UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM20-F
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
for the fiscal year ended December 31, 20152018
Commission File Number0-99
PETRÓLEOS MEXICANOS
(Exact name of registrant as specified in its charter)
| Mexican Petroleum | United Mexican States | |
(Translation of registrant’s name into English) | (Jurisdiction of incorporation or organization) |
Avenida Marina Nacional No. 329
Colonia Verónica Anzures
11300 Ciudad de México, México
(Address of principal executive offices)
Julio Alberto Valle PereñaVanessa Julia Ramírez Inches
(5255) 1944 97009126-2940
ri@pemex.com
Avenida Marina Nacional No. 329
Torre Ejecutiva, Piso 38 Colonia Verónica Anzures
11300 Ciudad de México, México
(Name, telephone,e-mail and/or facsimile number
and address of company contact person)
Securities registered or to be registered pursuant to Section 12(b) of the Act. None
Securities registered or to be registered pursuant to Section 12(g) of the Act. None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
Title of Each Class
3.500% Notes due 2018
Floating Rate Notes due 2018
9 1⁄4% Guaranteed Bonds due 2018
8.00% Guaranteed Notes due 2019
6.000% Notes due 2020
4.875% Notes due 2022
3.500% Notes due 2023
4.875% Notes due 2024
4.500% Notes due 2026
9.50% Guaranteed Bonds due 2027
6.625% Guaranteed Bonds due 2038
5.50% Bonds due 2044
5.625% Bonds due 2046
9 1⁄4% Global Guaranteed Bonds due 2018
5.75% Guaranteed Notes due 2018
3.125% Notes due 2019
3.500% Notes due 2020
5.50% Notes due 2021
8.625% Bonds due 2022
8.625% Guaranteed Bonds due 2023
4.250% Notes due 2025
9.50% Global Guaranteed Bonds due 2027
6.625% Guaranteed Bonds due 2035
6.500% Bonds due 2041
6.375% Bonds due 2045
8.00% Guaranteed Notes due 2019 | 3.500% Notes due 2020 | |
6.000% Notes due 2020 | 6.375% Notes due 2021 | |
5.50% Notes due 2021 | 4.875% Notes due 2022 | |
5.375% Notes due 2022 | Floating Rate Notes due 2022 | |
8.625% Bonds due 2022 | 3.500% Notes due 2023 | |
4.625% Notes due 2023 | 8.625% Guaranteed Bonds due 2023 | |
4.875% Notes due 2024 | 4.250% Notes due 2025 | |
4.500% Notes due 2026 | 6.875% Notes due 2026 | |
9.50% Guaranteed Bonds due 2027 | 9.50% Global Guaranteed Bonds due 2027 | |
6.500% Notes due 2027 | 5.350% Notes due 2028 | |
6.500% Notes due 2029 | 6.625% Guaranteed Bonds due 2035 | |
6.625% Guaranteed Bonds due 2038 | 6.500% Bonds due 2041 | |
5.50% Bonds due 2044 | 6.375% Bonds due 2045 | |
5.625% Bonds due 2046 | 6.750% Bonds due 2047 | |
6.350% Bonds due 2048 |
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.
Yes☒ No ☐xNo¨
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/AYes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer.filer, or an emerging growth company. See definitiondefinitions 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 Non-accelerated filer☒ Emerging growth company☐x
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.
☐
†The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP☐ IFRS as issued by the IASB☒ Other☐ |
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
Item 1. | 5 | |||||
Item 2. | 5 | |||||
Item 3. | 5 | |||||
Item 4. | ||||||
Item 4A. | ||||||
Item 5. | ||||||
Item 6. | ||||||
Item 7. | ||||||
Item 8. | ||||||
Item 9. | ||||||
Item 10. | ||||||
Item 11. | ||||||
Item 12. | ||||||
Item 13. | ||||||
Item 14. | Material Modifications to the Rights of Security Holders and Use of Proceeds | |||||
Item 15. | ||||||
Item 16A. | ||||||
Item 16B. | ||||||
Item 16C. | ||||||
Item 16D. | ||||||
Item 16E. | Purchases of Equity Securities by the Issuer and Affiliated Purchasers | |||||
Item 16F. | ||||||
Item 16G. | ||||||
Item 16H. | ||||||
Item 17. | ||||||
Item 18. | ||||||
Item 19. | ||||||
i
Petróleos Mexicanos and its sevensix subsidiary entities, which we refer to as the subsidiary entities,Pemex ExploracióExploración y ProduccióProducción (Pemex Exploration and Production),Pemex TransformacióTransformación Industrial (Pemex Industrial Transformation),Pemex PerforacióPerforación y Servicios(Pemex (Pemex Drilling and Services),Pemex LogíLogística (Pemex Logistics),Pemex Cogeneración y Servicios(Pemex Cogeneration and Services),Pemex Fertilizantes (Pemex Fertilizers) andPemex 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 productivestate-owned subsidiary of Mexico. Each of Petróleos Mexicanos and the 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 45 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.” See “Item 4—Information on the Company—History and Development—Recent Energy Reform”Corporate Structure” 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” 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) and theBolsa Mexicana de Valores, S.A.B. de C.V.(Mexican Stock Exchange, or the BMV)Exchange), 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 Financial Reporting Standards, or Mexican FRS)Standards) 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. 17.206519.6829 = U.S. $1.00, which is the exchange rate that the SecretaríSecretaría de Hacienda y CréCrédito PúPúblico (Ministry of Finance and Public Credit) instructed us to use on December 31, 2015.
2018. 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.
PRESENTATION OF INFORMATION CONCERNING RESERVES
The proved hydrocarbon reserves included in this report for the year ended December 31, 20152018 are those that we have the right to extract and sell based on assignments granted to us by the Mexican Government’s assignments to us in August 2014 through the process commonly referred to as Round Zero. See “Item 4—Information on the Company—History and Development—Recent Energy Reform” for a description of the Round Zero process.Government.
The estimates of our proved reserves of crude oil and natural gas for the five years ended December 31, 20152018 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.GLJ Petroleum Consultants LTD. (which we refer to as Ryder Scott)GLJ) conducted reserves audits of our estimates of our proved hydrocarbon reserves as of December 31, 20152018 or January 1, 2016,2019, 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 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, 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” and “—The Mexican nation, not us, owns the hydrocarbon reserves located in the subsoil in 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:
exploration and production activities, including drilling;
activities relating to import, export, refining, petrochemicals and transportation, storage and distribution of petrochemicals, petroleum, natural gas and oil products;
activities relating to our lines of business, including the generation of electricity;business;
projected and targeted capital expenditures and other costs, commitments and revenues;costs;
trends in international and Mexican crude oil and natural gas prices;
liquidity and sources of funding, including our ability to continue operating as a going concern;
farm-outs, joint ventures and strategic alliances with other companies; and
the monetization of certain of our assets.
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:
general economic and business conditions, including changes in international and Mexican crude oil and natural gas prices;prices, refining margins and prevailing exchange rates;
credit ratings and limitations on our access to sources of financing on competitive terms;
our ability to find, acquire or gain access to additional reserves and to develop, either on our own or with our strategic partners, the reserves that we obtain successfully;
the level of financial and other support we receive from the Mexican Government;
effects on us from competition, including on our ability to hire and retain skilled personnel;
technical difficulties;
significant developments in the global economy;
significant economic or political developments in Mexico;Mexico and the United States;
developments affecting the energy sector; and
changes in, or failure to comply with, our legal regime or regulatory environment, including with respect to tax, environmental regulations, fraudulent activity, corruption and environmental regulations.bribery;
receipt of governmental approvals, permits and licenses;
natural disasters, accidents, blockades and acts of sabotage or terrorism;
the cost and availability of adequate insurance coverage; and
the effectiveness of our risk management policies and procedures.
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
Item 1. Identity of Directors, Senior Management and Advisers
Not applicable.
Item 2. Offer Statistics and Expected Timetable
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 five years ended December 31, 20152018 have been derived from, and should be read in conjunction with, our consolidated financial statements as of December 31, 20142017 and 20152018 and for the years ended December 31, 2013, 20142016, 2017 and 2015,2018, which are included in Item 18 of this report. Our consolidated financial statements for each of the fiscal years ended December 31, 20112014, 2015, 2016 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 and 20152017 were audited by Castillo Miranda y Compañía, S.C. (which we refer to as BDO Mexico), an independent registered public accounting firm. Our consolidated financial statements for the fiscal year ended December 31, 2018 were audited by KPMG Cárdenas Dosal, S.C. (which we refer to as KPMG Mexico), an independent registered public accounting firm. Certain amounts in the consolidated financial statements for the years ended December 31, 2012, 20132014, 2015, 2016 and 20142017 have been reclassified to conform the presentation of the amounts in the consolidated financial statements for the year ended December 31, 2015.2018. 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, 20152016, 2017 and 2014,2018, we recognized a net lossesloss of Ps. 712.6191.1 billion, Ps. 280.9 billion and Ps. 265.5180.4 billion, respectively. In addition, we had negative equity as of December 31, 20152017 and 20142018 of Ps. 1,331.71,502.4 billion and Ps. 767.71,459.4 billion, respectively, which resulted in a negative working capital of Ps. 176.225.6 billion and Ps. 44.854.7 billion, respectively.respectively; and cash flows from operating activities of Ps. 141.8 billion for the year ended December 31, 2018. This has led our independent auditorsus to state in their most recent audit reportour consolidated financial statements that there isexists substantial doubt about our ability to continue as a going concern. We have disclosed the circumstances that have caused these negative trends and the actionsHowever, 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—5 — Operating and Financial Review and Prospects—LiquidityProspects —Liquidity and Capital Resources.”
Selected Financial Data of PEMEX
| Year ended December 31,(1) | Year ended December 31,(1) | |||||||||||||||||||||||||||||||||||||||||||||||
| 2011 | 2012 | 2013 | 2014 | 2015 | 2015(2) | 2014 | 2015 | 2016 | 2017 | 2018 | 2018(2) | |||||||||||||||||||||||||||||||||||||
| (in millions of pesos, except ratios) | (in millions of U.S. dollars) | (in millions of pesos, except ratios) | (in millions of U.S. dollars) | |||||||||||||||||||||||||||||||||||||||||||||
Statement of Comprehensive Income Data | ||||||||||||||||||||||||||||||||||||||||||||||||
| Statement of Comprehensive Income (Loss) Data | ||||||||||||||||||||||||||||||||||||||||||||||||
Net sales | Ps. 1,558,454 | Ps. 1,646,912 | Ps. 1,608,205 | Ps. 1,586,728 | Ps. 1,166,362 | U.S. $ | 67,786 | Ps.1,586,728 | Ps. 1,161,760 | Ps. 1,074,093 | Ps.1,397,030 | Ps. 1,681,119 | U.S.$ 85,410 | |||||||||||||||||||||||||||||||||||
Operating income | 861,311 | 905,339 | 727,622 | 615,480 | (154,387 | ) | (8,973 | ) | 615,480 | (154,387 | ) | 424,350 | 104,725 | 367,400 | 18,666 | |||||||||||||||||||||||||||||||||
Financing income | 4,198 | 2,532 | 8,736 | 3,014 | 14,991 | 871 | 3,014 | 14,991 | 13,749 | 16,166 | 31,557 | 1,603 | ||||||||||||||||||||||||||||||||||||
Financing cost | (35,154 | ) | (46,011 | ) | (39,586 | ) | (51,559 | ) | (67,774 | ) | (3,939 | ) | (51,559 | ) | (67,774 | ) | (98,844 | ) | (117,645 | ) | (120,727 | ) | (6,134 | ) | ||||||||||||||||||||||||
Derivative financial instruments (cost) income—Net | (1,697 | ) | (6,258 | ) | 1,311 | (9,439 | ) | (21,450 | ) | (1,247 | ) | (9,439 | ) | (21,450 | ) | (14,000 | ) | 25,338 | (22,259 | ) | (1,131 | ) | ||||||||||||||||||||||||||
Exchange (loss) gain—Net | (60,143 | ) | 44,846 | (3,951 | ) | (76,999 | ) | (154,766 | ) | (8,995 | ) | (76,999 | ) | (154,766 | ) | (254,012 | ) | 23,184 | 23,659 | 1,202 | ||||||||||||||||||||||||||||
Net (loss) income for the period | (106,942 | ) | 2,600 | (170,058 | ) | (265,543 | ) | (712,567 | ) | (41,413 | ) | (265,543 | ) | (712,567 | ) | (191,144 | ) | (280,851 | ) | (180,420 | ) | (9,166 | ) | |||||||||||||||||||||||||
Statement of Financial Position Data (end of period) | ||||||||||||||||||||||||||||||||||||||||||||||||
Cash and cash equivalents | 114,977 | 119,235 | 80,746 | 117,989 | 109,369 | 6,356 | 117,989 | 109,369 | 163,532 | 97,852 | 81,912 | 4,162 | ||||||||||||||||||||||||||||||||||||
Total assets | 1,981,374 | 2,024,183 | 2,047,390 | 2,128,368 | 1,775,654 | 103,197 | 2,128,368 | 1,775,654 | 2,329,886 | 2,132,002 | 2,075,197 | 105,431 | ||||||||||||||||||||||||||||||||||||
Long-term debt | 672,657 | 672,618 | 750,563 | 997,384 | 1,300,873 | 75,604 | 997,384 | 1,300,873 | 1,807,004 | 1,880,666 | 1,890,490 | 96,047 | ||||||||||||||||||||||||||||||||||||
Totallong-term liabilities | 1,624,752 | 2,059,445 | 1,973,446 | 2,561,930 | 2,663,922 | 154,821 | 2,561,930 | 2,663,922 | 3,136,704 | 3,245,227 | 3,086,826 | 156,828 | ||||||||||||||||||||||||||||||||||||
Total equity (deficit) | 103,177 | (271,066 | ) | (185,247 | ) | (767,721 | ) | (1,331,676 | ) | (77,394 | ) | (767,721 | ) | (1,331,676 | ) | (1,233,008 | ) | (1,502,352 | ) | (1,459,405 | ) | (74,146 | ) | |||||||||||||||||||||||||
Statement of Cash Flows | ||||||||||||||||||||||||||||||||||||||||||||||||
Depreciation and amortization | 127,380 | 140,538 | 148,492 | 143,075 | 167,951 | 9,761 | 143,075 | 167,951 | 150,439 | 156,705 | 153,382 | 7,793 | ||||||||||||||||||||||||||||||||||||
Acquisition of wells, pipelines, properties, plant and equipment(3) | 167,014 | 197,509 | 245,628 | 230,679 | 253,514 | 14,734 | 230,679 | 253,514 | 151,408 | 91,859 | (94,004 | ) | (4,776 | ) | ||||||||||||||||||||||||||||||||||
Other Financial Data | ||||||||||||||||||||||||||||||||||||||||||||||||
Ratio of earnings to fixed charges(4)(5) | — | 1.01 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| (1) | Includes Petróleos Mexicanos, the subsidiary entities and the subsidiary companies listed in Note |
| (2) | Translations into U.S. dollars of amounts in pesos have been made at the exchange rate established by the Ministry of Finance and Public Credit for accounting purposes of Ps. |
| (3) | Includes capitalized financing cost. See Note |
| 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.
Period | Exchange Rate | |||||||||||||||
| Year Ended December 31, | High | Low | Average(1) | Period End | ||||||||||||
2011 | 14.254 | 11.505 | 12.464 | 13.951 | ||||||||||||
2012 | 14.365 | 12.625 | 13.140 | 12.964 | ||||||||||||
2013 | 13.433 | 11.976 | 12.857 | 13.098 | ||||||||||||
2014 | 14.794 | 12.846 | 13.370 | 14.750 | ||||||||||||
2015 | 17.358 | 14.564 | 15.873 | 17.195 | ||||||||||||
November 2015 | 16.854 | 16.373 | 16.631 | 16.601 | ||||||||||||
December 2015 | 17.358 | 16.531 | 17.070 | 17.195 | ||||||||||||
2016 | ||||||||||||||||
January 2016 | 18.595 | 17.360 | 18.065 | 18.211 | ||||||||||||
February 2016 | 19.193 | 18.019 | 18.433 | 18.068 | ||||||||||||
March 2016 | 17.941 | 17.214 | 17.630 | 17.214 | ||||||||||||
April 2016 | 17.913 | 17.190 | 17.480 | 17.190 | ||||||||||||
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 29, 2016 was Ps. 17.190 = 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 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. Crude oil export prices, which had generally traded above U.S. $75.00 per barrel since October 2009 and traded above U.S. $100.00 per barrel as recently as 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 of U.S. $86.00 per barrel. During 2015, the weighted average Mexican crude oil export price was approximately U.S. $44.17 per barrel and fell to U.S. $26.54 per barrel by the end of December 2015. This decline in crude oil prices had a direct effect on our results of operations and financial condition for the year ended December 31, 2015. So far in 2016, the weighted average Mexican crude oil export price has fallen to a low of U.S. $20.70 per barrel, the lowest in twelve years, but has since rebounded to U.S. $37.58 per barrel as of April 29, 2016. Future declines in international crude oil and natural gas prices will have a similar negative impact on our results of 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 is based on estimates, which are uncertain and subject to revisions” below and “Item 11—Quantitative and Qualitative Disclosures 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.debt. 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 indeteriorated. Relatively low oil prices that began in late 2014 hasand declining production have also had a negative impact on our ability to generate positive cash flows, which, together with our continued heavy tax burden, has further exacerbated our ability to fund our capital expenditures and other expenses from cash flow from operations.expenses. Therefore, in order to develop our hydrocarbon reserves and amortize scheduled debt maturities, we will need to raise significant amounts of financingobtain funds from a broad range of funding sources.sources, in addition to implementing the efficiency andcost-cutting initiatives described in this annual report.
As of December 31, 2015,2018, our total indebtedness, including accrued interest, was approximately U.S. $86.8Ps. 2,082.3 billion (Ps. 1,493.4(U.S. $105.8 billion), in nominal terms, which representsrepresented a 11.7%2.2% increase (a 30.6% increase in peso terms) compared to our total indebtedness, including accrued interest, of approximately U.S. $77.7Ps. 2,037.9 billion (Ps. 1,143.3(U.S. $103.5 billion) as of December 31, 2014. 26.7%2017. 27.2% of our existing debt as of December 31, 2015,2018, or U.S. $23.1Ps. 566.1 billion (U.S. $28.8 billion), is scheduled to mature in the next three years.years, including Ps. 191.8 billion (U.S. $9.7 billion) scheduled to mature in 2019. As of December 31, 2015,2018, we had a negative working capital of U.S. $10.2 billion.Ps. 54.7 billion (U.S. $2.8 billion). Our level of debt may increase further in the short or medium term as a result of new financing activities or depreciation of the peso as compared to the U.S. dollar, 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, drawdowns under our available credit facilities and the incurrence of additional indebtedness. In addition, we have taken recent action to improve our financial condition, as described in more detail underSee “Item 5—5 — Operating and Financial Review and Prospects—LiquidityProspects —Liquidity and Capital Resources—Resources — Overview—Changes to Our Business Plan.”
Certain rating agencies have expressed concerns regarding: (1) the total amount of our debt; (2) the significant increase in our indebtedness over the last several years; (3) our negative free cash flow during 2015, primarily resulting from our significant capital investment projects and the declining price of oil; (4) our substantial unfunded reserve for retirement pensions and seniority premiums, which was equal to U.S. $74.4 billion as of December 31, 2015; and (5) 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 announced the downgrade of ourstand-alone credit profile from BB+ to BB. 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 its credit ratings 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 (1) obtain further financing, and (2) invest in projects financed through debt and impair our ability to 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 isexists substantial doubt about our ability to continue as a going concern as a result of our recurring losses from operations and our negative working capital and negative equity.concern. 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—5 — Operating and Financial Review and Prospects—LiquidityProspects —Liquidity and Capital Resources—Resources — Overview—Changes to Our Business Plan,” are not successful, we may not be able to continue operating as a going concern.
Downgrades in our credit ratings could negatively impact our access to the financial markets and cost of financing.
We rely on access to the financial markets to finance the capital expenditures needed to carry out our capital investment projects. Accordingly, maintaining investment grade credit ratings is important to our business and financial condition, as credit ratings affect the cost and other terms upon which we are able to obtain funding. Certain rating agencies have expressed concerns regarding: (1) our heavy tax burden; (2) the total amount of our debt and the ratio of our debt to our proven reserves; (3) the significant increase in our indebtedness over the last several years; (4) our negative free cash flow; (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 Ps. 1,080.5 billion (U.S. $54.9 billion) as of December 31, 2018; (7) the persistence of our operating expenses notwithstanding declines in oil prices; (8) the possibility that our budget for capital expenditures will be insufficient to maintain and exploit reserves; and (9) the involvement of the Mexican Government in our strategy, financing and management.
On April 12, 2018, Moody’s Investors Service announced the revision of its outlook for our credit ratings from negative to stable and affirmed our global foreign currency rating as Baa3 and our global local currency credit rating as Aa3. On January 29, 2019, Fitch Ratings lowered our credit rating from BBB+ toBBB- in both global local and global foreign currency and affirmed the outlook for our credit ratings as negative. On March 4, 2019, Standard and Poor’s announced the revision of the outlook for our credit ratings from stable to negative and affirmed our global foreign currency credit rating as BBB+ and our global local currency rating asA-.
Any further lowering of our credit ratings, particularly below investment grade, may have material adverse consequences on our ability to access the financial markets and/or our cost of financing. In turn, this could significantly harm our ability to meet our existing obligations, financial condition and results of operations. Credit rating downgrades could also negatively impact the prices of our debt securities. There can be no assurance that we will be able to maintain our current credit ratings or outlooks.
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, 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. Crude oil export prices, 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. The weighted average Mexican crude oil export price fell further in subsequent years, reaching U.S. $18.90 per barrel on January 20, 2016. Crude oil export prices have since stabilized, with the Mexican crude oil export price averaging of U.S. $62.29 per barrel in 2018. However, prices remain significantly below 2014 levels and fluctuated greatly in 2018.
Any future decline in international crude oil and natural gas prices will likely have a negative impact on our results of operations and financial condition. In addition, significant fluctuations may affect estimates of the amount of Mexico’s hydrocarbon reserves that we have the right to extract and sell, which could affect our future production levels. See “—Risk Factors Related to our Relationship with the Mexican Government—Information on Mexico’s hydrocarbon reserves is based on estimates, which are uncertain and subject to revisions” below and “Item 11—Quantitative and Qualitative Disclosures About Market Risk—Changes in Exposure to Main Risks—Market Risk—Hydrocarbon Price Risk.”
We are an integrated oil and gas company and are exposed to production, equipment and transportation risks, criminal acts, blockades to our facilities,cyber-attacks, failure in our information technology system and deliberate acts of terror that could adversely affect our business, results of operations and financial condition..
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
Our operations are also subject to the risk of criminal acts to divert our crude oil, natural gas or refined products from our pipeline network, including the theft, and facilities fortampering with the quality, of our products. We have experienced an increase in the illegal sale havetrade in the fuels that we produce and in the illegal “tapping” of our pipelines, which has resulted in explosions, property and environmental damage, injuries and loss of life.life, as well as loss of revenue from the stolen product.
Our
In 2018, we discovered 14,910 illegal pipeline taps. We are also subject to the risk that some of our employees may, or may be perceived to, be participating in the illicit market in fuels. In addition, our facilities are also subject to the risk of sabotage, terrorism and cyber-attacks. In July 2007, twoblockades. For example, in early 2017 we experienced widespread demonstrations, including blockades, as a result of the Mexican Government’s increase in fuel prices during 2017, which prevented us from accessing certain of our pipelines were attacked. In September 2007, six different sites were attackedsupply terminals and 12 of our pipelines were affected.caused gasoline shortages at several retail service stations in Mexico. The occurrence of incidents such as 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 shutdownfacilities, which in turn could adversely affect our business, results of the affected facilitiesoperations and financial condition.
Our operations depend on our information technology systems and therefore cybersecurity plays a key role in protecting our operations.Cyber-threats andcyber-attacks are becoming increasingly sophisticated, coordinated and costly, and could disruptbe targeted at our production and increase our production costs. As of the date of this annual report, there have been no similar occurrences since 2007.operations. Although we have established an information security program which includes cybersecurity systemsthat helps us to prevent, detect and procedures to protect our information technology,correct vulnerabilities, and we have not yet suffered a significantcyber-attack, if the integrity of our information technology system were everto be compromised due to acyber-attack, or due to the negligence or misconduct of our employees, our business operations could be disrupted or even paralyzed 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 areas affected by suchcyber-attacks, which in turn could have a material adverse effect on our reputation, results of operations and financial condition.
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 or acts of terrorsignificant incidents will not occur in the future, that insurance will adequately cover the entire scope or extent of our losses or that we maywill not be found directly liable in connection with claims arising from accidentsheld responsible for such incidents. The occurrence of a significant incident or other similar events.unforeseen liability for which we are not fully insured or for which insurance recovery is significantly delayed could have a material adverse effect on our results of operations and financial condition. See “Item 4—Information on the Company—Business Overview—PEMEX Corporate Matters—Insurance.”
A continued decline in our proved hydrocarbon reserves and production could adversely affect our operating results and financial condition.
Some of our existing oil and gas producing fields are mature and, as a result, our reserves and production may decline as reserves are depleted. In recent years the replacement rate for our proved hydrocarbon reserves has been insufficient to prevent a decline in our proved reserves. During 2018, our total proved reserves decreased by 683.7 million barrels of crude oil equivalent, or 8.9%, after accounting for discoveries, extensions, revisions, and delimitations, from 7,694.7 million barrels of crude oil equivalent as of December 31, 2017 to 7,010.3 million barrels of crude oil equivalent as of December 31, 2018. See “Item 4—Information on the Company—Business Overview––Exploration and Production––Reserves” for more information about the factors leading to this decline. Ourreserve-replacement ratio, or RRR, in 2018 was 34.7%, as compared to our RRR of 17.5% in 2017. In addition, our crude oil production decreased by 5.0% in 2016, by 9.5% in 2017 and by 6.4% in 2018, primarily as a result of the decline of the Cantarell,Yaxché-Xanab, Crudo Ligero Marino, ElGolpe-Puerto Ceiba,Bellota-Chinchorro, Antonio J. Bermúdez,Cactus-Sitio Grande,Ixtal-Manik, Chuc, Costero Terreste andTsimín-Xux projects. There can be no assurance that we will be able to stop or reverse the decline in our proved reserves and production, which could have an adverse effect on our business, results of operations and financial condition.
