applicable to us.
See “—Considerations Related to Mexico—The effects of the Energy
ReformDecree and its implementation are uncertain but likely to be
material” above in this Item 3.
The Mexican Government has imposed price controls in the
domestic market on our products.
The Mexican Government has from time to time imposed price
controls on the sales of natural gas, liquefied petroleum gas
(LPG), gasoline, diesel, gas oil intendedfor domestic use, fuel oil
and other products. As a result of these price controls, we have
not been able to pass on all of the increases in the prices of our
productpurchases to our customers in the domestic market. We do not
control the Mexican Government’s domestic policies and the Mexican
Government could impose additionalprice controls on the domestic
market in the future. The imposition of such price controls would
adversely affect our results of operations. For more information,
see
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“Item 4—Information on the Company—Business
Overview—Refining—Pricing Decrees” and “Item 4—Information on the
Company—Business Overview—Gas andBasic Petrochemicals—Pricing
Decrees.”
The Mexican nation, not us, owns the hydrocarbon reserves
located in the subsoil of Mexico and our right to continue to
exploit these reserves is subject to the
approval of the Ministry of Energy.
The Mexican Constitution provides that the Mexican nation, not
us, owns all petroleum and other hydrocarbon reserves located in
the subsoil of Mexico.
Following the adoption of the Energy Reform Decree, Article 27
of the Mexican Constitution provides that the Mexican Government
will carry out exploration andextraction activities through
agreements with private sector companies and through assignments to
and agreements with us. Once the secondary legislation related to
theEnergy Reform Decree is fully implemented, we and other oil and
gas companies will have the right to exploit the petroleum and
other hydrocarbon reserves located in thesubsoil of Mexico, subject
to assignment of these rights by the Ministry of Energy and entry
into agreements pursuant to a competitive bidding process.
On March 21, 2014, as part of Round Zero, we submitted to the
Ministry of Energy a request that we be assigned the right to
continue to explore and develop areasthat together contain 96% of
Mexico’s estimated proved reserves of crude oil and natural gas as
of December 31, 2013. The transitional articles of the Energy
ReformDecree provide that the Ministry of Energy will take the
following factors into consideration when determining whether to
grant us an assignment:
• with respect to areas that we were actively exploring in which
we had made commercial discoveries or investments as of December
21, 2013, our investment
capacity and evidence of a detailed plan for exploration;
and
• with respect to areas that we already had under production as
of December 21, 2013, our development plan for producing fields,
including evidence of proper
development of such fields and our ability to efficiently and
competitively carry out production activities.
The Ministry of Energy has a deadline of September 17, 2014 to
respond to our request. The Ministry of Energy may not approve the
assignment of certain of theproved oil and gas reserves we
requested.
Access to crude oil and natural gas reserves is essential to an
oil and gas company’s sustained production and generation of
income, and our ability to generateincome would be materially and
adversely affected if we do not receive a significant percentage of
the proved oil and gas reserves that we have requested pursuant
toRound Zero or if the Mexican Government were to restrict or
prevent us from exploiting any crude oil and natural gas reserves
that it assigns to us. For more information,see “Item 4—Information
on the Company—History and Development—Energy Reform—Round
Zero.”
Information on Mexico’s hydrocarbon reserves in this report is
based on estimates, which are uncertain and subject to
revisions.
The information on oil, gas and other reserves set forth in this
report is based on estimates. Reserves valuation is a subjective
process of estimating undergroundaccumulations of crude oil and
natural gas that cannot be measured in an exact manner; the
accuracy of any reserves estimate depends on the quality and
reliability ofavailable data, engineering and geological
interpretation and subjective judgment. Additionally, estimates may
be revised based on subsequent results of drilling, testingand
production. These estimates are also subject to certain adjustments
based on changes in variables, including crude oil prices.
Therefore, proved reserves estimatesmay differ materially from the
ultimately recoverable quantities of crude oil and natural gas. See
“—Risk Factors Related to Our Operations—Crude oil and natural
gasprices are volatile and low crude oil and natural gas prices
adversely affect our income and cash flows and the amount of
Mexico’s hydrocarbon reserves that we have theright to extract and
sell.” Pemex-Exploration and Production revises its estimates of
Mexico’s hydrocarbon reserves that it is entitled to extract and
sell annually, whichmay result in material
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revisions to our estimates of Mexico’s hydrocarbon reserves it
is entitled to extract and sell. Our ability to maintain our
long-term growth objectives for oil productiondepends on our
ability to successfully develop our reserves, and failure to do so
could prevent us from achieving our long-term goals for growth in
production.
We must make significant capital expenditures to maintain our
current production levels, and to maintain, as well as increase,
any proved hydrocarbon reserves that
may be assigned to us pursuant to Round Zero. Mexican Government
budget cuts, reductions in our income and inability to obtain
financing may limit our ability to
make capital investments.
Our ability to maintain, as well as increase, our oil production
levels is highly dependent upon our ability to successfully develop
existing hydrocarbon reservesand, in the long term, upon our
ability to obtain the right to develop additional reserves.
