UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 20-F

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

for the fiscal year ended December 31, 20142016

Commission File Number0-99

PETRÓLEOS MEXICANOS

(Exact name of registrant as specified in its charter)

Avenida Marina Nacional No. 329

Colonia Petróleos MexicanosVerónica Anzures

1131111300 Ciudad de México, D.F., México

(Address of principal executive offices)

Rolando Galindo GálvezJaime José del Río Castillo

(5255) 1944 9700

ri@pemex.com

Avenida Marina Nacional No. 329

Torre Ejecutiva, Piso 38 Colonia Petróleos MexicanosVerónica Anzures

1131111300 Ciudad de México, D.F., México

(Name, telephone,e-mail and/or facsimile numbenumber

randand 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.

Title of Each Class

9.50% Global Guaranteed Bonds due 2027

9 ¹⁄₄% Global Guaranteed Bonds due 2018

8.625% Bonds due 2022

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

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

3.125% Notes due 2019

6.375% Bonds due 2045

Indicate by check mark if the registrant is awell-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes¨☐    No  Nox☒

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  Nox☒

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.

Yesx☒    No  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 RegulationS-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, anon-accelerated filer, or a non-accelerated filer.an emerging growth company. See definitionthe definitions of “large accelerated filer,” “accelerated filer,” and large accelerated filer”“emerging growth company” in Rule12b-2 of the Exchange Act. (Check one):

Large accelerated filer¨    Accelerated filer¨    Non-accelerated filerx

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

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 Rule12b-2 of the Exchange Act).

Yes¨☐    No  Nox☒

TABLE OF CONTENTS

i

Petróleos Mexicanos and its fourseven subsidiary entities, which we refer to as the subsidiary entities,Pemex-ExploracióPemex Exploración y Producción (Pemex-Exploration(Pemex Exploration and Production),Pemex-RefinacióPemex Transformación Industrial (Pemex-Refining)(Pemex Industrial Transformation),Pemex-GasPemex Perforación y Petroquímica BásicaServicios (Pemex-Gas(Pemex Drilling and Basic Petrochemicals)Services),Pemex Logística (Pemex Logistics),Pemex Cogeneración y Servicios (Pemex Cogeneration and Services),Pemex-PetroquímicaPemex Fertilizantes (Pemex-Petrochemicals,(Pemex Fertilizers) and together with Pemex-Exploration and Production, Pemex-Refining and Pemex-Gas and Basic Petrochemicals, collectively referred to as the existing subsidiary entities)Pemex Etileno (Pemex Ethylene), comprise the state oil and gas company of the United Mexican States, which we refer to as Mexico. Petróleos Mexicanos is a productivestate-owned company of the Federal Government of Mexico, which we refer to as the Mexican Government, and each of the subsidiary entities is a decentralized public entityproductivestate-owned subsidiary of the Mexican Government.Mexico. Each of Petróleos Mexicanos and the existing subsidiary entities is a legal entity empowered to own property and carry on business in its own name. In addition, a number of subsidiary companies that are defined in Note 1 and listed in Note 3(a)4 to our consolidated financial statements incorporated in Item 18, which we refer to as our subsidiary companies, are incorporated into the consolidated financial statements; these subsidiary companies are also identified with their corresponding ownership percentages in “––“—Consolidated Structure of PEMEX” on page 4. As further described under “Item 4—Information on the Company—History and Development—Corporate Reorganization,” the seven new subsidiary entities assumed, on or prior to, November 1, 2015, all of the rights and obligations of the prior subsidiary entities of Petróleos Mexicanos—Pemex-Exploración y Producción(Pemex-Exploration and Production),Pemex-Refinación(Pemex-Refining),Pemex-Gas y Petroquímica Básica(Pemex-Gas and Basic Petrochemicals) andPemex-Petroquímica(Pemex-Petrochemicals). References to the subsidiary entities prior to this corporate reorganization refer toPemex-Exploration and Production,Pemex-Refining,Pemex-Gas and Basic Petrochemicals andPemex-Petrochemicals. Petróleos Mexicanos, the subsidiary entities and the subsidiary companies are collectively referred to as “PEMEX” or “we.” As of the date of this report, we are in the process of reorganizing our corporate structure. See “Item 4—Information on the Company—History and Development—Energy Reform” for more details.

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”“euros” or “€” are to the legal currency of the European Economic and Monetary Union. References herein to “pounds” or “£” are to the legal currency 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 herein means one thousand million.

Our consolidated financial statements included in this annual report were prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board. We refer in this report to “International Financial Reporting Standards as issued by the International Accounting Standards Board” as IFRS. In addition, these financial statements were audited in accordance with the International Standards on Auditing, as required by theLey del Mercado de Valores (Securities Market Law) and theDisposiciones de carácter general aplicables a las emisoras de valores y a otros participantes del mercado de valores(General Provisions applicable to issuers of securities and other participants in the securities market) in each case, of Mexico, for purposes of filing with theComisiónNacional Bancaria y de Valores (National Banking and Securities Commission, or the CNBV) for purposes of filing withand theBolsa Mexicana de Valores, S.A.B. de C.V. (Mexican(Mexican Stock Exchange, or the BMV) and with the CNBV,, and in accordance with the standards of the Public Company Accounting Oversight Board (United States), or PCAOB, for purposes of filings with the U.S. Securities and Exchange Commission, or the 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 statements to United States Generally Accepted Accounting Principles, which we refer to as U.S. GAAP. Accordingly, while we have in the past reconciled our consolidated financial statements prepared in accordance withNormas de Información Financiera Mexicanas (Mexican(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. Financial Accounting Standards Board Accounting Standards Codification (ASC) Topic 932 “Extractive Activities—Oil and Gas” (which we refer to as ASC Topic 932), as this is required 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 Form20-F, including all convenience translations of our consolidated financial statements included herein, at an exchange rate of Ps. 14.718020.6640 = U.S. $1.00, which is the exchange rate that theSecretaría de Hacienda y Crédito Público (Ministry of Finance and Public Credit, or the SHCP)Credit) instructed us to use on December 31, 2014.2016. You should not construe these translations from pesos into dollars as actually representing such U.S. dollar amounts or meaning that you could convert such amounts into U.S. dollars at the rates indicated. Mexico has a free market for foreign exchange, and 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 policies with 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 exchange rate on any date subsequent to the date hereof could be materially different from the rate indicated above. See “Item 3—Key Information—Exchange Rates” for information regarding the rates of exchange between pesos and U.S. dollars.

SPECIAL NOTE REGARDING MEXICAN ENERGY REFORM

On December 20, 2013, amendments to Articles 25, 27 and 28 of theConstitución Política de los Estados Unidos Mexicanos (Political Constitution of the United Mexican States, or the Mexican Constitution) were published as theDecreto por el que se reforman y adicionan diversas disposiciones de la Constitución Política de los Estados Unidos Mexicanos, en Materia de Energía (Decree that amends and supplements various provisions of the Mexican Constitution relating to energy matters, which we refer to as the Energy Reform Decree) in theDiario Oficial de la Federación(Official Gazette of the Federation) and took effect on December 21, 2013. The Energy Reform Decree includesartículos transitorios (transitional articles) that set forth the general framework for the implementing laws that are required to give effect to the Energy Reform Decree, which we refer to as the Secondary Legislation. On August 6, 2014, the Mexican Congress completed the process of approving the Secondary Legislation, which was signed into law by the President of Mexico, Mr. Enrique Peña Nieto, and published in the Official Gazette of the Federation on August 11, 2014. The Secondary Legislation includes nine new laws, among others, the newLey de Petróleos Mexicanos (Petróleos Mexicanos Law) and theLey de Hidrocarburos (Hydrocarbons Law), as well as amendments to several existing laws. As of the date of this report, certain provisions of the Secondary Legislation, including some provisions of the Petróleos Mexicanos Law, are not yet effective. See “Item 4—Information on the Company—History and Development—Energy Reform” for more details regarding the implementation of the Secondary Legislation.

On November 18, 2014, pursuant to the Petróleos Mexicanos Law, the Board of Directors of Petróleos Mexicanos approved the Director General’s proposal for our corporate reorganization, which provides for the future formation of the new productive state-owned subsidiaries,Pemex Exploración y Producción (Pemex Exploration and Production),Pemex Transformación Industrial (Pemex Industrial Transformation),Pemex Perforación y Servicios(Pemex Drilling and Services),Pemex Logística (Pemex Logistics),Pemex Cogeneración y Servicios (Pemex Cogeneration and Services),Pemex Fertilizantes (Pemex Fertilizers) andPemex Etileno (Pemex Ethylene and, together with Pemex Exploration and Production, Pemex Industrial Transformation, Pemex Drilling and Services, Pemex Logistics, Pemex Cogeneration and Services and Pemex Fertilizers, collectively referred to as the new subsidiary entities). See “Item 4—Information on the Company—History and Development—Energy Reform” for more information regarding our corporate reorganization, including theacuerdos de creación (creation resolutions) for each of the new subsidiary entities that were approved by the Board of Directors of Petróleos Mexicanos on March 27, 2015 and published in the Official Gazette of the Federation on April 28, 2015.

PRESENTATION OF INFORMATION CONCERNING RESERVES

The proved hydrocarbon reserves included in this report for the year ended December 31, 20142016 are those that we have the right to extract and sell based on assignments granted by the Mexican Government’s assignmentsGovernment to us in August 2014 through the process commonly referred to as Round Zero. See “Item 4—Information on the Company—History and Development—Energy Reform” for a description of the Round Zero process.

The estimates of our proved reserves of crude oil and natural gas for the five years ended December 31, 20142016 included in this report have been calculated according to the technical definitions required by the SEC. DeGolyer and MacNaughton, Netherland, Sewell International, S. de R.L. de C.V. (which we refer to as Netherland Sewell) and Ryder Scott Company, L.P. (which we refer to as Ryder Scott) conducted reserves audits of our estimates of our proved hydrocarbon reserves as of December 31, 20142016 or January 1, 2015,2017, as applicable. All reserves estimates involve some degree of uncertainty. For a description of the risks relating to reserves and reserves estimates, see “Item 3—Key Information—Risk Factors—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 revisions,” “—We must make significant capital expenditures to maintain our current production levels, and to maintain, as well as increase, ourthe proved hydrocarbon reserves.reserves assigned to us by the Mexican Government. Reductions in our income, adjustments to our capital expenditures budget and our inability to obtain financing may limit our ability to make capital investments” and “—The Mexican nation, not us, owns the hydrocarbon reserves in Mexico located in the subsoil ofin Mexico and our right to continue to extract these reserves is subject to the approval of the Ministry of Energy.”

FORWARD-LOOKING STATEMENTS

This Form20-F contains words, such as “believe,” “expect,” “anticipate” and similar expressions that identifyforward-looking statements, which reflect our views about future events and financial performance. We have madeforward-looking statements that address, among other things, our:

Actual results could differ materially from those projected in suchforward-looking statements as a result of various factors that may be beyond our control. These factors include, but are not limited to:

Accordingly, you should not place undue reliance on theseforward-looking statements. In any event, these statements speak only as of their dates, and we undertake 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 anyforward-looking statement, see “Item 3—Key Information—Risk Factors.”

PART I

Not applicable.

Not applicable.