Developments in the oil and gas industry and other factors may result in substantialwrite-downs of the carrying amount of certain of our assets, which could adversely affect our operating results and financial condition.
We evaluate on an annual basis, or more frequently where the circumstances require, the carrying amount of 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 recentliberalization of fuel prices or a significant decline in international crude oil and gas prices, and the devaluation of the peso against the U.S. dollar, among other factors, may result in the recognition of impairment charges in certain of our assets. Due to the continuing 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, 2015,2016 and 2017, we recognized a net reversal of impairment of Ps. 331,314 million and an impairment charge of Ps. 477,945151,444 million, respectively. As of December 31, 2018, we recognized a net reversal of impairment in the amount of Ps. 21,419 million. See Note 12(d)15 to our consolidated financial statements for further information about the impairment of certain of our assets. Future developments in the economic 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 the new legal framework in Mexico could adversely affect our business and financial performance.
The Constitución Política de los Estados Unidos Mexicanos(Political Constitution of the United Mexican ConstitutionStates or the “Mexican Constitution”) was amended in 2013 and theLey de Hidrocarburos (Hydrocarbons Law) allowswas enacted in 2014 in order to allow other oil and gas companies, in addition to us, to carry out certain activities related to the energy sector in Mexico, including exploration and extraction activities. Asproduction activities, and the import and sale of the date of this annual report, the Mexican Government has entered into production sharing contracts with other oil and gas companies following the competitive bidding processes held in July and September 2015 for shallow water blocks and in December 2015 for exploratory blocks and discovered fields in onshore areas. Additional competitive bidding processes will take place in the future, including bids for deep water fields in December of this year.
gasoline. As a result, we face 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, increasedIncreased competition could make it difficult for us to hire and retain skilled personnel. For more information, see “Item 4—Information onWhile we have not yet experienced significant adverse effects from increased competition, there can be no assurances that we will not experience such adverse effects in the Company—History and Development—Recent Energy Reform.”future. 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.
We participate in strategic alliances, joint ventures and other joint arrangements. These arrangements may not perform as expected, which could harm our reputation and have an adverse effect on our business, results of operations and financial condition.
We have entered into and may in the future enter into strategic alliances, joint ventures and other joint arrangements. These arrangements are intended to reduce risks in exploration and production, refining, transportation and processing activities. Our partners in such arrangements may, as a result of financial or other difficulties, be unable or unwilling to fulfill their financial or other obligations under our agreements, threatening the viability of the relevant project. In addition, our partners may have inconsistent or opposing economic or business interests and take action contrary to our policies or objectives, which could be to our overall detriment. If our strategic alliances, joint ventures and other joint arrangements do not perform as expected, our reputation may be harmed and our business, financial condition and results of operations could 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 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. Any failure—real or perceived—by our officers or employees to comply with applicable governance or regulatory obligations could harm our reputation, limit our ability to obtain financing and otherwise have a material adverse effect on our business, financial condition and results of operations.
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 reputation, 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. Thismanner and 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 management has identified material weaknesses in our internal control over financial reporting for each of the last four years and has concluded that our internal control over financial reporting was not effective at December 31, 2018, which may have a material adverse result on our results of operation and financial condition.
Our management identified two material weaknesses in our internal control over financial reporting in 2018. For further information on the material weaknesses identified by our management in 2018, see “Item 15—Controls and Procedures—Management’s Annual Report on Internal Control over Financial Reporting.” In light of the identified material weaknesses, our management concluded that our internal control over financial reporting was not effective at December 31, 2018. Although we have developed and implemented several measures to remedy these material weaknesses, we cannot be certain that there will be no other material weaknesses in our internal control over financial reporting in the future.
In addition, our management identified material weaknesses in our internal control over financial reporting in connection with the preparation of our consolidated financial statements as of and for each of the years ended December 31, 2015, 2016 and 2017. We disclosed the circumstances giving rise to these material weaknesses—which were generally different from one year to the next—in our annual reports on Form20-F for the years 2015, 2016 and 2017, respectively. As of the date of this annual report, we believe that each of these material weaknesses has been remediated.
If our efforts to remediate the material weaknesses identified in 2018 are not successful, we may be unable to report our results of operations for future periods accurately and in a timely manner and make our required filings with government authorities, including the SEC. There is also a risk that there could be accounting errors in our financial reporting, and we cannot be certain that in the future additional material weaknesses will not exist or otherwise be discovered. Any of these occurrences could adversely affect our results of operation and financial condition.
Our compliance with environmental regulations in Mexico, including in connection with efforts to address climate change, 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.” However, growingGrowing 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 recent Paris Agreement approved by the Mexican Government, contemplate coordinated efforts to combat climate change. While it is still too early to know how these new agreements will be implemented, weWe may become subject to market changes, including carbon taxes, efficiency standards,cap-and-trade and emission allowances and credits. These measures could increase our operating and maintenance costs, increase the price of our hydrocarbon products and possibly shift consumer demand tolower-carbon sources. See “Item 4—4 — Environmental Regulation—Global Climate Change and Carbon Dioxide Emissions Reduction”Regulation —Climate Change” for more information on the Mexican Government’s current legal and regulatory framework for combatting climate change.
Risk Factors Related to Mexico
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. Those 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 in the past has announced budget cuts in November 2015 and February 2016 in response to the recent declinedeclines in international crude oil prices, and, while the Mexican Government did not reduce our budget in 2017 and announced a budget increase in December 2018, it may cut spendingreduce our budget 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. TheseAny new budget 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 ofdeterioration in 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 asix-year term as the President of Mexico. As of the date of this annual report, no political party holds a simple majority in either house of the Mexican Congress.
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 Mexico and the United States may adversely affect Mexican economic policy and, in turn, PEMEX’s operations.
Political events in Mexico may significantly affect Mexican economic policy and, consequently, our operations. Presidential and federal congressional elections in Mexico were held on July 1, 2018. Mr. Andrés Manuel López Obrador, a member of theMovimiento Regeneración Nacional (National Regeneration Movement, or Morena), was elected President of Mexico and took office on December 1, 2018, replacing Mr. Enrique Peña Nieto, a member of thePartido Revolucionario Institucional(Institutional Revolutionary Party, or PRI). The new President’s term will expire on September 30, 2024. Thenewly-elected members of the Mexican Congress took office on September 1, 2018. As of the date of this annual report, the National Regeneration Movement holds an absolute majority in the Chamber of Deputies.
The new administration and the Mexican Congress are discussing a number of reforms that could affect economic conditions or the oil and gas industry in Mexico. Until any reform has been adopted and implemented, we cannot predict how these policies could impact our results of operation and financial position. We cannot provide any assurances that political developments in Mexico will not have an adverse effect on the Mexican economy or oil and gas industry and, in turn, our business, results of operations and financial condition, including our ability to repay our debt.
Economic conditions in Mexico are highly correlated with economic conditions in the United States due to the physical proximity and the high degree of economic activity between the two countries generally, including the trade facilitated by the North American Free Trade Agreement, or NAFTA. As a result, 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.
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 2018, our export sales to the United States amounted to Ps. 434.8 billion, representing 25.9% of total sales and 62.8% of export sales for the year. On November 30, 2018, the presidents of Mexico, the United States and Canada signed the UnitedStates-Mexico-Canada Agreement, or the USMCA, which, if ratified by the legislatures of the three countries, would replace NAFTA. As of the date of this annual report, there is uncertainty about whether the USMCA will be ratified, as well as the timing thereof, and the potential for furtherre-negotiation, or even termination, of NAFTA. Any increase of import tariffs resulting from the implementation of the USMCA or there-negotiation or termination of NAFTA 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.
In addition, because the Mexican economy is heavily influenced by the U.S. economy, policies that may be adopted by the U.S. government 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 may be adjusted by the Mexican Government 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, administrative liabilities, acquisitions, leases, services and public works. This special regime provides Petróleos Mexicanos with additional technical and managerial autonomy and, subject to certain restrictions, with additional autonomy with respect to 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 our annual wage and salary expenditures, subject to the approval of theCámara de Diputados (Chamber of Deputies).
The adjustments to our annual budget mentioned above may compromise our ability to develop the reserves assigned to us by the Mexican Government and to successfully compete with other oil and gas companies that may enter the Mexican energy sector. See “Item 4—Information on the Company—History and Development—Capital Expenditures and Investments—Capital Expenditures Budget” for more information about our February 2015 and February 2016 budget adjustments 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 sectorpublic-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 sectorpublic-sector external debt. Mexico has not requested restructuring of bonds or debt owed to multilateral agencies.
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. See “—Risk Factors Related to Mexico” above.
Our financing obligations are not guaranteed by the Mexican Government.
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. As a result, the Mexican Government would have no legal obligation to make principal or interest payments on our debt if we were unable to satisfy our financial obligations.
We pay significant special taxes and duties to the Mexican Government, and, if certain conditions are met, we may be required to pay a state dividend, which may limit our capacity to expand our investment 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 2015, approximately 37.5% of our sales revenues was used for payments2018, we paid Ps. 570.3 billion 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 extraction activities thatIn addition, we carry out in Mexico. Beginning in 2016, we have the obligation,are generally required, subject to the conditions set forth in the Petróleos Mexicanos Law, to pay a state dividend in lieu of certain payments that we paid at the discretion ofto the Mexican Government. ThisWe were not required to pay a state dividend will be calculated by the Ministry of Financein 2016, 2017 and Public Credit as a percentage of the net income that we generate through activities subject to theLey de Ingresos sobre Hidrocarburos (Hydrocarbons Revenue Law) on an annual basis2018 and approved by the Mexican Congress in accordance with the terms of the Petróleos Mexicanos Law. The amount we pay each year under this state dividend will decrease in subsequent years, reaching 0% by 2026. The Mexican Government has announced that we will not be required to pay a state dividend in 2016.2019. See “Item 8—Financial Information—Dividends” for more information. Although the changes to the fiscal regime applicable to us are designed in partMexican Government has on occasion indicated a willing to reduce the Mexican Government’sits 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—Fiscal Regime.” As of the date of this annual report, we are assessing the impact that these changes may have on us. In addition, the Mexican Government may change the applicable rules in the future.
The Mexican Government has imposed price controls in the domestic market on our products.
The Mexican Government has from time to time imposed price controls on the sales of natural gas, liquefied petroleum gas, gasoline, diesel, gas oil intended for domestic use, fuel oil and other products. As a result of these price controls, we have not been able to pass on all of the increases in the prices of our product purchases to our customers in the domestic market when the peso depreciates in relation to the U.S. dollar. A depreciation of the peso increases our cost of imported oil and oil products, without a corresponding increase in our revenues unless we are able to increase the price at which we sell products in Mexico. 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” and “Item 4—Information on the Company—Business Overview—Gas and Basic Petrochemicals—Pricing Decrees.”
The Mexican nation, not us, owns the hydrocarbon reserves located in the subsoil in 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 in Mexico.
Article 27 of the Mexican Constitution provides that the Mexican Government will carry out exploration and production activities through agreements with third parties and through assignments to and agreements with us. The Secondary Legislation allows us and other oil and gas companies to explore and extract the petroleum and other hydrocarbon reserves located in Mexico, subject to 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 potential future bidding rounds for additional exploration and production 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, 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.
Information on Mexico’s hydrocarbon reserves 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. We revise annually our estimates of hydrocarbon reserves that we 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.
TheComisión Nacional de Hidrocarburos (National Hydrocarbon Commission, or CNH) has the authority to review and approve our estimated hydrocarbon reserves estimates and may require us to make adjustments to these estimates. A request to adjust these reserves estimates could result in our inability to prepare our consolidated financial statements in a timely manner. This could adversely impact our ability to access financial markets, obtain contracts, assignments, permits and other government authorizations necessary to participate in the crude oil and natural gas industry, which, in turn, could have an adverse effect on our business, results of operations and financial condition.
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.
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. During 2015, our exploratory activity led to the incorporation to proved reserves of approximately 120 million barrels of oil equivalent. This amount, however, was less than the reductions made due to revisions, delimitations and decreased development and production in 2015. Accordingly, our total proved reserves decreased by 22.1%, from 12,380 million barrels of crude oil equivalent as of December 31, 2014 to 9,632 million barrels of crude oil as of December 31, 2015.
See “Item 4—Information on the Company—Business Overview—Exploration and Production—Reserves” for more information about the factors leading to this decline, including the results of Round Zero. Our crude oil production decreased by 1.0% from 2012 to 2013, by 3.7% from 2013 to 2014 and by 6.7% from 2014 to 2015, primarily as a result of the decline of production in the Cantarell, Aceite Terciario del Golfo (which we refer to as ATG), Delta del Grijalva, Crudo Ligero Marino andIxtal-Manik projects.
The recent energy reform in Mexico 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 Mexico’s estimated proved reserves of crude oil and natural gas. The development of the reserves that were assigned to us pursuant to Round Zero, particularlyby the reserves in the deep waters of the Gulf of Mexico and in shale oil and gas fields in the Burgos basin,Mexican Government 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—Recent 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 declineIn the past, we have reduced our capital expenditures in response to declining oil prices, has forced us to make adjustments to our budget, including a significant reduction of our capital expenditures. Unlessand 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 would 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 potential future bidding rounds for the rights to new reserves.
Our ability to make capital expenditures is limited by the substantial taxes and duties that we pay to the Mexican Government, the ability of the Mexican Government to adjust certain aspects of our annual budget, cyclical decreases in our revenues primarily related to lower oil 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 increasedecrease the proved hydrocarbon reserves that we are entitled to extract. Nevertheless, the recent 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. For more information, see “Item 4—Information on the Company—History and Development—Capital Expenditures and Investments” and “—Recent Energy Reform.” For more information on the liquidity constraints we are exposed to, see “—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”debt and, ultimately, our ability to operate as a going concern” above.
In addition, we have entered into strategic alliances, joint ventures and other joint arrangements with third parties in order to develop our reserves. If our partners were to significantly default on their obligations to us, we may be unable to maintain production levels or extract from our reserves. Moreover, we cannot assure you that these strategic alliances, joint ventures and other joint arrangements will be successful or reduce our capital commitments. For more information, see “—Risk Factors Related to Pemex’s Operations—We participate in strategic alliances, joint ventures and other joint arrangements. These types of arrangements may not perform as expected, which could harm our reputation and have an adverse effect on our business, results of operations and financial condition” above and “Item 4—Information on the Company—History and Development—Capital Expenditures.”
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, gasoline, diesel, gas oil intended for domestic use, fuel oil and other products. As a result of these price controls, we have not been able to pass on all of the increases in the prices of our product purchases to our customers in the domestic market when the peso depreciates in relation to the U.S. dollar. A depreciation of the peso increases our cost of imported oil and gas 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 Ejercicio Fiscal de 2017 (2017 Federal Revenue Law), during 2017 the Mexican Government gradually removed price controls on gasoline and diesel as part of the liberalization of fuel prices in Mexico. As of the date of this annual report, sales prices of gasoline and diesel have been fully liberalized and are determined by the free market. For more information, see “Item 4—Information on the Company—Business Overview—Industrial Transformation.” However, 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” and “Item 4—Information on the Company—Business Overview—Gas and Aromatics—Pricing Decrees.”
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 arepublic-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.
Item 4. Information on the Company
HISTORY AND DEVELOPMENT
We are the largest company in Mexico according to the June 2015 specialJuly 2018 edition ofExpansiónmagazine, and according to the November 17, 201519, 2018 issue ofPetroleum Intelligence Weekly,we were the eighthlargesttenthlargest crude oil producer and the fifteenthnineteenth largestoil and gas company in the world based on data from the year 2014.2017.
Our executive offices are located at Avenida Marina Nacional No. 329, Colonia Verónica Anzures, 11300, Alcandía Miguel Hildalgo, Ciudad de México, 11300, México. Our telephone number is(52-55) 1944-2500. 9126-8700.
In March 1938, President Lázaro Cárdenas del Río nationalized theforeign-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 had the characteristics of a subsidiary of Petróleos Mexicanos. The principal lines of business of those subsidiary entities were as follows:
Recent Energy Reform
Energy Reform DecreeLegal Regime
On December 20,21, 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 Federation. We refer to this as the Energy Reform Decree. The Energy Reform Decree, which includestook effect, including transitional articles setting forth the general framework and timeline for implementing legislation relating to the related secondary legislation, took effect on December 21, 2013.
The key features of the Energy Reform Decree are:
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Secondary Legislationenergy sector.
On August 6,11, 2014, the Mexican Congress completed the process of approving the related secondarythis implementing legislation which was signed into law by President Enrique Peña Nieto and published in the Official Gazette of the Federation on August 11, 2014. We refer in this annual report to thisFederation. The implementing legislation as the Secondary Legislation. The Secondary Legislation includes nine new laws, of which the following are most relevant to our operations:
The new Petróleos Mexicanos Law, which took effect, with the exception of certain provisions, on October 7, 2014 and repealed the previous Petróleos Mexicanos2014;
Hydrocarbons Law, which had been effective as of November 29, 2008;took effect on August 12, 2014; and
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| Ley de Ingresos sobre Hidrocarburos (Hydrocarbons Revenue Law) |
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 fiscal regime through which the Mexican Government collects 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:appropriate contract model for each area that is subject to a competitive bidding process, while the Ministry of Finance and Public Credit is responsible for determining the economic and fiscal terms of each contract. See “—Taxes, Duties and Other Payments to the Mexican Government—Fiscal Regime” below in this Item 4. The following arrangements comprise the contractual regime established by the current legal framework for upstream activities:
On October 31, 2014, the regulations relatinglicenses, pursuant to which a license holder is entitled to the Secondary Legislation, includingoil and gas that are extracted from theReglamento de la Ley de Petróleos Mexicanos(Regulations subsoil;
production-sharing contracts, pursuant to the Petróleos Mexicanos Law), were published in the Official Gazettewhich a contractor is entitled to receive a percentage of production;
profit-sharing contracts, pursuant to which a contractor is entitled to receive a percentage of the Federation. Subsequent modificationsprofit from the sale of the extracted oil and gas;
service contracts, pursuant to which a contractor would receive cash payments for services performed; and
service contracts, together with licenses,production-sharing contracts andprofit-sharing contracts are known as the Regulationscontracts for the exploration and production of oil and gas, collectively referred to as contracts for exploration and production.
For midstream and downstream activities, including oil refining and natural gas processing, the Hydrocarbons Law establishes a permit regime that is granted by the Ministry of Energy and theComisión Reguladora de Energía (Energy Regulatory Commission, or CRE), as applicable. The Hydrocarbons Law also sets forth the process by which entities may apply for these permits. The CRE has issued permits for the retail sale of gasoline and diesel fuel since 2016.
Under the Petróleos Mexicanos Law, took effect on February 9, 2015.
Legal Regime for Petróleos Mexicanos
As part of this recent energy reform, Petróleos Mexicanos was transformed fromis a decentralized public entity into a productivestate-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 a 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 productivestate-owned subsidiaries, affiliates, compensation, assets, administrative liabilities, budget, debt levels and the state dividend, had takentook effect. On June 10, 2015, theDisposiciones Generales de ContratacióContratación para PetróPetróleos Mexicanos y Sus Empresas Productivas Subsidiarias (General Provisions for Contracting for Petróleos Mexicanos and its ProductiveState-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 ReorganizationStructure
In accordance with the transitional articlesThe principal lines of business 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 productivestate-owned subsidiaries—Pemex Exploration and Production and Pemex Industrial Transformation—and five new productive state-owned subsidiaries— subsidiaries are as follows:
| • | Pemex Exploration and Production, formed on June 1, 2015 as a successor toPemex-Exploración y Producción(Pemex-Exploration and Production), explores for, extracts, transports, stores and markets crude oil and natural gas; |
Pemex Drilling and Services, formed on August 1, 2015, performs drilling and well repair services;
Pemex Fertilizers, formed on August 1, 2015, integrates the ammonia production chain up to the point of sale of fertilizers;
Pemex Ethylene, formed on August 1, 2015, separates the ethylene business from our petrochemicals segment in order to take advantage of the integration of the ethylene production chain and distributes and trades other gases, including methane and propylene;
Pemex Logistics, Pemex Cogenerationformed on October 1, 2015, provides land, maritime and Services, Pemex Fertilizerspipeline transportation, storage and Pemex Ethylene—were created. distribution to us and third parties; and
| • | Pemex Industrial Transformation, formed on November 1, 2015 as a successor ofPemex-Refinación(Pemex-Refining),Pemex-Gasy Petroquímica Básica(Pemex-Gas and Basic Petrochemicals) andPemex-Petroquímica(Pemex-Petrochemicals), refines petroleum products and derivatives; processes natural gas, natural gas liquids, artificial gas and derivatives; engages in industrial petrochemical processes and generates, supplies and trades electric and thermal energy. |
Each of these productivestate-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.
Prior to July 27, 2018,PemexCogeneración y Servicios(Pemex Cogeneration and Services) operated as an additional productivestate-owned subsidiary. On March 27, 2015,July 13, 2018, the Board of Directors of Petróleos Mexicanos adoptedissued theacuerdosDeclaratoria de creacióLiquidación y Extinci (creation resolutions) for eachón de Pemex Cogeneración y Servicios(Declaration of the new productive state-owned subsidiaries, allLiquidation and Extinction of which were subsequently published in the Official Gazette of the Federation on April 28, 2015.
On June 1, 2015, Pemex Exploration and Production and Pemex Cogeneration and Services were formed in accordance with the May 22, 2015 resolution of the Board of Directors of Petróleos Mexicanos thatServices), which was published in the Official Gazette of the Federation and became effective on May 29, 2015. Effective asJuly 27, 2018. As of June 1, 2015,July 27, 2018, all of the assets, liabilities, rights and obligations of Pemex ExplorationCogeneration and ProductionServices were automatically assumed by, and transferred to, Pemex Industrial Transformation, and Pemex Industrial Transformation became, as a matter of Mexican law, the successor to Pemex-ExplorationPemex Cogeneration and Production, the decentralized public entityServices. Pemex Cogeneration and former subsidiary of Petróleos Mexicanos thatServices was in turn dissolved effective as of that date. July 27, 2018.
On August 1, 2015, Pemex Drilling and Services, Pemex Fertilizers and Pemex Ethylene were formed in accordance with the July 29, 2015 resolution ofMarch 26, 2019, the Board of Directors of Petróleos Mexicanos requested that was published inour management bring forth proposals for the Official Gazettemerger of the Federation on July 31, 2015. On October 1, 2015, Pemex Logistics was formed in accordance with the September 24, 2015 resolution of the Board of Directors of Petróleos Mexicanos that was published in the Official Gazette of the Federation on October 1, 2015. On November 1, 2015,Ethlyene into Pemex Industrial Transformation was formed in accordance with the September 24, 2015 resolutionand of the Board of Directors of Petróleos Mexicanos that was published in the Official Gazette of the Federation on October 6, 2015. Each of Pemex-Refining, Pemex-Gas and Basic Petrochemicals and Pemex-Petrochemicals were dissolved effective as of November 1, 2015.
The principal lines of business of the new productive state-owned subsidiaries are as follows:
Key New Features of the Secondary Legislation that Relates to the Hydrocarbons Sector
We describe below the key features of the Secondary Legislation that relate to the hydrocarbons sector in Mexico:
The fiscal terms of each contract for exploration and production are to be established in accordance with the Hydrocarbons Revenue Law. See “—Taxes, Duties and Other Payments to the Mexican Government—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 regulated by the Ministry of Energy and theComisión Reguladora de Energía (Energy Regulatory Commission). 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, the Energy Regulatory Commission will begin issuing permits for the retail sale of gasoline and diesel fuel in 2016. Until December 31, 2017, the Mexican Government may continue issuing pricing decrees to regulate the maximum prices for the retail sale of gasoline and diesel fuel, taking into account transportation costs between regions, inflation and the volatility of international fuel prices, among other factors. See “—Business Overview—Refining—Pricing Decrees” below in this Item 4. Beginning in 2018, the prices of gasoline and diesel fuel will be freely determined by market conditions.
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Assignment of Exploration and Production Rights
Round Zero
The Ministry of Energy, with technical assistance from the NHC, evaluated our request to be assigned oil and gas exploration and production rights in certain areas based on our technical, financial and operational capabilities, in accordance with the Energy Reform Decree. On August 13, 2014, the Ministry of Energy published the results of Round Zero under which we were assigned rights to 95.9% of the proved reserves that we requested. Pursuant to the Hydrocarbons Law, the Ministry of Energy may assign, on an exceptional basis, additional exploration and production areas to Petróleos Mexicanos or other productive state-owned companies.
In connection with the Round Zero assignments, the Ministry of Energy authorized our exploration plans for the areas in which we had made commercial investments or discoveries, as well as our development plans for the extraction of hydrocarbons in producing fields. Our rights to continue conducting exploration and production activities in the areas assigned to us are subject to certain terms and conditions set forth in the assignment deeds granted by the Mexican Government. The assignment deeds governing our exploration areas require, among other things, that we carry out exploration activities in accordance with the authorized plan for an exploration area within the first three years of receiving the assignment; this initial period may be extended for two additional years, depending on the technical characteristics of the area, our compliance with the authorized exploration plan and our results. If a commercial discovery is made during this initial exploration phase, the assignment deeds provide that we may submit to the NHC a development plan for the extraction of hydrocarbons from the area. Upon NHC approval, we may then carry out extraction activities in accordance with our development plan. The assignment deeds governing the majority of our production areas grant us the right to carry out extraction activities for a 20-year period, subject to the requirement that we comply with the authorized development plan for a production area within the time period specified by the NHC. Our remaining production areas, which together contain approximately 398 million barrels of oil equivalent of proved reserves, were temporarily assigned to us for a two-year period in
order to ensure the continuity of operations at these producing fields until they are subject to a competitive bidding round. The assignment deeds governing both our exploration and production areas include mechanisms by which the Ministry of Energy may revoke its assignments to us and retake the underlying areas.
The Hydrocarbons Law provides that once a particular area is assigned to us, we may request permission from the Ministry of Energy to migrate the assignment into the new contractual regime, which the Ministry of Energy will create with technical assistance from the NHC. If, in connection with the migration of an assignment, we decide to enter into a partnership or strategic joint venture with another company, commonly referred to as a “farm-out,” for the exploration and development of the underlying area, the NHC will conduct a public tender in order to select our partner in accordance with technical guidelines set forth by the Ministry of Energy. The Ministry of Energy will seek a favorable opinion from us with respect to the experience and the technical, financial and operational qualifications that a bidder must meet in order to participate in the bidding process, and will also consult with us on the financial terms established by the Ministry of Finance and Public Credit.