We continually invest capital to enhance our hydrocarbon
recovery ratio and improve the reliability and productivity of our
infrastructure. Despite theseinvestments, the replacement rate for
proved hydrocarbon reserves decreased to 67.8% in 2013,
representing a significant decline in proved hydrocarbon reserves.
Pemex-Exploration and Production’s crude oil production decreased
by 1.0% from 2010 to 2011, by 0.2% from 2011 to 2012 and by 1.0%
from 2012 to 2013, primarily as a result ofthe decline of
production in the Cantarell and Delta del Grijalva projects.
The development of the reserves that are assigned to us pursuant
to Round Zero, particularly any reserves in the deep waters of the
Gulf of Mexico and in shale oiland gas fields in the Burgos basin,
will demand significant capital investments and will pose
significant operational challenges. We cannot guarantee that we
will have orwill be able to obtain, in the time frame that we
expect, sufficient resources necessary to exploit the reserves that
the Mexican Government assigns to us as part of RoundZero, or that
it may grant to us in the future. In addition, increased
competition in the oil and gas sector in Mexico may increase the
costs of obtaining additional acreagein bidding rounds for the
rights to new reserves.
Our ability to make capital expenditures is limited by the
substantial taxes and duties that we pay to the Mexican Government
and cyclical decreases in ourrevenues primarily related to lower
oil prices. Budget cuts imposed by the Mexican Government and the
availability of financing may limit our ability to make
capitalinvestments that are necessary to maintain current
production levels and increase the proved hydrocarbon reserves we
are entitled to exploit. For more information, see“Item
4—Information on the Company—History and Development—Capital
Expenditures and Investments” and “—Energy Reform.”
Increased competition in the Mexican energy sector may have a
negative impact on our results of operations and financial
conditions.
Once the secondary legislation related to the Energy Reform
Decree is fully implemented, we and other oil and gas companies
will have the right to carry out certainactivities related to the
energy sector in Mexico, including exploration and extraction
activities. The Mexican Government will carry out exploration and
extraction activitiesthrough agreements with private sector
companies and through allocations to or agreements with us. Any oil
and gas fields that we do not request or are not assigned tous
pursuant to Round Zero will be subject to a competitive bidding
process open to participation by private sector companies in which
we will not have a preferentialright. We will also likely face
competition for the right to develop new oil and gas fields in
Mexico, as well as in connection with certain refining,
transportation andprocessing activities. For more information, see
“Item 4—Information on the Company—History and Development—Energy
Reform.” If we are unable to competesuccessfully with private
sector companies in the energy sector in Mexico, our results of
operations and financial condition may be adversely affected.
We may claim some immunities under the Foreign Sovereign
Immunities Act and Mexican law, and your ability to sue or recover
may be limited.
Petróleos Mexicanos and the subsidiary entities are
decentralized public entities of the Mexican Government.
Accordingly, you may not be able to obtain ajudgment in a U.S.
court against us unless the U.S.
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court determines that we are not entitled to sovereign immunity
with respect to that action. In addition, Mexican law does not
allow attachment prior to judgment orattachment in aid of execution
upon a judgment by Mexican courts upon the assets of Petróleos
Mexicanos or the subsidiary entities. As a result, your ability to
enforcejudgments against us in the courts of Mexico may be limited.
We also do not know whether Mexican courts would enforce judgments
of U.S. courts based on the civilliability provisions of the U.S.
federal securities laws. Therefore, even if you were able to obtain
a U.S. judgment against us, you might not be able to obtain a
judgment inMexico that is based on that U.S. judgment. Moreover,
you may not be able to enforce a judgment against our property in
the United States except under the limitedcircumstances specified
in the Foreign Sovereign Immunities Act of 1976, as amended.
Finally, if you were to bring an action in Mexico seeking to
enforce our obligationsunder any of our securities, satisfaction of
those obligations may be made in pesos, pursuant to the laws of
Mexico.
Our directors and officers, as well as some of the experts named
in this Form 20-F, reside outside the United States. Substantially
all of our assets and those of mostof our directors, officers and
experts are located outside the United States. As a result, you may
not be able to effect service of process on our directors or
officers orthose experts within the United States.
Risk Factors Related to Our Operations
Crude oil and natural gas prices are volatile and low crude oil
and natural gas prices adversely affect our income and cash flows
and the amount of Mexico’s
hydrocarbon reserves.
International crude oil and natural gas prices are subject to
global supply and demand and fluctuate due to many factors beyond
our control. These factors includecompetition within the oil and
natural gas industry, the prices and availability of alternative
sources of energy, international economic trends, exchange rate
fluctuations,expectations of inflation, domestic and foreign
government regulations or international laws, political and other
events in major oil and natural gas producing andconsuming nations
and actions taken by Organization of the Petroleum Exporting
Countries (OPEC) members and other oil exporting countries, trading
activity in oil andnatural gas and transactions in DFIs related to
oil and gas.