SELECTED FINANCIAL DATA

The selected statement of comprehensive income (loss), statement of financial position and cash flows data set forth below as of and for the fourfive years ended December 31, 20142016 have been derived from, and should be read in conjunction with, our consolidated financial statements as of December 31, 20132015 and 20142016 and for the years ended December 31, 2012, 20132014, 2015 and 2014,2016, which are included in Item 18 of this report. Our consolidated financial statements for each of the fiscal yearsyear ended December 31, 2011 and 2012 were audited by KPMG Cárdenas Dosal, S.C., an independent registered public accounting firm. Our consolidated financial statements for each of the fiscal years ended December 31, 2013, 2014, 2015 and 20142016 were audited by Castillo Miranda y Compañía, S.C. (which we refer to as BDO Mexico), an independent registered public accounting firm. Certain amounts in the consolidated financial statements for the years ended December 31, 2012, 2013, 2014 and 20132015 have been reclassified to conform the presentation of the amounts in the consolidated financial statements for the year ended December 31, 2014.2016. These reclassifications are not significant to the consolidated financial statements and had no impact on our consolidated net income.income (loss).

As detailed below, for the years ended December 31, 2016 and 2015, we recognized net losses of Ps. 191.1 billion and Ps. 712.6 billion, respectively. In addition, we had negative equity as of December 31, 2016 and 2015 of Ps. 1,233.0 billion and Ps. 1,331.7 billion, respectively, which resulted in a negative working capital of Ps. 70.8 billion and Ps. 176.2 billion, respectively, and negative cash flows from operating activities of Ps. 41.5 billion for the year ended December 31, 2016. This has led our independent auditors to state in their most recent audit report that there is important uncertainty and significant doubt about our ability to continue as a going concern. We have disclosed the circumstances that have caused these negative trends and the actions we are taking to face them and have concluded that we continue to operate as a going concern. Accordingly, we have prepared our consolidated financial statements on a going concern basis, which assumes that we can meet our payment obligations. For more information on the actions that we are taking to face these negative trends, see “Item 5—Operating and Financial Review and Prospects—Overview” and “Item 5—Operating and Financial Review and Prospects—Liquidity and Capital Resources.”

Selected Financial Data of PEMEX

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 flows data; 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 andperiod-end exchange rates for the purchase of U.S. dollars, expressed in pesos per U.S. dollar. These rates have not been restated in constant currency units.

Source: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 April 24, 201521, 2017 was Ps. 15.38318.8425 = U.S. $1.00.

RISK FACTORS

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 hydrocarbon reserves that we have the right to extract and sell.

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 include competition 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 laws and government regulations, or international laws, political and other events in major oil and natural gas producing and consuming nations and actions taken by oil exporting countries, trading activity in oil and natural gas and transactions in derivative financial instruments (which we refer to as DFIs) related to oil and gas.

When international crude oil, petroleum product and/or natural gas prices are low, we generally earn less revenue and, therefore, generate lower cash flows and earn less income before taxes and duties because our costs remain roughly constant. Conversely, when crude oil, petroleum product and natural gas prices are high, we earn more revenue and our income before taxes and duties increases. During the first eight months of 2014, the Mexican crudeCrude oil export price rose to more thanprices, which had generally traded above U.S. $75.00 per barrel since October 2009 and traded above U.S. $100.00 per barrel as of July 30, 2014, began to fall in August 2014. After a gradual decline that resulted in per barrel prices falling to U.S. $91.16 at September 30, 2014, this decline sharply accelerated in October 2014 and prices fell to U.S. $53.27 per barrel at the end of 2014, with a weighted average price for the year wasof 2014 of U.S. $86.00 per barrel. However, beginning in September 2014, crude oil prices experienced a sharp decline, and in December 2014,During 2015, the weighted average Mexican crude oil export price was approximately U.S. $44.17 per barrel and fell to a lowU.S. $26.54 per barrel by the end of December 2015. In 2016, the weighted average Mexican crude oil export price was approximately U.S. $45.45$35.63 per barrel.barrel, falling to U.S. $18.90 per barrel on January 20, 2016, the lowest in twelve years, before rebounding to U.S. $46.53 per barrel on December 28, 2016. This sharp decline ofin crude oil prices had a direct effect on our results of operations and financial condition for the year ended December 31, 2014 and our financial condition2016. During the first three months of 2017, the weighted average Mexican crude oil price was U.S. $44.11 per barrel, an increase of U.S. $8.48 per barrel as compared to the 2016 weighted average Mexican crude oil export price. As of December 31, 2014, andApril 27, 2017, the continuationweighted average Mexican crude oil export price was U.S. $42.25 per barrel, a slight decrease from the first three months of prices at or around these levels or future2017, but an increase of U.S. $6.62 per barrel as compared to the 2016 weighted average Mexican crude oil export price. Future declines in international crude oil and natural gas prices will have a similar effects. During the first monthnegative impact on our results of 2015, the weighted average Mexican crude oil export price declined further to U.S. $37.36 per barrel.operations and financial condition. These fluctuations may also affect estimates of the amount of Mexico’s hydrocarbon reserves that we have the right to extract and sell. See “—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 revisions” below in this Item 3 and “Item 11—Quantitative and Qualitative Disclosures about About Market Risk—Changes in Exposure to Main Risks—Market Risk—Hydrocarbon Price Risk.”

We have a substantial amount of indebtedness and other liabilities and are exposed to liquidity constraints, which could make it difficult for us to obtain financing on favorable terms and could adversely affect our financial condition, results of operations and ability to repay our debt and, ultimately, our ability to operate as a going concern.

We have a substantial amount of debt, which we have incurred primarily to finance the capital expenditures needed to carry out our capital investment projects. Due to our heavy tax burden, our cash flow from operations in recent years has not been sufficient to fund our capital expenditures and other expenses and, accordingly, our debt has significantly increased and our working capital has decreased. The sharp decline in oil prices that began in late 2014 has had a negative impact on our ability to generate positive cash flows, which, together with our continued heavy tax burden and increased competition from the private sector, has further exacerbated our ability to fund our capital expenditures and other expenses from cash flow from operations. Therefore, in order to develop our hydrocarbon reserves and amortize scheduled debt maturities, we will need to raise significant amounts of financing from a broad range of funding sources.

As of December 31, 2016, our total indebtedness, including accrued interest, was approximately U.S. $96.0 billion (Ps. 1,983.1 billion), in nominal terms, which represents a 10.6% increase (a 32.8% increase in peso terms) compared to our total indebtedness, including accrued interest, of approximately U.S. $86.8 billion (Ps. 1,493.4 billion) as of December 31, 2015. 23.5% of our existing debt as of December 31, 2016, or U.S. $22.5 billion, is scheduled to mature in the next three years. As of December 31, 2016, we had negative working capital of U.S. $3.4 billion. Our level of debt may increase further in the short or medium term and may have an adverse effect on our financial condition, results of operations and liquidity position. To service our debt and to raise funds for our capital expenditures, we have relied and may continue to rely on a combination of cash flows provided by our operations, the divestment ofnon-strategic assets, drawdowns under our available credit facilities and the incurrence of additional indebtedness. See “Item 5—Operating and Financial Review and Prospects—Liquidity and Capital Resources—Overview—Changes to Our Business Plan.”

Certain rating agencies have expressed concerns regarding: (1) our heavy tax burden, (2) the total amount of our debt; (3) the significant increase in our indebtedness over the last several years; (4) our negative free cash flow during 2016, primarily resulting from our significant capital investment projects and the low price of oil; (5) the natural decline of certain of our oil fields and lower quality of crude oil; (6) our substantial unfunded reserve for retirement pensions and seniority premiums, which was equal to U.S. $59.1 billion as of December 31, 2016; and (7) the resilience of our operating expenses notwithstanding the sharp decline in oil prices that began in late 2014. On January 29, 2016, Standard & Poor’s (S&P) rating agency downgraded ourstand-alone credit profile from “BB+” to “BB,” and on August 23, 2016 downgraded our credit outlook from stable to negative. On December 23, 2016, S&P affirmed our global foreign currency rating of “BBB+.” On March 31, 2016, Moody’s Investors Service announced the revision of our global foreign currency and local currency credit ratings from “Baa1” to “Baa3” and changed the outlook for our credit ratings to negative. On December 9, 2016, Fitch Ratings affirmed our “BBB+” global credit rating, but revised the outlook for our credit ratings from stable to negative.

Any further lowering of our credit ratings may 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, this could hamper our ability to obtain further financing, invest in projects financed through debt and meet our principal and interest payment obligations with our creditors. As a result, we may be exposed to liquidity constraints and may not be able to service our debt or make the capital expenditures required to maintain our current production levels and to maintain, and increase, the proved hydrocarbon reserves assigned to us by the Mexican Government, which may adversely affect our financial condition and results of operations. See “—Risk Factors Related to our Relationship with the Mexican Government—We must make significant capital expenditures to maintain our current production levels, and to maintain, as well as increase, the proved hydrocarbon reserves assigned to us by the Mexican Government. Reductions in our income, adjustments to our capital expenditures budget and our inability to obtain financing may limit our ability to make capital investments” below.

If such constraints occur at a time when our cash flow from operations is less than the resources necessary to fund our capital expenditures or to meet our debt service obligations, in order to provide additional liquidity to our operations, we could be forced to further reduce our planned capital expenditures, implement further austerity measures and/or sell additionalnon-strategic assets in order to raise funds. A reduction in our capital expenditure program could adversely affect our financial condition and results of operations. Additionally, such measures may not be sufficient to permit us to meet our obligations.

Our consolidated financial statements have been prepared under the assumption that we will continue as a going concern. However, our independent auditors have stated in their most recent report that there is important uncertainty and significant doubt concerning our ability to continue operating as a result of recurring net losses, negative working capital, negative equity and negative cash flows from operating activities for the year ended December 31, 2016. Our consolidated financial statements do not include any adjustments that might result from the outcome of that uncertainty. If the actions we are taking to improve our financial condition, which are described in detail under “Item 5—Operating and Financial Review and Prospects—Liquidity and Capital

Resources—Overview—Changes to Our Business Plan,” are not successful, we may not be able to continue operating as a going concern.

We are an integrated oil and gas company and are exposed to production, equipment and transportation risks, blockades to our facilities and 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 operational hazards, 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 in pipelines, refineries, plants, drilling wells and other facilities, oil spills, hurricanes in the Gulf of Mexico and other natural or geological disasters and accidents, fires and mechanical failures. 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.

Our facilities are also subject to the risk of sabotage, terrorism, blockades and cyber attacks. In July 2007, twocyber-attacks. For example, widespread demonstrations, including blockades, as a result of the Mexican Government’s recent increase in fuel prices, have prevented us from accessing certain of our pipelines were attacked. In September 2007, six different sites were attackedrefined products supply terminals and 12 of our pipelines were affected.caused critical gasoline shortages at retail service stations in at least three Mexican states. The occurrence of these incidents related to the production, processing and transportation of oil and oilgas products could result in personal injuries, loss of life, environmental damage from the subsequent containment,clean-up and repair expenses, equipment damage and damage 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 have been no similar occurrences since 2007. Although we have established an information security program, which includes cybersecurity systems and procedures to protect our information technology, and have not yet suffered a cyber attack,cyber-attack, if the integrity of our information technology were ever compromised due to a cyber attack,cyber-attack, or due to the negligence or misconduct of our employees, our business operations could be disrupted and our proprietary information could be lost or stolen. As a result of these risks, we could face, among other things, regulatory action, legal liability, damage to our reputation, a significant reduction in revenues, an increase in costs, a shutdown of operations, or loss of our investments in affected areas.