In addition, Pemex Exploration and Production may amend its Integrated Exploration and Production Contracts (which we refer to as Integrated E&P Contracts) and Financed Public Works Contracts (which we refer to as FPWCs) in order to align these contracts, which were entered into prior to the enactment of the Secondary Legislation, with the new contractual framework established under the Hydrocarbons Law. Accordingly, an existing Integrated E&P Contract or FPWC may be migrated into a contract for exploration and production upon agreement by the contract parties if the technical guidelines established by the Ministry of Energy (after having sought our opinion) and the fiscal terms determined by the Ministry of Finance and Public Credit are acceptable to both parties. Upon approval by the contract parties, the existing Integrated E&P Contract or FPWC will be replaced by the new contract for exploration and production without the need for a bidding process. If the contract parties do not agree to the proposed technical guidelines and financial terms, the original Integrated E&P Contract or FPWC will remain valid and unmodified.
For more information regarding these contracts, please see “—Business Overview—Exploration and Production—Integrated Exploration and Production Contracts and Financed Public Works Contracts” below in this Item 4.
Competitive Bidding Rounds
In December 2014, the Ministry of Energy launched Round One, pursuant to which the areas that we did not request or were not assigned to us through Round Zero (including the areas assigned to us on a temporary basis) are to be subject to bidding by us and other companies, subject to certain requirements. Round One is expected to include a total of 169 blocks—109 exploration blocks and 60 production blocks—covering an aggregate area of approximately 28,500 square kilometers. We plan to participate in Round One, as well as in subsequent competitive bidding rounds.
As part of Round One, the NHC is conducting competitive bidding rounds in order to determine the partners with which we may enter into farm-out agreements for the exploration and development of certain areas that were assigned to us through Round Zero. In March 2016, we modified our partnership strategy in light of current market conditions in the oil and gas industry. In the short term, we have identified three key opportunities for joint ventures in the mature onshore fields of Ogarrio, Cárdenas-Mora and Rodador. The Ministry of Energy has already approved the migration process of these three opportunities, and we anticipate that the bidding process to select our partners will follow soon. The selected areas were identified based on their profitability and production prospects. We have also considered farm-outs for the Samaria, Bolontikú-Sinán, Ek-Balam, Ayatsil-Tekel-Utsil, Kunah-Piklis, Trión, Maximino and Exploratus fields, but will revisit these prospects before moving forward with the relevant regulatory process.
Production. As of the date of this annual report, we havethe Board of Directors has not yet participatedapproved resolutions in Round One. We do plan to participate in the fourth bidding round of Round One, which will include ten exploratory areas located in the Perdido Fold Belt Basin and the Salt Basinrespect of the deepwaters of the Gulf of Mexico.proposed mergers.
New Fiscal Regime
The Hydrocarbons Revenue Law that was adopted as part of the Secondary Legislation sets forth, among other things, the fiscal terms to be established with respect to the contracts for exploration and production granted by the Mexican Government to us or to other companies. For more information regarding the new fiscal regime, see “—Taxes, Duties and Other Payments to the Mexican Government—Fiscal Regime” below in this Item 4.
Capital Expenditures and Investments
The following table shows our capital expenditures, excludingnon-capitalizable maintenance, for each of the fivethree years ended December 31, 2015, and2018, as well as the budget for these expenditures for 2016.2019. Capital expenditure amounts are derived from our budgetary records, which record these amountsare 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 expendituresmade or expected to be made by the subsidiary entities prior to our recent corporate reorganization, and for the new productivestate-owned subsidiaries, capital expenditures made after their creation. The 2016 budget for expenditures presents expected expenditures of the new productive state-owned subsidiaries. subsidiary.
Capital Expenditures and Budget by Subsidiary
| Year ended December 31, | Budget 2016(1) | |||||||||||||||||||||||||||||||||||||||
| 2011 | 2012 | 2013 | 2014 | 2015 | Year ended December 31, | Budget | ||||||||||||||||||||||||||||||||||
| (in millions of pesos)(2) | ||||||||||||||||||||||||||||||||||||||||
Pemex-Exploration and Production(3) | Ps. | 177,059 | Ps. | 193,801 | Ps. | 212,556 | Ps. | 222,069 | Ps. | 153,110 | Ps. | 121,818 | ||||||||||||||||||||||||||||
Pemex-Refining | 25,157 | 28,944 | 29,794 | 39,767 | 34,152 | — | ||||||||||||||||||||||||||||||||||
Pemex-Gas and Basic Petrochemicals | 3,019 | 4,468 | 5,405 | 7,549 | 5,070 | — | ||||||||||||||||||||||||||||||||||
Pemex-Petrochemicals | 2,426 | 2,892 | 4,003 | 4,765 | 2,604 | — | ||||||||||||||||||||||||||||||||||
| 2016 | 2017 | 2018 | 2019(1) | |||||||||||||||||||||||||||||||||||||
| (in millions of pesos)(2) | ||||||||||||||||||||||||||||||||||||||||
Pemex Exploration and Production | Ps. 137,242 | Ps. 85,491 | Ps. 71,107 | Ps. 98,226 | ||||||||||||||||||||||||||||||||||||
Pemex Industrial Transformation | — | — | — | — | 4,952 | 21,369 | 33,947 | 18,576 | 17,026 | 57,500 | ||||||||||||||||||||||||||||||
Pemex Logistics | — | — | — | — | 631 | 4,449 | 7,015 | 4,917 | 5,042 | 1,200 | ||||||||||||||||||||||||||||||
Pemex Drilling and Services | 2,688 | 1,550 | 1,388 | 1,295 | ||||||||||||||||||||||||||||||||||||
Pemex Ethylene | — | — | — | — | 426 | 1,786 | 746 | 618 | 975 | 300 | ||||||||||||||||||||||||||||||
Pemex Drilling and Services | — | — | — | — | — | 1,421 | ||||||||||||||||||||||||||||||||||
Pemex Fertilizers | — | — | — | — | 205 | 444 | 379 | 264 | 331 | 500 | ||||||||||||||||||||||||||||||
Petróleos Mexicanos | 717 | 943 | 1,707 | 3,006 | 2,157 | 5,422 | 1,004 | 1,609 | 893 | 107 | ||||||||||||||||||||||||||||||
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Total capital expenditures | Ps. | 208,378 | Ps. | 231,048 | Ps. | 253,465 | Ps. | 277,156 | Ps. | 203,307 | Ps. | 156,709 | Ps. 183,021 | Ps. 113,025 | Ps. 96,762 | Ps. 159,128 | ||||||||||||||||||||||||
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| Note: |
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| n.a. | Not available. |
| (1) | Original budget |
| (2) | Figures |
Petróleos Mexicanos. |
Source: Petróleos Mexicanos.
The following table shows our capital expenditures, excludingnon-capitalizable maintenance, by segment for the yearyears ended December 31, 20152017 and 2018 and the budget for these expenditures in 2016.2019.
Capital Expenditures by Segment
| Year ended December 31, | Budget 2016(1) | |||||||
| 2015 | ||||||||
| (millions of pesos) | ||||||||
Exploration and Production(2) | Ps. | 151,546 | Ps. | 121,576 | ||||
Refining(3) | 29,646 | 18,919 | ||||||
Gas and Basic Petrochemicals(4) | 5,160 | 2,093 | ||||||
Petrochemicals(5) | 494 | 357 | ||||||
Drilling and Services(6) | 1,564 | 1,663 | ||||||
Logistics(7) | 9,827 | 4,449 | ||||||
Fertilizers(8) | 1,044 | 444 | ||||||
Ethylene(9) | 1,869 | 1,786 | ||||||
Corporate and other Subsidiaries | 2,157 | 5,422 | ||||||
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Total Capital Expenditures | Ps. | 203,307 | Ps. | 156,709 | ||||
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| Year ended December 31, | Budget | |||||||||||||
| 2017 | 2018 | 2019(1) | ||||||||||||
| (millions of pesos) | ||||||||||||||
Exploration and Production | Ps. 85,491 | Ps. 71,107 | Ps. 98,226 | |||||||||||
Industrial Transformation | ||||||||||||||
Refining | 15,988 | 14,119 | 57,500 | |||||||||||
Gas and Aromatics | 2,587 | 2,907 | — | |||||||||||
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Total | 18,576 | 17,026 | 57,500 | |||||||||||
Logistics | 4,917 | 5,042 | 1,200 | |||||||||||
Drilling and Services | 1,550 | 1,388 | 1,295 | |||||||||||
Ethylene | 618 | 975 | 300 | |||||||||||
Fertilizers | 264 | 331 | 500 | |||||||||||
Corporate and other Subsidiaries | 1,609 | 893 | 107 | |||||||||||
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Total Capital Expenditures | Ps. 113,025 | Ps. 96,762 | Ps. 159,128 | |||||||||||
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| Note: |
Lakach Aceite Terciario del Golfo Ek-Balam Cactus-Sitio Grande(4)(10) El Golpe-Puerto Ceiba Veracruz Basin(4) Ixtal-Manik(4) Ayín-Alux Jujo-Tecominoacán(5) Cuenca de Macuspana(4) Tamaulipas-Constituciones Integral Poza Rica Costero Terrestre(4) Arenque(5) Lankahuasa(4) Strategic Gas Program(4)(5) Och-Uech-Kax(7) Carmito-Artesa(10) Caan(6) Cárdenas(9) Other Exploratory Projects(5)(11)(12) Other Development Projects Administrative and Technical Support Total Refining Fuel Quality Investments(13) Reconfiguration of Miguel Hidalgo Refinery in Tula Residual Conversion from Salamanca Refinery New Refinery in Tula(14) Tuxpan Pipeline and Storage and Distribution Terminals Minatitlán Refinery Reconfiguration Others Total Gas and Basic Petrochemicals Modernization of Transportation Areas of GPCs Electric Reliability Integral Projects at GPCs Modernization of Measuring, Control and Security Systems of GPCs Modernization and Rehabilitation of Facilities of Water Supply and Water Treatment System Facilities at Nuevo Pemex GPC Adaptation of Fractionation Plants and Conversion of Liquids Sweetener at Nuevo Pemex GPC Conditioning Facilities for Ethane Supply at Cactus GPC Security Requirements for the Improvement of Operational Reliability of the GPCs Conservation and Modernization of the Storage Area at Coatzacoalcos Area GPC Refurbishment of Refrigerating and Ethane Turbocompressors of Fractionating Plants at Nuevo Pemex GPC Conservation of Operational Reliability at Ciudad Pemex GPC Conservation of Processing Capacity at Nuevo Pemex GPC Refurbishment and Modernization of Natural Gas Turbocompressors of the Cryogenic Plants at Nuevo Pemex GPC Integral Facilities Maintenance at Cactus GPC Integral Maintenance of Gas Sweetening Plants 1, 2, 3 and 12 at Cactus GPC Conditioning of the Venting Systems at Cactus GPC Others Total Petrochemicals Infrastructure for Maintenance and Industrial Service Areas Efficiency in Storage and Distribution I Maintaining the Production Capacity of the Feed Stock Conditioning I at Cangrejera PC Maintenance of Styrene-Ethylbencene Plant Modernization and Expansion of Production Capacity of Aromatics Train I at Cangrejera PC Maintaining the Production Capacity of the Feed Stock Conditioning II at Cangrejera PC Others Total Logistics(15) Evaluation and Rehabilitation of the Mechanical Integrity of the Nuevo Teapa-Madero-Cadereyta Pipelines Implementation of the SCADA System in 47 Pipeline Transportation Systems Evaluation and Rehabilitation of the Mechanical Integrity of the Jet Fuel Pipelines, Diesel Pipelines, Magna and Premium Gasoline Pipelines, Fuel Oil Pipelines and Gas Pipelines in the Central Zone Evaluation and Rehabilitation of the Mechanical Integrity of the Poza Rica-Salamanca and Nuevo Teapa- Tula-Salamanca Pipelines Maintenance of Safety, Measurement, Control and Automation Systems in Storage and Distribution Terminals Larger, Modernized Fleet Natural Gas Transportation from Jáltipan to Salina Cruz Refinery Renewal of Tugs, Chalanes and Multipurpose Vessels of the Smaller Fleet Acquisition of Five Tankships by Cash and/or By Leasing Maintenance of Marine Facilities Integral Maintenance of Pipeline Systems for Natural Gas and LPG, Stage II Modernization of the Instrumented Security and Basic Control Systems of the Pumping Stations and Product Receipt Northern Zone Replacement of Vessel Tanks Nuevo Pemex I, II, III and IV by Acquisition and/or Leasing Evaluation and Rehabilitation of the Mechanical Integrity of the Pipelines and Fuel Oil Pipelines in Northern and Pacific Zones Refurbishment, Modification and Modernization of Pumping and Compression Stations Nationwide Others Total Drilling and Services(15) Acquisition of Two Modular Drilling Rigs Acquisition of Two Jack-Up Platforms Acquisition of Nine Land-Based Drilling Rigs Acquisition and Modernization of Equipment for the Drilling and Repair of Wells Acquisition of Two Modular Drilling Rigs Total Ethylene(15) Modernization and Expansion of Production Capacity of the Ethane Derivatives Chain I at Morelos PC Modernization and Optimization of Infrastructure and Auxiliary Services I at Cangrejera PC Safety and Environmental Protection Based on Observations and Regulations IV at Morelos PC Maintaining Production Capacity of the Low Density Polyethylene Plant Modernization of Fire Protection Network at Cangrejera PC Maintaining the Production Capacity of Ethylene Plant 2013-2015 at Morelos PC Maintaining the Production Capacity of Ethane Derivatives Chain II at Morelos PC Maintaining the Production Capacity of Auxiliary Services II Maintaining the production capacity of Auxiliary Services III Maintaining the Production Capacity of the Ethane Derivatives Chain III at Morelos PC Maintaining the Production Capacity of Auxiliary Services at Morelos PC Modernization and Optimization of Auxiliary Services Infrastructure I at Morelos PC Maintaining the Production Capacity of the Swing plant 2015-2017 at Morelos PC Maintaining the Production Capacity of the Mitsui plant 2015-2017 at Morelos PC Maintenance and Optimization of the Refrigerated Terminal Operation Capacity of Ethylene, TREEP I and II at Pajaritos PC Maintaining the Production Capacity of Ethylene Oxide Plant 2015-2017 at Morelos PC Others Total Fertilizers(15) Rehabilitation of Ammonia Plant IV and Integration and Auxiliary Services for Cosoleacaque PC Maintaining the Production Capacity of Ammonia Plant VII and its Auxiliary Services at Cosoleacaque PC Maintaining the Production Capacity of Ammonia Plant VI at Cosoleacaque PC Safety and Environmental Protection, Derived from Observations and Regulations II in Cosoleacaque PC Others Total Petróleos Mexicanos Total Total capital expenditures
Capital Expenditures Budget 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
the need to incur more indebtedness than the amount included in our approved financing program for Our
new Dos Bocas refinery. We continuously review our capital expenditures portfolio in accordance with our current and future business Our main objectives for upstream investment are to maximize ourlong-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 Our downstream investment program seeks to increase our refining capacity, 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 Our natural gas production (excluding natural gas liquids) decreased by 2018. Development drilling activity Our primary objectives in Our production goals for Industrial Transformation Our industrial transformation segment is comprised of two principal activities: (i) refining and Refining
Our primary goal for Gas and Our gas and In
Fertilizers Our fertilizers segment operates through the productivestate-owned subsidiary Pemex Fertilizers
In 2019, we intend to focus our Ethylene Our ethylene segment operates through the productivestate-owned subsidiary Pemex Ethylene
Drilling and Services Our drilling and services segment operates through the productivestate-owned subsidiary Pemex Drilling and Services Our well drilling activities during Logistics Our logistics segment operates through the productivestate-owned subsidiary Pemex Logistics During During 2018, we injected 139.1 thousand barrels per day of LPG, representing a 0.7% increase as compared to As of 2016, natural gas transportation is carried out by CENAGAS, with the support of Pemex Logistics through an operation and maintenance contract. During
International Trading The international trading segment In 2018, an increase of Ps. 131.7 billion from 2017. In
Infrastructure of PEMEX
Exploration and Production
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 During Our The following table summarizes our drilling activity for the five years ended December 31,
Extensions and Discoveries During 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. 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, 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 Auditing of Oil and Gas Reserves Information,
experience in the area;
stage of development;
quality and completeness of basic data; and
production and pressure histories. 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 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 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, 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 following bidding rounds conducted by the Mexican Government, the transfer to third parties of rights to certain fields included in our 2017 reserves. The amount of crude oil, condensate and liquefiable hydrocarbon reserves added in Our total proved developed and undeveloped dry gas reserves decreased by During
In 2018, our proved reserves increased by 317 million barrels of oil equivalent The following three tables of crude oil and dry gas reserves set forth our estimates of our proved reserves determined in accordance withRule 4-10(a). Summary of Oil and Gas(1) Proved Reserves as of December 31, Based on Average Fiscal Year Prices
Crude Oil and Condensate Reserves (including natural gas liquids)(1)
Dry Gas Reserves
The following table sets forth, as of December 31,
Field Madrefil Rabasa Utsil Poza Rica Cauchy Ixtoc Lum Cuitláhuac Abkatún Chinchorro Tupilco Caparroso-Pijije-Escuintle Tetl Teotleco Nejo Yagual San Ramón Nohoch Etkal Guaricho Bolontikú Sini Sunuapa Jaatsul Bacab Taratunich Ayocote Caan Chiapas-Copanó Uech Los Soldados Bricol Magallanes-Tucán-Pajonal Tintal Arcabuz-Culebra Total Our proved reserves Percentage
Ourreserve-replacement ratio, or RRR, for a given period is calculated by dividing the sum of proved reserves additions due to discoveries, developments, delineations and revisions by that period’s total production. During Our reserves production ratio, which is presented in terms of years, is calculated by dividing the estimated remaining reserves at the end of the relevant year by the total production of hydrocarbons for that year. As of December 31, Sales Prices and Production Costs The following table sets forth our average sales price per unit of oil and gas produced and our average production cost per unit of production, in the aggregate and for each field containing Unit Sales Prices and Production Costs(1)
In We calculate and disclose our production costs pursuant to international practices, which are based on U.S. GAAP under ASC Topic 932. In accordance with ASC Topic 932, the production cost per barrel of oil equivalent is calculated by dividing total production expenses (in U.S. dollars) by total production of Our total production cost consists of all direct and indirect costs incurred to produce crude oil and gas, including costs associated with the operation and maintenance of wells and related equipment and facilities. In addition, it includes costs of labor to operate the wells and facilities, the costs of materials, supplies and fuel consumed, including gas used for gas lifting, nitrogen and other chemicals, repair andnon-capitalized maintenance costs, and other costs, such as fees for general services, a labor fund for active personnel, corporate services, indirect overhead and applicable taxes and duties. However, it excludesnon-cash expenses such as amortization of capitalized well expenses, the depreciation of fixed assets, expenses associated with the distribution and handling of Crude Oil and Natural Gas Production In Crude oil can be classified by its sulfur content. “Sour” or heavy crude oil contains 3.4% or greater sulfur content by weight and “sweet” or light crude oil contains less than 1.0% sulfur content by weight. Most of our production is classified as sour or heavy crude oil. Our exploration and production segment primarily produces four types of crude oil:
Altamira, a heavy crude oil;
Maya, a heavy crude oil;
Isthmus, a light crude oil; and
Olmeca, anextra-light crude oil. Most of our production consists of Isthmus and Maya crude oil. In The most productive crude oil and natural gas fields in the Gulf of Mexico are located in the The following table sets forth our annual crude oil production rates by type of oil for the five years ended December 31, Crude Oil Production
The following table sets forth our annual crude oil production by region and business unit for the five years ended December 31, Crude Oil Production
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The Marine regions, which are comprised of the Northeastern Marine region and the Southwestern Marine region, are located on the continental shelf and its slope in the Gulf of Mexico. They cover a surface area of approximately 550,000 square kilometers, located entirely within Mexican territorial waters, along the coast of the states of Tabasco, Campeche, Yucatán, Quintana Roo and the southern coast of the state of Veracruz. In 2015,2018, the average crude oil production from the 4143 fields located in these regions was 1,760.31,510.8 thousand barrels per day.
The Southern region covers an area of approximately 392,000 square kilometers, including the states of Guerrero, Oaxaca, Chiapas, Tabasco, Yucatán, Quintana Roo, Campeche and Veracruz. In 2015,2018, the average crude oil production from the 9786 fields located in this region was 393.8219.4 thousand barrels per day.
The Northern region, including its offshore area, is located on the continental shelf in the Gulf of Mexico along the coast of the state of Tamaulipas and the northern coast of the state of Veracruz. It covers an area of approximately 1.8 million square kilometers. Our production area in the onshore portion of this region is located in, among others, the states of Veracruz, Tamaulipas, Nuevo León, Coahuila, San Luis Potosí and Puebla; we also produce offshore on the continental shelf in the Gulf of Mexico. In 2015,2018, the average crude oil and natural gas production in the Northern region totaled 112.792.3 thousand barrels of crude oil per day and 1,737.91,003.7 million cubic feet of natural gas per day, respectively, from the 296263 oil and gas fields in this region.
The following table sets forth our annual natural gas production by region and business unit for the five years ended December 31, 2015.2018.
Natural Gas Production
| Year ended December 31, | 2018 | |||||||||||||||||||||||||||||||||||||||||||||||
| 2014 | 2015 | 2016 | 2017 | 2018 | vs. 2017 | |||||||||||||||||||||||||||||||||||||||||||
| 2015 | ||||||||||||||||||||||||||||||||||||||||||||||||
| 2011 | 2012 | 2013 | 2014 | 2015 | vs. 2014 | (in millions of cubic feet per day) | (%) | |||||||||||||||||||||||||||||||||||||||||
| (in millions of cubic feet per day) | (%) | |||||||||||||||||||||||||||||||||||||||||||||||
Marine regions | ||||||||||||||||||||||||||||||||||||||||||||||||
Cantarell | 1,074.7 | 1,004.2 | 1,007.1 | 1,120.9 | 1,277.1 | 13.9 | 1,120.9 | 1,277.1 | 1,184.9 | 1,133.4 | 1,151.1 | 1.6 | ||||||||||||||||||||||||||||||||||||
Litoral de Tabasco | 649.3 | 735.6 | 747.6 | 842.6 | 993.5 | 17.9 | 842.6 | 993.5 | 950.0 | 882.3 | 798.0 | (9.6 | ) | |||||||||||||||||||||||||||||||||||
Abkatún-Pol-Chuc | 559.0 | 523.6 | 579.4 | 553.4 | 455.9 | (17.6 | ) | 553.4 | 455.9 | 390.5 | 319.5 | 288.2 | (9.8 | ) | ||||||||||||||||||||||||||||||||||
Ku-Maloob-Zaap | 330.9 | 329.7 | 405.1 | 571.0 | 556.5 | (2.5 | ) | 571.0 | 556.5 | 589.3 | 552.3 | 693.5 | 25.6 | |||||||||||||||||||||||||||||||||||
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Total | 2,613.9 | 2,593.1 | 2,739.2 | 3,087.9 | 3,283.0 | 6.3 | ||||||||||||||||||||||||||||||||||||||||||
Southern region | ||||||||||||||||||||||||||||||||||||||||||||||||
Samaria-Luna | 715.7 | 695.9 | 606.3 | 583.1 | 500.3 | (14.2 | ) | |||||||||||||||||||||||||||||||||||||||||
Macuspana-Muspac(1) | 571.5 | 542.9 | 515.1 | 490.5 | 455.3 | (7.2 | ) | |||||||||||||||||||||||||||||||||||||||||
Bellota-Jujo | 288.2 | 297.4 | 319.7 | 288.9 | 264.5 | (8.4 | ) | |||||||||||||||||||||||||||||||||||||||||
Cinco Presidentes | 116.9 | 116.3 | 129.4 | 152.8 | 160.1 | 4.7 | ||||||||||||||||||||||||||||||||||||||||||
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Total | 1,692.3 | 1,652.4 | 1,570.5 | 1,515.4 | 1,380.1 | (8.9 | ) | |||||||||||||||||||||||||||||||||||||||||
Northern region | ||||||||||||||||||||||||||||||||||||||||||||||||
Burgos(2) | 1,344.1 | 1,269.3 | 1,286.6 | 1,221.0 | 1,099.0 | (10.0 | ) | |||||||||||||||||||||||||||||||||||||||||
Veracruz | 716.7 | 601.2 | 494.5 | 455.3 | 392.2 | (13.9 | ) | |||||||||||||||||||||||||||||||||||||||||
Aceite Terciario del | ||||||||||||||||||||||||||||||||||||||||||||||||
Golfo | 111.9 | 148.8 | 167.0 | 149.5 | 145.2 | (2.9 | ) | |||||||||||||||||||||||||||||||||||||||||
Poza Rica-Altamira | 115.2 | 120.0 | 112.4 | 102.8 | 101.5 | (1.3 | ) | |||||||||||||||||||||||||||||||||||||||||
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Total | 2,287.8 | 2,139.3 | 2,060.6 | 1,928.6 | 1,737.9 | (9.9 | ) | 3,087.9 | 3,283.0 | 3,114.6 | 2,887.6 | 2,930.8 | 1.5 | |||||||||||||||||||||||||||||||||||
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Southern region | ||||||||||||||||||||||||||||||||||||||||||||||||
Samaria-Luna | 583.1 | 500.3 | 498.7 | 426.9 | 381.0 | (10.8 | ) | |||||||||||||||||||||||||||||||||||||||||
Macuspana-Muspac | 490.5 | 455.3 | 382.2 | 291.6 | 249.2 | (14.5 | ) | |||||||||||||||||||||||||||||||||||||||||
Bellota-Jujo | 288.9 | 264.5 | 231.5 | 183.3 | 147.4 | (19.6 | ) | |||||||||||||||||||||||||||||||||||||||||
Cinco Presidentes | 152.8 | 160.1 | 137.7 | 109.1 | 90.9 | (16.7 | ) | |||||||||||||||||||||||||||||||||||||||||
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Total | 1,515.4 | 1,380.1 | 1,250.0 | 1,011.0 | 868.5 | (14.1 | ) | |||||||||||||||||||||||||||||||||||||||||
Northern region | ||||||||||||||||||||||||||||||||||||||||||||||||
Burgos | 1,221.0 | 1,099.0 | 864.6 | 699.2 | 603.9 | (13.6 | ) | |||||||||||||||||||||||||||||||||||||||||
Veracruz | 455.3 | 392.2 | 322.8 | 263.5 | 217.3 | (17.5 | ) | |||||||||||||||||||||||||||||||||||||||||
Aceite Terciario del | ||||||||||||||||||||||||||||||||||||||||||||||||
Golfo | 149.5 | 145.2 | 142.5 | 118.5 | 92.2 | (22.2 | ) | |||||||||||||||||||||||||||||||||||||||||
PozaRica-Altamira | 102.8 | 101.5 | 97.9 | 88.2 | 90.3 | 2.4 | ||||||||||||||||||||||||||||||||||||||||||
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Total | 1,928.6 | 1,737.9 | 1,427.8 | 1,169.4 | 1,003.7 | (14.2 | ) | |||||||||||||||||||||||||||||||||||||||||
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Total natural gas | 6,594.1 | 6,384.9 | 6,370.3 | 6,531.9 | 6,401.0 | (2.0 | ) | 6,531.8 | 6,401.1 | 5,792.5 | 5,068.0 | 4,803.0 | (5.2 | ) | ||||||||||||||||||||||||||||||||||
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| Note: |
In Our average natural gas production decreased by Investments in Exploration and Production
ATG project. During
For The Exploration and Production Investment Trends In In Our projected exploration and development capital expenditures correspond to the areas assigned to us through to new technology and international best practices, while sharing the costs associated with security, occupational health and environmental protection and The capital expenditures of our exploration and production segment have constituted The following Exploration and Development Capital Expenditures
Investments and Production by Project We conduct exploration, production and development activities in fields throughout Mexico. Our main projects areKu-Maloob-Zaap,Tsimin-Xux, ATG, Cantarell, Crudo Ligero Marino, Burgos, Chuc, Antonio J. Bermúdez,Ogarrio-Sánchez Magallanes and Delta del Grijalva. These projects are described below. Exploration and Production’s Capital Expenditures
In nominal peso terms, our exploration and production segment’s capital expenditures for this project were Ps. will reach approximately U.S.