When international crude oil and natural gas prices are low, we
earn less export sales revenue and, therefore, generate lower cash
flows and earn less income,because our costs remain roughly
constant. Conversely, when crude oil and natural gas prices are
high, we earn more export sales revenue and our income before
taxesand duties increases. As a result, future fluctuations in
international crude oil and natural gas prices will have a direct
effect on our results of operations and financialcondition, and may
affect Mexico’s hydrocarbon reserves estimates. See “—Risk Factors
Related to Our Relationship with the Mexican Government—Information
onMexico’s hydrocarbon reserves in this report is based on
estimates, which are uncertain and subject to revisions” above in
this Item 3 and “Item 11—Quantitative andQualitative Disclosures
about Market Risk—Hydrocarbon Price Risk.”
We are an integrated oil and gas company and are exposed to
production, equipment and transportation risks, criminal acts and
deliberate acts of terror.
We are subject to several risks that are common among oil and
gas companies. These risks include production risks (fluctuations
in production due to operationalhazards, natural disasters or
weather, accidents, etc.), equipment risks (relating to the
adequacy and condition of our facilities and equipment) and
transportation risks(relating to the condition and vulnerability of
pipelines and other modes of transportation). More specifically,
our business is subject to the risks of explosions inpipelines,
refineries, plants, drilling wells and other facilities, hurricanes
in the Gulf of Mexico and other natural or geological disasters and
accidents, fires and mechanicalfailures. Criminal attempts to
divert our crude oil, natural gas or refined products from our
pipeline network and facilities for illegal sale have resulted in
explosions,property and environmental damage, injuries and loss of
life.
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Our facilities are also subject to the risk of sabotage,
terrorism and cyber attacks. In July 2007, two of our pipelines
were attacked. In September 2007, six differentsites were attacked
and 12 of our pipelines were affected. The occurrence of any of
these events or of accidents connected with production, processing
and transportingoil and oil products could result in personal
injuries, loss of life, environmental damage with resulting
containment, clean-up and repair expenses, equipment damage
anddamage to our facilities. A shutdown of the affected facilities
could disrupt our production and increase our production costs. As
of the date of this report, there havebeen no similar occurrences
since 2007. Although we have established cybersecurity systems and
procedures to protect our information technology and have not
yetsuffered a cyber attack, if the integrity of our information
technology were ever compromised due to a cyber attack, our
business operations could be disrupted and ourproprietary
information could be lost or stolen.
We purchase comprehensive insurance policies covering most of
these risks; however, these policies may not cover all liabilities,
and insurance may not beavailable for some of the consequential
risks. There can be no assurance that accidents or acts of terror
will not occur in the future, that insurance will adequately
coverthe entire scope or extent of our losses or that we may not be
found directly liable in connection with claims arising from these
or other events. See “Item 4—Informationon the Company—Business
Overview—PEMEX Corporate Matters—Insurance.”
We have a substantial amount of liabilities that could adversely
affect our financial condition and results of operations.
We have a substantial amount of debt. As of December 31, 2013,
our total indebtedness, excluding accrued interest, was
approximately U.S. $63.6 billion, in nominalterms, which is a 6.4%
increase as compared to our total indebtedness, excluding accrued
interest, of approximately U.S. $59.8 billion at December 31, 2012.
Our level ofdebt may increase further in the near or medium term
and may have an adverse effect on our financial condition and
results of operations.
To service our debt, we have relied and may continue to rely on
a combination of cash flows provided by operations, drawdowns under
our available creditfacilities and the incurrence of additional
indebtedness. Certain rating agencies have expressed concerns
regarding the total amount of our debt, our increase inindebtedness
over the last several years and our substantial unfunded reserve
for retirement pensions and seniority premiums, which as of
December 31, 2013 was equalto approximately U.S. $85.6 billion. Due
to our heavy tax burden, we have resorted to financings to fund our
capital investment projects. Any lowering of our credit ratingsmay
have adverse consequences on our ability to access the financial
markets and/or our cost of financing. If we were unable to obtain
financing on favorable terms, thiscould hamper our ability to
obtain further financing as well as hamper investment in projects
financed through debt. As a result, we may not be able to make the
capitalexpenditures needed to maintain our current production
levels and to maintain, as well as increase, Mexico’s proved
hydrocarbon reserves, which may adversely affectour financial
condition and results of operations. See “—Risk Factors Related to
Our Relationship with the Mexican Government—We must make
significant capitalexpenditures to maintain our current production
levels, and to maintain, as well as increase, any proved
hydrocarbon reserves that may be assigned to us pursuant toRound
Zero. Mexican Government budget cuts, reductions in our income and
inability to obtain financing may limit our ability to make capital
investments.”
Our compliance with environmental regulations in Mexico could
result in material adverse effects on our results of
operations.
A wide range of general and industry-specific Mexican federal
and state environmental laws and regulations apply to our
operations; these laws and regulationsare often difficult and
costly to comply with and carry substantial penalties for
non-compliance. This regulatory burden increases our costs because
it requires us to makesignificant capital expenditures and limits
our ability to extract hydrocarbons, resulting in lower revenues.
