Pemex Presentation Mexico Energy Reform

Mexico’s Energy Reform
2° LATAM Oil & Gas Summit
September 10th, 2014
Dirección Jurídica
Why was the Energy Reform necessary?
Because…
PEMEX had to
be
strengthened
and it had to
diversify its
risks
The inertial
tendency of
the sector had
to be changed
It was necessary
to increase and
speed up
Mexico’s capacity
to exploit its oil
& gas wealth
OPPORTUNITIES
Goals of the Energy Reform
Mexico is an attractive country to
invest. It will offer great opportunities
to the industry's investors.
GROWTH
INVESTMENT
The Energy Reform will
upturn investment levels in
Mexico
PEMEX
PEMEX will remain as an important
player of the hydrocarbons industry,
with an aggressive investment plan
The Energy Reform will
boost the Nation’s
economic growth.
Energy Reform
Hydrocarbons Sector
• Constitutional
Energy Reform
passed
by
Congress
on
December 20, 2013;
• The most important structural
change in the last decades,
(Amendments to Constitutional
articles 25, 27 & 28).
• On August 11, 2014, Mexican
Congress enacted the secondary
legislation.
• It consists in the issuance of 9
new laws and amendments to 12
related laws.
Constitutional Articles 25, 27 and 28
Art. 25
Art. 27
Art. 28
• Strengthening
of
PEMEX
by
transforming it from a decentralized
public entity to a State-Owned
Enterprise (SOE)
• Hydrocarbons in the subsoil remain the
property of the Nation
• Allocations for PEMEX (round zero)
• Different types of contracts with private
participation
• The oil industry is no longer a state
monopoly
• Creation or reinforcement of regulatory
agencies
Secondary Legislation
Hydrocarbons
Law
Law of the
Mexican
Petroleum Fund
for the
Stabilization and
Development
Electric
Industry Law
Hydrocarbons
Revenue Law
Geothermic
Energy Law
New
Laws
Law of the National
Agency of Industrial
Security and
Environmental Protection
of the Hydrocarbons
Industry
Law of
Coordinated
Energy
Regulators
Law of the
Electricity
Federal
Commission
Law of
PEMEX
New Structure of the Energy Sector
Distinction of roles: owner, regulator,
operator and executor
The Ministry of Energy sets forth
the energy policy and coordinates
the regulators through a
Coordination Board
The Ministry of Finance establishes
the fiscal and economic aspects of
the contracts
NHC
The Mexican Petroleum Fund
receives and administers the
Government take on hydrocarbons
CRE
ANSIPMA
Regulators
Environmental Regulator
Regulatory Coordinated Agencies
CENAGAS
Administrators
CENACE
Natural Gas and Power Permissioners
Operators
PEMEX
CFE
State-owned Productive Enterprises
Private Parties
Legal Framework
Investment opportunities in the oil & gas
sector in Mexico
Strengthening of PEMEX as a State-Owned
Enterprise
Venturing
opportunities
Equality of
conditions
Management
autonomy
Transparency
regime and
accountability
PEMEX
Generate
economic
value
Align
investments to
more profitable
activities
Less
bureaucratic,
more efficient
and competitive
Corporate
Governance
New Contractual Schemes
Hydrocarbons Law
Hydrocarbons in the subsoil remain the
property of the Nation
Strategic Activities
E&P
Booking of Expected
Benefits
Activities under permissions:
midstream and downstream
Hydrocarbon Ownership
 Indemnity schemes for the occupancy of land at a fair market
value, without compromising the Nation’s ownership over the
Hydrocarbons or an interest participation which varies from 0.5%
to 2% for oil and up to 3% for shale gas.
 Hydrocarbons in the subsoil remain the property of the Nation,
while E&P activities may be carried out by multiple actors,
individually, or in association with public, private, national or
foreign partners.
 Private parties may report for accounting and financial purposes,
the corresponding assignment or contract and its expected
economic value and benefits based on prospective resources.
Hydrocarbons Law
Strategic Activities
Allotments:
Granted by NHC to
PEMEX or SOE’s.(only
service agreements)
(August 13th)
Authorizations
from NHC
E&P
Migration:
(farm-outs)
Authorized by the Ministry of
Energy to PEMEX by itself or in
association. Partner must be
elected through a bid process.
Contracts assigned by
the NHC through bid
to PEMEX, SOEs or
private investors
Information
Regulations and
derived from
obligations to be
inspection,
ESTE DOCUMENTO ES PARA USO INTERNO POR PARTE DEL PERSONAL DE PETRÓLEOS
issued MEXICANOS
by NHC. NINGUNA
exploration and
PARTE DEL MISMO PUEDE CIRCULARSE, CITARSE O REPRODUCIRSE PARA DISTRIBUCIÓN EXTERNA, SIN PREVIA
extraction
AUTORIZACIÓN DE LA DIRECCIÓN
JURÍDICA.
13
Conditions of E&P Contracts
Contractual Terms
&
Conditions
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Surface & depth of area
E&P work program
General terms and conditions
Operator/contractor liabilities
Insurance and guarantees
Abandonment & relinquishment
Duration & extension
Early termination
Events of default
Local content (except in deep
water)
ADR’s
Penalties
External auditing
Best practices
Round Zero
SENER has granted PEMEX:
• 83% of the 2P reserves
• 21% of the prospective resources
(potentially recoverable reserves)
3P
• 100% of all current fields actually in
production, where it already has commercial
discoveries, including certain deep-water
projects in the Gulf of Mexico.
• And a fraction of prospective shale fields.
This will assure PEMEX’s production for the next 20 years aside from
releasing the acreage available to bid to private investment .
ESTE DOCUMENTO ES PARA USO INTERNO POR PARTE DEL PERSONAL DE PETRÓLEOS MEXICANOS. NINGUNA
PARTE DEL MISMO PUEDE CIRCULARSE, CITARSE O REPRODUCIRSE PARA DISTRIBUCIÓN EXTERNA, SIN PREVIA
AUTORIZACIÓN DE LA DIRECCIÓN JURÍDICA.
Hydrocarbons Law
Contractual Process
1. Drafting of contracts
Selection process
Technical Conditions
Fiscal Conditions
Supported by:
2. Bidding process
Geological Database
Bids and awards
Execution of contract
con: y/o
PRIVADOS
3. Operation
Approval of work plan
4. Administration of
revenues
Authorization of surface
exploration (seismic) and
wells