We purchase comprehensive insurance policies covering most of these risks; however, these policies may not cover all liabilities, and insurance may not be available for some of the consequential risks. There can be no assurance that accidents, sabotage or acts of terror will not occur in the future, that insurance will adequately cover the entire scope or extent of our losses or that we may not be found directly liable in connection with claims arising from theseaccidents or other similar events. See “Item 4—Information on the Company—Business Overview—PEMEX Corporate Matters—Insurance.”

We have aDevelopments in the oil and gas industry and other factors may result in substantialwrite-downs of the carrying amount of liabilities thatcertain of our assets, which could adversely affect our operating results and financial condition and results of operations.condition.

We have a substantialevaluate on an annual basis, or more frequently where the circumstances require, the carrying amount of debt.our assets for possible impairment. Our impairment tests are performed by a comparison of the carrying amount of an individual asset or acash-generating unit with its recoverable amount. Whenever the recoverable amount of an individual asset orcash-generating unit is less than its carrying amount, an impairment loss is recognized to reduce the carrying amount to the recoverable amount.

Changes in the economic, regulatory, business or political environment in Mexico or other markets where we operate, such as the gradual liberalization of fuel prices pursuant to energy reform and the significant decline in international crude oil and gas prices, among other factors, may result in the recognition of impairment charges in certain of our assets. Due to the decline in oil prices, we have performed impairment tests of ournon-financial assets (other than inventories and deferred taxes) at the end of each quarter. As of December 31, 2014, our total indebtedness, including accrued interest, was approximately U.S. $77.7 billion, in nominal terms, which is a 20.8% increase as compared to our total indebtedness, including accrued interest,2015, we recognized an impairment charge of approximately U.S. $64.3 billion at December 31, 2013. Our level of debt may increase further in the short 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 credit facilities and the incurrence of additional indebtedness.

Certain rating agencies have expressed concerns regarding the total amount of our debt, our increase in indebtedness over the last several years and our substantial unfunded reserve for retirement pensions and seniority premiums, which asPs. 477,945 million. As of December 31, 2014 was equal2016, we recognized a net reversal of impairment in the amount of Ps. 331,314 million. See Note 12(d) to approximately U.S. $100.2 billion. Thoughour consolidated financial

statements for further information about the Secondary Legislation enablesimpairment of certain of our assets. Future developments in the Mexican Governmenteconomic environment, in the oil and gas industry and other factors could result in further substantial impairment charges, adversely affecting our operating results and financial condition.

Increased competition in the energy sector due to assume a portionthe current legal framework in Mexico could adversely affect our business and financial performance.

The Political Constitution of the pension liabilities of Petróleos MexicanosUnited Mexican States (the “Mexican Constitution”) and the subsidiary entities, the amount that this portion will represent is dependent on our abilityLey de Hidrocarburos (Hydrocarbons Law) allows other oil and gas companies, in addition to meet the conditions set forth in the applicable decree, and we cannot provide assurances that we will be able to meet these conditions within the specified time frame. Moreover, we cannot provide assurances that the Mexican Government’s potential assumption of any portion of our unfunded reserve in the future will eliminate the concerns of rating agencies.

Due to our heavy tax burden, we have resorted to debt financingus, to carry out our capital investment projects. Any loweringcertain activities related to the energy sector in Mexico, including exploration and extraction activities, and the import and sale of our credit ratings may 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, this could hamper our ability to obtain further financing as well as hamper investment in projects financed through debt.gasoline. As a result, we may not be ableface competition for the right to explore and develop new oil and gas reserves in Mexico. We will also likely face competition in connection with certain refining, transportation and processing activities. In addition, increased competition could make it difficult for us to hire and retain skilled personnel. For more information, see “Item 4—Information on the capital expenditures neededCompany—History and Development—Energy Reform.” If we are unable to maintaincompete successfully with other oil and gas companies in the energy sector in Mexico, our current production levelsresults of operations and to maintain, as well as increase, proved hydrocarbon reserves, which may adversely affect our financial condition and results of operations. See “—Risk Factors Related to our Relationship with the Mexican Government—We must make significant capital expenditures to maintain our current production levels, and to maintain, as well as increase, our proved hydrocarbon reserves. Reductions in our income, adjustments to our capital expenditures budget and inability to obtain financing may limit our ability to make capital investments” below in this Item 3.be adversely affected.

We are subject to Mexican and internationalanti-corruption,anti-bribery andanti-money laundering laws. Our failure to comply with these laws could result in penalties, which could harm our reputation, prevent us from obtaining governmental authorizations needed to carry out our operations and have an adverse effect on our business, results of operations and financial condition.

We are subject to Mexican and internationalanti-corruption,anti-bribery andanti-money laundering laws. See “Item 4—Information on the Company—General Regulatory Framework.” Although we maintain policies and processes intended to comply with these laws, including the review of our internal control over financial reporting, we are subject to the risk that our employees, contractors or any person doing business with us may engage in fraudulent activity, corruption or bribery, circumvent or override our internal controls and procedures or misappropriate or manipulate our assets for their personal or business advantage to our detriment. We have in place a number of systems for identifying, monitoring and mitigating these risks, but our systems may not be effective and we cannot ensure that these compliance policies and processes will prevent intentional, reckless or negligent acts committed by our officers or employees.

If we fail to comply with any applicableanti-corruption,anti-bribery oranti-money laundering laws, we and our officers and employees may be subject to criminal, administrative or civil penalties and other remedial measures, which could have material adverse effects on our business, financial condition and results of operations. Any investigation of potential violations ofanti-corruption,anti-bribery oranti-money laundering laws by governmental authorities in Mexico or other jurisdictions could result in an inability to prepare our consolidated financial statements in a timely manner. This could adversely impact our reputation, ability to access the financial markets and ability to obtain contracts, assignments, permits and other government authorizations necessary to participate in our industry, which, in turn, could have adverse effects on our business, results of operations and financial condition.

Our compliance with environmental regulations in Mexico could result in material adverse effects on our results of operations.

A wide range of general andindustry-specific Mexican federal and state environmental laws and regulations apply to our operations; these laws and regulations are often difficult and costly to comply with and carry substantial penalties fornon-compliance. This regulatory burden increases our costs because it requires us to make significant 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 other companiesGrowing international concern over greenhouse gas emissions and climate change could result in new laws and regulations that could adversely affect our results of

operations and financial condition. International agreements, including the Paris Agreement approved by the Mexican Government, contemplate coordinated efforts to make investmentscombat climate change. We may become subject to reducemarket changes, including carbon taxes, efficiency standards,cap-and-trade and emission allowances and credits. These measures could increase our carbon dioxide emissions.operating and maintenance costs, increase the price of our hydrocarbon products and possibly shift consumer demand tolower-carbon sources. See “Item 4—InformationEnvironmental Regulation—Climate Change” for more information on the Company—Environmental Regulation—Global Climate ChangeMexican Government’s current legal and Carbon Dioxide Emissions Reduction.”regulatory framework for combatting climate change.

Risk Factors Related to Mexico

The effects of the implementation of the new legal framework applicable to the energy sector in Mexico are uncertain but likely to be material, and may have a negative impact on us in the short and medium term.

The enactment of the Secondary Legislation implementing the reforms to the Mexican energy sector that were contemplated in the Energy Reform Decree has had a significant effect on us, and these effects could be adverse to our interests in the short and medium term, as further described below.

As part of the implementation of the Energy Reform Decree, the Mexican Government announced the results of Round Zero in August 2014, through which we were assigned oil and gas exploration and extraction rights in certain areas in Mexico. We are required to comply with the exploration plans and development plans for the extraction of hydrocarbons that we submitted to theSecretaría de Energía (Ministry of Energy) in connection with our assignments. If we fail to comply with our exploration and development for extraction plans within the specified time period authorized by Ministry of Energy, our rights to continue exploring and developing the underlying areas may be revoked, which may adversely affect our operating results and financial condition. See “—Risk Factors Related to our Relationship with the Mexican Government—We must make significant capital expenditures to maintain our current production levels, and to maintain, as well as increase, our proved hydrocarbon reserves. Reductions in our income, adjustments to our capital expenditures budget and inability to obtain financing may limit our ability to make capital investments” below in this Item 3.

Although, as of the date of this report, we remain the only entity that conducts exploration and extraction activities in Mexico, the Secondary Legislation allows the Mexican Government to enter into agreements with other oil and gas companies to conduct these activities. As a result, we expect to face competition for the right to explore and develop new oil and gas reserves in Mexico. See “—Risk Factors Related to our Relationship with the Mexican Government—Increased competition in the Mexican energy sector may have a negative impact on our results of operations and financial conditions” below in this Item 3. While the participation of other oil and gas companies in the Mexican energy sector is intended to provide a new source of revenues for the Mexican Government and thereby reduce its reliance on our revenues, we cannot provide assurances that the amount of our payments to the Mexican Government will significantly decrease in the near future. See “—Risk Factors Related to our Relationship with the Mexican Government—We make significant payments to the Mexican Government, which may limit our capacity to expand our investment program” below in this Item 3.

As of the date of this report, certain provisions of the Secondary Legislation, including some provisions of the Petróleos Mexicanos Law, are not yet effective. Accordingly, the effects of the implementation remain uncertain, although these effects are likely to be material and may have a negative effect on our financial condition, results of operation and prospects in the short and medium term. Moreover, 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 Reform Decree and the Secondary Legislation were enacted, these effects may cause us to default on these agreements in the event that we are unable to amend them or obtain waivers from our lenders, as may be required in connection with the ongoing implementation of the Secondary Legislation. See “Item 5—Operating and Financial Review and Prospects—Liquidity and Capital Resources—Amendments to Certain Financing Agreements” for more information regarding the waivers and amendments that we have obtained as of the date of this report.

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 our business and financial condition. TheseThose events could also lead to increased volatility in the foreign exchange and financial markets, thereby affecting our ability to obtain new financing and service our debt. Additionally, the Mexican Government recently cut spendingannounced budget cuts in November 2015, February 2016, and September 2016 in response to a downward trenddeclines in international crude oil prices, and it may cut spending in the future. See “—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” below in this Item 3.below. These cuts could adversely affect the Mexican economy and, consequently, our business, financial condition, operating results and prospects.

In the past, Mexico has experienced several periods of slow or negative economic growth, high inflation, high interest rates, currency devaluation and other economic problems. These problems may worsen or reemerge, as applicable, in the future and could adversely affect our business and ability to service our debt. A worsening of international financial or economic conditions, such as a slowdown in growth or recessionary conditions in Mexico’s trading partners, including the United States, or the emergence of a new financial crisis, could have adverse effects on the Mexican economy, our financial condition and our ability to service our debt.