For an estimate of our accrued environmental liabilities, see“Item
4—Information on the Company—Environmental Regulation—Environmental
Liabilities.” In addition, we have agreed with third parties to
make investments toreduce our carbon dioxide emissions. See “Item
4—Information on the Company—Environmental Regulation—Global
Climate Change and Carbon Dioxide EmissionsReduction.”
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Item 4. Information on the Company
HISTORY AND DEVELOPMENT
We are the largest company in Mexico, and according to the
November 18, 2013 issue of Petroleum Intelligence Weekly, we were
the seventh largest crude oilproducer and the eleventh largest oil
and gas company in the world based on data from the year 2012. In
1938, President Lázaro Cárdenas del Río nationalized the
foreign-owned oil companies which were then operating in Mexico,
and the Mexican Congress established Petróleos Mexicanos by a
decree effective on July 20, 1938. Since 1938,Mexican federal laws
and regulations have entrusted Petróleos Mexicanos with a central
role in the planning and management of Mexico’s petroleum industry.
On July 17,1992, the Mexican Congress created the subsidiary
entities out of operations that had previously been directly
managed by Petróleos Mexicanos. Petróleos Mexicanosand its four
subsidiary entities, Pemex-Exploration and Production,
Pemex-Refining, Pemex-Gas and Basic Petrochemicals and
Pemex-Petrochemicals, are decentralizedpublic entities of the
Mexican Government, and each is a legal entity empowered to own
property and carry on business in its own name.
Our executive offices are located at Avenida Marina Nacional No.
329, Colonia Petróleos Mexicanos, México, D.F. 11311, México. Our
telephone number is (52-55)1944-2500.
As of the date of this report, the activities of Petróleos
Mexicanos and its subsidiary entities are regulated primarily
by:
• the Ley Reglamentaria del Artículo 27 Constitucional en el
Ramo del Petróleo (Regulatory Law to Article 27 of the Political
Constitution of the United
Mexican States Concerning Petroleum Affairs, which we refer to
as the Regulatory Law); and
• the Petróleos Mexicanos Law.
We anticipate that the regulatory regime applicable to the
activities of Petróleos Mexicanos and its subsidiary entities will
be modified significantly pursuant to thechanges contemplated by
the Energy Reform Decree. See “—Information on the Company—History
and Development—Energy Reform” below in this Item 4.
The Regulatory Law and the Petróleos Mexicanos Law grant
Petróleos Mexicanos and certain of its subsidiary entities the
right to:
• explore, exploit, refine, transport, store, distribute and
sell (first-hand) crude oil;
• explore, exploit, produce and sell (first-hand) natural gas
and transport and store natural gas, to the extent the
transportation and storage activities are
inextricably linked with such exploitation and production;
and
• produce, store, transport, distribute and sell (first-hand)
the derivatives of petroleum (including petroleum products) and
natural gas used as basic industrialraw materials that constitute
basic petrochemicals, which include ethane, propane, butanes,
pentanes, hexanes, heptanes, naphthas, carbon black feedstocksand
methane, but, in the case of methane, only if obtained from
hydrocarbons used as basic raw materials by the petrochemical
industry and obtained fromdeposits located in Mexico.
The operating activities of Petróleos Mexicanos are allocated
among the four subsidiary entities, each of which has the
characteristics of a subsidiary of PetróleosMexicanos. The
principal business lines of the subsidiary entities are as
follows:
• Pemex-Exploration and Production explores for and exploits
crude oil and natural gas and transports, stores and markets these
hydrocarbons;
• Pemex-Refining refines petroleum products and derivatives that
may be used as basic industrial raw materials and stores,
transports, distributes and markets
these products and derivatives;
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• Pemex-Gas and Basic Petrochemicals processes natural gas,
natural gas liquids and derivatives that may be used as basic
industrial raw materials and stores,
transports, distributes and markets these products and
derivatives and produces, stores, transports, distributes and
markets basic petrochemicals; and
• Pemex-Petrochemicals engages in industrial petrochemical
processes and stores, distributes and markets petrochemicals other
than basic petrochemicals.
Under the Petróleos Mexicanos Law, which replaced the Ley
Orgánica de Petróleos Mexicanos y Organismos Subsidiarios (Organic
Law of Petróleos Mexicanosand the Subsidiary Entities), the
subsidiary entities were to continue to conduct business in
accordance with their mandates under existing law until the
President ofMexico issued a reorganization decree, based on a
proposal by the Board of Directors of Petróleos Mexicanos. The
Board of Directors of Petróleos Mexicanos submitted aproposal to
the President of Mexico providing that the existing structure of
the subsidiary entities be maintained, and on March 21, 2012, the
President of Mexico issuedthe Decreto que tiene por objeto
establecer la estructura, el funcionamiento y el control de los
organismos subsidiarios de Petróleos Mexicanos (Decree to
establishthe structure, operation and control of the subsidiary
entities of Petróleos Mexicanos), which was published in the
Official Gazette of the Federation and became effectiveas of the
following day. This decree consistent with the recommendation of
the Board of Directors of Petróleos Mexicanos, maintains the
existence of the four subsidiaryentities.
