Luis Vázquez Sentíes November 6th, 2008

1. “Hydrocarbons Panorama Sector in Mexico” Luis Vázquez Sentíes November 6th, 2008

2. INDEX • NATURAL GAS IN MEXICO II PEMEX AND ITS SURROUNDINGS III PRIVATE INVESTMENT IN ENERGETIC SECTOR • THE SECTOR’S REFORM

3. Introduction Startingthe 1995 momentum of thePrivateIniciative participation in transportation, storage and natural gas distribution,Mexico has developed and extense net of privatetransport pipelines and distribution. UP-TO-DATE PRIVAILS : 22 Natural gas distributionpermits • Properusagetransportpermits • 20 Open accesstransportpermits • 2 Storage permits : • Operating: LNG Altamira Terminal and Blue CoastEnergy. • In evaluationprocess: KMS Terminal of GNL (Manzanillo)

4. States with natural gas distribution . Only 17 of the 32 states in the Republic count on with natural gas domestic distribution, commercial and industrial services. Aguascalientes Mexico Baja California Nuevo León Coahuila Puebla Chihuahua Queretaro Distrito Federal San Luis Potosí Durango Sonora Guanajuato Tamaulipas Hidalgo Tlaxcala Jalisco Actually exist in round figures : 1,900,000 domestic clients 35,000 commercial clients 1,600 industrial clients

5. Distribution areas Gas Natural México: with seven gas distribution permits in some cities of: Coahuila, Tamaulipas, Estado de México, Nuevo León, Guanajuato, San Luis Potosí, Aguascalientes y el Distrito Federal. Gaz de France – Suez: with eight distribution pemits participates in some cities of: Tamaulipas, Veracruz, Jalisco, Puebla, Tlaxcala, Estado de Mexico, Querétaro. Ecogas México: with three disribution permits participates in the States of : Baja California, Chihuahua, Coahuila, Durango.

6. Distribution areas Compañía Mexicana de Gas In Monterrey, Nuevo León. Distribuidora de Gas de Occidente In Cananea, Sonora. Gas Natural de Juárez In Ciudad Juárez, Chihuahua. Compañía Nacional de Gas In Piedras Negras AND Nava Coahuila,

7. Distribution areas Gas Natural del Noroeste In Hermosillo, Sonora. Distribuidora de Gas Natural de México In Estado de México

8. Federative Entities with natural gas distribution service in some of its’ cities. Federative Entities without natural gas distribution sevice access.

9. Natural gas pipelines net As it can be seen in the graphic, a transport infrastructure is required and as an area distribution consequence, in the Mexican Pacific area, in order to rely with a complete natural gaspipelines net in Mexico and be able to benefit the cities that at present do not count on with the service. On the other hand, the actual pipelines national system’s infrastructure has a high vulnerability due to the inexsistent “TRAMA” interterconnection gaspipelines that allow a continuous supply when the flow that comes from the South of the Republic, affects it. Some of the benefits for the regions that counts with a natural gas purveyance, must be pointed out as follows: 1.- New industrial parks development and as a consequence, work’s force creation. 2.- Regional PIB increment. 3.- Health’s costs decrease in citizenry. 4.- Life’s quality improvement. 5.- Investment enterprises’ attraction at a long term that use natural gas as insume. 6.- Less cylinders’ distributors of urban traffic trucks. 7 - Minimum accident risks due to fixed underground installations no-manipulables. 8.- Consumptions’ payment after energetic has been used. 9.- External agents absence in consumers’ addresses by exterior measurement. 10.- Safely energetic, due to be of lighter weight than air.

10. Natural gas pipelines net

11. Liquefied natural gas terminals • Up-to-date and in order to attend at a short term on one side, system’s vulnerability of gas transportation system, and on the other at the delivery time in the Pacific region, on the following graphic may be observed the panorama of liquefied natural gas terminals in Mexico. • Besides that they are in operation, it has been considered several projects of GNL Terminals in the Pacific Zone, additional to the one located in Manzanillo. • PUERTO LIBERTAD • TOPOLOBAMPO • LAZARO CARDENAS • And in the Gulf of Mexico: • EL DORADO TIDELANDS • With the above mentioned it will: • Propitiate an infrastructure development in the area. • To possess an enegetic stable supply in the country. • The GNL installations will be interconected to the national system gaspipelines • assuring security and continuance to the national provisioning.