Changes 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 other currencies. However, we cannot provide assurances that the Mexican Government will maintain its current policies with regard to the peso. In the future, the Mexican Government could impose a restrictive exchange control policy, as it has done in the past. Mexican Government policies preventing us from exchanging pesos into U.S. dollars could hamper our ability to service our foreign currency obligations, including our debt, the majority of which is denominated in currencies other than pesos.

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, Mr. Enrique Peña Nieto, a member of thePartido Revolucionario Institucional(Institutional Revolutionary Party or PRI), formally assumed office for a six-year term as thewas elected President of Mexico.Mexico and took office on December 1, 2012. As of the date of this annual report, no political party holds a simple majority in either house of the Mexican Congress. On June 7, 2015,

Presidential and federal congressional elections will take place in Mexico to elect 500 federal deputieswill be held in July 2018. The Mexican presidential election will result in a change in administration, as presidential reelection is not permitted in Mexico. As a result, we cannot predict whether changes in Mexican governmental policy will result from the change in administration. Political events in Mexico could adversely affect economic conditions and/or the oil and gas industry and, by extension, our results of the Mexican Congress.operations and financial position.

Mexico has experienced a period of increasing criminal activity, which could affect our operations.

In recent years, Mexico has experienced a period of increasing criminal activity, primarily due to the activities of drug cartels and related criminal organizations. In addition, the development of the illicit market in fuels in Mexico has led to increases in theft and illegal trade in the fuels that we produce. In response, the Mexican Government has implemented various security measures and has strengthened its military and police forces, and we have also established various strategic measures aimed at decreasing incidents of theft and other criminal activity directed at our facilities and products. See “Item 8—Financial Information—Legal Proceedings—Actions Against the Illicit Market in Fuels.” Despite these efforts, criminal activity continues to exist in Mexico, some of which may target our facilities and products. These activities, their possible escalation and the violence associated with them, in an extreme case, may have a negative impact on our financial condition and results of operations.

Economic and political developments in the United States may adversely affect PEMEX.

Changes in economic, political and regulatory conditions in the United States or in U.S. laws and policies governing foreign trade and foreign relations could create uncertainty in the international markets and could have a negative impact on the Mexican economy. Economic conditions in Mexico are highly correlated with economic conditions in the United States due to the high degree of economic activity between the two countries generally, including the trade facilitated by the North American Free Trade Agreement (“NAFTA”). In addition, political developments in the United States, including changes in the administration and governmental policies, can also have an impact on the exchange rate between the U.S. dollar and the Mexican peso, economic conditions in Mexico and the global capital markets.

Following the U.S. elections in November 2016 and the change in the U.S. administration, there is uncertainty regarding future U.S. policies with respect to matters of importance to Mexico and its economy. In particular, the U.S. administration has raised the possibility ofre-negotiating, or withdrawing from, NAFTA and taking actions related to trade, tariffs, immigration and taxation that could affect Mexico.

Since 2003, exports of petrochemical products from Mexico to the United States have enjoyed azero-tariff rate under NAFTA and, subject to limited exceptions, exports of crude oil and petroleum products have also been free or exempt from tariffs. During 2016, our export sales to the United States amounted to Ps. 138.2 billion, representing 12.8% of total sales and 35.0% of export sales for the year. Any increase of import tariffs could make it economically unsustainable for U.S. companies to import our petrochemical, crude oil and petroleum products if they are unable to transfer those additional costs onto consumers, which would increase our expenses and decrease our revenues, even if domestic and international prices for our products remain constant. Higher tariffs on products that we export to the United States could also require us to renegotiate our contracts or lose business resulting in a material adverse impact on our business and results of operations.

Because the Mexican economy is heavily influenced by the U.S. economy, there-negotiation, or even termination, of NAFTA and/or other U.S. government policies that may be adopted by the U.S. administration may adversely affect economic conditions in Mexico. These developments could in turn have an adverse effect on our financial condition, results of operations and ability to repay our debt.

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.

We are controlled by the Mexican Government and our annual budget which is approved by theCámara de Diputados (Chamber of Deputies), canmay be adjusted by the Mexican Government as described below.in certain respects. Pursuant to the Petróleos Mexicanos Law, Petróleos Mexicanos was transformed from a decentralized public entity to a productivestate-owned company on October 7, 2014. The Petróleos Mexicanos Law establishes a special regime governing, among other things, our budget, debt levels, and

administrative liabilities, which took effect on December 2, 2014, with the exception of certain provisions.acquisitions, leases, services and public works. This special regime provides Petróleos Mexicanos with additional technical and managerial autonomy as well as discretionand, subject to certain restrictions, with additional autonomy with respect to certain elements of our budget. Notwithstanding this increased autonomy, the Mexican Government still controls us and has the power to adjust our financial balance goal, which represents our targeted net cash flow for the fiscal year based on our projected revenues and expenses, and the ceiling on our annual wage and salary expenditures. expenditures, subject to the approval of theCámara de Diputados (Chamber of Deputies).

The Mexican Government’s authorityadjustments to adjust our annual budget mentioned above may compromise our ability to develop ourthe reserves assigned to us by the Mexican Government and to successfully compete with other oil and gas companies that enter the Mexican energy sector. See “Item 4—Information on the Company—History and Development—Capital Expenditures and Investments—Capital Expenditures Budget”Expenditures” for more information about our February 20152016 budget adjustment and “—General Regulatory Framework” for more information about the Mexican Government’s authority with respect to our budget. In addition, the Mexican Government’s control over us could adversely affect our ability to make payments under any securities issued by Petróleos Mexicanos. Although Petróleos Mexicanos is wholly owned by the Mexican Government, our financing obligations do not constitute obligations of and are not 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 Mexican Government, Petróleos Mexicanos’ external indebtedness was treated on the same terms as the debt of the Mexican Government and other public sector entities, and it may be treated on similar terms in any future debt restructuring. In addition, Mexico has entered into agreements with official bilateral creditors to reschedule public sector external debt. Mexico has not requested restructuring of bonds or debt owed to multilateral agencies.

The Hydrocarbons Law that was adopted as part of the Secondary Legislation contemplates the transfer of certain of our assets toCentro Nacional de Control del Gas Natural (National Center of Natural Gas Control, or CENAGAS) in the future. The Mexican Government has the power, if the Mexican Constitution and federal law were further amended, to further reorganize our corporate structure, including a transfer of all or a portion of our assets to an entity not controlled, directly or indirectly, by the Mexican Government. The reorganization and transfer of assets contemplated by the Energy Reform Decree and the Secondary Legislation, or any other reorganization or transfer that the Mexican Government may effect, could adversely affect our production, disrupt our workforce and operations and cause us to default on certain obligations. See “—Risk Factors Related to Mexico” above in this Item 3.above.

We makepay significant paymentstaxes and duties to the Mexican Government, and, if certain conditions are met, to pay a state dividend, which may limit our capacity to expand our investment program.program or negatively impact our financial condition generally.

We are required to make significant payments to the Mexican Government, including in the form of taxes and duties, which may limit our ability to make capital investments. In 2014,2016, approximately 47.0%32.0% of our sales revenues was used for payments to the Mexican Government in the form of taxes and duties, which constituted a substantial portion of the Mexican Government’s revenues.

The Secondary Legislation includes changes to the fiscal regime applicable to us, particularly with respect to the exploration and productionextraction activities that we carry out in Mexico. Beginning inAs of 2016, we will begin payinghave the obligation, subject to the conditions set forth in the Petróleos Mexicanos Law, to pay a state dividend to the Mexican Government. We were not required to pay a state dividend in lieu of certain of the payments that we currently may be2016 and are not required to pay at the discretion of the Mexican Government. This state dividend will be calculated by the SHCP as a percentage of the revenues, after taxes, that we generate through activities subject to theLey de Ingresos sobre Hidrocarburos (Hydrocarbons Revenue Law) on an annual basis and approved by the Mexican Congressdo so in accordance with the terms of the Petróleos Mexicanos Law.2017. See “Item 8—Financial Information—Dividends” for more information. The Secondary Legislation also contemplates a new framework for taxation under whichAlthough the Mexican Government ischanges to collect revenues from other companies participating in the Mexican energy sector. Although this new framework isfiscal regime applicable to us are designed in part to reduce the Mexican Government’s reliance on payments made by us, we cannot provide assurances that we will not be required to continue to pay a large proportion of our sales revenue to the Mexican Government. See “Item 4—Information on the Company—Taxes, Duties and Other Payments to the Mexican Government—New Fiscal Regime.” As ofIn addition, the date of this report, we are assessingMexican Government may change the impact that these changes may have on us. See “—Risk Factors Related to Mexico—The effects of the implementation of the new legal framework applicable to the energy sector in Mexico are uncertain but likely to be material, and may have a negative impact on usrules in the short and medium term” above in this Item 3.future.

The Mexican Government has historically 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, (which we refer to as LPG), gasoline, diesel, gas oil intended for domestic use, fuel oil and other products. WhenAs a result of these

price controls, have been implemented in the past, we have not been able to pass on all of the increases in the prices of our product purchases to our customers in the domestic market. market when the peso depreciates in relation to the U.S. dollar. A depreciation of the peso increases our cost of imported oil and petroleum products, without a corresponding increase in our revenues unless we are able to increase the price at which we sell products in Mexico. In accordance with theLey de Ingresos de la Federación para el Ejerecicio Fiscal de 2017 (2017 Federal Revenue Law), the Mexican Government will gradually remove price controls on gasoline and diesel over the course of 2017 and 2018 as part of the liberalization of fuel prices in Mexico. On December 27, 2016, the Ministry of Finance and Public Credit announced maximum gasoline and diesel prices to be applied in each of the regions of Mexico where prices are not determined based on market conditions. For more information, see “Item 4—Information on the Company—Business Overview—Industrial Transformation.”

We do not control the Mexican Government’s domestic policies and the Mexican Government could impose additional price 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 “Item 4—Information on the Company—Business Overview—Refining—Pricing Decrees”Pricing” and “Item 4—Information on the Company—Business Overview—Gas and Basic Petrochemicals—Pricing Decrees.Pricing.”

The Mexican nation, not us, owns the hydrocarbon reserves in Mexico located in the subsoil ofin Mexico and our right to continue to extract 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 ofin Mexico.

Following the adoption of the Energy Reform Decree, Article 27 of the Mexican Constitution provides that the Mexican Government will carry out exploration and extractionproduction activities through agreements with third parties and through assignments to and agreements with us, as well as through agreements with other companies. Pursuant to theus. The Secondary Legislation the rights ofallows us and other oil and gas companies including us, to explore and extract the petroleum and other hydrocarbon reserves located in the subsoil of Mexico, is subject to the assignment of rights by the Ministry of Energy and entry into agreements pursuant to a competitive bidding process.

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 generate income would be materially and adversely affected if the Mexican Government were to restrict or prevent us from exploring or extracting any of the crude oil and natural gas reserves that it has assigned to us or if we are unable to compete effectively with other oil and gas companies in future bidding rounds for additional exploration and extractionproduction rights in Mexico. For more information, see “—We must make significant capital expenditures to maintain our current production levels, and to maintain, as well as increase, ourthe proved hydrocarbon reserves.reserves assigned to us by the Mexican Government. Reductions in our income, adjustments to our capital expenditures budget and our inability to obtain financing may limit our ability to make capital investments” below in this Item 3.below.