In 1995, the Mexican Congress amended the Regulatory Law to
allow private and social sector companies, which include
labor-controlled organizations andindustries, to participate, with
the Mexican Government’s approval, in the storage, distribution and
transportation of natural gas. Pursuant to the Regulatory Law,
asamended, these types of companies may construct, own and operate
pipelines, installations and equipment. Since 1997, the Mexican
Government has required that wedivest our existing natural gas
distribution assets, retaining authority over the exploration,
exploitation, production and first-hand sale of natural gas, as
well as thetransportation and storage inextricably linked with this
type of exploitation and production. See “Item 4—Information on the
Company—Business Overview—Gas andBasic Petrochemicals—Private
Sector Participation in Natural Gas Distribution.”
The Regulatory Law and the Petróleos Mexicanos Law have allowed
us to co-generate electric energy and to enter into agreements with
the Comisión Federal deElectricidad (Federal Electricity
Commission) to sell our excess production to this entity. The funds
and the public investment projects required to carry out these
co-generation works and the acquisition of any excess production by
the Federal Electricity Commission must be included in the annual
Presupuesto de Egresos de laFederación (Federal Expenditure
Budget), which is subject to discussion by and approval of the
Chamber of Deputies.
On November 13, 2008, amendments to the Ley Federal de
Presupuesto y Responsabilidad Hacendaria (Federal Law of Budget and
Fiscal Accountability) werepublished in the Official Gazette of the
Federation, which became effective on November 14, 2008. Under
these amendments:
• As of January 30, 2009, our debt related to Proyectos de
Infraestructura Productiva de Largo Plazo (long-term productive
infrastructure projects, which werefer to as PIDIREGAS) was
included in our balance sheet prepared under Normas Específicas de
Información Financiera Gubernamental para el SectorParaestatal
(Mexican Specific Standards for Governmental Financial Information
for Public Sector Entities) and is now recognized as public sector
debt. ForMexican FRS purposes, which was the method by which we
prepared our consolidated financial statements at that time, all of
our PIDIREGAS-relatedfinancing and assets were already included in
our consolidated balance sheet and, therefore, these amendments did
not have a material effect on ourconsolidated balance sheet or
income statement for any period.
• During the second half of 2009, Petróleos Mexicanos assumed,
as primary obligor, all payment obligations under PIDIREGAS
financing entered into by the
Master Trust and Fideicomiso F/163, our principal PIDIREGAS
financing vehicles.
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In November 2008, the Petróleos Mexicanos Law was adopted by the
Mexican Congress and several other laws were adopted or amended, as
part of what we referto as the 2008 Energy Reform. None of these
laws included any amendment to the Mexican Constitution.
As a result of the 2008 Energy Reform, we are authorized to
offer cash incentives to contractors that provide us with access to
new technologies, faster executionor greater profits, subject to
the requirements that our payment obligations under construction
and services contracts must always be satisfied in cash and that in
no casemay we grant ownership rights over hydrocarbons to our
contractors. See “Item 4—Information on the Company—Business
Overview—Exploration and Production—Integrated Exploration and
Production Contracts.”
Energy Reform
On December 12, 2013, the Permanent Commission of the Mexican
Congress approved amendments to Articles 25, 27 and 28 of the
Mexican Constitution, whichwere subsequently approved by a majority
of Mexico’s state legislatures and signed into law by President
Peña Nieto. On December 20, 2013, the Energy Reform Decreewas
published in the Official Gazette of the Federation and took effect
on December 21, 2013. The Energy Reform Decree includes
transitional articles that set forth thegeneral framework for the
secondary legislation or implementing laws, which have not been
enacted as of the date of this report.
We describe below the key features of the Energy Reform Decree
that relate to the hydrocarbons sector in Mexico and our
operations:
• Ownership by Mexican Nation: Solid, liquid and gaseous
hydrocarbons located in the subsoil of Mexico remain the property
of the Mexican nation.
• Private Sector Participation: The Mexican Government will
carry out the exploration and extraction of hydrocarbons in Mexico
through assignments toproductive state-owned companies (as
described below) or through agreements with these productive
state-owned companies or with private sectorcompanies. As part of
the secondary legislation to be adopted, the Mexican Congress must
make the necessary adjustments to the legal frameworkregulating the
contractual regime for exploration and extraction activities, which
may include the following contractual arrangements:
• licenses, pursuant to which a license holder would be entitled
to the hydrocarbons once these are extracted from the subsoil;
• production-sharing contracts, pursuant to which a contractor
would be entitled to receive a percentage of production;
• profit-sharing contracts, pursuant to which a contractor would
be entitled to receive a percentage of the profit from the sale of
the extracted
hydrocarbons; and
• service contracts, pursuant to which a contractor would
receive cash payments for services performed.