12. Liquefied natural gas terminals

13. PEMEX AND ITS SURROUDINGS

14. PEMEX AND ITS SURROUNDINGS • PEMEX has been suffering consistently in a lack of sufficient resources for its development and if we consider that in the last decade in Mexico the natural gas consumption registered a 5.9% annual operating rate; in order to continue satisfingthis demand. PEMEX must face several challenges such as: • . Develop an infrastructure supply, reliable and competitive. • Dispose of sufficient capacity in the exploitation logistic system and transportation. • Continue offering services, ( delivery modalities, price coverages) adequate to the natural gas consummer necessities. • Eliminate the transportation high vulnerability of the system. • Diminish gas burning at international levels. • More efficiency in petrochemical process that use Natural Gas as insume. • Increase exploration and crude and gas exploitation and activities. • Increase the deep water drilling technology exploitationusing the State-of-the-Art technology. • All the above mentioned matters have been taken as a priority due to production declination in some of the reservoirs, especially in CANTAREL.

15. PEMEX AND ITS SURROUNDINGS • Refering to the regulatory frame, Pemex must at a short term: • Look forward that the regulatory frame recently approved by the legislative body, be allowed to operate as a fiscally competitive enterprise. • Be transparent in its operations.. • Erradicate internal corruption and fuel robbery . • Count on with a sales price policy of its products that reflects adecuately the tconditions of price determination in an open market. • Avoid the stablishment of public subsidiaries. • Take conditions advantage of the recent private participation in contracts execution for gas and crude exploration and exploitation. • Propiciate private participation in construction, infraestructure operation of natural gas trasportation.

16. THE PRIVATE INVESTMENT IN THE ENERGETIC SECTOR

17. Private investment panorama The challenge Up-to-date PEMEX finantial capacity for natural gas exploitation, had been limited. For this reason, the recent juridic adecuations were imperative and of great relevance that recently were approved so as to propiciate private participation without impairment of hydrocarbons nation’s autonomy. The private national and foreigner investors have demonstrated their interest to participate in exploration, exploitation, gas and crude transportation and additionally in the increasing of natural gas distribution and marketing. We are conscious that today, and for today the possibility to incresase the hydrocarbons offert,depends of resource exploitation each time of more difficult access, using the best State-of-the-Art technology available in the world.

18. Private investment panorama • INDEPENTLY OF THE ABOVE, UP TO THIS DATE THE PRIVATE SECTOR IS COOPERATING IN THE INCREMENT OF GAS AND CRUDE THROUGH: • Six Multiple Services contracts (CSM) for gas extraction in the North of the country. • A “ mature fields” operation and maintenance contract. • The works will be carried out in the Ébano, Pánuco and Cacalilao Veracruzana zone, where the “LA PEZ” well is located, that was the first oil well exploited in Mexico,and discovered in 1904. • With more flexible operations, Pemex is hoping that in a four year period, the private companies raise the daily production of a mature well group in 200,000 barrells,starting at present from 75,000 barrels. • The works that the private enterprises will carry out include engineering, production, surface insfrastructure construction and production facilities in the assigned fields.

19. Private investment panorama • WITH THE LEGISTALITVE AGENCIES’ APPROVAL OF VARIOUS REGULATORY INSTRUMENTS, AS WELL AS WITH THE ACTIONS THAT ARE PERFORMING PEMEX: • WITH THE PRIVATE SECTOR SUPPORT, IT STILL WILL BE THE PRINCIPAL FISCAL INCOME SOURCE OF THE COUNTRY. • IT COULD REVERT THE DROP AND MAINTAIN THE PRODUCTION OF THE PRINCIPAL PRODUCER OF GAS AND CRUDE OIL FIELD. • INCREASE GAS AND CRUDE OIL PRODUCTION IN NEW RESERVOIRS AND IN THE GAS AND CRUDE OIL RE-EXPLOITATION PRODUCTION OF MORE MATURE FIELDS

20. THE SECTOR’S REFORM

21. TO CONCLUDE, A RESUMÉ OF THE MOST IMPORTANT ASPECTS OF THE PETROLEUM REFORM RECENTLY APPROVED BY THE MEXICAN CONGRESS