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 annual report is based on estimates. Reserves valuation is a subjective process of estimating underground accumulations 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 of available data, engineering and geological interpretation and subjective judgment. Additionally, estimates may be revised based on subsequent results of drilling, testing and production. These estimates are also subject to certain adjustments based on changes in variables, including crude oil prices. Therefore, proved reserves estimates may differ materially from the ultimately recoverable quantities of crude oil and natural gas. Downward revisions in our reserve estimates could lead to lower future production, which could have an adverse effect on our results of operations and financial condition. See “—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 hydrocarbon reserves that we have the right to extract and sell” above in this Item 3. Pemex-Exploration and Production revisesabove. We revise annually itsour estimates of hydrocarbon reserves that it iswe are entitled to extract and sell, which may result in material revisions to these estimates. Our ability to maintain ourlong-term growth objectives for oil production depends on our ability to successfully develop our reserves, and failure to do so could prevent us from achieving ourlong-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, ourthe proved hydrocarbon reserves.reserves assigned to us by the Mexican Government. Reductions in our income, adjustments to our capital expenditures budget and our inability to obtain financing may limit our ability to make capital investments.

Because our ability to maintain, as well as increase, our oil production levels is highly dependent upon our ability to successfully develop existing hydrocarbon reserves and, 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 these investments, the replacement rate During 2016, our total proved reserves had a net increase of 40 million barrels of oil equivalent after accounting for discoveries, extensions, revisions, and delimitations. This amount, however, was less than production in 2016. Accordingly, our total proved hydrocarbon reserves decreased by 11.1%, from 9,632 million barrels of crude oil equivalent as of December 31, 2015 to 18.0% in 2014, representing a decline in proved hydrocarbon reserves.8,562.8 million barrels of crude oil as of December 31, 2016. See “Item 4—Information on the Company—Business Overview––Overview—Exploration and Production––Production—Reserves” for more information about the factors leading to this decline, including the results of Round Zero. Pemex-Exploration and Production’sOur crude oil production decreased by 0.2% from 2011 to 2012, by 1.0% from 2012 to 2013, and by 3.7% from 2013 to 2014 and by 6.7% from 2014 to 2015 and by 5.0% from 2015 to 2016 primarily as a result of the decline of production in the Cantarell, ATG, Delta del Grijalva,Tsimín-Xux, Antonio J. Bermúdez, Chuc and Crudo Ligero Marino and Ixtal-Manik projects.

UponPursuant to energy reform in Mexico, the completion ofMexican Government outlined a process, commonly referred to as Round Zero, for the determination of our initial allocation of rights to continue to carry out exploration and production activities in Mexico. On August 13, 2014, the Ministry of Energy granted us the right to continue to explore and develop areas that together contain 95.9% of theMexico’s estimated proved reserves that we requested.of crude oil and natural gas. The development of the reserves that were assigned to us pursuant to Round Zero, particularly the reserves in the deep waters of the Gulf of Mexico and in shale oil and gas fields in the Burgos basin, will demand significant capital investments and will pose significant operational challenges. Our right to develop the reserves assigned to us through Round Zero is conditioned on our ability to develop such reserves in accordance with our development plans, which were based on our technical, financial and operational capabilities at the time. See “Item 4––History and Development––Energy Reform—Assignment of Exploration and Production Rights.” We cannot provide assurances that we will have or will be able to obtain, in the time frame that we expect, sufficient resources or the technical capacity necessary to explore and extract the reserves that the Mexican Government assigned to us as part of Round Zero, or that it may grant to us in the future. The decline in oil prices has forced us to make adjustments to our budget, including a significant reduction of our capital expenditures. Unless we are able to increase our capital expenditures, we may not be able to develop the reserves assigned to us in accordance with our development plans. We may alsowould lose the right to continue to extract these reserves if we fail to develop them in accordance with our development plans, which could adversely affect our operating results and financial condition. In addition, increased competition in the oil and gas sector in Mexico may increase the costs of obtaining additional acreage in bidding rounds for the rights to new reserves.

Our ability to make capital expenditures is limited by the substantial paymentstaxes and duties that we makepay to the Mexican Government, the ability of the Mexican Government to adjust certain aspects of our annual budget, and cyclical decreases in our revenues primarily related to lower oil prices.prices and any constraints on our liquidity. The availability of financing may limit our ability to make capital investments that are necessary to maintain current production levels and increase ourthe proved hydrocarbon reserves.reserves that we are entitled to extract. The energy reform has provided us with opportunities to enter into strategic alliances and partnerships, which may reduce our capital commitments and allow us to participate in projects for which we are more competitive. However, no assurance can be provided that these strategic alliances and partnerships will be successful or reduce our capital commitments. For more information, see “Item 4—Information on the Company—History and Development—

Capital Expenditures and Investments”Expenditures” and “—Energy Reform.”

Increased competition in For more information on the Mexican energy sector mayliquidity constraints we are exposed to, see “—We have a negative impactsubstantial amount of indebtedness and other liabilities and are exposed to liquidity constraints, which could make it difficult for us to obtain financing on favorable terms and could adversely affect our financial condition, results of operations and financial conditions.

Pursuantability to the Hydrocarbons Law that was adoptedrepay our debt and, ultimately, our ability to operate as part of the Secondary Legislation, the Mexican Government will carry out exploration and extraction activities through assignments to, or agreements with, us and through agreements with other oil and gas companies. The oil and gas fields that we did not request or were not assigned to us pursuant to Round Zero (including the areas assigned to us on a temporary basis) are subject to competitive bidding processes open to participation by other oil and gas companies. We will not have a preferential right in any such bidding process and therefore must compete on equal terms with other oil and gas companies for the exploration and production blocks subject to bidding. We will also likely face competition in connection with certain refining, transportation and processing activities. In addition, increased competition could make it more difficult for us to hire and retain skilled personnel. For more information, see “Item 4—Information on the Company—History and Development—Energy Reform.” If we are unable to compete successfully with other oil and gas companies in the energy sector in Mexico, our results of operations and financial condition may be adversely affected.going concern” above.

We may claim some immunities under the Foreign Sovereign Immunities Act and Mexican law, and your ability to sue or recover may be limited.

We are public sectorpublic-sector entities of the Mexican Government. Accordingly, you may not be able to obtain a judgment in a U.S. court against us unless the U.S. court determines that we are not entitled to sovereign immunity with respect to that action. Under certain circumstances, Mexican law may limit your ability to enforce judgments against us in the courts of Mexico. We also do not know whether Mexican courts would enforce judgments of U.S. courts based on the civil liability 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 in Mexico 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 limited circumstances 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 obligations under any securities issued by Petróleos Mexicanos, 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 annual report, reside outside the United States. Substantially all of our assets and those of most of our directors, officers and experts are located outside the United States. As a result, investors may not be able to effect service of process on our directors or officers or those experts within the United States.

HISTORY AND DEVELOPMENT

We are the largest company in Mexico according to the June 20142016 special edition ofExpansiónmagazine, and according to the November 24, 201421, 2016 issue ofPetroleum Intelligence Weekly,, we were the eighth largesteighthlargest crude oil producer and the thirteenth largest oileighteenth largestoil and gas company in the world based on data from the year 2013.2015.

Our executive offices are located at Avenida Marina Nacional No. 329, Colonia Petróleos Mexicanos,Verónica Anzures, Ciudad de México D.F. 11311,11300, México. Our telephone number is(52-55) 1944-2500.

In March 1938, President Lázaro Cárdenas del Río nationalized the foreign-owned oil companies that were then operating in Mexico, and the Mexican Congress established Petróleos Mexicanos through theDecreto que crea la Institución Petróleos Mexicanos (Decree that creates the entity Petróleos Mexicanos), which was published in the Official Gazette of the Federation and took effect on July 20, 1938.

In July 1992, theLey Orgánica de Petróleos Mexicanos y Organismos Subsidiarios (Organic Law of Petróleos Mexicanos and Subsidiary Entities) took effect and, among other things, created Pemex-Exploration and Production, Pemex-Refining,Pemex-Gas and Basic Petrochemicals and Pemex-Petrochemicals as decentralized public entities of the Mexican Government with the legal authority to own property and conduct business in their own names. Each of the subsidiary entities hashad the characteristics of a subsidiary of Petróleos Mexicanos and together, they carry out the operations that had previously been managed directly by Petróleos Mexicanos. Effective March 22, 2012, following its publication in the Official Gazette of the Federation, theDecreto que tiene por objeto establecer la estructura, el funcionamiento y el control de los organismos subsidiarios de Petróleos Mexicanos (Decree to establish the structure, operation and control of the subsidiary entities of Petróleos Mexicanos) sets forth the structure and scope of the activities of these subsidiary entities, unless otherwise stated in the Petróleos Mexicanos Law. The principal lines of business of the existingthose subsidiary entities arewere as follows:

As of the date of this report, the activities of Petróleos Mexicanos and its subsidiary entities are regulated primarily by:

Energy Reform

Energy Reform Decree

On December 20, 2013, amendments to Articles 25, 27 and 28 of the Mexican Constitution were signed into law by President Enrique Peña Nieto and published in the Official Gazette of the FederationFederation. We refer to this as the Energy Reform Decree. The Energy Reform Decree, which includes transitional articles setting forth the general framework and timeline for the Secondary Legislation,related secondary legislation, took effect on December 21, 2013.

The key features of the Energy Reform Decree are:

Secondary Legislation

On August 6,11, 2014, the Mexican Congress completedsecondary legislation was published pursuant to the process of approving the Secondary Legislation, which was signed into law by President Enrique Peña Nieto and publishedEnergy Reform Decree in the Official Gazette of the Federation on August 11, 2014.Federation. We refer in this annual report to this legislation as the Secondary Legislation. The Secondary Legislation includes nine new laws, of which the following are most relevant to our operations:

Together, the Hydrocarbons Law and the Hydrocarbons Revenue Law establish the legal framework for the exploration and production of oil and gas through assignments and contracts, as well as the new fiscal regime through which the Mexican Government will collect revenues from participants in the Mexican oil and gas industry. The Secondary Legislation also includes amendmentsHydrocarbons Law empowers the Ministry of Energy to several laws, includingdetermine the following:

On October 31, 2014,appropriate contract model for each area that is subject to a competitive bidding process, while the regulations relating toMinistry of Finance and Public Credit is responsible for determining the economic and fiscal terms of each contract. The following arrangements comprise the new contractual regime established by the Secondary Legislation including theReglamento de la Ley de Petróleos Mexicanos(Regulations to the Petróleos Mexicanos Law), were published in the Official Gazette of the Federation. Subsequent modifications to the Regulations to the Petróleos Mexicanos Law took effect on February 9, 2015.

We describe below the key features of the Secondary Legislation that relate to the hydrocarbons sector in Mexico and our corporate structure and operations.

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Corporate Reorganization: In accordance with the transitional articles of the Petróleos Mexicanos Law, on November 18, 2014, the Board of Directors of Petróleos Mexicanos approved the Director General’s proposal for our corporate reorganization.

Pursuant to this reorganization plan, the four existing subsidiary entities of Petróleos Mexicanos are to be transformed into two new productive state-owned subsidiaries. The first of these productive state-owned subsidiaries, Pemex Exploration and Production, will subsume the existing subsidiary entity, Pemex-Exploration and Production. The second of these productive state-owned subsidiaries, Pemex Industrial Transformation, will comprise the following existing subsidiary entities: Pemex-Refining, Pemex-Gas and Basic Petrochemicals and Pemex-Petrochemicals.