The Mexican Government will have the flexibility to combine
elements of these contractual frameworks in order to maximize the
income attributable to theMexican nation and thereby help ensure
its long-term development. In addition, the Energy Reform Decree
specifies the process by which the MexicanGovernment grants any
such contract will be governed by rules that ensure its
transparency, and information about payments made or taxes paid
under anysuch contract will be made publicly available.
• Conversion: The Energy Reform Decree provides that Petróleos
Mexicanos is to be converted from a decentralized public entity to
a productive state-owned
company within two years from the enactment of the Energy Reform
Decree, or by December 21, 2015. During the two-year transition
period, we will beentitled to be awarded the assignments and
contracts mentioned above. The Energy Reform Decree
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provides that the corporate purpose of a productive state-owned
company will be to create economic value and increase the income of
the Mexican nationwhile adhering to principles of equity as well as
social and environmental responsibility, and we will be granted
technical, managerial and budgetaryautonomy, subject to certain
controls. The Mexican Government will continue to control Petróleos
Mexicanos once it is converted to a productive state-owned company.
As a productive state-owned company, Petróleos Mexicanos’ Chief
Executive Officer will be appointed by the President of Mexico and
itsBoard of Directors will consist of five representatives of the
Mexican Government, including the Secretary of Energy (who will
serve as Chairperson of theBoard), and five independent
members.
• Initial Assignments and Subsequent Bidding Process: The
transitional articles of the Energy Reform Decree outline a
process, commonly referred to asRound Zero, for the determination
of the initial allocation of rights to carry out exploration and
production activities in Mexico. Round Zero is beingadministered by
the Ministry of Energy, with technical assistance from the NHC.
Pursuant to Round Zero, we have requested that the Ministry of
Energyassign to us certain exploration and extraction areas in
which we currently explore, operate or have an interest in
developing based on our operationalcapabilities, as described
below. Any such areas that we do not request or are not assigned to
us will be subject to a competitive bidding process open
toparticipation by private sector companies.
• Booking of Reserves: Productive state-owned companies and
private companies will be allowed to report assignments or
contracts and the corresponding
expected benefits for accounting and financial purposes, with
the understanding that any solid, liquid or gaseous hydrocarbons
that are in the subsoil willremain the property of the Mexican
nation.
• Pipeline System: The Centro Nacional de Control del Gas
Natural (National Center of Natural Gas Control), a decentralized
public entity of the MexicanGovernment, will be created to own and
operate the national gas pipeline system and storage
infrastructure. Pursuant to the applicable secondary
legislation,Pemex-Gas and Basic Petrochemicals will transfer and
assign to the National Center of Natural Gas Control the assets and
contracts necessary for it tomanage this system and
infrastructure.
• Regulatory Oversight and Authority: The Ministry of Energy,
the NHC and the Energy Regulatory Commission will be granted
additional technical and
administrative authority over certain of our operations and the
energy sector generally, as described below.
• The Ministry of Energy, with the technical assistance of the
NHC, will have the authority to grant assignments pursuant to Round
Zero, select the
areas that will be subject to public bidding, establish the
technical guidelines for the bidding process, as well as for the
contracts themselves, andissue permits for oil refining and natural
gas processing.
• The NHC will be responsible for conducting the public bidding
process and executing the corresponding contracts, as well as
supervising oil and
gas production activities.
• The Energy Regulatory Commission will regulate and grant
permits for the storage, transportation and distribution through
pipelines of oil, gas,
petroleum products and petrochemicals; regulate third-party
access to transportation pipelines, as well as to the storage of
hydrocarbons and theirderivatives; and regulate the first-hand sale
of the aforementioned products.
• The NHC and the Energy Regulatory Commission will be vested
with their own legal status and technical and administrative
autonomy. In addition,
the SHCP, as well as other government entities, will be
entrusted with establishing the economic terms for contracts
assigned pursuant to the publicbidding process.
• Safety and the Environment: The Agencia Nacional de Seguridad
Industrial y de Protección al Medio Ambiente del Sector
Hidrocarburos (NationalAgency of Industrial Safety and
Environmental Protection for the Hydrocarbon Sector) will be
created to regulate and supervise activities and facilitiesrelated
to the hydrocarbons industry with respect to industrial safety and
environmental protection. This new entity will operate as an
administrative bodyof the Secretaría de Medio Ambiente y Recursos
Naturales (Ministry of the Environment and Natural Resources) and
will, among other things,
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supervise the decommissioning and abandonment of facilities.
Relatedly, companies participating in the hydrocarbons sector will
be subject to regulationsintended to reduce greenhouse gas
emissions and help ensure that energy and natural resources are
used efficiently.