As of December 31, In nominal peso terms, our exploration and production segment’s capital expenditures for theTsimin-Xux project were Ps. 4,961 million in 2017 and Ps. 1,065 million in 2018. In 2019, we expect capital expenditures for this project to total Ps. 1,112 million and that by the end of 2019 our total accumulated capital expenditures for this project will reach approximately U.S. $185.0 million. Chuc Project. The Chuc project is the second largest producer of light crude oil in the Southwestern Marine region, and includes the operation and maintenance of thePol-A facility and water injection complexes. This project covers an area of 213 square kilometers. The fields of this project are located on the continental shelf of the Gulf of Mexico, off the coast of the states of Tabasco and Campeche, at a depth of between the20- and100-meter isobaths, approximately 132 kilometers from the Dos Bocas Marine Terminal in Paraíso, Tabasco, and 79 kilometers northeast of Ciudad del Carmen, Campeche. The fields in the project include Abkatún, Batab, Caan, Ché, Chuc, Chuhuk, Etkal, Homol, Kanaab, Kuil, Onel, Pol, Taratunich and Tumut. As of December 31, 2018, 120 wells had been completed, of which 73 were producing. During 2018, average production totaled 174.7 thousand barrels per day of crude oil and 254.0 million cubic feet per day of natural gas. As of December 31, 2018, cumulative production totaled 5.9 billion barrels of crude oil and 6.8 trillion cubic feet of natural gas. As of December 31, 2018, proved hydrocarbon reserves totaled 175.3 million barrels of oil and 363.2 billion cubic feet of natural gas, or 257.9 million barrels of oil equivalent. As of December 31, 2018, total proved developed reserves were 190.2 million barrels of oil equivalent. In nominal peso terms, our exploration and production segment’s capital expenditures for the
Cantarell Project. The Cantarell project is located on the continental shelf of the Gulf of Mexico. It consists of the Akal, Chac, Ixtoc, Kambesah, Kutz, Nohoch, Sihil and Takin fields, which extend over an area of 294.4 square kilometers. As of December 31, As of December 31, The Akal field, which is the most important field in the Cantarell project, averaged In nominal peso terms, our exploration and production segment’s capital expenditures for the Cantarell project totaled Ps. On October 10, 1997, we awarded abuild-own-operate contract for a nitrogen cryogenic plant at the Cantarell project to a consortium formed by BOC Holdings, Linde, Marubeni, West Coast Energy and ICA Fluor Daniel. Under this contract, the consortium is responsible for the financing, design, construction and operation of the plant. The plant began operations in 2000 and cost During Crudo Ligero Marino Project. In 2013, the Ministry of Finance and Public Credit approved the designation of the Crudo Ligero Marino project as astand-alone project, thereby separating it from the Strategic Gas Program of which it formed part from 2001 through 2012. In 2013, theOch-Uech-Kax project was integrated into this project. The main objectives for the Crudo Ligero Marino project during the years In nominal peso terms, our exploration and production segment’s capital expenditures for the Crudo Ligero Marino project totaled Ps. Ogarrio-Sánchez Magallanes Project. TheOgarrio-Sánchez Magallanes project is composed of 21 crude oil and natural gas producing fields and forms part of the Cinco Presidentes business unit. This project is located between the state borders of Veracruz and Tabasco and covers an area of 10,820 square kilometers. From a geological standpoint, this project pertains to the Isthmus Saline basin, specifically the southeastern basins at the Tertiary level. TheOgarrio-Sánchez Magallanes project is geographically bounded by the Gulf of Mexico to the north, the geological folds of the Sierra Madre of Chiapas to the south, the Tertiary basin of Veracruz to the west and the Comalcalco Tertiary basin to the east. The primary objective of this project is to increase production levels through the drilling of development wells and infill wells, which are drilled between producing wells to more efficiently recover oil and gas reserves, the execution of workovers of wells and the implementation of secondary and enhanced oil recovery processes. In addition, we aim to optimize the infrastructure of this project in order to counteract the decreases in production levels that result from the natural depletion of its reservoirs. As of December 31, 2018, theOgarrio-Sánchez Magallanes project had 533 producing wells. Nine new wells were completed during 2018. Average daily production totaled 52.7 thousand barrels of crude oil and 97.5 million cubic feet of natural gas during 2018. As of December 31, 2018, cumulative production was 1.3 billion barrels of crude oil and 1.9 trillion cubic feet of natural gas. Proved hydrocarbon reserves totaled 105.6 million barrels of crude oil and 206.2 billion cubic feet of natural gas. Total proved reserves were 139.3 million barrels of oil equivalent, of which 112.6 million barrels were proved developed reserves. In nominal peso terms, our capital expenditures for theOgarrio-Sánchez Magallanes project were Ps. 1,227 million in 2018. For 2019, we anticipate that our capital expenditures will total Ps. 1,406 million and that by the end of 2019 total accumulated capital expenditures for this project will reach approximately U.S. $144.8 million. Delta del Grijalva Project. The Delta del Grijalva project is the most important project in the Southern region in terms of both oil and gas production. The project covers an area of 1,343 square kilometers. As of December 31, 2018, there was a total of 199 wells drilled, of which 60 were producing. During 2018, the project produced an average of 52.6 thousand barrels per day of crude oil and 211.5 million cubic feet per day of natural gas. As of December 31, 2018, cumulative production in the Delta del Grijalva project was 0.8 billion barrels of crude oil and 3.1 trillion cubic feet of natural gas. Proved oil and gas reserves as of December 31, 2018 totaled 61.5 million barrels of crude oil and 273.9 billion cubic feet of natural gas. As of December 31, 2018, total proved reserves were 125.2 million barrels of oil equivalent, 93.3 million of which were proved developed reserves. In nominal peso terms, our exploration and production segment’s capital expenditures for the Delta del Grijalva project were Ps. 2,859 million in 2016, Ps. 1,705 million in 2017 and Ps. 879 million in 2018. In 2019, we expect our capital expenditures to be Ps. 1,569 million, bringing our total capital expenditures for the project to approximately U.S. $4.0 billion. Antonio J. Bermúdez Project. The Antonio J. Bermúdez project is designed to accelerate reserves recovery, as well as increase the recovery factor, by drilling additional wells and implementing a system of pressure maintenance through nitrogen injection. It consists of the Samaria, Cunduacán, Oxiacaque, Iride and Platanal fields, and covers an area of 163 square kilometers. As of December 31, 2018, a total of 852 wells had been completed, of which 236 were producing. During 2018, the project produced an average of 33.9 thousand barrels per day of crude oil and 169.5 million cubic feet per day of natural gas. As of December 31, 2018, cumulative production was 3.0 billion barrels of crude oil and 4.8 trillion cubic feet of natural gas. As of December 31, 2018, proved hydrocarbon reserves in these fields totaled 113.3 million barrels of crude oil and 185.2 billion cubic feet of natural gas. As of December 31, 2018, total proved reserves were 157.3 million barrels of oil equivalent, of which 96.0 million were proved developed reserves. In nominal peso terms, our exploration and production segment’s capital expenditures for the Antonio J. Bermúdez project were Ps. 2,562 million in 2016, Ps. 1,306 million in 2017 and Ps. 1,148 million in 2018. For 2019, we anticipate that our capital expenditures for this project will be Ps. 2,130 million and that our total accumulated investments in the project will reach approximately U.S. $9.3 billion. Burgos Project. The Burgos project is the largest producer ofnon-associated gas in Mexico. During Main Fields of the Burgos Project (as of December 31,
During In nominal peso terms, our exploration and production segment’s capital expenditures (including capital expenditures made pursuant to FPWCs) for the Burgos project were Ps.
During 2018, field development activities at the project included the drilling of 56 new wells and the completion of 65 wells, 62 were classified as producing, reflecting a 95.4% success rate. As of December 31, In nominal peso terms, our exploration and production segment’s capital expenditures for the
Crude Oil Sales During The following table sets forth crude oil distribution for the past five years. Crude Oil Distribution
Differences between the volume of crude oil measured at the wellhead and the volume distributed reflect customary adjustments due to, among other things, shifting inventories, evaporation, shrinkage and product segregation. In Gas Flaring The flaring of produced gas, which consists of the burning off of surplus combustible vapors from a well, usually occurs as a result of operational adjustments to carry out maintenance at production facilities, and in some cases is due to limitations in the ability to handle, process or transport natural gas. In addition, the flaring of produced gas is also used as a safety measure to relieve well pressure. Gas flaring is considered to be one of the most significant sources of air emissions from offshore oil and gas installations. In Pipelines The crude oil and natural gas pipeline network owned by our exploration and production segment connects crude oil and natural gas producing centers with refineries and petrochemical plants. At the end of Integrated Exploration and Production Contracts and Financed Public Works Contracts Our FPWC program, previously known as the Multiple Services Contracts program, was first announced in December 2001. The objective of the program was to provide a contractual framework that promotes efficient execution of public works in order to increase Mexico’s Our Integrated E&P Contracts program was established as part of reforms to the Mexican energy sector enacted in 2008. The objective of these Integrated E&P Contracts was to increase our execution and production capabilities. The We may amend our Integrated E&P Contracts and FPWCs in order to align these contracts
As of the date of this annual report, On December 18, 2017, the Integrated E&P Contract governing the Santuario and El Golpe blocks was migrated; On August 3, 2018, the Integrated E&P Contract governing the Ebano block was migrated; and On November 21, 2018, the Integrated E&P Contract governing the Miquetla Block was migrated. In addition, we migrated the FPWCs governing the Misión block and the Olmos block on March 2, 2018 and February 22, 2018, respectively, to different contractual frameworks permitted under the Petróleos Mexicanos Law. We have also requested migration of the FPWCs governing the Pánuco, Altamira, Pitepec, Miahuapan and Magallanes blocks, which requests are being evaluated by the Ministry of Energy. For more information on the migration of these Integrated E&P Contracts and FPWCs, see “—Other Exploration and Production Among During Farm-Outs Over the last several years, we have pursuedfarm-outs and other partnerships in order to diversify and strengthen our exploration and production portfolio and to focus on the most profitable projects. Throughfarm-outs, we sell a partial interest in fields that have been granted to us and enter into agreements for the joint operation of such fields. This requires third parties to make financial contributions to the partnership and to provide field services, allowing us to recoup some of our previous investments in the fields and to share some of the risk associated with the further development of the fields, while maintaining an interest in the future profits. The Mexican Government has announced its intention to suspend bidding rounds for newfarm-outs for a period of three years to provide an opportunity to evaluate the performance of existingfarm-outs. The existing farm-outs will continue to operate in accordance with the terms and conditions of their respective contracts. We understand the Mexican Government will use the results of such evaluation to determine whether to pursuefarm-outs in the future. TriónFarm-Out On July 28, 2016, the CNH published the tender offer and bidding package to select a partner for Pemex Exploration and Production to carry out exploration and production activities in the Trión block field assignments located in the Perdido Fold Belt in the Gulf of Mexico. Since the Trión block has a depth greater than 2,500 meters, it requires a high level of technical expertise and financial investment to develop. On December 5, 2016, the CNH announced that BHP Billiton Petróleo Operaciones de México, S. de R.L. de C.V., or BHP Billiton Mexico, an affiliate of BHP Billiton Limited and BHP Billiton Plc, had been selected as the partner for Pemex Exploration and Production in the Trión blockfarm-out. Pursuant to the terms of its bid, BHP Billiton Mexico made a U.S. $789.6 million contribution to the partnership in exchange for a 60% participating interest in the Trión Block. BHP Billiton Mexico will be the operator of the Trión block, and must invest U.S. $1.9 billion in the Triónfarm-out before we are required to invest in the project, which will likely be in at least five years. The corresponding exploration and production contract, joint operating agreement and other relevant agreements were executed on March 3, 2017. Thisfarm-out is currently in the first stage of exploration following approval of the exploration plan by the CNH in February 2018. Ogarrio,Cárdenas-Mora andAyin-BatsilFarm-Outs In addition to the Triónfarm-out, on October 4, 2017, the CNH held a bidding round forfarm-outs of the Ogarrio,Cárdenas-Mora andAyin-Batsil blocks. No bids were received for theAyin-Batsil block, which is located in the shallow waters of the Gulf of Mexico. However, multiple bids were received for the Ogarrio block, which currently produces approximately 4,900 barrels of crude oil per day and 16 million cubic feet of natural gas per day, and theCárdenas-Mora block, which currently produces approximately 5,500 barrels of crude oil per day and 15.9 million cubic feet of natural gas per day. The Ogarrio andCárdenas-Mora blocks, both onshore fields located in the state of Tabasco, were ultimately awarded to the German company Deutsche Erdoel AG (DEA) and the Egyptian company Cheiron Holdings Limited (Cheiron), respectively. DEA’s bid consisted of an initial cash payment of U.S. $190.0 million, a royalty rate of 13% and an additional cash payment of U.S. $213.9 million, which is the highestsign-up bonus submitted in a CNH bidding round as of the date of this annual report. Cheiron’s bid consisted of an initial cash payment of U.S. $ 125.0 million, a royalty rate of 13% and an additional cash payment of U.S. $41.5 million. The corresponding contracts were signed on March 6, 2018 and have a term of 25 years. We retain a 50% interest in both blocks. The fields are in operation pending approval by the CNH of the respective development plans. Other Exploration and Production Contracts In addition to thefarm-outs described above, we have also pursued other types of partnerships for the exploration and production of fields that were not already granted to us. On December 5, 2016, we participated in the bidding process referred to as Round 1.4, through which we, as part of a consortium consisting of Pemex Exploration and Production, Chevron Energía de Mexico, S. de R.L. de C.V., or Chevron Energía, a subsidiary of Chevron Corporation, and INPEX Corporation, were awarded an exploration contract for a field located in the Perdido Fold Belt in the Gulf of Mexico. The field covers an area of approximately 1,686.9 square kilometers and is located approximately 117 kilometers off the coast of Mexico in water depths ranging between 500 meters and 1,700 meters. Chevron Energía will be the operator and holds a 33.3334% interest in the consortium, while Pemex Exploration and Production and INPEX Corporation each hold a 33.3333% interest. The corresponding exploration and production contract, joint operating agreement and other relevant agreements were executed on February 28, 2017. This project is currently in the exploration phase following approval of the exploration plan by the CNH in February of 2018. On May 2, 2017, Pemex Exploration and Production entered into a contract for crude oil extraction with the CNH to upgrade the assignments under the shared shallow water production structure for the Ek and Balam project area located in Campeche Sound. Under the contract, which has a term of 22 years with two possiblefive-year extensions, the Mexican Government will retain 70.5% of the operating profits and will pay Pemex Exploration and Production the remaining 29.5%. Pemex Exploration and Production has provided a guarantee of U.S. $5.0 billion. During 2018, we produced an average of 34.1 thousand barrels per day of crude oil and 6.8 million cubic feet per day of gas pursuant to this contract. On June 19, 2017, we participated in another bidding round conducted by the CNH, referred to as Round 2.1. As a result of this bidding process, we won two blocks. We were awarded Block 2, which covers an area of 549 square kilometers and is located on the continental shelf of theTampico-Misantla basin, to the west of the Gulf of Mexico, in partnership with DEA. We are the operating partner in this block and own a 70% interest. Additionally, we were awarded Block 8, which is located in the Southeastern Basins and covers an area of 586 square kilometers, in partnership with Colombia’s Ecopetrol. In Block 8, we are also the operating partner and own a 50% interest. The corresponding contracts for the exploration and extraction of hydrocarbons with DEA and Ecopetrol were signed on September 25, 2017. Both blocks are in the exploration phase following approval of the exploration plans by the CNH in November and October of 2018, respectively. On December 18, 2017, we executed contracts for an association with Petrofac México, S.A. de C.V., or Petrofac, under which we assigned to Petrofac the rights to certain fields that were part of the ElGolpe-Puerto Ceiba project, including the onshore fields of Santuario, El Golpe and Caracolillo, located in the state of Tabasco. We have a 64% share in this project. During 2018, we had an average production of 7.2 thousand barrels per day of crude oil and 5.7 million cubic feet per day of gas. These fields are currently in the development stage following approval of the exploration plan by the CNH in December of 2018. On March 2, 2018, we completed the first migration of an FPWC. The FPWC governing the Misión block was migrated to a shared production contract with Servicios Múltiples de Burgos, S.A. de C.V. and the CNH. The Misión block is located in the states of Nuevo León and Tamaulipas. We have a 51% interest in the contractual area and the average production under this contract in 2018 amounted to 59.8 million cubic feet per day of gas. The Misión block is currently in the development stage following approval of the development plan by the CNH in January of 2019. On March 27, 2018, we successfully participated in the first call of bidding Round 3 of the CNH, and were awarded seven contractual areas in shallow waters, six of them as part of a consortium and one on an individual basis. Pemex Exploration and Production won four blocks in the Southeast Basins: two in consortium with Total S.A., one with Shell Oil Company and one individually, as well as three blocks corresponding to the province ofTampico-Misantla-Veracruz: two in partnership with Compañía Española de Petróleos and one in partnership with DEA. On May 7, 2018, we signed four hydrocarbon exploration and extraction contracts covering severaldeep-water blocks in the Gulf of Mexico, the rights to which were auctioned off pursuant to the bidding round referred to as Round 2.4: Exploration and production contract for block 2 with Shell Exploración y Extracción de México, S.A. de C.V., as operator. We have a 50% interest in the contractual area, which spans 2,146 square kilometers and is located in the Plegado Perdido Belt. Exploration and production contract for block 22 with Chevron Energía de Mexico, S. de R.L. de C.V., as operator, and Inpex E&P México, S.A. de C.V. We have a 27.5% interest in the contractual area, which spans 2,879 square kilometers and is located in the Cuenca Salina region. Exploration and production contract for block 5. We are the operator of and have a 100% interest in the contractual area, which spans 2,733 square kilometers and is located in the Plegado Perdido Belt. Exploration and production contract for block 18. We are the operator of and have a 100% interest in the contractual area, which spans 2,917 square kilometers and is located in Cordilleras Mexicanas basin. On August 3, 2018, we migrated the Integrated E&P Contract for the Ebano block to a shared production contract with DS Servicios Petroleros, S.A. de C.V. (DIAVAZ), as operator, and D&S Petroleum, S.A. de C.V. The Ebano block spans an area of 1,569.1 square kilometers and is located in the states of Veracruz, San Luis Potosí and Tamaulipas. As of December 31, 2018, average production under this contract was 7.2 thousand barrels per day of crude oil and 3.8 million cubic feet per day of gas. We and DIAVAZ contributed to a corporate guarantee delivered to the Mexican Government in accordance with our respective interests in the partnership. The corporate guarantee totaled U.S. $500 million, 55% of which was contributed by us and 45% of which was contributed by DIAVAZ. On September 20, 2018, we signed apre-utilization agreement related to certain tracts of the Yaxché fields and the shared production contract for Block 7 with a consortium of Talos Energy, as operator, Sierra Oil and Gas and Premier Oil. Both areas are located in the offshore regions of Mexico’s Southeast basin. This was the firstpre-utilization agreement signed in Mexico. Such agreements are permissible under recent changes to the legal and regulatory framework under which we operate. Thispre-utilization agreement is a two year contract that enables information sharing relating to the Zama discovery, which is located in Block 7, and potential expansion of the Zama discovery into a neighboring block assigned to us. Thepre-utilization agreement also contemplates the signing of a unit agreement and unit operating agreement in the event that a shared reservoir is confirmed. As a result of thepre-utilization agreement, we will form a working group with the consortium with the objectives of maximizing operational and informational efficiencies, optimizing the collection of data for the area and reducing potential hazards. The working group will be comprised of legal and technical representatives of the member companies. On November 21, 2018, we migrated the Integrated E&P Contract for the Miquetla block to a license contract with Operadora de Campos DWF, S.A. de C.V., as operator. The Miquetla block spans 139.7 square kilometers and is located in the states of Puebla and Veracruz. As of December 31, 2018, average production under this contract was 135.6 thousand barrels per day of crude oil and 255.6 million cubic feet per day of gas. We have a 49% interest in the contractual area and the contract has a term of 30 years. Collaboration and Other Agreements Pemex Exploration and Production, or its predecessorPemex-Exploration and Production, have entered intonon-commercial scientific and technology agreements with the following parties, which remain in effect as of the date of this
Pan American Oil, Plc (PAO),
Hokchi Energy, S.A. de C.V., during
Kinder Morgan Texas LLC, during 2016; ENI México, S. de R.L. de C.V., Ministerio de Energía y Minas de Nicaragua, Pan American Oil, PLC and the Empresa Nicaragüense del Petróleo (Petronic), 3M México, S.A. DE C.V., during 2017; and Sun God Energía de México, S.A. de C.V., On March 6, 2019, we signed a memorandum of understanding with the Japan Bank for International Cooperation with a view to pursue strategic opportunities in the energy sector. We believe this collaboration strengthens our relationship with the Japan Bank for International Cooperation and
Through these agreements, we Industrial Transformation Our industrial transformation segment is comprised of two principal activities: (i) refining and (ii) gas and aromatics. Refining Refining Processes and Capacity Our refining production processes include the following:
These production processes together constitute our production capacity as set forth in the table below. Refining Capacity by Production Process
As of December 31, 2018, we owned and operated six refineries: Cadereyta, Madero, Minatitlán, Salamanca, Salina Cruz and Tula. Our refineries consist of atmospheric and vacuum distillation units, where the bulk of crude oil input is processed. Secondary processing facilities include desulfurization units and facilities for catalytic cracking, reforming and hydrotreating. During 2018, our refineries processed 611.9 thousand barrels per day of crude oil (118.0 thousand barrels per day at Cadereyta, 19.2 thousand barrels per day at Madero, 26.2 thousand barrels per day at Minatitlán, 140.5 thousand barrels per day at Salamanca, 165.2 thousand barrels per day at Salina Cruz and 142.8 thousand barrels per day at Tula), which in total consisted of 395.8 thousand barrels per day of Olmeca and Isthmus crude oil and 216.1 thousand barrels per day of Maya crude oil. During 2018, we were affected by operational reliability problems in main equipments at our refineries. To address the operational difficulties and improve reliability in the National Refining System, we intend to allocate additional resources for the maintenance of our six existing refineries, with the goal of improving efficiency and increasing production. This increase in efficiency and production, in turn, would help meet the national demand for refined products and maintain prices at competitive levels. We have prepared evaluations of each plant as to determine the specific maintenance requirements and the allocation of budgetary resources among our six existing refineries. In addition, in 2019 we intend to begin development of a new refinery located in Dos Bocas, Tabasco, in order to expand our production capacity. Since 1993, through our subsidiary company,PMI-NASA, we have participated in a limited partnership with Shell Oil Company in a refinery located in Deer Park, Texas, which has the capacity to process 340 thousand barrels per day of crude oil. Under the Deer Park Limited Partnership agreement,PMI-NASA and Shell Oil Company each provide 50% of the refinery’s crude oil input and own 50% of the refinery’s output. This agreement is limited to the specific purpose of operating the Deer Park refinery. Production We produce a wide range of products derived from crude oil and natural gas, including LPG, gasoline, jet fuel, diesel, fuel oil, asphalts, lubricants and other refined products. In 2018, we produced 628.5 thousand barrels per day of refined products (including dry gasby-products of the refining process), as compared to 786.2 thousand barrels per day in 2017, representing a decrease of 20.1%. This decrease in refined products production was mainly due to a decrease in crude oil production as a result of operational difficulties related to the reliability of our refineries. Our Tula refinery operated only intermittently from January through September due to a shortage of light crude oil, breakdowns of plant equipment and excessive inventories of fuel oil. Our Madero refinery also experienced lower processing levels and production of petroleum products as a result of decreased operational performance in the atmospheric distillation plant. At the Minatitlán refinery, operations were affected by a fire at the combined Mayan atmospheric distillation plant in October of 2018. This decrease was partially offset by an increase in crude oil processing at our Salina Cruz refinery of 28.3 thousand barrels per day in 2018, as compared with 2017. This improved performance was mainly a result of the stabilization of our operations as of March 2018, following the emergency shutdowns in 2017 caused by natural disasters, such as the tropical storm “Calvin” and an earthquake. The following table sets forth, by category, our production of petroleum products for the five years ended December 31, 2018. Refining Production
In 2018, gasoline represented 33.0%, fuel oil represented 29.5% and diesel fuel represented 18.6% of total petroleum products production. Jet fuel represented 5.5% and LPG represented 1.6% of total production of petroleum products in 2018. The remainder, 11.8%, of our production consisted of a variety of other refined products. Variable Refining Margin During 2018, the National Refining System recorded a variable refining margin of U.S. $0.96 per barrel, a decrease of U.S. $4.47 per barrel as compared to U.S. $5.43 in 2017, mainly due to low margins in the last quarter of the year as a result of flattening prices of refined products and crude oil, which were caused by decreased demand for gasoline and an increase in the market supply of crude oil. The following table sets forth the variable refining margin for the five years ended December 31, 2018. Variable Refining Margin
Domestic Sales We market a full range of refined products, including gasoline, jet fuel, diesel, fuel oil and petrochemicals. We are one of a few major producers of crude oil worldwide that experiences significant domestic demand for our refined products. For the five years ended December 31, 2018, the value of our domestic sales of refined products and petrochemicals was as follows. Value of Refining’s Domestic Sales(1)
In 2018, our domestic sales of refined products increased by Ps. 120,949.8 million, or 16.4% in value, as compared to 2017 levels (excluding IEPS tax and value added tax). This was primarily due to a 15.7% increase in the value of our gasolines sales, an increase of 11.5% in the value of diesel sales and a 22.9% increase in the value of fuel oil sales, in each case primarily as a result of higher average prices. The volume of our domestic sales of refined products for thefive-year period ended December 31, 2018 was distributed as follows. Volume of Refining’s Domestic Sales