As part of this reorganization plan, the Board of Directors of Petróleos Mexicanos also approved the creation of the five new subsidiary entities described below, each of which may become an affiliate of Petróleos Mexicanos if certain conditions set forth in the Petróleos Mexicanos Law are met.

On March 27, 2015, the Board of Directors of Petróleos Mexicanos adopted creation resolutions for each of the new subsidiary entities, which will replace the existing subsidiary entities and assume all of their rights and obligations. The creation resolutions were subsequently published in the Official Gazette of the Federation on April 28, 2015, and they are to take effect within 180 days of publication in accordance with the transitional articles included in the creation resolutions. As of the date of this report, none of the new subsidiary entities has yet been formed. Once created, the seven new subsidiary entities will assume the rights and obligations of the existing subsidiary entities.upstream activities:

The fiscal terms of each contract for exploration and extractionproduction are to be established in accordance with the Hydrocarbons Revenue Law. See “—Taxes, Duties and Other Payments to the Mexican Government—New Fiscal Regime” below in this Item 4.

For midstream and downstream activities, including oil refining and natural gas processing, the Hydrocarbons Law establishes a permit regime that is regulatedgranted by the Ministry of Energy and theComisión Reguladora de Energía (Energy Energy Regulatory Commission).Commission, as applicable. The Hydrocarbons Law also sets forth the process by which entities may apply for these permits. In accordance with the transitional articles of the Hydrocarbons Law, theThe Energy Regulatory Commission will beginbegan issuing permits for the retail sale of gasoline and diesel fuel in 2016. Until December 31,During 2017 and 2018, the Mexican Government may continue issuing pricing decreesEnergy Regulatory Commission, with the opinion of theComisión Federal de Competencia Económica (Federal Economic Antitrust Commission), will issue guidelines and schedules for different regions in Mexico relating to regulate the maximumprocesses to be used by the Ministry of Finance and Public Credit to determine prices for the retail sale of gasoline and diesel, fuel, takingwhich will take into account, among other things, transportation costs between regions, inflation and the volatility ofin international fuel prices, among other factors. See “—Business Overview—Refining—Pricing Decrees” below in this Item 4.prices. Beginning in 2018, the prices of gasoline and diesel fuel will be freely determined by market conditions.

Legal Regime for Petróleos Mexicanos

As part of energy reform, Petróleos Mexicanos was transformed from a decentralized public entity into a productive state-owned company on October 7, 2014—the day on which the new Petróleos Mexicanos Law took effect, with the exception of certain provisions. As a productive state-owned company, Petróleos Mexicanos remains wholly owned by the Mexican Government and has the corporate purpose of generating economic value and increasing the income of the Mexican nation while adhering to principles of equity, as well as social and environmental responsibility.

On December 2, 2014, upon its determination that the new Board of Directors of Petróleos Mexicanos was performing its duties and the mechanisms for our oversight, transparency and accountability had been implemented, the Ministry of Energy formally announced in the Official Gazette of the Federation that the

special regime provided for in the Petróleos Mexicanos Law, which governs Petróleos Mexicanos’ activities relating to productive state-owned subsidiaries, affiliates, compensation, assets, administrative liabilities, budget, debt levels and the state dividend, had taken effect. On June 10, 2015, theDisposiciones Generales de Contratación para Petróleos Mexicanos y Sus Empresas Productivas Subsidiarias (General Provisions for Contracting for Petróleos Mexicanos and its Productive State-Owned Subsidiaries) were published in the Official Gazette of the Federation, and on June 11, 2015, the special regime for acquisitions, leases, services and public works became effective.

Corporate Reorganization

In accordance with the transitional articles of the Petróleos Mexicanos Law, on November 18, 2014, the Board of Directors of Petróleos Mexicanos approved the Director General’s proposal for our corporate reorganization. In our corporate reorganization, the four existing subsidiary entities of Petróleos Mexicanos were transformed into two new productive state-owned subsidiaries—Pemex Exploration and Production and Pemex Industrial Transformation—and five new productive state-owned subsidiaries—Pemex Drilling and Services, Pemex Logistics, Pemex Cogeneration and Services, Pemex Fertilizers and Pemex Ethylene—were created. Each of these productive state-owned subsidiaries is a legal entity empowered to own property and carry on business in its own name and has technical and operational autonomy, subject to the central coordination and strategic direction of Petróleos Mexicanos.

On March 27, 2015, the Board of Directors of Petróleos Mexicanos adoptedacuerdos de creación (creation resolutions) for each of the new productive state-owned subsidiaries, all of which were subsequently published in the Official Gazette of the Federation on April 28, 2015.

The principal lines of business of the new productive state-owned subsidiaries are as follows:

Capital Expenditures

The following table shows our capital expenditures, excludingnon-capitalizable maintenance, for each of the three years ended December 31, 2016, and the budget for these expenditures for 2017. Capital expenditure amounts are derived from our budgetary records, which are prepared on a cash basis. Accordingly, these capital expenditure amounts do not correspond to capital expenditure amounts included in our consolidated financial

statements prepared in accordance with IFRS. The following table presents our capital expenditures by subsidiary. For the year ended December 31, 2015, we have included capital expenditures made by the subsidiary entities prior to our recent corporate reorganization, and for the new productive state-owned subsidiaries, capital expenditures made after their creation. For the year ended December 31, 2016 and for the 2017 budget, we have included capital expenditures made by, or expected to be made by, the new productive state-owned subsidiaries.

Capital Expenditures and Budget by Subsidiary

Note: Numbers may not total due to rounding.

Source: Petróleos Mexicanos.

The following table shows our capital expenditures, excludingnon-capitalizable maintenance, by segment for the years ended December 31, 2015 and 2016 and the budget for these expenditures in 2017.

Capital Expenditures by Segment

Note: Numbers may not total due to rounding.

Source: Petróleos Mexicanos.

Capital expenditures and budget by project are described under each segment below in this Item 4.

Sincemid-2014, the international reference prices of crude oil have fluctuated significantly. During January 2016, the Mexican crude oil export price fell to U.S. $18.90 per barrel and the weighted average price for the year was U.S. $35.63 per barrel. Based on its estimate that the weighted average Mexican crude oil export price would be U.S. $42.00 per barrel, the Mexican Congress approved our Ps. 204.6 billion capital expenditures budget, including maintenance, for 2017.

In light of the oil and gas market and global economic conditions, on December 14, 2016 the Chamber of Deputies approved a 2017 budget of Ps. 391.9 billion, which included a financial balance goal (which we define as sales after deducting costs and expenses, investment expenses, taxes and duties, and financial debt service) of Ps. 93.8 billion. On December 14, 2016, the budget was presented to the Board of Directors of Petróleos Mexicanos along with detailed capital expenditure allocations by subsidiary entity. On April 7, 2017, the Board

of Directors of Petróleos Mexicanos was presented with an amended budget with capital expenditure allocations presented by subsidiary entity and by project. With this budget, our management expects that we will be able to maintain our medium- and long-term growth plans without the need to incur more indebtedness than the amount included in our approved financing program for 2017. The budget approved by the Board of Directors of Petróleos Mexicanos was based on the guiding principles of: maintaining the industrial safety and reliability of our facilities; taking advantage of the new contractual models provided by the energy reform in order to attract third-party investment; meeting our labor and financial obligations; and stabilizing our crude oil and gas production levels in the medium and long-term.

Our budget for 2017 includes a total of Ps. 109.0 billion for capital expenditures. We expect to direct Ps. 73.9 billion (or 67.8% of our total capital expenditures) to exploration and production programs in 2017. This investment in exploration and production activities reflects our focus on maximizing the potential of hydrocarbon reserves and our most productive projects, the promotion of ourfarm-out program, which we believe will allow us to sustain and increase our production levels while decreasing our corresponding capital expenditures, and our intention to take advantage of the opportunities provided by the energy reform. The energy reform provides us with opportunities to form new strategic partnerships in order to enhance our financial, technical and operational capabilities along our entire value chain. See “—Energy Reform” above in this Item 4. We continuously review our capital expenditures portfolio in accordance with our current and future business plans and upcoming opportunities. In the upcoming years, we expect to receive financial resources from third parties who may partner with us on certain projects, a collaboration made possible following the implementation of the Secondary Legislation. See “—Energy Reform” above in this Item 4 for more information about these new opportunities.

Our main objectives for upstream investment are to maximize our long-term economic value, and to increase and improve the quality of the oil and gas reserves assigned to us, enhance Pemex Exploration and Production’s reserves recovery ratio, improve the reliability of its production and transportation infrastructure for crude oil and natural gas operations and continue to emphasize industrial safety and compliance with environmental regulations. Our 2017 budget objectives include maintaining crude oil production at levels sufficient to satisfy domestic demand and have a surplus available for export and maintaining natural gas production levels in order to attempt to satisfy domestic demand.

Our downstream investment program seeks to improve the quality of our product selection and the reliability of our logistics and distribution services, to achieve a level of efficiency similar to that of our international competitors and to continue to emphasize industrial safety and environmental compliance.

BUSINESS OVERVIEW

Overview by Business Segment

Exploration and Production

Our exploration and production segment operates through the productive state-owned subsidiary Pemex Exploration and Production and explores for and produces crude oil and natural gas, primarily in the northeastern and southeastern regions of Mexico and offshore in the Gulf of Mexico. In nominal peso terms, our capital expenditures in exploration and production activities decreased by 9.4% in 2016. As a result of our investments in previous years, our total hydrocarbon production reached a level of approximately 1,115.7 million barrels of oil equivalent in 2016. Despite these investments, our crude oil production decreased by 5.0% from 2015 to 2016, averaging 2,153.5 thousand barrels per day in 2016, primarily as a result of the decline of the Cantarell, Crudo Ligero Marino, El Golpe-Puerto Ceiba, Bellota-Chinchorro, Antonio J. Bermúdez, Cactus-Sitio Grande, Ixtal-Manik, Chuc, Costero Terrestre, andTsimín-Xux projects, which was partially offset by development of the Integral Yaxché project’s Xanab field and by repairs, stimulations and diversification of artificial systems at our onshore fields that helped maintain production levels.

Our natural gas production (excluding natural gas liquids) decreased by 9.5% from 2015 to 2016, averaging 5,792.5 million cubic feet per day in 2016. This decrease in natural gas production resulted primarily from decreased volumes in the Burgos, Crudo Ligero Marino, Ixtal-Manik, Integral Veracruz Basin, Cactus-Sitio Grande, Integral Macuspana Basin and Ogarrio-Sánchez Magallanes projects. Exploration drilling activity decreased by 19.2% from 2015 to 2016, from 26 exploratory wells completed in 2015 to 21 exploratory wells completed in 2016. Development drilling activity decreased by 55.2% from 2015 to 2016, from 286 development wells completed in 2015 to 128 development wells completed in 2016. In 2016, we completed the drilling of 149 wells in total. Our drilling activity in 2016 was focused on increasing the production of crude oil and associated gas in the Ayatsil-Tekel, Chuc, Crudo Ligero Marino, El Golpe-Puerto Ceiba,Ku-Maloob-Zaap andTsimín-Xux, Aceite Terciario del Golfo andOgarrio-Sánchez Magallanes projects.