Technical
administration of
the contracts

Security
The Mexican Petroleum Fund for the Stabilization and Development.
ESTE DOCUMENTO ES PARA USO INTERNO POR PARTE DEL PERSONAL DE PETRÓLEOS MEXICANOS. NINGUNA
PARTE DEL MISMO PUEDE CIRCULARSE, CITARSE O REPRODUCIRSE PARA DISTRIBUCIÓN EXTERNA, SIN PREVIA
AUTORIZACIÓN DE LA DIRECCIÓN JURÍDICA.
17
18
Gradual Opening of Retail Gasoline and Diesel
2014
Controlled
prices increase:
• 9 cents
2015
2017
Cap on gasoline and diesel prices based on inflation
Price
according to
market
conditions
• 11 cents
• 11 cents
2018
2017: Free import
Retail sales:
Private Investors
From 2016 on
Imports: exclusively by PEMEX
2014-2016
Gas stations
• Retail sales under PEMEX franchise
or other
trademarks
(beginning
ESTE DOCUMENTO
ES PARA
USO INTERNO
POR PARTE in
DEL2016)
PERSONAL
DE PETRÓLEOS MEXICANOS. NINGUNA
PARTE DEL MISMO PUEDE CIRCULARSE, CITARSE O REPRODUCIRSE PARA DISTRIBUCIÓN EXTERNA, SIN PREVIA
AUTORIZACIÓN DE LA DIRECCIÓN JURÍDICA.
• Retail sale of PEMEX or other suppliers products
19
20
Hydrocarbons Revenue Law






Based on international standards
Provides the Government’s take
Mechanisms to boost the development of the industry
Alternatives in case of increase in levels of exploration and extraction
Revenue flow to Government, independent
to the development or
profitability
Progressive Regime (increase of prices/commercial discoveries)
Duties
Allotments
Farm-out
Fund
Licenses
E&P
Signing
bonus
Contracts
Profits/
Production
Sharing
• Contractual rate during
the exploration
• Royalties
• Consideration based
on operative profits or
contractual value of
hydrocarbons
Income
Tax
midstream &
downstream
ESTE DOCUMENTO ES PARA USO INTERNO POR PARTE DEL PERSONAL DE PETRÓLEOS MEXICANOS. NINGUNA
PARTE DEL MISMO PUEDE CIRCULARSE, CITARSE O REPRODUCIRSE PARA DISTRIBUCIÓN EXTERNA, SIN PREVIA
AUTORIZACIÓN DE LA DIRECCIÓN JURÍDICA.
Hydrocarbons Revenue Law
Income Tax Law
22
Management & Corporate Governance
Board of
Directors
In charge of deciding and evaluating
PEMEX’s strategy
Government
Directors
With fiduciary duties, compelled to act in the
best interest of PEMEX
Independent
Directors
With broad experience and expertise in the
industry
DirectorGeneral
Responsible
for
the
operation
and
implementation of the strategy determined by
the Board of Directors
Transparency Regime and Accountability
Effective system
Fighting Corruption
• Internal Control
• Audit Committee
• Internal and External
Auditors
• Accountability Unit
•Corporate governance that ensures
transparency and accountability of
all activities performed by the
company
•Preventing
and
combating
corruption
• Civil and criminal liabilities
• Whistleblowing
practices
to
prevent corruption
• Creation of a Code of Ethics to
be enforced on public and private
parties.
Transparency & Anti-Corruption Policies
1
Bidding rounds and
their guidelines will
be public
2
4
3
Transparency
clauses will be
included in all
E&P contracts
Full disclosure
of all payments
associated to
E&P contracts
External audits
to supervise
cost recovery
and accounting
aspects
Challenges
Migrating from one of the most restrictive oil & gas legal framework
to a competitive and more flexible scheme.
Fostering investing in new projects financed by private capital.
Becoming more production-focused to be a major player in the
industry.
Developing the Mexican oil industry with the participation of private
companies.
Increasing the Nation’s revenues for the benefit of our society.
Creating a competitive fiscal regime under win-win conditions.
Constructing attractive legal instruments, in order to provide legal
certainty to all industry players.
THANK
YOU
THANK
YOU