• Mexican Oil Fund: The Fondo Mexicano del Petróleo para la
Estabilización y el Desarrollo (Mexican Petroleum Fund for
Stabilization and Development)will be created and entrusted with
receiving, administering and distributing the income that the
Mexican Government derives from exploration and
extractionactivities carried out under assignments or agreements,
excluding any tax revenues generated as a result of such
activities. This public trust will first use theincome to make the
payments required pursuant to the various assignments or
agreements; it will then transfer part of the income to various
funds thatfinance public expenses and will allocate the remaining
funds to long-term savings, including investments in financial
assets. The Banco de México (theMexican central bank) will act as
trustee, and the allocation of the fund’s assets will be supervised
by a technical committee composed of the Secretary ofEnergy, the
Secretary of Finance and Public Credit, the Governor of Banco de
México and four independent members.
• Anticorruption: Modifications to the current legal framework
will be made to allow for the supervision, and, if necessary,
investigation and prosecution, of
entities, individuals and public officials participating in the
Mexican energy sector.
The impact of the Energy Reform Decree on us will largely depend
on how it is implemented by the secondary legislation. On April 30,
2014, President Enrique PeñaNieto submitted to the Mexican Congress
bills proposing secondary legislation intended to implement certain
provisions of the Energy Reform Decree. Among otherthings, these
proposed bills provide us with additional technical, managerial and
budgetary autonomy designed to increase our production and allow us
to competeeffectively with other oil and gas companies that enter
the Mexican energy sector.
As of the date of this report, the proposed bills are subject to
review, debate and revision by the Mexican Congress, and therefore
we do not know what the finalscope and terms of any approved bill
will be. Accordingly, we cannot currently predict the effects of
the Energy Reform Decree and the new framework it
contemplates,although such effects are likely to be material and
impact our structure, results of operations and financial
position.
Round Zero
Transitional article six of the Energy Reform Decree, which
outlines the Round Zero process, required us to submit a proposal
to the Ministry of Energy requestingthat we be assigned the right
to explore and develop areas in which we currently operate based on
our technical, financial and operational capabilities. Accordingly,
onMarch 21, 2014, we submitted to the Ministry of Energy a request
that we retain rights that we believe will allow us to maintain our
current production and providesufficient exploration opportunities
to increase our production in the future. Together, the areas that
we requested contain 96% of Mexico’s estimated proved reserves
ofcrude oil and natural gas as of December 31, 2013.
Exploration Areas. With respect to our exploration activities,
we requested rights that we believe will allow our oil and gas
production to continue to grow. Oursubmission sought to ensure that
we maintain a number of areas that would allow us to continue our
investment program in exploratory activities. Specifically,
werequested to retain the right to explore offshore and onshore
areas in the Southeastern basins in which we have identified
opportunities that would allow us to increaseproduction in the
short-term. We also requested the right to continue to explore
certain deepwater areas and areas containing unconventional
deposits that we believe willallow us to increase production in the
medium and long-term. The primary consideration used to determine
which exploration areas to request was the continuity of
ourexploration strategy. Other factors that we considered included
the potential hydrocarbons content and expected monetary value of
the area, as well as the risks (bothtechnical and geological)
involved.
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Our proposal grouped the exploration areas that we requested
according to the following criteria:
• Conventional onshore areas: We requested oil opportunities in
which discoveries could be developed within a short amount of time
(ideally less than 12
months) and gas areas that are expected to be profitable in the
medium-term. We intend to pursue partnerships with the private
sector in these areas onlywhere necessary to mitigate risks and
increase our operational capacity.
• Shallow waters: We requested areas with oil opportunities and
existing infrastructure that would allow for discoveries to be
developed quickly. Given our
experience in shallow waters, we do not expect to involve
partners from the private sector in connection with these
areas.
• Deep waters: We requested areas with potential commercial
opportunities in which we expect to be able to enter into
partnerships with private sector
companies. These partnerships would help us bear the risks and
costs associated with deepwater operations and facilitate the
transfer of technology andexpertise.
• Unconventional areas: We requested areas with potential
commercial opportunities in order to be able to enter into
partnerships with the private sector that
will help us develop the technological capacity to exploit shale
and other unconventional deposits in the future.
Production Fields. With respect to our production activities, we
requested the right to continue operating our most profitable
fields in order to help ensure themaintenance of our production. We
also requested the right to continue developing complex and
capital-intensive areas, such as deepwater fields, that we believe
we cansuccessfully operate by entering into strategic partnerships
with the private sector. Altogether, we requested the right to
continue operating all of the fields that arecurrently in
production, as well as many of the fields that are being developed
or are close to being developed.
Our proposal grouped the production fields that we requested
according to the following criteria:
• Conventional onshore fields: We primarily requested profitable
fields for which we have the expertise and technology necessary to
develop, as well as
certain less profitable fields for strategic reasons.
• Chicontepec: We requested fields that, despite their
complexity, are strategically valuable due to the volume of oil and
gas deposits. We also requested
fields that are subject to existing contractual arrangements,
including Integrated Exploration and Production Contracts (which we
refer to as the IntegratedE&P Contracts).
• Shallow waters: We primarily requested profitable fields
containing heavy, light and extra-light crude oil deposits that
were already in production or under
development. We also requested certain fields containing
extra-heavy crude oil deposits that we are developing or will
develop in the near future.