Our primary objectives in 2017 include: (i) generating economic value and profitability to ensure the sustainability of the company; (ii) improving our performance in industrial safety and environmental protection; and (iii) increasing productivity and efficiency. We aim to meet these objectives through the following: (1) exploration and extraction of oil and solid, liquid or gaseous hydrocarbons in Mexico, its exclusive economic zone and abroad, in a profitable and sustainable manner; (2) acceleration of the development of shale; (3) use of farm-outs to develop complex fields and leverage resources from third parties; (4) containment of production decline and increase of profitability of assignments migrated without third-party participation; (5) increase of the production of oil and gas to meet demands in the southeast of Mexico; (6) optimal allocation of resources for our projects and continuous performance evaluation; (7) increase of efficiency levels above international standards in our gas utilization and production costs; and (8) efficient use of our investments and logistics capacity and minimization of operating costs. Our production goals for 2017 include producing crude oil at a level of approximately 1,925.2 thousand barrels per day and maintaining natural gas production above 4,729.0 million cubic feet per day. We aim to meet these production goals through exploration and development activities, increasing inventory reserves through new discoveries and reclassifications, managing the decline in field production by applying primary, secondary and enhanced oil recovery processes and continuing to develop extra-heavy crude oil fields.

Industrial Transformation

Our industrial transformation segment is comprised of two principal activities: (i) refining and (ii) gas and aromatics:

Refining

Our refining business, which formerly operated as Pemex-Refining and operates through the productive state-owned subsidiary Pemex Industrial Transformation, converts crude oil into gasoline, jet fuel, diesel, fuel

oil, asphalts and lubricants. We also distribute and market most of these products throughout Mexico, where we experience significant demand for our refined products. At the end of 2016, atmospheric distillation refining capacity reached 1,602 thousand barrels per day. In 2016, we produced 977 thousand barrels per day of refined products as compared to 1,114 thousand barrels per day of refined products in 2015. This decrease in refined products production was mainly due to a decrease in crude oil processing and to operational issues inEl Sistema Nacional de Refinación (the National Refining System). As the result of operational problems, processing of crude oil by the National Refining System decreased 12.3%, from 1,064 million barrels per day in 2015 to 933 million barrels per day in 2016. Our primary goal for 2017 is to increase production of petroleum products, which we expect will result from an increase in distillate production and a decrease in fuel oil production.

Gas and Aromatics

Our gas and aromatics business processes wet natural gas to produce dry natural gas, liquefied petroleum gas (LPG) and other natural gas liquids, along with aromatic chain products such as styrene, toluene, benzene and xylene. In 2016, our total sour natural gas processing capacity remained at 2015 levels of 4,523 cubic feet per day. We processed 3,672 million cubic feet of wet natural gas per day in 2016, a 9.8% decrease from the 4,073 million cubic feet per day of wet natural gas processed in 2015. We produced 308 thousand barrels per day of natural gas liquids in 2016, a 5.8% decrease from the 364 thousand barrels per day of natural gas liquids production in 2015. We also produced 3,074 million cubic feet of dry gas (which is natural gas with a methane content of more than 90.0%) per day in 2015, 11.0% less than the 3,454 cubic feet of dry gas per day produced in 2015. We produced 940 thousand tons of aromatics and derivatives, an 8.0% decrease from 2015.

In 2017, we expect to have a lower supply of natural gas from our fields, which would require us to import higher volumes of natural gas to satisfy domestic demand.

Fertilizers

Our fertilizers segment operates through the productive state-owned subsidiary Pemex Fertilizers and integrates the ammonia production chain up to the point of sale of fertilizers.

Our strategies focus on: (1) increasing the economic value of our segment by generating diverse investment opportunities in the agricultural sector in Mexico and (2) ensuring a reliable supply of raw materials for our plants through a long-term contract that sustains operations at our four ammonia plants.

Ethylene

Our ethylene segment operates through the productive state-owned subsidiary Pemex Ethylene and takes advantage of the integration of the ethylene production chain. In 2016, we produced a total of 2,528.7 thousand tons of petrochemical products, a 14.8% decrease from the 2,969.7 thousand tons of petrochemical products produced in 2015.

We have two primary goals for our ethylene segment in 2017. The first is to better market our products and services to certain customers, mainly by (1) becoming a reliable supplier, adopting competitive business practices, focusing on profitable and abandoning unprofitable markets; and (2) evaluating strategic business relationships and partnerships to increase the profitability of our petrochemical processes. The second is to streamline our activities and operations in Pemex Ethylene’s value chain by following the best operational and maintenance practices.

Drilling and Services

Our drilling and services segment operates through the productive state-owned subsidiary Pemex Drilling and Services and provides drilling, completion, work-over and other services for wells in offshore and onshore fields. In 2016, this segment mainly provided drilling services to Pemex Exploration and Production, but also provided services to external clients such asComisión Nacional del Agua (CONAGUA) and the Armada Company.

Our well drilling activities during 2016 led to onshore discoveries. Our main discoveries were of crude oil reserves located in the Southeastern and Veracruz basins, specifically in the Northern and Southern regions. Exploration activity in the Northern region also led to the discovery of additionalnon-associated gas reserves in the Burgos basin. We are currently working on development plans for these new reserves.

Logistics

Our logistics segment operates through the productive state-owned subsidiary Pemex Logistics and provides land, maritime and pipeline transportation, storage and distribution services to us and other companies, including theComisión Federal de Electricidad (Federal Electricity Commission or CFE),Aeropuertos y Servicios Auxiliares, CENAGAS, local gas stations and distributors.

During 2016, we transported 58,016 millionton-kilometers of crude oil and petroleum products, an 11.3% decrease as compared to 2015, due to decreased production in our exploration and production segment, decreased processing of crude oil in our refineries and the illicit market in fuels which can lead to temporary pipeline closures.

During 2016, we transported approximately 5,440 million cubic feet per day of natural gas, a 5.8% increase as compared to the 5,142 million cubic feet per day transported in 2015, partially due to the transportation of an estimated 655 million cubic feet per day for the CFE as agreed among the Ministry of Energy, the Energy Regulatory Commission and Pemex Industrial Transformation. On January 1, 2016, we began providing operation, maintenance and information technology services to, among others, CENAGAS in connection with its natural gas transportation infrastructure.

During 2016, we also transported 140 thousand barrels per day of LPG and 2,589 thousand barrels per day of crude oil and petroleum products to be processed in our refining system and to satisfy domestic demand for petroleum products, as compared to 174 thousand barrels per day of LPG and 3,181 thousand barrels per day of crude oil and petroleum products transported in 2015. Of the total amount we transported in 2016, we carried 77% of the transported volumes in 2016 through pipelines, 12% by vessels and the remaining 11% by train tank cars and trucks.

Our logistics segment will continue to provide services to our other segments and to third parties throughout Mexico. It hopes to meet its customers’ needs by providing its services in an efficient manner.

Cogeneration and Services

Our cogeneration and services segment operates through the productive state-owned subsidiary Pemex Cogeneration and Services and uses thermal heat and steam from our industrial processes to produce the electricity required by us, as well as to generate surplus electricity to sell to third parties in Mexico. Our cogeneration and services segment designs construction, financing and development structures for cogeneration through alliances with third parties in close geographic proximity to our productive work centers.

International Trading

The international trading segment, which operates through P.M.I. Comercio Internacional, S.A. de C.V. (which we refer to as PMI), P.M.I. Trading, Ltd., P.M.I. Norteamérica, S.A. de C.V., (which, together with PMI, we collectively refer to as the “PMI Subsidiaries”) and Mex Gas International, Ltd., (which, together with the PMI Subsidiaries, we collectively refer to as the “Trading Companies”) provides us with international trading, distribution, risk management, insurance and transportation services. The Trading Companies sell, buy and transport crude oil, refined products and petrochemicals in world markets, and provide related risk management, insurance, transportation and storage services. The Trading Companies have offices in Mexico City, Houston, Amsterdam, Singapore and Madrid. Export sales are made through PMI to approximately 34 major customers in various foreign markets.

In 2016, our crude oil exports increased in volume by 1.9%, from 1,172.4 thousand barrels per day in 2015 to 1,194.4 thousand barrels per day in 2016. Natural gas imports increased by 36.6% in 2016, from 1,415.8 million cubic feet per day in 2015 to 1,933.9 million cubic feet per day in 2016. In 2016, exports of petrochemical products decreased 62.6%, from 333.8 thousand metric tons in 2015 to 124.7 thousand metric tons in 2016, while imports of petrochemical products increased 159.3%, from 107.3 thousand metric tons in 2015 to 278.2 thousand metric tons in 2016. In 2016, exports of petroleum products increased 1.6%, from 130.8 thousand barrels per day in 2015 to 132.9 thousand barrels per day in 2016, while imports of other petroleum products and liquefied petroleum gas increased 8.1%, from 739.8 thousand barrels per day in 2015 to 799.5 thousand barrels per day in 2016. As a major supplier of crude oil to the United States, our international trading segment’s crude oil exports to the U.S. totaled U.S. $7.5 billion in 2016, a decrease of U.S. $3.4 billion from 2015.

In addition to being our international trading arm, our trading segment is also active in the Mexican market. The PMI Subsidiaries are party to multiple long-term contracts that we expect will generate business during 2017, including a long-term contract with Petróleos Mexicanos for sulfur sales and a long-term agreement with Mex Gas, one of our affiliates, for naphtha sales.

Infrastructure of PEMEX

Exploration and Production

Following our 2015 corporate reorganization, certain business units and assets that were operated by our exploration and production segment were transferred to our drilling and services segment upon the formation of Pemex Drilling and Services on August 1, 2015. For the year ended December 31, 2015, we have not presented separately the operating results of our drilling and services segment in this Item 4 and, accordingly, the results of

our exploration and production segment include the results of that segment for this period. Operating results for both the exploration and production and drilling and services segments are presented separately for periods beginning January 1, 2016. For a detailed description of the financial results of each segment, see our consolidated financial statements included herein.

Exploration and Drilling

We seek to identify new oil reservoirs through our exploration program in order to increase the future replacement rate of proved reserves. From 1990 to 2016, we completed 13,186 exploration and development wells. During 2016, our average success rate for exploratory wells was 28.6% and our average success rate for development wells was 85.9%. From 2011 to 2016, we discovered 18 new crude oil fields and 14 new natural gas fields, bringing the total number of our crude oil and natural gas producing fields to 405 at the end of 2016.

Our 2016 exploration program was comprised of exploration in both onshore and offshore regions, including the deep waters of the Gulf of Mexico. These exploratory activities yielded 57 million barrels of oil equivalent of proved reserves resulting from the discovery of one oil producing field. We continued our main seismic data acquisition activities, in particular, those related to three-dimensional seismic data.

The following table summarizes our drilling activity for the five years ended December 31, 2016, all of which occurred in Mexican territory.

Note: Numbers may not total due to rounding.

Source: Pemex Exploration and Production.

Extensions and Discoveries

During 2016, our exploratory activity in the shallow waters of the Gulf of Mexico led to the incorporation of approximately 57 million barrels of oil equivalent in one field. We have also increased exploratory work in shallow waters to incorporate proved reserves.