The volume of our domestic gasoline sales decreased by 4.2% in 2018, from 797.5 thousand barrels per day in 2017 to 764.2 thousand barrels per day in 2018. The volume of our diesel sales decreased by 9.4%, from 365.5 thousand barrels per day in 2017 to 331.3 thousand barrels per day in 2018. The decrease in the volume of our domestic gasoline and diesel sales is mainly explained by increased competition in the open market. The volume of our domestic sales of fuel oil decreased by 15.7%, from 124.7 thousand barrels per day in 2017 to 105.1 thousand barrels per day in 2018, primarily due to a decrease in CFE’s demand for fuel oil. Sales of Pemex Premium gasoline decreased 14.0% in 2018, while those of Pemex Magna decreased 2.2% from the previous year. This change in consumption patterns is due to the increased price differential between the two kinds of gasoline. We have also made concerted efforts to build and enhance our brands. Pursuant to these efforts, on June 5, 2016, Pemex Industrial Transformation announced the establishment of a joint branding program between us and various entities that own and operate retail service stations in Mexico. The joint branding program allowed our franchisees to rename their retail service stations while continuing to sell our products under our brand. In addition, we continued to provide technical and operational assistance to such franchisees. We believe that this program has strengthened our relationship with entities that own and operate retail service stations in Mexico, and we intend to continue our commercial branding strategy. On November 15, 2017, we relaunched the “Pemex Franchise” image program with a new business model that includes new products and a variety of association structures. The goal of this program, which consists of nearly 10,000 service stations throughout Mexico, is to provide better service to end users and to strengthen the PEMEX brand. On October 11, 2018, we launched the seventh generation of ourhigh-end performance additive that blends with our Pemex Magna and Pemex Premium gasolines. This additive will be promoted as Pemex Aditec. We believe Pemex Aditec could be a competitive advantage for our Pemex Franchise program. As part of the Pemex Franchise program, we operate three association structures: (i) PEMEX Franchise, (ii) sublicensing of branded products, and (iii) the sale of generic, unbranded products. We also have two options for wholesale distribution: (i) independent retailers of unbranded products, and (ii) associate distributors ofPEMEX-branded gasoline and diesel. In order to strengthen the PEMEX brand, we have introduced an optional redesign for service stations. As of December 31, 2018, 52 service stations have been redesigned and more than 112 are in the process of being redesigned. As of December 31, 2018, there were 9,930 retail service stations in Mexico, of which 9,884 were privately owned and operated as franchises, while the remaining 46 were owned by Pemex Industrial Transformation. This total number of retail service stations represents a decrease of 14.3% from the 11,586 service stations as of December 31, 2017. This decrease was caused by increased competition in the open market. As of December 31, 2018, Pemex Industrial Transformation was party to 934medium-long-term contracts with our franchisees, representing approximately 5,560 of the Pemex Franchise service stations. Thesemedium-long-term contracts include the 20 most important customers in volume nationwide. In addition, Pemex Industrial Transformation supplies oil products to 2,006 service stations outside the Pemex Franchise program. Of these service stations, 386 operate under a sublicense of PEMEX brands and 1,620 usethird-party brands. Pricing Decrees As of December 31, 2017, fuel prices in Mexico are fully liberalized. However, the CRE reserves the right to intervene. Therefore, our sales prices continue to be subject to potential future regulations by the CRE, until theComisión Federal de Competencia Económica (Federal Economic Competition Commission) determines that there is effective competition in the wholesale market. Gasoline and Diesel As of December 31, 2017, sale prices of gasoline and diesel have been fully liberalized and are determined by the free market. For more information, see “Item 5—Operating and Financial Review and Prospects—IEPS Tax, Hydrocarbon Duties and Other Taxes.” On January 1, 2018, in accordance with reports issued by the CRE, average national magna retail gasoline prices increased by Ps. 0.54 per liter, as compared to December 31, 2017. Similarly, average national retail diesel prices increased by Ps. 0.54 per liter on January 1, 2018, as compared to December 31, 2017. Discount Since the early 1980s, the Mexican Government has also established a discount of 30% on the price at which we sell gas oil intended for domestic use to the state of Chihuahua during the months of January, February and December of each year. On January 1, 2014, pursuant to the IEPS Tax on Fossil Fuels, such gas oil became subject to aone-time price increase of 10.857 Mexican cents per liter. Gas oil became subject to aone-time price increase of 11.307 Mexican cents per liter in 2015, 11.558 Mexican cents per liter as of January 1, 2016, 11.94 Mexican cents per liter as of January 1, 2017, 12.73 Mexican cents per liter as of January 1, 2018 and 13.33 Mexican cents per liter as of January 1, 2019. Notably, the discount on the price of gas oil in the state of Chihuahua was suspended in December 2016. As of the date of this annual report, this discount remains suspended. Fuel Oil Since December 2008, the price at which we sell fuel oil to CFE has been linked to international market prices in accordance with a pricing methodology established by the Mexican Government. This methodology is based on the price of fuel oil in the U.S. Gulf of Mexico coastal region, and is then adjusted for quality as well as expenses related to distribution. As of January 1, 2017, the IEPS Tax on Fossil Fuels was 14.78 Mexican cents per liter, as of January 1, 2018, the IEPS Tax on Fossil Fuels was 15.76 Mexican cents per liter, and as of January 1, 2019, the IEPS Tax on Fossil Fuels was 16.50 Mexican cents per liter. As of November 3, 2017, the CRE authorized new formulas to determine the price for fuel oil. As of December 31, 2017, there arefirst-hand sale prices for sales at refineries and market prices for sales at storage and distribution terminals. These prices are calculated weekly and apply to all customers, including the CFE. The Mexican Government could modify these price controls or impose additional price controls in the future. See “Item 3—Key Information—Risk Factors—Risk Factors Related to our Relationship with the Mexican Government—The Mexican Government has historically imposed price controls in the domestic market on our products.” We withhold IEPS Tax. While it is included in the price to our customers, we pay this tax to the authorities upon collection of the sale of our products and it is not included in our revenues. For more information, see “Item 4—Taxes, Duties and Other Payments to the Mexican Government—Fiscal Regime for PEMEX.” Investments Over the past several years, we have focused our investment program on enhancing the quality of the gasoline and diesel we produce to meet Mexico’s environmental standards. In 2019, we are shifting our focus to the maintenance of our existing refineries and expansion of our refinery system. Our aim continues to be to improve our ability to process heavy crude oil in order to optimize the crude oil blend in our refineries and to increase production of unleaded gasoline and diesel in order to supply growing demand at a lower cost. Our refining business invested Ps. 14,119 million in capital expenditures in 2018 and has budgeted Ps. 57,500 million in capital expenditures for 2019. This increase in our capital expenditures budget is principally related to the Ps. 50,000 million we intend to allocate to the construction of the new Dos Bocas refinery in 2019. We expect this new refinery will allow us to increase our production capacity, and we are currently in the process of conducting and evaluating the studies required to carry out this project. Construction of the Dos Bocas refinery is expected to commence towards the end of 2019. In addition, this project was announced by the Mexican Government together with our refineries rehabilitation program on December 9, 2018. Pursuant to this rehabilitation program, we have evaluated each of our six existing refineries and have identified the specific maintenance requirements for each plant. For 2019, Ps. 7,500 million in capital expenditures is budgeted to carry out this rehabilitation plan. The following table sets forth our refining business’ capital expenditures, excludingnon-capitalizable maintenance, for each of the three years ended December 31, 2018, and the budget for 2019. 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. Refining’s Capital Expenditures
In 2018, we imported approximately 599.9 thousand barrels per day of gasoline, which represented approximately 78.5% of total domestic demand for gasoline in that year. Our priority in 2019 is to increase our production of oil products by focusing on the maintenance of our existing refineries and the development of the new Dos Bocas refinery in order to increase our production capacity. Additionally, we intend to seek private sector financing for some of our projects such as the reconfiguration of the Miguel Hidalgo Refinery in Tula and the residual conversion of the Salamanca Refinery. Our projects are described in further detail below. Fuel Quality Project, Gasolines Phase (ULSG) This project consisted of the installation of ULSGpost-treatment units in our refineries in order to improve the quality of our gasoline. As of the date of this annual report, all gasoline produced in Mexico meets international environmental standards and we are winding down this project. Fuel Quality Project, Diesel Phase (ULSD) This project consists of the construction of five ULSD facilities, five hydrogen plants, four sulfur recovery units, five sour water treatment plants and the reconfiguration of 17 existing units to produce ULSD. However, as of the date of this annual report, this project has been suspended and our capital expenditures budget is focused on other areas of priority. We intend to continue to evaluate alternative sources of funding for this project. Residual Use at the Miguel Hidalgo Refinery in Tula (formerly Reconfiguration of the Miguel Hidalgo Refinery in Tula) The Miguel Hidalgo refinery in Tula has been undergoing renovations since 2014. This project consists of the construction of nine plants. The main project we have yet to complete is the new coking plant, which has been under construction for several years. The new coking plant is intended to modernize the refinery and to increase the production of various types of gasoline, diesel and jet fuel, which we estimate would allow us to increase production of refined oil products from 315 thousand barrels per day to 340 thousand barrels per day. As of December 31, 2018, construction of the coking plant, which was 62% complete, has been suspended due to budgetary constraints. We are currently evaluating funding alternatives, including through the use of private sector financing, in order to complete construction. Residual Conversion of the Salamanca Refinery The reconfiguration of the “Ingeniero Antonio M. Amor” refinery in Salamanca, Guanajuato has focused on the conversion oflow-value residuals intohigh-steamhigh-value distillates (without a need for increased crude oil processing), as well as the modernization of the lubricants train to produce lubricants of greater value and quality. As of December 31, 2018, however, this project was approximately 12.8 % complete completed and has been suspended due to budgetary constraints. We are currently evaluating funding alternatives in order to resume this reconfiguration. Tuxpan Maritime Terminal The Tuxpan Maritime Terminal project is intended to help meet the increasing demand for refined products in the metropolitan area of the Mexico Valley. The total cost of the project is Ps. 5,637.9 million, which includes the construction of a pipeline measuring18-inches in diameter and 109 kilometers in length from Cima de Togo to Venta de Carpio, five storage tanks located at the Tuxpan Maritime Terminal with a capacity of 100,000 barrels each, a research study to determine the best option for the discharge of refined products from tankers and pipelines into these storage tanks and auxiliary and integration services. As of April 2018, two of the three key phases of this project were complete: thepre-investment studies and construction of theTuxpan-Mexico pipeline. The pipeline is currently operating. The third phase, the storage system, is 96.8% complete, down from 98.4% in 2017 due to adjustments in the cost and scope of the project. We have arranged an extension with the Ministry of Finance and Public Credit to allow for additional time in which this final phase may be completed. Four of the five storage tanks have been delivered to the Tuxpan Maritime Terminal and are in operation. The fifth and remaining tank is 99.9% complete. The Tuxpan Maritime Terminal project is expected to be fully completed by the end of 2019, contingent on budget availability. Maintenance at the Francisco I. Madero Refinery On August 23, 2017, we commenced a scheduled gradual shutdown of our Francisco I. Madero refinery, located in Ciudad Madero, Tamaulipas, in order to implement a comprehensive general maintenance program for the plants at this refinery. Operations at the plants were restarted in February 2018, but we experiencedstart-up and stabilization difficulties which caused our Madero refinery to be out of operation during the second half of 2018. In January 2019, we were able to restart our Mayan plant andU-901 reformer after performing maintenance at these plants, and we expect to allocate additional resources to the maintenance of our other plants at this refinery in 2019 through the plan for rehabilitation of the National Refining System. We expect that this program will lead to improved safety and reliability of our operating processes and, in turn, improved performance of this refinery. Hydrogen Supply for Refineries In order to permit us to specialize, maximize value, and focus on the processing of crude oil, in the past we have partnered with third parties for projects related to auxiliary services, such as the supply of hydrogen to our refineries. On September 1, 2017, we entered intolong-term agreements with Air Liquide for the supply of hydrogen to the Miguel Hidalgo refinery in Tula. Air Liquide will operate the existing hydrogen plant at the Miguel Hidalgo refinery. In February 2018, we executed the plant’s performance and stabilization tests, which was an important milestone under the contract with Air Liquide. In addition, in April 2018 we entered into a long-term agreement with Linde AG for the supply of hydrogen to our Madero refinery. In July 2018, we signed several agreements related to the supply of hydrogen to our Cadereyta refinery. However, some of the conditions precedent required by these agreements were not met, and these agreements were subsequently terminated. In 2018, we continued to experience shortages in the supply of hydrogen to our refineries, which has contributed to our operational difficulties. We intend to address the operational difficulties in our refineries through our plan for the rehabilitation of the National Refining System. Rehabilitation of National Refining System As part of our efforts to stabilize the operations of our refineries, we are adopting a plan for the rehabilitation of the National Refining System. Pursuant to this plan, we will allocate additional resources for the repair and maintenance of our six existing refineries. The goal of this plan is to repair and maintain our refinery infrastructure so as to improve efficiency and stabilize our crude oil processing. Our budget for this rehabilitation of the National Refining System for 2019 is Ps. 7,500 million. We are currently evaluating the optimal allocation of resources based on evaluations of our existing refineries, and, as of the date of this annual report, we have not allocated definitive amounts to specific projects. Dos Bocas Refinery In 2019, we announced our plans for the construction of a new refinery in Dos Bocas in the state of Tabasco. Our 2019 budget includes Ps. 50,000 million for the construction of the Dos Bocas refinery, of which Ps. 1,800 million has been allocated to conductpre-investment studies. The Dos Bocas refinery is intended to increase our production of gasoline and diesel by processing additional volumes of heavy crude oil. As of the date of this annual report, we are preparing the business case for construction of the Dos Bocas refinery, which will be presented to the Board of Directors of Petróleos Mexicanos once complete. Gas and Aromatics Natural Gas and Condensates All wet natural gas production is directed to our gas processing facilities. At the end of 2018, we owned nine facilities. The following facilities are located in the Southern region:
The Morelos, Cangrejera and Pajaritos facilities form the Coatzacoalcos area gas processing complex (which we refer to as a GPC):
The following facilities are located in the Northern region:
Petrochemical Complexes In addition to our gas processing facilities, we also own the following two petrochemical complexes:
The following tables set forth our processing capacity, as well as our total natural gas processing and production, for the five years ended December 31, 2018. Gas and Aromatics’ Processing and Production Capacity(1)
Natural Gas, Condensates and Aromatics’ Processing and Production(1)
We process sour and sweet condensates from our exploration and production segment in order to obtain stabilized natural gas liquids and also recover liquid hydrocarbons obtained from the processing of sweet natural gas. In addition, we obtain natural gas liquids from internal streams and liquid hydrocarbons condensed in sour wet gas pipelines. Our production of natural gas liquids, including stabilized condensates, reprocessing and other fractionating streams, decreased by 14.3% from 280 thousand barrels per day in 2017 to 240 thousand barrels per day in 2018. We process sour condensates, which have a higher sulfur content, to produce stabilized sweet condensates. The volume of sour condensates we processed from our exploration and production segment and internal streams of our gas and aromatic compoundsub-segment totaled 27.0 thousand barrels per day in 2018, a 15.6% decrease from the 32.0 thousand barrels per day processed in 2017. We also process sweet condensates at our Burgos facilities to produce light and heavy natural gasoline. The production of aromatic compounds and derivatives decreased 8.4%, from 622.0 thousand tons in 2017 to 570.0 thousand tons in 2018, mainly because our naptha reforming plant (CCR) operated only intermittently due to equipment failure, and we experienced shortages in auxiliary services and the supply of raw materials from our Minatitlán refinery. Over the five years ended December 31, 2018, the value of our domestic sales was distributed as follows: Value of Gas and Aromatics’ Domestic Sales(1)
The volume of our domestic sales of gas and aromatics for thefive-year period ended December 31, 2018 was distributed as follows: Volume of Gas and Aromatics’ Domestic Sales
In 2018, the value of our domestic sales in gas and aromatics decreased by 6.0% as compared to 2017, reaching Ps.122,611.9 million. This decrease was mainly a result of a reduction in the domestic sales volume of natural gas. Domestic sales of natural gas decreased by 21.3%, as compared to 2017, from 2,623.0 million cubic feet per day in 2017 to 2,064.3 million cubic feet per day in 2018, mainly due to competition fromthird-party suppliers in the national market. Domestic sales of LPG decreased by 3.6%, as compared to 2017, from 171.3 thousand per barrels per day in 2017 to 165.1 thousand barrels per day in 2018. This decrease was primarily due to competition from private companies importing foreign LPG. Subsidiaries of Pemex Industrial Transformation Pemex Industrial Transformation conducts certain management, real estate and distribution activities through its subsidiaries and through certain joint ventures. The following table lists its subsidiaries, their principal operating activities and Pemex Industrial Transformation’s ownership interest as of December 31, 2018. Subsidiaries of Pemex Industrial Transformation(1)
Divestitures On October 5, 2017, the Board of Directors of Petróleos Méxicanos authorized the divestiture of our 5% indirect participation in TAG Norte Holding, S. of R. L. de C. V. (TAG Norte Holding) for the Ramones II Norte project. The divestiture was subsequently carried out on August 31, 2018 for a total amount of U.S. $43.0 million. Pricing Decrees As of December 31, 2017, fuel prices in Mexico are fully liberalized. However, the CRE reserves the right to intervene. Therefore, until theComisión Federal de Competencia Económica (Federal Economic Competition Commission) determines that there is effective competition in the wholesale market, our sales prices continue to be subject to potential future regulations by the CRE. As of July 1, 2017, the CRE permitsthird-party participants to enter the gasoline and diesel market and has authorized the permanent regime offirst-hand sales of natural gas. This permanent regime allows us to sell natural gas under two separate pricing mechanisms: (1) the first hand sale price, wherein we may sell natural gas directly to customers without additional transportation or services and (2) the full marketing price, wherein we may charge a higher price that includes transportation and services costs associated with the commercialization of natural gas. Since 2003, price control mechanisms for LPG have been implemented through governmental decrees. Since January 1, 2017, we have sold natural gas in accordance with the methodology authorized by CRE for determining thefirst-hand sales price at the point of delivery, and all end user prices are freely determined by the market. We withhold IEPS tax. For more information, see “Item 4—Taxes, Duties and Other Payments to the Mexican Government—Fiscal Regime for PEMEX.” The Mexican Government could modify these price controls or impose additional price controls in the future. See “Item 3—Key Information—Risk Factors—Risk Factors Related to our Relationship with the Mexican Government—The Mexican Government has historically imposed price controls in the domestic market on our products.” Natural Gas Hedging Operations We offer, as avalue-added service, various hedging contracts to our domestic customers to protect them against fluctuations in the prices of natural gas. For information on hedging contracts offered to natural gas domestic customers, see “Item 11—Quantitative and Qualitative Disclosures about Market Risk.” Gas and Aromatics Capital Expenditures Our gas and aromatics business invested Ps. 2,907 million in capital expenditures in 2018. Our budget for 2019 does not contain any capital expenditures for this segment. However, we contemplate that we mayre-allocate certain resources during 2019 in order to meet potential capital expenditure requirements for this segment. The following table sets forth our gas and aromatics business’ capital expenditures, excludingnon-capitalizable maintenance, for each of the three years ended December 31, 2018, and the budget for 2019. 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. Gas and Aromatics’ Capital Expenditures
Ethane Supply Contract On February 19, 2010, we entered into a contract to supply 66,000 barrels per day of ethane to the Etileno XXI project, a petrochemical complex in Nanchital, Veracruz that produces ethylene and polyethylene. The Etileno XXI project commenced operations on March 18, 2016. The Etileno XXI project is owned and operated byBraskem-IDESA, aBrazilian-Mexican consortium. In order to meet the obligations of this contract, we made adjustments to the infrastructure of our gas processing plants in the Ciudad Pemex, Nuevo Pemex and Cactus. Additional ethane is transported from the gas processing plants located in Tabasco, in southeastern Mexico, to Coatzacoalcos, Veracruz. This contract provides for “take or pay—delivery or pay” obligations for the parties, and thus, in case of breach of our supply obligation, we are subject to the payment of liquidated damages. In the event of termination as a consequence of our material default under the ethane supply contract, we may be obligated to pay to the other parties involved in the project an amount equal to the termination value of this project (the value of which is determined pursuant to the contract and takes into consideration, among other factors, the outstanding debt of the project and the amount invested in the project at such time). As of December 31, 2016, construction of the pipeline to transport ethane from the gas processing plants located in Tabasco to Coatzacoalcos, Veracruz, was complete. During 2018, we supplied 804.5 million cubic meters of ethane for a total of Ps. 3,203.4 million under this contract. Fertilizers Our fertilizers segment operates through the productivestate-owned subsidiary Pemex Fertilizers and integrates the ammonia production chain up to the point of sale of fertilizers, including agricultural and industrial nitrates, phosphate fertilizers and acids (produced by Fertinal). We also expect that our subsidiaryPro-Agroindustria will be able to begin producing urea at our Pajaritos petrochemical complex in the second half of 2019. Our strategy focuses on: (1) increasing the national fertilizers production at competitive prices; (2) increasing the economic value of our segment by generating diverse investment opportunities in the agricultural sector in Mexico; (3) ensuring a reliable supply of natural gas for the operation of our plants; and (4) continuing to make capital expenditure investments to strengthen the operational reliability of our four ammonia plants. We expect to have two ammonia plants in operating condition during the second half of 2019. Taking into account the product mix of fertilizers we are currently producing, our Fertinal segment is operating near full capacity, but we intend to improve our profit margins by increasing our sales in the domestic market. In addition, as part of our strategy we intend to integrate our Fertinal segment into the production chain of natural gas to ammonia to fertilizers. We expect that this integration will help us offer a wide range of fertilizers, nitrogen and phosphates at competitive prices. In addition, we expect that establishing new commercial channels will allow us to bring the supply of ammonia and fertilizers closer to industrial and agricultural producers throughout the country. Capacity As of December 31, 2018, we owned four petrochemical plants, one of which was in operation, for the production of ammonia. Two of our plants are scheduled to undergo a major rehabilitation in March and September of 2019, respectively, and another plant will also require rehabilitation, which will be scheduled based on the availability of resources. We had a total production capacity of 1,440 thousand tons of ammonia per year in 2018. The total production capacity of our operating plants for the last three years was distributed among our facilities as set forth below: Fertilizers Segment’s Total Capacity
Production The following table summarizes the annual production of our fertilizers segment for the three years ended December 31, 2018. Fertilizers Segment’s Production
Total annual production of methane derivatives in 2018 decreased 61.1% from 1,343 thousand tons in 2017 to 523 thousand tons in 2018. This decrease was mainly due to shortages in the supply of raw material that has kept our Cosoleacaque plant out of operation sincemid-August of 2018 and unscheduled stoppages during the first half of 2018 due to equipment failure. In 2018 we produced 151 thousand tons of ammonia, which represents a decrease of 69.8% as compared to 500 thousand tons produced in 2017. In 2018, we produced 372 thousand tons of carbon dioxide, aby-product of the production process, which represents a 55.9% decrease as compared to 2017. Sales of Fertilizers The following table sets forth the value of our domestic sales for the three years ended December 31, 2018. Value of Fertilizers Segment’s Domestic Sales(1)
In 2018 the value of domestic sales in our fertilizers segment increased by 17.0%, from Ps. 4,785.7 million in 2017 to Ps. 5,601.1 million in 2018, primarily due to an increase in the sales price of ammonia, and to a lesser extent due to the increase in sales volume of ammonia, as presented in more detail below. Volume of sales The following table sets forth the value of our domestic sales for the three years ended December 31, 2018. Volume of Fertilizers Segment’s Domestic Sales
Fertilizers Capital Expenditures Our fertilizers segment invested Ps. 331 million in capital expenditures in 2018 and has budgeted Ps. 500 million in capital expenditures for 2019. The following table sets forth our fertilizers segment’s capital expenditures, excludingnon-capitalizable maintenance, for each of the three years ended December 31, 2018, and the budget for 2019. 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. Fertilizers’ Capital Expenditures
Pajaritos Petrochemical Complex In 2014, we acquired anon-operating nitrogen fertilizer production facility located in Pajaritos, Veracruz. The rehabilitation of the facility involved the restoration of our rotating, static and mechanical equipment, the construction of a carbon dioxide compression station, as well as other auxiliary projects. The rehabilitation was completed in the second quarter of 2018. While tests were started at that time, production could not be stabilized due to the discontinuous operation of our Cosoleacaque petrochemical complex, which led to an insufficient supply of ammonia. We expect that we will be able to start operations at this facility in the second half of 2019, and, once the production stabilizes, we expect to have a production capacity of 90 thousand tons of urea per month. Fertinal Fertinal produces fertilizers, primarily phosphates, as well as acids and other agricultural and industrial nitrates, and operates an industrial complex located in Lázaro Cárdenas, Michoacán. Fertinal’s total production capacity for the three years ended December 31, 2018 is as set forth below. Fertinal Segment’s Total Capacity
Fertinal’s total production for the three years ended December 31, 2018 is set forth below. Fertinal Segment’s Production
The following table sets forth the value of Fertinal’s domestic sales for the three years ended December 31, 2018. Value of Fertinal’s Domestic Sales(1)
The increase in our sales in 2018 was mainly due to an increase in the production available for sale, better prices obtained in the market as compared to 2017 prices (an average price increase of approximately U.S. $45.00 per ton), and an increase in sales of other products such as ammonia, sulfur and industrial use acids. In 2018, we implemented a strategic plan to consolidate optimal production levels, continue to manageshort-term cash flows and strengthen our financial position. As a result, in 2018 we operated at 90.3% of our total production capacity and produced 1,106.0 thousand tons of final product, which represents an increase of 12.3% as compared to 2017. Ethylene Our ethylene segment operates through the productivestate-owned subsidiary Pemex Ethylene and takes advantage of the integration of the ethylene production chain by manufacturing various petrochemical products. Our ethylene segment manufactures various petrochemical products, including: ethane derivatives, such as ethylene, polyethylenes, ethylene oxide and glycols; propylene and derivatives; and others such as oxygen, nitrogen, hydrogen and butadiene, among other products. Capacity Total production capacity of our operating plants for the three years ended December 31, 2018 was distributed among our facilities as set forth below. Ethylene Segment’s Production Capacity
Production The following table sets forth our ethylene segment’s production for the three years ended December 31, 2018. Ethylene Segment’s Production(1)
In 2018, our total production in the ethylene segment decreased 2.9%, from 1,884.0 thousand tons in 2017 to 1,830.3 thousand tons in 2018, primarily due to a decrease in the national supply of ethane, which impacts the production of ethylene and its derivatives, in particular linearlow-density polyethylene. During 2018, Pemex Ethylene reengineered its refrigerated terminal to provide ethane refrigeration rather than ethylene refrigeration, which allows us to import ethane, a raw material necessarily for our operations of which we have had a domestic shortage in recent years. We began to import ethane in January 2018. Our Cangrejera Low Density Polyethylene Plant experienced growth in production, with 2018 production volume increasing 30.0% as compared to 2017, which was primarily due to increased operative reliability and an increased supply of raw materials due to our new capacity to import ethane. Domestic Sales The following table sets forth our ethylene segment’s domestic sales for the three years ended December 31, 2018. Value of Ethylene Segment’s Domestic Sales(1)
In 2018, the value of our domestic sales increased by 1.7% from Ps. 12,621.7 million in 2017 to Ps. 12,833.2 million in 2018. This increase was primarily due to an increase in income from sales of glycols andlow-density polyethylene. In 2018, the volume of our domestic sales decreased by 1.5% as compared to 2017 figures. On June 27 2018, Pemex Ethylene successfully concluded its second auction to allocate the supply of ethylene oxide, which is a derivative of ethane. Eleven customers, including domestic ethoxylation companies and import brokers, participated in the auction, which resulted in 98.0 % of the available volume being placed at a fair market price. Sales to other Subsidiary Entities The following table sets forth the intercompany sales of petrochemical products for the three years ended December 31, 2018. Ethylene Segment’s Intercompany Sales(1)
Source:Pemex Ethylene. In 2018, our intercompany sales decreased by 77.4%, from Ps. 285.3 million in 2017 to Ps. 64.5 million in 2018. This decrease was primarily due to a reduction in the volume of intercompany sales of nitrogen, hydrogen and pyrolysis gasoline in 2018, as compared to 2017, mainly because Pemex Industrial Transformation did not purchase any pyrolysis gasoline in 2018. We addressed this change in intercompany demand by exporting our products. Ethylene Capital Expenditures Our ethylene segment invested Ps. 975 million in capital expenditures in 2018, and has budgeted Ps. 300 million for capital expenditures in 2019. The following table sets forth our ethylene segment’s capital expenditures, excludingnon-capitalizable maintenance, for each of the three years ended December 31, 2018, and the budget for 2019. 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. Ethylene’s Capital Expenditures
Joint Venture with Mexichem Petroquímica Mexicana de Vinilo S.A. of C.V. (PMV) was a joint venture of the Vinyl Business Group of Mexichem, S.A.B. de C.V. (Mexichem) and PPQ Cadena Productiva S.L. (PPQ), a subsidiary of Pemex Ethylene. On December 20, 2017, Mexichem announced that the Board of Directors of PMV decided not to rebuild its Vinyl Monochloride (VCM) production capacity, as the plant was damaged in a 2016 explosion. Therefore, the joint venture’s VCM production, and the assets and liabilities associated with ethylene production and auxiliary services associated with VCM and ethylene were classified as discontinued operations. On November 30, 2018, we concluded the sale of our total 44.09% interest in PMV and total 44.09% interest in PMV Minera, S.A. de C.V. (PMV Minera) to Mexichem. These sales were recorded as investments in joint ventures and associates. The sale price for PMV was Ps. 3,198.6 million and the sale price for PMV Minera was Ps. 53.7 million. We recognized a gain of Ps. 689.3 million and Ps. 1.6 million, respectively.