• Deep waters: We requested fields that are currently under
development, including fields in Área Perdido.
Initial Assignments. The Ministry of Energy will take the
following factors into consideration when determining whether to
grant us an assignment:
• with respect to areas that we were actively exploring in which
we had made commercial discoveries or investments as of December
21, 2013, our investment
capacity and evidence of a detailed plan for exploration;
and
• with respect to areas that we already had under production as
of December 21, 2013, our development plan for producing fields,
including evidence of proper
development of such fields and our ability to efficiently and
competitively carry out production activities.
Although the Ministry of Energy has, in accordance with the
transitional articles of the Energy Reform Decree, until September
17, 2014 to respond to our requests,the Ministry of Energy has
publicly announced that
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it is possible that its responses may be issued in multiple
stages, beginning with areas in which we currently operate. Any
areas that we do not request or are notassigned to us will be
subject to a competitive bidding process. The transitional articles
of the Energy Reform Decree provide that we will be entitled to
receivecompensation in accordance with a valuation established by
the Ministry of Energy in the event that areas that we are
currently operating are not assigned to us.
Once a particular area is assigned to us, we may request that
the Ministry of Energy permit us to convert the assignment into one
of the contractual frameworksdescribed above. If, in connection
with the conversion of an assignment, we decide to enter into an
agreement with a private sector company, the NHC will conduct
apublic tender in a manner similar to the bidding process described
above to determine who will be our partner.
Capital Expenditures and Investments
The following table shows our capital expenditures, excluding
maintenance, for each of the five years ended December 31, 2013,
and the budget for suchexpenditures for 2014 and 2015. Capital
expenditure amounts are derived from our budgetary records, which
record such amounts on a cash basis. Accordingly, thesecapital
expenditure amounts do not correspond to capital expenditure
amounts included in our consolidated financial statements prepared
in accordance with IFRS.
Capital Expenditures
Year ended December 31,(1) Budget
2014
Budget
2015 2009 2010 2011 2012 2013
(in millions of pesos)(2)
Pemex-Exploration and Production Ps. 180,507 Ps. 194,838 Ps.
177,059 Ps. 193,801 Ps. 212,556 Ps. 230,879 Ps. 229,982
Pemex-Refining 18,526 22,636 25,157 28,944 29,794 40,699
77,744
Pemex-Gas and Basic Petrochemicals 3,941 3,887 3,019 4,468 5,405
7,548 8,234
Pemex-Petrochemicals 2,053 2,462 2,426 2,892 4,003 5,396
6,109
Petróleos Mexicanos 560 206 717 943 1,707 2,189 5,554
Total capital expenditures Ps. 205,587 Ps. 224,029 Ps. 208,378
Ps. 231,048 Ps. 253,465 Ps. 286,711 Ps. 327,623
Note: Numbers may not total due to rounding.(1) Includes
capitalized interest during construction period for the year 2009.
Does not include capitalized interest for the years 2010, 2011,
2012, 2013, 2014 and 2015.(2) Figures for 2009, 2010, 2011, 2012
and 2013 are stated in nominal pesos. Figures for 2014 and 2015 are
stated in constant 2014 pesos.Source: Petróleos Mexicanos.
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Total Capital Expenditures
The following table sets forth our total capital expenditures by
project, excluding maintenance, for the five years ended December
31, 2013, as well as the budget forsuch expenditures for 2014.
Capital Expenditures
Year ended December 31,(1)(2) Budget
2014(3) 2009 2010 2011 2012 2013
(in millions of pesos)(4)
Pemex-Exploration and Production
Ku-Maloob-Zaap Ps. 20,894 Ps. 18,350 Ps. 21,554 Ps. 22,720 Ps.
29,738 Ps. 34,292
Cantarell(5) 41,002 38,437 36,303 42,139 28,171 24,375
Aceite Terciario del Golfo 20,607 28,262 21,919 20,864 20,049
5,242
Tsimin-Xux(6) — — — — 13,312 20,179
Antonio J. Bermúdez(5)(7) 10,442 9,853 11,218 13,126 11,489
10,751
Burgos 19,410 29,704 19,564 17,324 10,316 9,935
Crudo Ligero Marino(6)(8) — — — — 10,000 13,402
Chuc(9) 3,469 2,619 3,730 7,870 9,897 12,245
Ogarrio-Magallanes(7) — — — — 6,693 5,229
Delta del Grijalva 4,571 5,904 6,501 5,671 6,169 6,934
Cactus-Sitio Grande(6)(10) 1,127 1,384 1,995 2,544 4,208
3,526
Integral Yaxché 4,552 3,963 1,986 2,485 3,858 8,173
El Golpe-Puerto Ceiba 1,706 847 1,274 2,691 3,708 1,438
Veracruz Basin(6) — — — — 3,703 5,102
Bellota-Chinchorro(11) 4,496 5,518 4,912 3,101 3,607 3,356
Jujo-Tecominoacán(5) 5,419 6,584 3,658 3,555 3,336 2,576
Tamaulipas-Constituciones 987 1,967