22. APROVED 1. Ley Reglamentaria del Artículo 27 Constitucional en el Ramo del Petróleo. WITH THE MODIFICATIONS IN THIS LAW IT IS NECESSARY TO EMPHASIZE: 1.- THE REITERATION THAT THE SUBSOIL HYDROCARBONS CORRESPOND TO THE NATION. 2.- THE DEFINITION OF “TRANSFRONTEIR RESERVOIRS”. 3.- THE DETERMINATION AS “PUBLIC UTILITY”, FOR PIPELINES AND STORAGE PLANTS’ CONSTRUCTION.

23. APROVED. LAWS FOR SUBSTANTIVE ACTIVITIES FOR ACQUISITIONS, LEASING, AND FURNISHING SERVICES LAW, IT IS WORTH TO POINT OUT THE FOLLOWING: THE FACULTY GIVEN TO THE BOARD OF DIRECTORS TO CELEBRATE THE RELATED CONTRACTING WITH THE SUBSTANTIVE ACTIVITIES OF PRODUCTIVE CHARACTER IN THE ESTABLISHED TERMS OF THE REGLAMENTARY LAW, CONSTITUTIONAL ARTICLE 27. WHICH WILL FACILITATE THE PEMEX OPERATION ELIMINATING BUROCRACY AND THE TORTUOUS ADMINISTRATIVE OF THE SO CALLED ACQUISITIONS LAW, HAD FOR THE PETROLEUM INDUSTRY.

24. APROVED. IN PRIVATE CONTRACTING MATTER IT EMPHASIZES : 1.- POSSIBILITY OF CONTRACTING PRIVATE PERSONNEL MAINTAINING THE NATIONAL DOMAIN OVER HYDROCARBONS AND THE REMUNERATIONS THAT WILL BE MADE FOR SAID CONTRACTS SHOULD BE MADE IN CASH. 2.- AUTHORIZATION COVENANT OF CONTRACTING ADDITIONAL COMPENSATIONS TO THE CONTRACTORS WHEN: CARRY OUT WORKS IN LESS TIME PERIODS OF THE ONES STIPULATED IN CONTRACT; NEW TECHNOLOGY ADOPTED, OR WHEN REDUNDANT ACTIONS PERFORMED RESULT IN A GREATER UTILITY TO PEMEX AND THE ORIGINAL RESULTS PERFORMED ARE IMPROVED.

25. APROVED LEY ORGANICA DE PETROLEOS MEXICANOS THE BEST AUTONOMY TO ORGANIZE INTERNALLY, CREATING THE MOST CONVENIENT ADMINISTRATIVE STRUCTURE FOR THE INSTITUTION INTERESTS. ON THE OTHER HAND, FOR THE FEDERAL EXECUTIVE IS EMPOWERED TO CREATE PEMEX THE SUBSIDIARY ORGANISMS THAT ARE REQUIRED, IN THE STRATEGIC AREAS, WHICH WILL FACILITATE ITS MANAGEMENT. LAW ALLOCATES SECONDARY PETROCHEMICAL PRODUCTION THROUGH SECONDARY SUBSIDIARY ORGANISMS, AND LEAVING IN THESE ALSO, THE RESPONSIBILITY OF ITS TRANSPORTATION, STORAGE, DISTRIBUTION AND COMMERCIALIZATION.

26. APROVED BOARD OF DIRECTORS. WITH THE NEW STRUCTURE THE BOARD OF DIRECTORS WILL HAVE MORE TRANSPARENCY, THAT WILL INTEGER FOUR PROFESSIONAL COUNSELORS AND THE VOTE OBLIGE REQUIREMENT OF AT LEAST TWO OF THEM, IN THE DECISIONS ADOPTED. AS WELL AS WITH THE ASSISTANCE OPERATION OF COMMITTEES OF REMUNERATIONS, ACQUISITIONS, LEASING, WORK PROJECTS AND SERVICES; ENVIRONMENT AND SUSTAINABLE DEVELOPMENT; TRANSPARENCY AND RENDERING ACCOUNTS; AND OF DEVELOPMENT AND TECHNOLOGICAL RESEARCH.