The following facilities are located in the
The Morelos, Cangrejera and Pajaritos facilities form the Coatzacoalcos area gas processing complex (which we refer to as a GPC):
The following facilities are located in the Northern region:
Petrochemical Complexes In addition to our gas processing facilities, we also own the following two petrochemical complexes:
The following
Natural Gas, Condensates and Aromatics’ Processing and Production(1)
We process sour and
We process sour condensates, which have The production of aromatic compounds and derivatives decreased 8.4%, from 622.0 thousand tons in
Value of
The volume of our domestic sales of Volume of
Domestic sales of natural gas decreased by 21.3%, as compared to 2017, from Domestic sales of LPG decreased by 3.6%, as compared to 2017, from 171.3 thousand per barrels per day in 2017 to 165.1 thousand barrels per day in Subsidiaries of
Pemex Industrial
Divestitures On October 5, 2017, the Pricing Decrees
Since 2003, price control mechanisms for LPG have been implemented through governmental decrees. Since January 1, We withhold IEPS
The Mexican Government could modify these price controls or impose additional price controls in the future. See “Item 3—Key Information—Risk Factors—Risk Factors Related to our Relationship with the Mexican Government—The Mexican Government has historically imposed price controls in the domestic market on our products.”
Gas and Our gas and
The following table sets forth
On
As of December 31,
Fertilizers Our fertilizers segment operates through the productivestate-owned subsidiary Pemex Fertilizers and integrates the ammonia production chain up to the point of sale of fertilizers, including agricultural and industrial nitrates, phosphate fertilizers and acids (produced by Fertinal). We also expect that our subsidiaryPro-Agroindustria will be able to begin producing urea at our Pajaritos petrochemical complex in Our strategy focuses on: (1) increasing the national fertilizers production at competitive prices; (2) increasing the economic value of our segment by generating diverse investment opportunities in We expect to have two ammonia plants in In addition, as part of our strategy we intend to integrate our Fertinal segment into the production chain of natural gas to ammonia to fertilizers. We expect that this integration will help us offer a wide range of fertilizers, nitrogen and phosphates at competitive prices. In addition, we expect that establishing new commercial channels will allow us to bring the supply of ammonia and fertilizers closer to industrial and agricultural producers throughout the country. Capacity As of December 31, 2018, we owned four petrochemical plants, one of which was in operation, for the production of ammonia. Two of our plants are scheduled to undergo a major rehabilitation in March and September of 2019, respectively, and another plant will also require rehabilitation, which will be scheduled based on the availability of resources. We had a total production capacity of 1,440 thousand tons of ammonia per year in 2018. The total production capacity of our operating plants for the last three years was distributed among our facilities as set forth below: Fertilizers Segment’s Total Capacity
Production The following table summarizes the annual production of our fertilizers segment for the three years ended December 31, 2018. Fertilizers Segment’s Production
Total annual production of methane derivatives in 2018 decreased 61.1% from 1,343 thousand tons in 2017 to 523 thousand tons in 2018. This decrease was mainly due to shortages in the supply of raw material that has kept our Cosoleacaque plant out of operation sincemid-August of 2018 and unscheduled stoppages during the first half of 2018 due to equipment failure. In 2018 we produced 151 thousand tons of ammonia, which represents a decrease of 69.8% as compared to 500 thousand tons produced in 2017. In 2018, we produced 372 thousand tons of carbon dioxide, aby-product of the production process, which represents a 55.9% decrease as compared to 2017. Sales of Fertilizers The following table sets forth the value of our domestic sales for the three years ended December 31, 2018. Value of Fertilizers Segment’s Domestic Sales(1)
In 2018 the value of domestic sales in our fertilizers segment increased by 17.0%, from Ps. 4,785.7 million in 2017 to Ps. 5,601.1 million in 2018, primarily due to an increase in the sales price of ammonia, and to a lesser extent due to the increase in sales volume of ammonia, as presented in more detail below.
The following table sets forth the value of our domestic sales for the three years ended December 31, 2018. Volume of Fertilizers Segment’s Domestic Sales
Fertilizers Capital Expenditures
Fertilizers’ Capital Expenditures
Pajaritos Petrochemical Complex In 2014, we acquired anon-operating nitrogen fertilizer production facility located in Pajaritos, Veracruz. The rehabilitation of the facility involved the restoration of our rotating, static and mechanical equipment, the construction of a carbon dioxide compression station, as well as other auxiliary projects. The rehabilitation was completed in the second quarter of 2018. While tests were started at that time, production could not be stabilized due to the discontinuous operation of our Cosoleacaque petrochemical complex, which led to an insufficient supply of ammonia. We expect that we will be able to start operations at this facility in the second half of 2019, and, once the production stabilizes, we expect to have a production capacity of 90 thousand tons of urea per month. Fertinal Fertinal produces fertilizers, primarily phosphates, as well as acids and other agricultural and industrial nitrates, and operates an industrial complex located in Lázaro Cárdenas, Michoacán. Fertinal’s total production capacity for the three years ended December 31, 2018 is as set forth below. Fertinal Segment’s Total Capacity
Fertinal’s total production for the three years ended December 31, 2018 is set forth below. Fertinal Segment’s Production
The following table sets forth the value of Fertinal’s domestic sales for the three years ended December 31, 2018. Value of Fertinal’s Domestic Sales(1)
The increase in our sales in 2018 was mainly due to an increase in the production available for sale, better prices obtained in the market as compared to 2017 prices (an average price increase of approximately U.S. $45.00 per ton), and an increase in sales of other products such as ammonia, sulfur and industrial use acids. In 2018, we implemented a strategic plan to consolidate optimal production levels, continue to manageshort-term cash flows and strengthen our financial position. As a result, in 2018 we operated at 90.3% of our total production capacity and produced 1,106.0 thousand tons of final product, which represents an increase of 12.3% as compared to 2017. Ethylene Our ethylene segment operates through the productivestate-owned subsidiary Pemex Ethylene and takes advantage of the integration of the ethylene production chain by manufacturing various petrochemical products. Our ethylene segment manufactures various petrochemical products, including: ethane derivatives, such as ethylene, polyethylenes, ethylene oxide and glycols; propylene and derivatives; and others such as oxygen, nitrogen, hydrogen and butadiene, among other products. Capacity Total production capacity of our operating plants for the three years ended December 31, 2018 was distributed among our facilities as set forth below. Ethylene Segment’s Production Capacity
Production The following table sets forth our ethylene segment’s production for the three years ended December 31, 2018. Ethylene Segment’s Production(1)
In 2018, our total production in the ethylene segment decreased 2.9%, from 1,884.0 thousand tons in 2017 to 1,830.3 thousand tons in 2018, primarily due to a decrease in the national supply of ethane, which impacts the production of ethylene and its derivatives, in particular linearlow-density polyethylene. During 2018, Pemex Ethylene reengineered its refrigerated terminal to provide ethane refrigeration rather than ethylene refrigeration, which allows us to import ethane, a raw material necessarily for our operations of which we have had a domestic shortage in recent years. We began to import ethane in January 2018. Our Cangrejera Low Density Polyethylene Plant experienced growth in production, with 2018 production volume increasing 30.0% as compared to 2017, which was primarily due to increased operative reliability and an increased supply of raw materials due to our new capacity to import ethane. Domestic Sales The following table sets forth our ethylene segment’s domestic sales for the three years ended December 31, 2018. Value of Ethylene Segment’s Domestic Sales(1)
In 2018, the value of our domestic sales increased by 1.7% from Ps. 12,621.7 million in 2017 to Ps. 12,833.2 million in 2018. This increase was primarily due to an increase in income from sales of glycols andlow-density polyethylene. In 2018, the volume of our domestic sales decreased by 1.5% as compared to 2017 figures. On June 27 2018, Pemex Ethylene successfully concluded its second auction to allocate the supply of ethylene oxide, which is a derivative of ethane. Eleven customers, including domestic ethoxylation companies and import brokers, participated in the auction, which resulted in 98.0 % of the available volume being placed at a fair market price. Sales to other Subsidiary Entities The following table sets forth the intercompany sales of petrochemical products for the three years ended December 31, 2018. Ethylene Segment’s Intercompany Sales(1)
Source:Pemex Ethylene. In 2018, our intercompany sales decreased by 77.4%, from Ps. 285.3 million in 2017 to Ps. 64.5 million in 2018. This decrease was primarily due to a reduction in the volume of intercompany sales of nitrogen, hydrogen and pyrolysis gasoline in 2018, as compared to 2017, mainly because Pemex Industrial Transformation did not purchase any pyrolysis gasoline in 2018. We addressed this change in intercompany demand by exporting our products. Ethylene Capital Expenditures Our ethylene segment invested Ps. 975 million in capital expenditures in 2018, and has budgeted Ps. The following table sets forth our Ethylene’s Capital Expenditures
Joint Venture with Mexichem Petroquímica Mexicana de Vinilo S.A. of
On
Natural Gas and Condensates
All wet natural gas production is directed to our gas processing facilities. At the end of The following facilities are located in the Southern region:
The Morelos, Cangrejera and Pajaritos facilities form the Coatzacoalcos area gas processing complex (which we refer to as a GPC):
The following facilities are located in the Northern region:
Petrochemical Complexes In addition to our gas processing facilities, we also own the following two petrochemical complexes:
The following tables set forth our processing capacity, as well as our total natural gas processing and production, Gas and Aromatics’ Processing and Production Capacity(1)
Natural Gas, Condensates and
We process sour and sweet condensates from our exploration and production segment in order to obtain stabilized natural gas liquids and also recover liquid hydrocarbons obtained from the processing of sweet natural gas. In addition, we obtain natural gas liquids from internal streams and liquid hydrocarbons condensed in sour wet gas pipelines. Our production of natural gas liquids, including stabilized condensates, reprocessing and other fractionating streams, decreased by We process sour condensates, which have a higher sulfur content, to produce stabilized sweet condensates. The volume of sour condensates we processed from our exploration and production segment and internal streams of our gas and
Over the five years ended December 31, Value of Gas and
The volume of our domestic sales of gas and Volume of Gas and
In Domestic sales of natural gas decreased by 21.3%, as compared to Domestic sales of LPG Subsidiaries of Pemex Industrial Transformation Pemex Industrial Transformation Subsidiaries of Pemex Industrial Transformation(1)
Divestitures On Pricing Decrees As of December 31, 2017, fuel prices in Mexico are fully liberalized. However, the
As of July Since 2003, price control mechanisms for LPG have been implemented through governmental decrees. Since January We withhold IEPS tax. For more information, see “Item 4—Taxes, Duties and Other Payments to the Mexican
The Mexican Government could modify these price controls or impose additional price controls in the future. See “Item 3—Key Information—Risk Factors—Risk Factors Related to our Relationship with the Mexican Government—The Mexican Government has historically imposed price controls in the domestic market on our products.” Natural Gas Hedging Operations We offer, as avalue-added service, various hedging contracts to our domestic customers to protect them against fluctuations in the prices of natural gas. For information on hedging contracts offered to natural gas domestic customers, see “Item 11—Quantitative and Qualitative Disclosures about Market Risk.”
Our gas and aromatics business invested Ps. 2,907 million in capital expenditures in 2018. Our budget for 2019 does not contain any capital expenditures for this segment. However, we contemplate that we mayre-allocate certain resources during 2019 in order to meet potential capital expenditure requirements for this segment. The following table sets forth our gas and aromatics business’ capital expenditures, excludingnon-capitalizable maintenance, for each of the three years ended December 31, 2018, and the budget for 2019. 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. Gas and
Ethane Supply Contract On February 19, 2010, we entered into a contract to supply 66,000 barrels per day of ethane to the Etileno XXI project, a petrochemical complex in Nanchital, Veracruz that As of December 31,
Fertilizers Our fertilizers segment operates through the productivestate-owned subsidiary Pemex Fertilizers Our strategy focuses on: (1) increasing the national fertilizers production at competitive prices; (2) increasing the economic value of our segment by generating diverse investment opportunities in the agricultural sector in Mexico; (3) ensuring a reliable supply of natural gas for the operation of our plants; and (4) continuing to make capital expenditure investments to strengthen the operational reliability of our four ammonia plants. We expect to have two ammonia plants in operating condition during the second half of 2019. Taking into account the product mix of fertilizers we are currently producing, our Fertinal segment is operating near full capacity, but we intend to improve our profit margins by increasing our sales in the domestic market. In addition, as part of our strategy we intend to integrate our Fertinal segment into the production chain of natural gas to ammonia to fertilizers. We expect that this integration will help us offer a wide range of fertilizers, nitrogen and phosphates at competitive prices. In addition, we expect that establishing new commercial channels will allow us to bring the supply of ammonia and fertilizers closer to industrial and agricultural producers throughout the country. Capacity As The total production capacity of our operating plants for the last three years was distributed among our facilities as set forth below: Fertilizers Segment’s Total Capacity
Production The following table summarizes the annual production of our fertilizers segment for the three years ended December 31, Fertilizers Segment’s Production
Total annual production of methane derivatives in 2018 decreased 61.1% from 1,343 thousand tons in 2017 to 523 thousand tons in 2018. This decrease was mainly due to shortages in the supply of raw material that has kept our Cosoleacaque plant out of operation sincemid-August of 2018 and unscheduled stoppages during the first half of 2018 due to equipment failure. In 2018 we Sales of Fertilizers The following table sets forth the value of our domestic sales for the three years ended December 31, 2018. Value of Fertilizers Segment’s Domestic Sales(1)
In 2018 the value of domestic sales in our fertilizers segment Volume of sales The following table sets forth the value of our domestic sales for Volume of
Our fertilizers segment invested Ps. Fertilizers’ Capital Expenditures
Pajaritos Petrochemical Complex In 2014, we acquired anon-operating nitrogen fertilizer production facility located in Pajaritos, Veracruz. The rehabilitation of the facility involved the restoration of our rotating, static and mechanical equipment, the construction of a carbon dioxide compression station, as well as other auxiliary projects. The rehabilitation was completed in the second quarter of 2018. While tests were started at that time, production could not be stabilized due to the discontinuous operation of our Cosoleacaque petrochemical complex, which led to an insufficient supply of ammonia. We expect that we will be able to start operations at this facility in the second half of 2019, and, once the production stabilizes, we expect to have a production capacity of 90 thousand tons of urea per month. Fertinal Fertinal produces fertilizers, primarily phosphates, as well as acids and other agricultural and industrial nitrates, and operates an industrial complex located in Lázaro Cárdenas, Michoacán. Fertinal’s total production capacity for the three years ended December 31, 2018 is as set forth below. Fertinal Segment’s Total Capacity
Fertinal’s total production for the three years ended December 31, 2018 is set forth below. Fertinal Segment’s Production
The following table sets forth the value of Fertinal’s domestic sales for the three years ended December 31, 2018. Value of Fertinal’s Domestic Sales(1)
The increase in our sales in 2018 was mainly due to an increase in the production available for sale, better prices obtained in the market as compared to 2017 prices (an average price increase of approximately U.S. $45.00 per ton), and an increase in sales of other products such as ammonia, sulfur and industrial use acids. In 2018, we implemented a strategic plan to consolidate optimal production levels, continue to manageshort-term cash flows and strengthen our financial position. As a result, in 2018 we operated at 90.3% of our total production capacity and produced 1,106.0 thousand tons of final product, which represents an increase of 12.3% as compared to 2017. Ethylene Our ethylene segment operates through the productivestate-owned subsidiary Pemex Ethylene and takes advantage of the integration of the ethylene production chain by manufacturing various petrochemical products. Our ethylene segment manufactures various petrochemical products, including: ethane derivatives, such as ethylene, polyethylenes, ethylene oxide and glycols; propylene and derivatives; and others such as oxygen, nitrogen, hydrogen and butadiene, among other products. Capacity Total production capacity of our operating plants for the three years ended December 31, 2018 was distributed among our facilities as set forth below. Ethylene Segment’s Production Capacity
Production The following table sets forth our ethylene segment’s production for the three years ended December 31, 2018. Ethylene Segment’s Production(1)
In 2018, our total production in the ethylene segment decreased 2.9%, from 1,884.0 thousand tons in 2017 to 1,830.3 thousand tons in 2018, primarily due to a decrease in the national supply of ethane, which impacts the production of ethylene and its derivatives, in particular linearlow-density polyethylene. During 2018, Pemex Ethylene reengineered its refrigerated terminal to provide ethane refrigeration rather than ethylene refrigeration, which allows us to import ethane, a raw material necessarily for our operations of which we have had a domestic shortage in recent years. We began to import ethane in January 2018. Our Cangrejera Low Density Polyethylene Plant experienced growth in production, with 2018 production volume increasing 30.0% as compared to 2017, which was primarily due to increased operative reliability and an increased supply of raw materials due to our new capacity to import ethane. Domestic Sales The following table sets forth our ethylene segment’s domestic sales for the three years ended December 31, 2018. Value of Ethylene Segment’s Domestic Sales(1)
In 2018, the value of our domestic sales increased by 1.7% from Ps. 12,621.7 million in 2017 to Ps. 12,833.2 million in 2018. This increase was primarily due to an increase in income from sales of glycols andlow-density polyethylene. In 2018, the volume of our domestic sales decreased by 1.5% as compared to 2017 figures. On June 27 2018, Pemex Ethylene successfully concluded its second auction to allocate the supply of ethylene oxide, which is a derivative of ethane. Eleven customers, including domestic ethoxylation companies and import brokers, participated in the auction, which resulted in 98.0 % of the available volume being placed at a fair market price. Sales to other Subsidiary Entities The following table sets forth the intercompany sales of petrochemical products for the three years ended December 31, 2018. Ethylene Segment’s Intercompany Sales(1)
Source:Pemex Ethylene. In 2018, our intercompany sales decreased by 77.4%, from Ps. 285.3 million in 2017 to Ps. 64.5 million in 2018. This decrease was primarily due to a reduction in the volume of intercompany sales of nitrogen, hydrogen and pyrolysis gasoline in 2018, as compared to 2017, mainly because Pemex Industrial Transformation did not purchase any pyrolysis gasoline in 2018. We addressed this change in intercompany demand by exporting our products. Ethylene Capital Expenditures Our ethylene segment invested Ps. 975 million in capital expenditures in 2018, and has budgeted Ps. 300 million for capital expenditures in 2019. The following table sets forth our ethylene segment’s capital expenditures, excludingnon-capitalizable maintenance, for each of the three years ended December 31, 2018, and the budget for 2019. 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. Ethylene’s Capital Expenditures
Joint Venture with Mexichem Petroquímica Mexicana de Vinilo S.A. of C.V. (PMV) was a joint venture of the Vinyl Business Group of Mexichem, S.A.B. de C.V. (Mexichem) and PPQ Cadena Productiva S.L. (PPQ), a subsidiary of Pemex Ethylene. On December 20, 2017, Mexichem announced that the Board of Directors of PMV decided not to rebuild its Vinyl Monochloride (VCM) production capacity, as the plant was damaged in a 2016 explosion. Therefore, the joint venture’s VCM production, and the assets and liabilities associated with ethylene production and auxiliary services associated with VCM and ethylene were classified as discontinued operations. On November 30, 2018, we concluded the sale of our total 44.09% interest in PMV and total 44.09% interest in PMV Minera, S.A. de C.V. (PMV Minera) to Mexichem. These sales were recorded as investments in joint ventures and associates. The sale price for PMV was Ps. 3,198.6 million and the sale price for PMV Minera was Ps. 53.7 million. We recognized a gain of Ps. 689.3 million and Ps. 1.6 million, respectively. Drilling and Services Our drilling and services segment operates through the productivestate-owned subsidiary Pemex Drilling and Services and provides drilling, completion,work-over and other services for wells in offshore and onshore fields. During 2018, this segment mainly provided drilling services to Pemex Exploration and Production, but also provided services tothird-party clients. During 2018, we drilled 115 wells, 75 onshore and 40 offshore; completed 91 wells, 55 onshore and 36 offshore; and made542 work-overs, 446 onshore and 96 offshore. Of the wells completed, one was for CONAGUA. Those services were performed with an average of 78 drilling andwork-over rigs, 46 terrestrial and 32 marine, including both owned and leased equipment. Moreover, we conducted 20,312 well services in 2018, of which 50.2% were wireline operations, 29.0% were cementing jobs, 16.5% were logging operations and perforations and 4.4% were coiled tubing operations. In addition, we provided drilling and services to external customers such as CONAGUA, Marinsa, Latina, Fieldwood and Key Energy. Given the slight recovery of the oil and gas industry, the demand for well drilling and services increased in 2018 by approximately 23.6% as compared to 2017. In 2019, we expect well interventions to increase by approximately 61.8% compared to 2018, and we expect to operate an average of 119 rigs—73 land and 46 marine—including both owned and leased equipment, which represents a 52.6% increase as compared to 2018. Of these, we expect that 48 land and 9 marine will be rigs we own, which is a 21.3% increase as compared to 2018. In 2018, in accordance with ourPrograma de Modernización de la Infraestructura de Perforación (Drilling Infrastructure Modernization Program), we carried out the modernization of two drilling land rigs of 2,000 horsepower for an amount of Ps. $803.6 million. Drilling and Services Capital Expenditures Our drilling and services segment invested Ps. 1,388 million on capital expenditures in The following table sets forth our drilling and services segment’s capital expenditures, excludingnon-capitalizable maintenance, for each of the three years ended December 31, 2018, and the budget for 2019. Capital expenditure amounts are derived from our budgetary records, which Drilling and Services’ Capital Expenditures
Notes: Numbers may not total due to (1) Amounts based on cash basis method of accounting. (2) Original budget published in the (3) Figures are stated in nominal pesos.