Reserves

Under the Mexican Constitution, all oil and other hydrocarbon reserves located in the subsoil of Mexico are owned by the Mexican nation and not by us. As of December 31, 2014, Pemex-Exploration and Production was assigned rights through Round Zero corresponding to areas that together contained 95.2% of Mexico’s total proved reserves. Pemex Exploration and Production, as the successor to Pemex-Exploration and Production, has the right to extract, but not own, these reserves, and to sell the resulting production. As of the date of this report, the exploration and development activities of Petróleos Mexicanos and the subsidiary entities are limited to reserves located in Mexico.

Proved oil and natural gas reserves are those estimated quantities of crude oil, natural gas and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be economically producible from a given date forward, from known reservoirs and under existing economic conditions, operating methods and government regulations.

Proved reserves estimates as of December 31, 2016 were prepared by our exploration and production segment and were reviewed by the Independent Engineering Firms (as defined below), which audit its estimates of our oil and gas reserves. In addition, pursuant to theReglamento de la Ley de Hidrocarburos(Regulations to the Hydrocarbons Law), the NHC reviewed and approved the proved reserves reports estimates as of December 31, 2016 that we provided on March 31, 2017.

We estimate reserves based on generally accepted petroleum engineering and evaluation methods and procedures, which are based primarily on applicable SEC regulations and, as necessary, the Society of Petroleum Engineers’ (which we refer to as the SPE) publication entitledStandards Pertaining to the Estimating and Auditingof Oil and Gas Reserves Information, dated February 19, 2007 and other SPE publications, including the SPE’s publication entitledPetroleum Resources Management System, as well as other technical sources, includingEstimation and Classification of Reserves of Crude Oil, Natural Gas, and Condensate, by Chapman Cronquist, andDetermination of Oil and Gas Reserves, Petroleum Society Monograph Number 1, published by the Canadian Institute of Mining and Metallurgy & Petroleum. The choice of method or combination of methods employed in the analysis of each reservoir is determined by:

Reserves data set forth herein represent only estimates. Reserves valuation is a subjective process of estimating underground accumulations of crude oil and natural gas that cannot be measured in an exact manner. The accuracy of any reserves estimate depends on the quality of available data, engineering and geological interpretation and professional judgment. As a result, estimates of different engineers may vary. In addition, the results of drilling, testing and producing subsequent to the date of an estimate may lead to the revision of an estimate.

During 2016, we did not record any material increase in our proved oil and gas reserves as a result of the use of new technologies.

In order to ensure the reliability of our reserves estimation efforts, we have undertaken the internal certification of our estimates of reserves since 1996. We have established certain internal controls in connection with the preparation of our proved reserves estimates. Initially, teams of geoscientists from our exploration and production business units (with each of these units covering several projects) prepare the reserves estimates, using distinct estimation processes for valuations relating to new discoveries and developed fields, respectively. Subsequently, the regional reserves offices collect these reserves estimates from the units and request that theGerencia de Recursos y Certificación de Reservas (Office of Resources and Certification of Reserves), the central hydrocarbon reserves management body of Pemex Exploration and Production, review and certify such valuations and the booking of the related reserves. This internal certification process is undertaken in accordance with internal guidelines for estimating and classifying proved reserves, which are based on the SEC’s rules and definitions. The Office of Resources and Certification of Reserves, which additionally oversees and conducts an internal audit of the process described above, consists entirely of professionals with geological, geophysical, petrophysical and reservoir engineering backgrounds. The engineers who participate in our reserves estimation process are experienced in: reservoir numerical simulation; well drilling and completion; pressure, volume and temperature (PVT) and analytical tools used in forecasting the performance of the various elements comprising the production system; and design strategies in petroleum field development. Furthermore, all of our personnel have been certified by theSecretaría de Educación Pública(Ministry of Public Education), most have earned master’s degrees in areas of study such as petroleum engineering, geology and geophysical engineering and they possess an average of over fifteen years of professional experience.

In addition to this internal review process, our exploration and production segment’s final reserves estimates are audited by independent engineering firms. Three independent engineering firms audited our estimates of proved reserves as of December 31, 2016: Netherland Sewell; DeGolyer and MacNaughton; and Ryder Scott (we refer to these firms together as the Independent Engineering Firms). The reserves estimates reviewed by the Independent Engineering Firms totaled 97.6% of our estimated proved reserves. The remaining 2.4% of our estimated proved reserves consisted of reserves located in certain areas in which third parties provide us with drilling services. Under such agreements, the corresponding third party is responsible for assessing the volume of reserves. Netherland Sewell audited the reserves in the Aceite Terciario de Golfo, Poza Rica-Altamira and the Litoral de Tabasco business units. DeGolyer and MacNaughton audited reserves in the Burgos and Veracruz business units and Ryder Scott audited the reserves in the Bellota-Jujo, Cinco Presidentes, Macuspana-Muspac, Samaria-Luna,Abkatún-Pol-Chuc, Cantarell andKu-Maloob-Zaap business units. The audits conducted by the Independent Engineering Firms consisted primarily of: (1) analysis of historical static and dynamic reservoir data that we have provided; (2) construction or updating of the Independent Engineering Firms’ own static and dynamic reservoir characterization models of some of our fields; (3) economic analysis of fields; and (4) review of our production forecasts and reserves estimates.

Since reserves estimates are, by definition, only estimates, they cannot be reviewed for the purpose of verifying exactness. Instead, the Independent Engineering Firms conducted a detailed review of our reserves estimates so that they could express an opinion as to whether, in the aggregate, the reserves estimates we furnished were reasonable and had been estimated and presented in conformity with generally accepted petroleum engineering and evaluation methods and procedures.

All questions, including any suggested modifications to proved reserves estimates, that arose during the Independent Engineering Firms’ review process were resolved by our exploration and production segment to the satisfaction of the Independent Engineering Firms. The Independent Engineering Firms have concluded that our estimated total proved oil and natural gas reserve volumes set forth in this report are, in the aggregate, reasonable and have been prepared in accordance with Rule4-10(a) of RegulationS-X of the SEC, as amended (which we refer to as Rule4-10(a)), are consistent with international reserves reporting practice and are in accordance with the revised oil and gas reserves disclosure provisions of ASC Topic 932.

Our total proved developed and undeveloped reserves of crude oil, condensates and liquefiable hydrocarbons recoverable from field processing plants decreased by 9.5% in 2016, from 7,977 million barrels at

December 31, 2015 to 7,219 million barrels at December 31, 2016. Our proved developed reserves of crude oil, condensates and liquefiable hydrocarbons recoverable from processing plants decreased by 14.7% in 2016, from 5,725 million barrels at December 31, 2015 to 4,886 million barrels at December 31, 2016.These decreases were principally due to a decrease in oil production in 2016, lower prices of hydrocarbons, a decrease in field development activities and field behavior. The amount of crude oil, condensate and liquefiable hydrocarbon reserves added in 2016 was insufficient to offset the level of production in 2016, which amounted to 891 million barrels of crude oil, condensates and liquefiable hydrocarbons.

Our total proved developed and undeveloped dry gas reserves decreased by 18.9% in 2016, from 8,610 billion cubic feet at December 31, 2015 to 6,984 billion cubic feet at December 31, 2016. Our proved developed dry gas reserves decreased by 24.9% in 2016, from 6,012 billion cubic feet at December 31, 2015 to 4,513 billion cubic feet at December 31, 2016. These decreases were principally due to a decrease in oil production in 2016, lower prices of oil and gas, a decrease in field development activities and field behavior. The amount of dry gas reserves added in 2016 was insufficient to offset the level of production in 2016, which amounted to 1,134 billion cubic feet of dry gas. Our proved undeveloped dry gas reserves decreased by 4.9% in 2016, from 2,598 billion cubic feet at December 31, 2015 to 2,471 billion cubic feet at December 31, 2016.

During 2016, proved reserves increased by 40 million barrels of oil equivalent due to reclassifications, development, revisions and discoveries.

During 2016, exploratory activity in shallow waters incorporated approximately 57 million barrels of oil equivalent in one new field located close to our existing facilities. We also maintained exploratory work in shallow waters in order to incorporate proved reserves that support future new production in the short term.

The following three tables of crude oil and dry gas reserves set forth our estimates of our proved reserves determined in accordance with Rule4-10(a).

Summary of Oil and Gas⁽¹⁾ Proved Reserves as of December 31, 2016 Based on Average Fiscal Year Prices

Crude Oil and Condensate Reserves

(including natural gas liquids)⁽¹⁾

Note: Numbers may not total due to rounding.

Source: Pemex Exploration and Production.

Dry Gas Reserves

Note: Numbers may not total due to rounding.

Source: Pemex Exploration and Production.

The following table sets forth, as of December 31, 2016, the volumes of proved developed and undeveloped reserves, the number of producing wells and the number of proved undeveloped locations for the fields that contained 95.1% of our proved reserves.

		Reserves
Field		Proved(1)				Developed(1)				Undeveloped(1)				Number of Producing Wells				Number of Undeveloped Locations(2)
		(in millions of barrels of oil equivalent)
Rabasa			27.2				25.4				1.8				48				1
Teotleco			25.3				25.3				—				6				—
Bellota			24.7				18.7				6				5				2
Sen			24.5				18.9				5.6				12				1
Madrefil			24.2				21.4				2.8				5				1
Lum			23.1				17.6				5.5				3				3
Cárdenas			22.9				11.2				11.7				8				4
Etkal			22.6				10.5				12.1				1				2
Cuitláhuac			22.3				13				9.3				182				54
Tetl			20.4				—				20.4				—				3
Caparroso-Pijije-Escuintle			20.1				16.4				3.8				16				1
Cinco Presidentes			19.8				18.3				1.5				34				3
Tupilco			19.8				17.9				1.9				30				1
Nejo			19.5				14.6				4.9				198				35
Ixtoc			19.1				19.1				—				10				—
Edén-Jolote			19.1				14.1				5				7				2
Cauchy			18.6				18.6				—				23				—
Los Soldados			17.6				16				1.6				22				1
Jaatsul			17.1				—				17.1				—				2
Magallanes-Tucán-Pajonal			15.3				12.8				2.4				42				5
Paredón			15				15				—				2				—
San Ramón			15				13.9				1				50				3
Nohoch			14.4				14.4				—				7				—
Ayocote			14.4				10.1				4.3				15				2
Taratunich			13.7				13.7				—				7				—
Guaricho			13.5				13.1				0.4				14				1
Uech			13.5				13.5				—				2				—
Jacinto			13.4				13.4				—				3				—
Sinán			13				13				—				7				—
Mora			12.8				9.4				3.4				5				2
Bacab			12.8				12.8				—				6				—
Tintal			12.4				8.5				3.9				6				8
Takín			12.3				12.3				—				4				—
Sunuapa			12.2				10.2				2.1				10				2
Esah			11.6				—				11.6				—				2
Bedel			11.3				5.6				5.6				6				8
Sini			11.1				8.3				2.8				6				1
Total			8,142.3				5,419.7				2,722.6				4,456				5,142
Our proved reserves			8,562.8				5,753.4				2,808.4
Percentage			95.1	%			94.2	%			96.9	%