27. APROVED INDEBTEDNESS. GIVE FACILITIES TO SET UP THEIR CEILINGS AND INDEBTEDNESS CHARACTERISTICS AS WELL AS AUTONOMY FOR THE USE OF THEIR RESOURCES AND SUBJECTED TO PRODUCTIVITY TARGETS, WITHOUT INCREASING COSTS OF PERSONAL SERVICES, TO GIVE PEMEX, MORE LIBERTY FOR ITS DEVELOPMENT AS A DYNAMIC INDUSTRY THAT REQUIRES DECISION FLEXIBILITY, WITH CONTROLS BUT WITHOUT THE BUREAUCRATIC PROCESS. ………………………

28. APROVED NEW FISCAL REGIME. THE NEW SCHEMA WILL ALLOW PEMEX TO BE ABLE TO PERFORM MORE EXPLOITATION ACTIVITIES, OPTIMIZING THE YIELD OF THE RESERVOIRS OF MOST TECHNICAL AND OPERATIVE COMPLEXITY, THAT ARE SITUATED IN THE GULF OF MEXICO DEEP WATERS CITIZEN PARTICIPATION IN PEMEX CAPITAL THE OPPORTUNITY THAT THE MEXICAN CITIZENSHIP PARTICIPATES IN THE ENTERPRISE’S CAPITAL BY MEANS OF BONDS THAT WILL PAY YIELDS ACCORDING TO THE PERFORMANCE OF THE COMPANY, WILL PROPITIATE THAT MORE PERSONS WILL BE ATTENTIVE TO THE FULFILLMENT OF THE INSTITUTION. ……………..

29. APROVED. THE REGULATORY COMISSION LAW (CRE) THE REGULATORY ENERGY COMMISSION LAW HAS VERY IMPORTANT CHANGES, IN WHICH THEY GIVE MORE FACULTIES, AUTONOMY, RESPONSIBILITY AND MAKE CONGRUOUS ITS FUNCTION WHEN INTEGRATING IN ONLY ONE ORGAN, THE FACULTY TO SET FIRST HAND SALES PRICES, OF SECONDARY PETROCHEMICALS AND ITS PROCESSES, ITS TRANSPORTATION, STORAGE AND COMMERCIALIZATION, AS WELL AS BIOENERGETICS AND NATURAL GAS.

30. APROVED FEDERAL PUBLIC ADMINISTRATION ORGANIC LAW (“LOAPF”). WITH THE MODIFICATION OF THIS LAW, IT ASSIGNS TO THE SECRETARIA DE ENERGÍA (ENERGY SECRETARIAT ) THE TOTAL FACULTY FOR PLANNING, SURVEILLANCE, STRATEGY AND SUPERVISION OF THE MEDIUM TERM ENERGETIC POLICY, INCLUDING THE DEFINITION OF THE GAS AND CRUDE OIL EXPLORATION AND EXPLOITATION PLATFORM, THE RESERVES SUBSTITUTION, HYDROCARBONS TRANSFORMATION AND NUCLEAR AND ELECTRICAL GENERATION. IT IS CREATED UNDER THE NATIONAL ENERGY BOARD PRESIDENCY TO SUPPORT AS A SPECIALIZED ORGAN IN THE FULFILLMENT OF ITS TARGETS AND NEW OBJECTIVES AND THE HYDROCARBONS NATIONAL COMMISSION TO HELP IN THE PRODUCTION SUPERVISION OF HYDROGEN CARBIDE.

31. APROVED CREATION OF OTHER SECONDARY LAWS. WITH THE CREATION OF THESE INSTRUMENTS THE ORGANISMS’ PACKAGE AND LEGISLATIVE INSTRUMENTS IS COMPLEMENTED THAT WILL REGULATE THE ENERGETIC ACTIVITIES IN THE COUNTRY, PROPICIATING ITS RATIONAL USE, PLANNING AND OF THE INDUSTRY DEVELOPMENT, ITS EXPLOITATION AND INDUSTRIOUSNESS AND ADEQUATE USE OF THE RESOURCES THAT WILL BE GENERATED WITH IT

32. THANK YOU VERY MUCH FOR YOUR ATTENTION LUIS VÁZQUEZ SENTÍES DIAVAZ PRESIDENT www.diavaz.com.mx