Logistics Our logistics segment operates through the productivestate-owned subsidiary Pemex Logistics Transportation of During During 2018, we injected 139.1 thousand barrels per day of LPG, representing a 0.7% increase as compared to the 138.1 thousand barrels per day we injected in 2018. In addition, we injected 2.4 thousand barrels per day of petrochemicals, an increase of 4.3% as compared to the 2.3 thousand barrels per day we injected in 2017. These increases were mainly due to an increase in imports of isobutane by Pemex Industrial Transformation. As of 2016, natural gas transportation is carried out by CENAGAS, with the support of Pemex Logistics through an operation and maintenance contract. During 2018, we transported approximately 5,070.9 million cubic feet per day of natural gas, Treatment and Primary Logistic We received an average of 1,315.2 thousand barrels per day of crude oil for treatment, which consists of dehydration and During 2018, we transported an average of 3,096.9 million cubic feet per day of natural gas through the Altamira, Misión, Santuario and Gas Marino Mesozoico transportation systems, as compared to the 3,415.8 million cubic feet per day in During 2018, we had six leak and spill events, none of which were significant. Open Season During 2017, under the guidelines issued by the CRE, Pemex Logistics began participating in “Open Season” auctions, which are intended to be transparent and competitive auctions for access to our pipelines On May 2, 2017, following the first Open Season auction, Andeavor (formerly Tesoro Corporation), a U.S. company, was awarded athree-year contract at the assigned capacity at rates above the minimums set by Also, in continuation of the Open Season auctions, on December 18, 2017, the CRE approved the auction procedures for the North Border Zone, Pacific Topolobampo Zone and North Zone Madero. In March of 2018, we held an Open Season auction for the North Border Zone system, which consists of three terminals and two pipeline sections in the states of Coahuila and Tamaulipas. However, since no outside bids were received, the capacity for this sytem was assigned to Pemex Industrial Information.On July 24, 2018, following an Open Season auction for the Pacific Topolobampo Zone, Tesoro Mexico Supply & Marketing, S. de R.L. de C.V. (an affiliate of Andeavor) was awarded athree-year contract for the use of our storage terminals in Topolobampo, Culiacán, La Paz and Mazatlán. In July 2018, we commenced an Open Season auction for the Pacific-Gulf zone, which consists of the Lázaro Cárdenas, Uruapan, Acapulco, Iguala, Oaxaca, Tapachula II, Tuxtla Gutiérrez and Villahermosa storage terminals. The period to submit bids for this Open Season auction ended on August 27, 2018. However, since no outside bids were received, the capacity for this system was assigned to Pemex Industrial Transformation. Transport and distribution Our pipelines connect crude oil and natural gas are
We have our pipelines in order to optimize our maintenance investments. The pipeline integrity management plan
collection of detailed records and the development of a pipeline database;
categorization and identification of threats that could affect pipeline integrity, safety and operation;
identification of critical points in the pipeline;
risk assessment
maintenance and
ongoing monitoring We have made considerable progress towards satisfying the requirements of
High Risk: 0 kilometers Medium Risk: 4,230.3 kilometers Low Risk: 12,895.0 kilometers Notwithstanding the implementation of our pipeline The transportation of crude oil, natural gas and other products through of our pipeline network and we have budgeted Fleet Developments In July of 2013, as part of a plan to modernize the fleet, we signed an agreement with the Secretaría de Marina - Armada de México (Mexican Navy), valued at Ps. 3,212.1 million (U.S.$250.0 million), for the construction of 22 marine vessels for our refining segment. This agreement initially included construction of 16 tugboats, three multipurpose vessels and three barges, but was modified in 2016 to remove the construction of the three barges and to extend the final delivery date to December 31, 2018. This transaction is now valued at Ps. 4,705.0 million. As of December 31, 2018, the Mexican Navy has delivered eight tugboats. We are currently in the process of further extending the contract for delivery of the remaining 11 vessels, subject to budget availability. As of December 31, Our current fleet includes 17 vessels, of which we own 16 and lease
Our logistics segment invested Ps.
The following table sets forth our logistics segment’s capital expenditures, excludingnon-capitalizable maintenance, for each of the three years ended December 31, 2018, and the budget for 2019. Capital expenditure amounts are derived from our budgetary records, which Logistics’ Capital Expenditures
CENAGAS Pursuant to On October 29, 2015, we signed a transfer agreement with CENAGAS for the transfer to CENAGAS of assets associated with the Integrated Natural Gas System and the distribution contract for theNaco-Hermosillo pipeline system. The National Gas Pipeline System has 87 pipelines with a total length of almost 9,000 kilometers and a transport capacity over 5,000 million cubic feet per day, while theNaco-Hermosillo system is a 300 kilometers long pipeline with a transport capacity of 90 million cubic feet per day. The approximate aggregate book value of these assets, which were transferred to CENAGAS on January 1, 2016, was Ps. On December 29, 2016, we entered into two agreements with CENAGAS pursuant to
International Trading
Exports and Imports PMI purchases crude oil from our exploration and production segment and then sells it to PMI’s customers. PMI sold an average of The following tables set forth the composition and average prices of our crude oil exports for the periods indicated.
Source: PMI operating statistics as of January Year ended December 31, 2011 2012 2013 2014 2015 Crude Oil Prices Olmeca Isthmus Maya Altamira Talam Weighted average realized price
Geographic Distribution of Export Sales As of December 31, 2018, PMI had 30 customers in 11 countries. In
The following table sets forth the geographic distribution of PMI’s sales of crude oil exports for the five years ended December 31, Composition and Geographic Distribution of Crude Oil Export Sales
Notes: Numbers may not total due to rounding. tbpd = thousand barrels per day. API gravity refers to the specific gravity or density of liquid petroleum products, measured in degrees on the API scale. On the API scale, oil with the lowest specific gravity has the highest API gravity. In addition, holding all other factors constant, the higher the API gravity, the greater the value of the crude oil. Source: PMI operating statistics as of January
In total, we exported The following table sets forth the average volume of our exports and imports of crude oil, natural gas and petroleum products for the five years ended December 31, Volume of Exports and Imports
PMI operating statistics as of January 16, 2019, and Pemex Industrial Transformation. Crude oil exports increased by
In
We import dry gas, a variety of natural gas, to satisfy shortfalls in our production and to meet demand in areas of northern Mexico that, due to their distance from the fields, can be supplied more efficiently by importing natural gas from the United
P.M.I. Trading The following table sets forth the value of exports and imports of crude oil, natural gas and petroleum products for the five years ended December 31, Value of Exports and Imports(1)
The following table describes the composition of our exports and imports of selected refined products Exports and Imports of Selected Petroleum Products
Source: In 2018, exports of Exports of petroleum products
Imports Isobutane-butane-hexane-1 Methanol Xylenes Toluene Propylene Others Total
Hedging Operations P.M.I. Trading Gas Stations in the United States
PEMEX Corporate Matters In addition to the operating activities that we undertake through the activities of our subsidiary entities and subsidiary companies, we have certain centralized corporate operations that coordinate general labor, safety, insurance and legal matters. Industrial Safety and Environmental Protection Our Corporate Office of Planning, Coordination and Performance is responsible for planning, conducting and coordinating programs to:
foster a company culture of safety and environmental protection;
improve the safety of our workers and facilities;
reduce risks to residents of the areas surrounding our facilities; reduce greenhouse gas emissions and identify the risks associated with climate change in Mexico in order to develop strategies to minimize the impact of climate change on our strengthen efforts in our operations with partners, contractors, subcontractors, suppliers and service providers. We intend to Insurance We maintain a comprehensive property and general liability insurance program for onshore and offshore properties and liabilities. All onshore properties, such as refineries, processing plants, pipelines and storage facilities are covered, as are all of our offshore assets, such as drilling platforms, rigs, gas gathering systems, maritime terminals and production facilities. Our insurance covers risks of sudden and accidental physical damage to or destruction of our properties, as well as In accordance with Mexican law, we have entered into all of our insurance contracts with Mexican insurance carriers. These policies have limits of U.S. $1.8 billion for onshore property, U.S. Since June 2003, we have not maintained business interruption insurance, which in the past compensated us for loss of revenues resulting from damages to our facilities. During All of our insurance policies are in turn reinsured through Kot Insurance Company, AG (which we refer to as Kot AG). Kot AG is a wholly owned subsidiary company that was originally formed in 1993 under the laws of Bermuda as Kot Insurance Company, Ltd. and was subsequently organized under the laws of Switzerland in 2004. Kot AG is used as a risk management tool to structure and distribute risks across the international reinsurance markets. The purpose of Kot AG is to reinsure policies held through our local insurance carriers and to maintain control over the cost and quality of the insurance covering our risks. Kot AG reinsures over
Our Ethics Committee is primarily responsible promoting awareness and establishing procedures that analyzing and giving instructions to the appropriate areas on possible violations to our code of ethics and working with the Liabilities Unit at Petróleos Mexicanos and our Internal Auditing Area to exchange information regarding violations of our code of ethics and our code of conduct. See “Item 16B—Code of Ethics” for more information regarding our Collaboration and Other Agreements On
On February 5, 2015, Petróleos Mexicanos and theInstituto Politécnico Nacional (National Polytechnic Institute) of Mexico entered into a collaboration agreement for the development of human resources, technology and research, with the aim of promoting and supporting joint research programs and the development of knowledge related to the hydrocarbons industry. On February 18, 2015, Petróleos Mexicanos and the Organisation for EconomicCo-operation and Development (OECD) signed a memorandum of understanding with the aim of benefiting from the OECD’s knowledge of and experiences with international best practices relating to the procurement of goods and services. On February 19, 2015, Petróleos Mexicanos signed a memorandum of understanding with the Infraestructura Energética Nova, S.A.B. de C.V. and Sempra LNG units of the U.S. energy company Sempra Energy for the potential joint development of a natural gas liquefaction project at the site of the Energía Costa Azul facility located in Ensenada, Mexico. On April 7, 2015, Petróleos Mexicanos and First Reserve signed a memorandum of understanding and cooperation to explore new opportunities for joint energy projects, which would provide access to financing, as well as the exchange of technical and operational experience. This agreement contemplates up to U.S. $1.0 billion of investments in potential projects relating to infrastructure, maritime transport and power cogeneration, among others. On May 12, 2015, Petróleos Mexicanos and Global Water Development Partners, a company founded by private equity funds operated by Blackstone, signed a memorandum of understanding with the aim of creating a partnership to invest in water and wastewater infrastructure for Petróleos Mexicanos’ upstream and downstream facilities. This partnership is intended to finance and carry out environmentally sustainable projects for water treatment in Petróleos Mexicanos’ operations.
On June 1, 2015, Petróleos Mexicanos and the U.S. based global asset manager BlackRock Inc. signed a memorandum of understanding with the aim of accelerating the development and financing ofenergy-related infrastructure projects that are of strategic importance to Petróleos Mexicanos. On July 20, 2015, Petróleos Mexicanos, through its Corporate Office of Procurement and Supply, signed an agreement with the OECD with the aim of adopting and promoting best practices in procurement and fostering efficient management strategies and transparency in Petróleos Mexicanos’ processes. The agreement also contemplates the training of our personnel by the OECD on issues of transparency and ethics, the design of procurement procedures and mitigating risks of collusion. On July 22, 2015, Petróleos Mexicanos and theSecretaría de Desarrollo Agrario, Territorial y Urbano (Ministry of Agriculture, Land and Urban Development) signed a collaboration agreement with the aim of establishing consulting and training mechanisms for the development of hydrocarbon exploration, extraction and distribution projects in strict observance of the applicable legal framework and with full respect for agricultural landowners. On On July 28, 2015, Petróleos Mexicanos and Banco Santander, S.A. (Santander) signed a collaboration agreement with the purpose of providing our franchisees with access to Santander banking services such as bank card sales, deposits ande-banking services, payroll management and the transportation of money. On September 9, 2015, Petróleos Mexicanos and General Electric signed a memorandum of understanding with the aim of creating a partnership to invest in new technology and financing initiatives for gas compression, power generation and the production of hydrocarbons, both onshore and offshore, including in deepwater fields. On October
On November 30, 2015, Petróleos Mexicanos and Global Water Development Partners agreed to create a joint venture intended to invest On January 19, 2016, Petróleos Mexicanos and Mubadala Petroleum signed a memorandum of understating agreeing to joint projects to explore the Mexican energy sector, including its upstream activities, primary midstream activities and infrastructure projects for a total investment of On January 19, 2016, Petróleos Mexicanos and the Abu Dhabi National Oil Company signed a memorandum of understanding with the aim to share each company’s best practices with respect to different upstream activities, including exploration, development and production in oil fields; improved recovery, handling and processing of liquefied natural gas; as well as human resources training, sustainability, internal controls, transparency, process development andcyber-security. On January 19, 2016, Petróleos Mexicanos and Saudi Aramco signed a memorandum of understanding renewing and strengthening the relationship between both companies and establishing an exchange of ideas surrounding operational excellence, sustainability and energy efficiency, and innovation and technological development. These broad agreements of technological and scientific collaboration are strictlynon-commercial,i.e., there is no transfer of resources among the parties. Property, Plants and Equipment General Substantially all of our property, consisting of refineries, storage, production, manufacturing and transportation facilities and certain retail outlets, is located in Mexico, including Mexican waters in the Gulf of Mexico. The location, character, utilization and productive capacity of our exploration, drilling, refining, petrochemical production, transportation and storage facilities are described above. See “—Exploration and Production,” “—Drilling and Services,” Reserves Under Mexican law, all crude oil and other GENERAL REGULATORY FRAMEWORK Petróleos Mexicanos is regulated by the Mexican Constitution, the Petróleos Mexicanos Law and the Hydrocarbons Law, among other regulations. The purpose of the Petróleos Mexicanos Law is to regulate the organization, management, operation, monitoring, evaluation and accountability of Petróleos Mexicanos as aproductive-state owned company of the Mexican Government. On October 31, 2014, the Regulations to the Petróleos Mexicanos Law were published in the Official Gazette of the Federation. These regulations were modified on February 9, 2015. The purpose of these regulations is to regulate, among other things, the appointment and removal of the members of the Board of Directors of Petróleos The Mexican Government and its ministries regulate our operations in the oil and gas sector. The Ministry of Energy monitors our operations, and the Secretary of Energy acts as the chairperson of the Board of Directors of Petróleos Mexicanos. In addition, the On December 2, 2014, the Ministry of Energy published in the Official Gazette of the Federation a statement declaring 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 in accordance with the Petróleos Mexicanos Law. As a result, the special regime that governs Petróleos Mexicanos’ activities relating to productivestate-owned subsidiaries, affiliates, compensation, assets, administrative liabilities, budget, debt levels and the state dividend took effect. On June 10, 2015 the General Provisions for Contracting with Petróleos Mexicanos and its ProductiveState-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 became effective. In accordance with the Petróleos Mexicanos Law, each year the Ministry of Finance and Public Credit provides us with estimated macroeconomic indicators for the following fiscal year, which we are to use to prepare the consolidated annual budget for Petróleos Mexicanos and the subsidiary entities, including our financing program. Upon approval by the Board of Directors of Petróleos Mexicanos, our consolidated budget and financing program is then submitted to the Ministry of Finance and Public Credit, which has the authority to adjust our financial balance goal and the ceiling on our wage and salary expenditures for the fiscal year. The consolidated annual budget and financing program of Petróleos Mexicanos and the subsidiary entities, including any adjustments made by the Ministry of Finance and Public Credit, is then incorporated into the federal budget for approval by the Chamber of Deputies. The Mexican Government is not, however, liable for the financial obligations that we incur. In approving the federal budget, the Chamber of Deputies authorizes our financial balance goal and the ceiling on our wage and salary expenditures for the fiscal year, which it may subsequently adjust at any time by modifying the applicable law.
We also employ internal control procedures and guidelines designed to monitor the activities of our employees, including senior management, and to ensure compliance with applicableanti-corruption,anti-bribery andanti-money laundering laws and regulations. TheLineamientos que regulan el sistema de control interno en Petróleos Mexicanos, sus empresas productivas subsidiarias y empresas filiales (Guidelines governing the internal control system of Petróleos Mexicanos, its productive subsidiary entities and affiliates) set forth the principles underlying our internal controls system and the procedures necessary for its implementation and monitoring. In addition, theLineamientos para regular a los Testigos Sociales en Petróleos Mexicanos y sus empresas productivas subsidiarias (Guidelines to regulate public witnesses in Petróleos Mexicanos and its productive subsidiary entities), delineates the ways in which public witnesses may act asthird-party observers in connection with our procurement procedures. These internal controls and guidelines are applicable to Petróleos Mexicanos and the subsidiary entities. Operations—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 On July 14, 2017, the Board of Directors of Petróleos Mexicanos approved our “Compliance Program”, a series of procedures aimed to comply with legal, accounting, and financial provisions to prevent corruption and to promote ethical values. These procedures include a focus on internal controls, risk management, ethical principles and corporate integrity, policies promoting transparency and accountability. On August 28, 2017, a newCódigo de Conducta de Petróleos Mexicanos, sus empresas productivas subsidiarias y, en su caso, empresas filiales (Code of Conduct of Petróleos Mexicanos, its productive subsidiary entities and, where applicable, affiliated companies, or the Code of Conduct) was published in the Official Gazette of the Federation, replacing the code of conduct issued in February 2015. This Code of Conduct delineates behaviors expected of and banned for our employees, in accordance with the values established in the Code of Ethics, which was also published on that same day in the Official Gazette of the Federation, approved by the Board of the Directors of Petróleos Mexicanos in November 2016, such as: respect,non-discrimination, honesty, loyalty, responsibility, legality, impartiality and integrity, among others. On September 11, 2017, the Políticas y Lineamientos Anticorrupción para Petróleos Mexicanos, sus empresas productivas subsidiarias y, en su caso, Empresas Filiales (Anti-corruption Policies and Guidelines for Petróleos Mexicanos, its productive subsidiary entities and, where applicable, affiliated companies) and the Políticas y Lineamientos para el desarrollo de la Debida Diligencia en Petróleos Mexicanos, sus empresas productivas subsidiarias y, en su caso, Empresas Filiales, en Materia de Ética e Integridad Corporativa (Policies and Guidelines to carry out Due Diligence in Petróleos Mexicanos, its productive subsidiary entities and, where applicable, affiliated companies, in Ethics and Corporate Integrity matters) became effective. The purpose of these regulations is to set up actions against acts of corruption as well as As an issuer of debt securities that are registered under the Securities Act and in connection with certain representations and covenants included in our financing agreements, we must comply with the U.S. Foreign Corrupt Practices Act, or the FCPA. The FCPA generally prohibits companies and anyone acting on their behalf from offering or making improper payments or providing benefits to government officials for the purpose of obtaining or keeping business. In addition, we are subject to other international laws and regulations related toanti-corruption,anti-bribery andanti-money laundering, including the U.K. Bribery Act
ENVIRONMENTAL REGULATION Legal Framework We are subject to
In April 1997, the SEMARNAT issued regulations governing the procedures for obtaining an environmental license, under which new industrial facilities can comply with all applicable environmental requirements through a single administrative procedure. Each environmental license integrates all of the different permits, licenses and authorizations related to environmental matters for a particular facility. Since these regulations went into effect, we have been required to obtain an environmental license for any new facility. Before we carry out any activity that ASEA is an administrative body of the SEMARNAT that operates with technical and administrative autonomy and has the authority to regulate and supervise companies participating in the hydrocarbon sector through its issuance of rules establishing safety standards, limits on greenhouse gas emissions and guidelines for the dismantling and abandonment of facilities, among other things. The
We are also subject to theNOM-001-SEMARNAT-1996issued Federal and state authorities
Mexico generally reviews and updates its environmental regulatory framework every five years, and we work with the
During 2018, ASEA issued regulations that establish comprehensive guidelines for the In
The Mexican Government participates in international discussions and negotiations to develop and promote
The Mexican Government has indicated its commitment to adhere to its “nationally determined contribution” targets, including the targets that 35% of all energy generated by 2024 must be generated from renewable sources and 43% by 2030. The Mexican Government has also indicated a commitment to replace heavy fuels with natural gas, biomass and other forms of clean energy, and to reduce the leakage, venting and controlled burning of methane. In accordance with the actions carried out by the Mexican Government to mitigate global climate change, we have established a goal of reducing our greenhouse gas emissions by 25% by the year 2021, as compared to 2016 levels. During We also work with national and international entities to develop, promote and implement initiatives that mitigate our impact on climate change. For instance, we participate in the United Nations Environmental Programme’s Climate and Clean Air Coalition (CCAC). Through participation in the CCAC, we aim to identify emission sources in our key facilities and substantially reduce emissions of short-lived climate pollutants. In Furthermore, we continue to analyze the implementation of carbon capture, use and storage (CCUS) techniques. In 2014, the “CCUS Technology Roadmap for Mexico” was developed in conjunction with theSecretaría de Energía(the Ministry of Energy or SENER), SEMARNAT and CFE. This led to the execution of integrated carbon dioxide capture projects at Petróleos Mexicanos Additionally, we continue the implementation of
Biodiversity In 2018, we continued to support several biodiversity conservation and indirect climate change mitigation projects. These projects are designed to increase carbon dioxide and water capture and to preserve the ecosystems in which we
In 2018, we provided financial support for these projects, which we consider to be important initiatives to support biodiversity. The “House of Water” center, for example, is, at this time, the only wetland education center of its class in Mexico and is dedicated to environmental education and training for the conservation and restoration of wetlands. The center is located in the Pantanos de Centla Biosphere Reserve in the state of Tabasco, which is one of the most important locations for birds and aquatic plant diversity in Mesoamerica. Similarly, our Jaguaroundi Ecological Park, which saw improvements to its museum and the conditions for captive organisms exhibited therein, continued providing environmental education services to the surrounding communities and
We believe that we are in substantial compliance with
Since 1993, we have participated in the National Environmental Audit Program In general terms, voluntary environmental As of December 31, During
On
On
On On June 26, 2018, a contractor lost his life due to an accident while inspecting a production pipe at the
On As part of
In
In 2018, our primary initiatives in industrial safety, health and environmental protection (or, EH&S) included the following: Weekly visits to and technical support for our productive subsidiary entities’ facilities to supervise the alignment of EH&S functions and execution of thePEMEX-SSPA system. The PEMEX-SSPA system is the system we developed, based on international best practices, to ensure compliance with our EH&S policies, principles and objectives, and which we continue to evolve and improve; Execution of the campaigns “Layers of Protection,” “Order and Cleaning” and “Planning and Safe Work Execution;” Improved acccountability for EH&S leadership teams in our productive subsidiary entities;
Implementation of work cycles for critical procedures, such as the opening of pipelines, electrical safety and special protection equipment for personnel; Establishment of several task forces in critical facilities of the productive subsidiary entities to reverse causes of serious accidents; Application of culture and leadership evaluations to command line personnel under our newPEMEX-SSPA system in order to Technical support to implement EH&S Training of the EH&S
Evolve the PEMEX-SSPA system to Review of compliance with the twelve “zero tolerance” guidelines in thePEMEX-SSPA system; Verification and advice in the
Additionally, in
Environmental Liabilities
Pemex Exploration and Production
Source:
Pemex Industrial Transformation(1)
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Pemex Logistics
| Estimated Affected Area | Estimated Liability | |||||||
| (in hectares) | (in millions of pesos) | |||||||
Storage and Distribution Terminals | 67.8 | Ps. | 1,178.7 | |||||
Pipelines | 600.4 | 5,216.5 | ||||||
Total estimated environmental liabilities of Pemex Logistics | 668.2 | Ps. | 6,395.2 | |||||
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| Note: | Numbers may not total due to rounding. |
| Source: | Pemex Logistics. |
Our estimates of environmental liabilities include cost estimates forsite-specific evaluation studies, which draw upon aspects ofare based on previous evaluations for sites with comparable characteristics and the corresponding remediation. The remediation sites consist of facilities identified in the audit process described above, as well as those previously identified sites in more mature petroleum operating areas that were not cleaned up in the past. Our environmental liabilities also include the elimination of holding ponds created by abandoned petroleum wells.
Additionally, our environmental liabilities include an accrual based on information received periodically from field managers regarding probable environmental liabilities identified in their respective areas of responsibility. We accrue environmental liabilities when sufficient basic knowledge is available to form a preliminary estimation as to remediation cost. Although the full potential scope of the remediation cost may not be known with certainty, these accruals are made when the liability is probable and the amount may be reasonably estimated, in accordance with IAS 37 “Provisions, Contingent Liabilities and Contingent
Assets” for IFRS purposes. These estimated liabilities include assumptions resulting from an initial evaluation of damage, including land acreage to be remediated, depth and type of contamination. While the initial evaluation is extensive, there is a possibility that the actual scope of remediation could vary depending upon information gathered during the remediation process. For a further discussion of our environmental liabilities, see Note 3(k)3-K to our consolidated financial statements included herein.
Unasserted or additional claims are not reflected in our identified liabilities. We are not aware of any such claims that would be of such magnitude as to materially affect our estimates of environmental liabilities. At the end of 2015,2018, we were not aware of uncertainties with respect to joint and several liabilities that could affect our assessment of environmental contingencies or otherwise result in a major environmental liability. See “—History and Development—Recent Energy Reform” above in this Item 4 for more information regarding the participation of other companies in the Mexican energy sector. As a result, we believe we are positioned to know immediately of any claims and are therefore directly accountable for any claims that may be brought against us.
Pemex Exploration and Production remains responsible for handling existing environmental liabilities—these responsibilities are not part of the Integrated E&P Contracts. Nevertheless, the Integrated E&P Contracts include environmental clauses related to contractors’ and Pemex Exploration and Production’s responsibility to ensure an adequate environmental performance, and also establish the terms for compensation and repair of any new environmental impacts.
The timing of remediation or cleanup of the sites to which these environmental liabilities relate is dependent upon the annual budget approved by the Mexican Congress.
On August 1, 2017, we were granted a favorable judgment by the Supreme Court of Justice of the Nation, which determined that we are not liable for material and environmental damages caused by hydrocarbons spills related to illegal tapping of pipelines, since the environmental damage was caused by third party criminal behavior. As of the date of this annual report, there has been no definitive resolution with respect to our liability for such damages.
Environmental Projects and Expenditures
In 2015,2018, we spent approximately Ps. 9,9183,219.1 million on environmental projects and related expenditures, as compared to Ps. 9,2975,760 million in 2014.2017. For 2016,2019, we have budgeted Ps. 6,511832.3 million for environmental projects and expenditures, including modernization of installations, implementation of systems and mechanisms to monitor and control atmospheric pollution, acquisition of equipment to address contingencies related to hydrocarbonoil and gas spills, the expansion of water effluent systems, restoration and reforestation of affected areas, studies for environmental investigation and environmental audits. In addition, we continue to conduct extensive research and development efforts to increase our capacity to produce gasoline, diesel and fuel oil with lower sulfur content at our refineries in Mexico.
We do not believe that the cost of complying with environmental laws or environmental requirements related to the North American Free Trade Agreement (NAFTA)NAFTA among the governments of Mexico, the United States and Canada, the Vienna Convention for the Protection of the Ozone Layer, the Agreement on Environmental Cooperation between the Governments of Mexico and Canada or Mexico’s membership in the Organization for Economic Cooperation and Development, has caused or will cause a significant increase in our environmental expenditures.
Social Responsibility
Petróleos Mexicanos hasDuring 2018, we implemented and continued various initiatives in the area of corporate social responsibility initiatives, primarily with respect to the protection and preservation of the environment, relations with communities where we operate, ethical work practices, respect for labor rights and the general promotion of quality of life for communities and employees.
Our corporate and social responsibility goals are carried out through the following mechanisms:
cash donations;
donations of movable properties;
mutually beneficial public works, or mutual benefit projects, which are projects we carry out in collaboration with local authorities and communities to improve infrastructure that is beneficial both to us and to the community;
| • | thePrograma de apoyo a la comunidad y medio ambiente (Program to support communities and the environment, which we refer to as PACMA), which supports and implements social programs, actions and public works designed to promote the economic and social development of the communities in which we operate and to protect their environment; and |
other instruments that provide a positive impact our community,on communities, including our Integrated E&P contracts, FPWCsContracts and the sustainable development annexes and clauses to our contracts (which we refer to as SD Annexes), in which we and our contractors commit to improving the quality of life in communities where we operate.operate, directly or indirectly.
TheIn 2018, the total value of our social responsibility donations and contributions amounted to Ps. 3,142.7 million in 2015.2,103.8 million. Our cash and donations amounted to approximately Ps. 351.022.0 million and our asphalt, fuel and fuelmovable property donations amounted to approximately Ps. 1,611.11,300.5 million. Contributions made through provisions of our Integrated E&P Contracts FPWCs andamounted to Ps. 120.5 million, SD Annexes amounted to Ps. 687.320.2 million and PACMA and mutual benefit project contributions amounted to Ps. 196.3592.6 million and Ps. 297.048.0 million, respectively.
Approximately 70.5%90.1% of our donations and contributions were directedassigned to the states most affected by our operations (Campeche, Tabasco, Tamaulipas and Veracruz), 24.6% to thetwelve states with medium levels of impact (Chiapas,greater activity in the oil and gas industry (Campeche, Chiapas, Coahuila, Guanajuato, Hidalgo, Nuevo León, Oaxaca, Puebla, and San Luis Potosí), Tabasco, Tamaulipas and 4.9%Veracruz)); and the remaining 9.9% to the remaining states. Most importantly,Notably, we took the following specific actions in 2015:2018:
contributed Ps. 1,320.9 million in cash andin-kind donations. Of our 2018 cash andin-kind donations, 66.7% was concentrated in the states of Tabasco, Campeche, Veracruz and Tamaulipas. Cash donations made during 2018 were used for conservation of natural areas and scholarship programs;
contributed approximatelya total of fourteen movable properties, which were delivered to the following states: Tabasco (three), Veracruz (two), Sinaloa (two), Campeche (one), Oaxaca (one), Hidalgo (one), Puebla (one), Chiapas (one), Tlaxcala (one) and Coahuila (one);
contributed, via our SD Annexes, Ps. 198.316.4 million in Veracruz, which was used for community health, education, sports and environmental protection, and Ps. 3.8 million in Puebla, which was directed towards community health and education;
contributed a total of Ps. 48.0 via our mutual benefit projects, Ps. 47.4 million of which was directed towards the state of Tabasco. We also contributed Ps. 0.6 million to mutual benefit projects in Veracruz. These projects were mainly in infrastructure, such as the pavement of roads, and for the construction of a section of the highway Boquerón del Palmar and Av. Paseo del Mar, Ciudad del Carmen Campeche;
carried out 66 projects related to Integrated E&P Contracts in the states of Veracruz and Tamaulipas for a total amount of Ps. 120.5 million. In Veracruz, we contributed Ps.109.8 million and in Tamaulipas we contributed Ps.10.7 million. These projects were mainly in the areas of education, sports, infrastructure, environmental protection and community health.
In addition, in 2018 we made several donations under our PACMA program, approximately 38.8% of which were allocated to Tabasco, approximately 28.0% to Veracruz and approximately 14.0% to Campeche. The remainder, or approximately 19.2% was allocated to Tamaulipas, Oaxaca, Hidalgo, Guanajuato, Puebla, Nuevo León, San Luis Potosí, Chiapas, Tlaxcala and Yucatán. Specifically, in 2018 we contributed Ps. 80.0220.9 million under this program to public safety and civil protection, mainly for security equipment and lighting systems. We also contributed Ps. 192.4 million under this program for infrastructure, mainly for the construction of community use domes and the Alonso Felipe de Andrade public market in Ciudad del Carmen, Campeche;
In sum, we contributed Ps. 732.8 million to acquire and rehabilitate potable water equipment in San Fernando, Tamaulipas;
TRADE REGULATION AND EXPORT AGREEMENTS
Though Mexico is not a member of Organization of the Petroleum Exporting Countries (which we refer to as OPEC), it has periodically announced increases and decreases in our crude oil exports reflecting production revisions made by other oil producing countries, in order to contribute to crude oil prices stabilization. However, we have not changed our export goals because of announcements made by OPEC since 2004, and we believe that Mexico has no current plans to change our current level of crude oil exports.
NAFTA has not affected Mexico’s rights, through us or other companies, to explore and exploit crude oil and natural gas in Mexico, to refine and process crude oil and natural gas and to produce petrochemicals in Mexico. Since 2003, petrochemical products have enjoyed a zero tariff under NAFTA and, subject to limited exceptions, exports of crude oil and petroleum products from Mexico to the United States and Canada have been free or exempt from tariffs. Similarly, since 2003, Mexico’s imports of petroleum products from the United States and Canada have also been exempt from tariffs. In addition, in 2004, NAFTA approved lower tariffs on certain materials and equipment imported by Mexico. The zero tariff on Mexico’s imports of petrochemicals from the United States and Canada could have increased competition in the petrochemicals industry in Mexico. To the extent that domestic and international prices for our products remain constant, lower tariffs on products, materials and equipment that we import from and export to the United States and Canada, reduce our expenses and increase our revenue.
On November 30, 2018, the presidents of Mexico, the United States and Canada signed the UnitedStates-Mexico-Canada Agreement, or the USMCA, which, if ratified by the legislatures of the three countries, would replace NAFTA. As of the date of this annual report, there is uncertainty about whether the USMCA will be ratified, as well as the timing thereof, and the potential for furtherre-negotiation, or even termination, of NAFTA. See “Item 3—Key Information—Risk Factors—Risk Factors Related to Mexico—Economic and political developments in Mexico and the United States may adversely affect Mexican economic policy and, in turn, PEMEX’s operations.”
TAXES, DUTIES AND OTHER PAYMENTS TO THE MEXICAN GOVERNMENT
General
Taxes and duties applicable to us are a significant source of revenues to the Mexican Government. We contributed approximately 30.4%11.3% of the Mexican Government’s revenues in 20142017 and 21.0%11.0% in 2015.2018. In 2015,2018, we paid a number of special hydrocarbonoil and gas taxes and duties, in addition to the other taxes and duties paid by some of the subsidiary companies, as described below under “—Other Taxes.” The fiscal regime in effect for Petróleos Mexicanos and the subsidiary entities for 20152018 (which we refer to as the 2015 fiscal regime) became effective in 20162015 and can be subsequently modified from time to time. The Secondary Legislationimplementing legislation published in August 2014 set forth a fiscal regime applicable to the new contractual arrangements that governs exploration and production activities conducted in Mexico beginning on January 1, 2015, as well as a new state dividend to be paid by Petróleos Mexicanos and the subsidiary entities beginning on January 1, 2016. See “—Fiscal Regime” and “—Other Payments to the Mexican Government” below.
Fiscal Regime for PEMEX
Fiscal Regime
The Hydrocarbons Revenue Law that was adopted as part of the Secondary Legislation sets forth, among other things, the following duties applicable to us in connection with our assignments granted by the Mexican Government:
| • | Derecho por la Utilidad Compartida( |
| • | Derecho de Extracción de Hidrocarburos(Hydrocarbons Extraction Duty): This duty is to be determined based on a rate linked to the type of hydrocarbons (e.g., crude oil, associated natural gas,non-associated natural gas or condensates), the volume of production and the relevant market price. During |
| • | Derecho de Exploración de Hidrocarburos(Exploration Hydrocarbons Duty): The Mexican Government is entitled to collect a monthly payment of Ps. |
| • | In |
Under thisthe 2018 fiscal regime, we also remainsome of our products are subject to the following taxes:IEPS Taxes, which we withhold from our customers and pay to the tax authorities. The IEPS tax is not included in our sales or expenses.
| • | IEPS sobre la venta de los combustibles automotrices |
| • | IEPS |
| • | IEPSa los combustibles fósiles(IEPS Tax on Fossil Fuels): This tax is a fee on domestic sales of fossil fuels that Pemex Industrial Transformation collects on behalf of the Mexican Government. The applicable fees for this tax are 6.93 cents per liter for propane, 8.98 cents per liter for butane, 12.17 cents per liter for gasoline and aviation gasoline, 14.54 cents per liter for jet fuel and other kerosene, 14.76 cents per liter for diesel, 15.76 cents per liter for fuel oil, Ps. 18.29 per ton for petroleum coke, Ps. 42.88 per ton for coal coke, Ps. 32.29 per ton for mineral carbon and Ps. 46.67 per ton for carbon from other fossil fuels. This fee changes yearly in accordance with inflation and applies to imports to Mexico. |
The Hydrocarbons Revenue Law also establishes the fiscal terms to be applied to the contracts for exploration and production granted by the Mexican Government to us or to other companies in connection with potential future competitive bidding rounds. Specifically, these fiscal terms contemplate the following taxes, duties, royalties and other payments to the Mexican Government (in addition to any taxes owed pursuant to theLey de Ingresos de la Federación (Federal Revenue Law) for the applicable year and other applicable tax laws):
| • | Cuota Contractual para la Fase Exploratoria(Exploration Phase Contractual Fee): During the exploration phase of a project governed by a license,production-sharing contract orprofit-sharing contract, the Mexican Government is entitled to collect a monthly payment of Ps. |
| • | Regalías (Royalties): Royalty payments to the Mexican Government are determined based on the “contractual value” of the relevant hydrocarbons, which is based on a variety of factors, including the type of underlying hydrocarbons (e.g., crude oil, associated natural gas,non-associated natural gas or condensates), the volume of production and the market price. Royalties are payable in connection with licenses,production-sharing contracts andprofit-sharing contracts. |
| • | Pago del Valor Contractual (Contractual Value Payment): Licenses require a payment calculated as a percentage of the “contractual value” of the hydrocarbons produced, as determined by the Ministry of Finance and Public Credit on acontract-by-contract basis. |
| • | Porcentaje a la Utilidad Operativa(Operating Profit Payment):Production-sharing contracts andprofit-sharing contracts require a payment equivalent to a specified percentage of operating profits. In the case ofproduction-sharing contracts, this payment is to be madein-kind through delivery of the hydrocarbons produced. In the case ofprofit-sharing contracts, this payment is to be made in cash. |
| • | Bono a la Firma(Signing Bonus): Upon execution of a license or migration of an assignment, a signing bonus is to be paid to the Mexican Government in an amount specified by the Ministry of Finance and Public Credit. |
| • | Impuesto por la actividad de Exploración y Extracción de Hidrocarburos (Hydrocarbons Exploration and Extraction Activities Tax): Contracts for exploration and extraction and assignments granted by the Mexican Government will include a specified tax on the exploration and extraction activities carried out in the relevant area. A monthly tax of Ps. |
Under the Hydrocarbons Revenue Law, exploration and production activities associated with contracts for exploration and production are not subject to a value added tax.
Fluctuating crude oil price levels directly affect the level of certain taxes and duties that we pay. See “Item 3—Key Information—Risk Factors—Risk Factors Related to our Relationship with the Mexican Government—We pay significant special taxes 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 or negatively impact our financial condition generally.”
Other Payments to the Mexican Government
Pursuant to the Petróleos Mexicanos Law, as of January 1, 2016, Petróleos Mexicanos and the subsidiary entities are required to pay a state dividend to the Mexican Government on an annual basis. In July of each year, Petróleos Mexicanos and the new subsidiary entities are required to provide the Ministry of Finance and Public Credit a report disclosing their financial results for the previous fiscal year and their investment and financing plans for the following five years, together with an analysis of the profitability of these investments and the relevant projections of their financial positions.
The Ministry of Finance and Public Credit will rely on this report and a favorable opinion issued by a technical committee of the Mexican Petroleum Fund for Stabilization and Development to determine the amount of the state dividend to be paid by Petróleos Mexicanos and each of the subsidiary entities. The Petróleos Mexicanos Law provides that the aggregate amount of the state dividend to be paid in 2016 iswas to be equal to, at minimum, 30% of the total revenues of Petróleos Mexicanos and the subsidiary entities, after taxes, from the previous fiscal year. It further provides that that percentage will decrease in subsequent years, until reaching 15% in 2021 and 0% in 2026. The Mexican Government has announced thatIn accordance with the Federal Revenue Law for 2016, the Federal Revenue Law for 2017, the Federal Revenue Law for 2018 and the Federal Revenue Law for 2019, Petróleos Mexicanos was not required to pay a state dividend in 2016, 2017 and 2018 and will not be required to pay a state dividend in 2016.2019.
The following table sets forth the taxes and duties that we recorded for each of the past three years.
| Year ended December 31, | ||||||||||||
| 2016 | 2017 | 2018 | ||||||||||
| (in millions of pesos)(1) | ||||||||||||
Hydrocarbon extraction duties and others | Ps. 277,162 | Ps. 338,044 | Ps. 469,934 | |||||||||
Income tax | (12,640 | ) | (5,064 | ) | (8,355 | ) | ||||||
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Total | Ps. 264,522 | Ps. 332,980 | Ps. 461,579 | |||||||||
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| Note: | For a description of these taxes and duties, see “Item 4—Information on the Company—Taxes, Duties and Other Payments to the Mexican Government.” Numbers may not total due to rounding. |
| (1) | Figures are stated in nominal pesos. |
| Source: | PEMEX’s audited financial statements, prepared in accordance with IFRS. |
Other Taxes
Since 1994, our interest payments on our external debt have been subject to Mexican Government withholding taxes. Nevertheless, withholding taxes do not represent a substantial portion of our total tax liability.
We are subject to municipal and state taxes, such as real property and payroll taxes. However, because most of our facilities are located on federal property, which is not subject to municipal taxation, real property taxes are not a significant part of our overall taxes. Similarly, payroll taxes do not represent a substantial portion of our total tax liability.
In addition, we have a number ofnon-Mexican subsidiary companies that may be subject to taxation in the jurisdiction of their incorporation or operations. The aggregate taxes paid by the subsidiary companies were Ps. 2,660.47,200.9 millionin 2016, Ps. 2,536.3 million in 2013,2017 and Ps. 4,058.51,616.7 million in 2014 and Ps. 6,833.4 million in 2015.2018.
No assurance can be given that our tax regime will not change in the future. See “Item 3—Key Information—Risk Factors—Risk Factors Related to our Relationship with the Mexican Government—We pay significant special taxes 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 or negatively impact our financial condition generally.”
UNITED MEXICAN STATES
The information in this section with regard to Mexico has been included due to Petróleos Mexicanosderived from publicly available information published by, or on the websites of, the Comisión Nacional Bancaria y de Valores (National Banking and the subsidiary entities’ relationship with theSecurities Commission), Banco de México (the Mexican Government and has been reviewed bycentral bank), the Ministry of Finance and Public Credit.Credit and the Instituto Nacional de Estadística y Geografía (INEGI).
Form of Government
The President of Mexico (or the President) is the chief of the executive branch of the Mexican Government. The President is elected by the popular vote of Mexican citizens who are 18eighteen years of age or older. The Mexican Constitution limits the President to onesix-year term; the President ismay not allowed to run for reelection. In accordance with Mexico’s electoral law, on August 31, 2012, theTribunal Electoral del Poder Judicial de la Federación (Federal Electoral Court) officially validated the results of the presidential electionGeneral elections were held in Mexico on July 1, 2012, and declared2018. Mr. Andrés Manuel López Obrador, the candidate from the National Regeneration Movement, was elected president. Mr. Andrés Manuel López Obrador took office on December 1, 2018, replacing President Enrique Peña Nieto, a member of thePartido Revolucionario Institucional (Institutional(Institutional Revolutionary Party, or PRI), President-elect. Mr. Enrique Peñ. President López Obrador will serve for five years and ten months due to a Nieto took office on December 1, 2012 and his term will expire on November 30, 2018.change of the inauguration date effective starting in 2024.
From 1929 to 1994, the PRI won all presidential elections, and, from 1929 until July 1997, the PRI held a majority of the seats in both chambers of the Mexican Congress. UntilFrom 1929 until 1989, the PRI also won all of the state gubernatorial elections. In July 2000, the candidate from theAlianza por el Cambio (Alliance for Change), a coalition of thePartido Acción Nacional (National Action Party, or PAN), the oldest opposition party in the country, and thePartido Verde Ecologista de México (Ecological Green Party), won the presidential election. In addition, in 2006, Mr. Felipe de Jesús Calderón Hinojosa, a member of the PAN, was elected President. However, in 2012, the PRI candidate was once again elected President.
Each of Mexico’s 31 states is headed by a state governor. Mexico’s Federal District, Mexico City, is headed by an elected mayor. State elections were most recently held on June 7, 2015. These elections were for the Baja California Sur, Campeche, Colima, Guerrero, Michoacán, Nuevo León, Querétaro, San Luis Potosí and Sonora governorships. As a result of these elections, Mexico’s state governorships are currently composed as follows:
Legislative authority is vested in the Mexican Congress, which is composed of the Senate and the Chamber of Deputies. Members of the Mexican Congress are elected either directly or through a system of proportional representation by the popular vote of Mexican citizens who are 18 years of age or older. Senators serve a six-year term, deputies serve a three-year term and neither may serve consecutive terms in the same chamber. The Senate is composed of 128 members, 96 of whom are elected directly, while the other 32 are elected through a system of proportional representation. The Chamber of Deputies is composed of 500 members, 300 of whom are elected directly by national electoral districts, while the other 200 are elected through a system of proportional representation.
Under this proportional representation system, seats are allocated to political party representatives based on the proportion of the votes cast for those parties that receive at least 3.0% of the national vote, among other requirements.
The Mexican Constitution provides that the President may veto bills and that the Mexican Congress may override such vetoes with atwo-thirds majority vote of each chamber.
Senators serve asix-year term and deputies serve a three-year term. Federal deputies are eligible for immediate reelection for up to four term periods and senators are eligible for immediate reelection for up to two term periods. Congressional elections for all 500 seats in the Chamber of Deputies were last held on June 7, 2015.July 1, 2018. The new Congress took office on September 1, 2018. The following table provides the current distribution as of congressionalMarch 29, 2019 of Congressional seats, reflecting certainpost-election changes in the party affiliations of certain senators and deputies.
Party Representation in the Mexican Congress
| Party Representation in the Mexican Congress(1) | ||||||||||||||||
| Senate | Chamber of Deputies | |||||||||||||||
| Seats | % of Total | Seats | % of Total | |||||||||||||
National Regeneration Movement | 59 | 46.1% | 259 | 51.8% | ||||||||||||
National Action Party | 24 | 18.8% | 78 | 15.6% | ||||||||||||
Institutional Revolutionary Party | 14 | 10.9% | 47 | 9.4% | ||||||||||||
Citizen Movement Party | 8 | 6.3% | 28 | 5.6% | ||||||||||||
Labor Party | 6 | 4.7% | 28 | 5.6% | ||||||||||||
Ecological Green Party of Mexico | 6 | 4.7% | 11 | 2.2% | ||||||||||||
Social Encounter Party | 5 | 3.9% | 29 | 5.8% | ||||||||||||
Democratic Revolution Party | 5 | 3.9% | 11 | 2.2% | ||||||||||||
Unaffiliated | 1 | 0.8% | 9 | 1.8% | ||||||||||||
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Total | 128 | 100.0% | 500 | 100.0% | ||||||||||||
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| Senate | Chamber of Deputies | |||||||||||||||
| Seats | % of Total | Seats | % of Total | |||||||||||||
Institutional Revolutionary Party | 54 | 42.2 | % | 203 | 40.8 | % | ||||||||||
National Action Party | 38 | 29.7 | 108 | 21.7 | ||||||||||||
Democratic Revolution Party | 21 | 16.4 | 60 | 12.0 | ||||||||||||
Ecological Green Party of Mexico | 7 | 5.5 | 46 | 9.2 | ||||||||||||
Social Encounter Party | 0 | 0 | 8 | 1.6 | ||||||||||||
Labor Party | 6 | 4.7 | 0 | 0 | ||||||||||||
Citizen Movement Party | 0 | 0.0 | 25 | 5.0 | ||||||||||||
New Alliance Party | 0 | 0.0 | 11 | 2.2 | ||||||||||||
Unaffiliated | 2 | 1.6 | 2 | 0.4 | ||||||||||||
National Regeneration Movement (New) | 0 | 0 | 35 | 7.0 | ||||||||||||
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Total | 128 | 100.0 | % | 498 | 99.6 | % | ||||||||||
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Note: Numbers may not total due to rounding.
(1) As of March 29, 2019. Individual members of Congress may change party affiliations.
Source: Senate and Chamber of Deputies.
The Economy
National Development PlanGeneral
ThePlan Nacional de Desarrollo 2013-2018 (National Development Plan)According to World Bank data, the Mexican economy, as measured by 2016 gross domestic product (GDP) (at current prices in U.S. dollars), publishedis the 15th largest in the Official Gazetteworld. The Mexican economy had a real GDP of the Federation on May 20, 2013, establishes the basic goals and objectives of President Enrique Peña Nieto during his six-year term. These objectives are to:Ps. 18,157.0 billion in 2017.
In addition, the National Development Plan proposes the following three general strategies that will be incorporated in all government policies:
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Gross Domestic Product
The following table sets forth the percentage change in Mexico’s real gross domestic product (GDP)GDP by economic sector in constant 2008 pesospercentage terms for the periods indicated.
Real GDP Growth by Sector
(% change against prior years)(1)
| 2010 | 2011 | 2012 | 2013 | 2014(2) | Third quarter 2015(2)(3) (annualized) | 2013 | 2014 | 2015 | 2016 | 2017(2) | 2018(2) | |||||||||||||||||||||||||||||||
GDP (constant 2008 prices) | 5.1 | % | 4.0 | % | 4.0 | % | 1.3 | % | 2.3 | % | 2.6 | % | ||||||||||||||||||||||||||||||
GDP | 1.4% | 2.8% | 3.3% | 2.9 | % | 2.1 | % | 2.0 | % | |||||||||||||||||||||||||||||||||
Primary activities: | ||||||||||||||||||||||||||||||||||||||||||
Agriculture, forestry, fishing, hunting and livestock(4) | 0.8 | (2.3 | ) | 7.4 | 0.9 | 4.3 | 4.1 | |||||||||||||||||||||||||||||||||||
Secondary activities: | ||||||||||||||||||||||||||||||||||||||||||
Agriculture, forestry, fishing, hunting and | 2.3 | 3.8 | 2.1 | 3.8 | 3.2 | % | 2.4 | % | ||||||||||||||||||||||||||||||||||
Secondary Activities: | ||||||||||||||||||||||||||||||||||||||||||
Mining | 0.9 | (0.4 | ) | 0.9 | (0.1 | ) | (1.5 | ) | (5.6 | ) | (0.6) | (1.9) | (4.4) | (4.1 | ) | (8.2 | )% | (5.5 | )% | |||||||||||||||||||||||
Utilities | 4.5 | 6.9 | 2.1 | 0.5 | 8.2 | 3.8 | 0.6 | 8.1 | 1.7 | 0.1 | (0.4 | )% | 2.1 | % | ||||||||||||||||||||||||||||
Construction | 0.8 | 4.1 | 2.5 | (4.8 | ) | 2.0 | 3.5 | (1.6) | 2.7 | 2.4 | 2.0 | (0.9 | )% | 0.6 | % | |||||||||||||||||||||||||||
Manufacturing | 8.5 | 4.6 | 4.1 | 1.1 | 3.9 | 2.8 | 0.5 | 4.0 | 2.7 | 1.5 | 2.8 | % | 1.7 | % | ||||||||||||||||||||||||||||
Tertiary activities: | ||||||||||||||||||||||||||||||||||||||||||
Tertiary Activities: | ||||||||||||||||||||||||||||||||||||||||||
Wholesale and retail trade | 11.9 | 9.7 | 4.8 | 2.2 | 3.1 | 4.8 | 1.7 | 3.8 | 4.4 | 2.8 | 3.4 | % | 3.1 | % | ||||||||||||||||||||||||||||
Transportation and warehousing | 7.7 | 4.0 | 4.1 | 2.4 | 3.4 | 4.0 | 2.5 | 3.5 | 4.3 | 3.1 | 4.2 | % | 3.1 | % | ||||||||||||||||||||||||||||
Mass media information | 1.0 | 4.4 | 16.3 | 5.0 | 0.2 | 9.3 | ||||||||||||||||||||||||||||||||||||
Information | 4.3 | 4.5 | 716.9 | 19.1 | 8.5 | % | 6.0 | % | ||||||||||||||||||||||||||||||||||
Finance and insurance | 21.0 | 7.1 | 7.7 | 10.4 | (0.9 | ) | 1.7 | 16.0 | 8.6 | 14.8 | 12.2 | 5.8 | % | 6.3 | % | |||||||||||||||||||||||||||
Real estate, rental and leasing | 2.8 | 2.9 | 2.5 | 1.0 | 2.0 | 2.2 | 0.9 | 1.8 | 2.5 | 2.0 | 1.6 | % | 1.9 | % | ||||||||||||||||||||||||||||
Professional, scientific and technical services | (0.1 | ) | 5.1 | 1.1 | 1.2 | 1.7 | 3.4 | (1.2) | 1.7 | 4.2 | 7.5 | 0.4 | % | 1.3 | % | |||||||||||||||||||||||||||
Management of companies and enterprises | 5.3 | 3.5 | 8.6 | (1.8 | ) | 7.2 | 0.1 | (1.7) | 7.2 | 4.3 | (0.2 | ) | 1.5 | % | (0.4 | )% | ||||||||||||||||||||||||||
Administrative support, waste management and remediation services | 0.7 | 6.0 | 4.4 | 4.3 | (0.2 | ) | 0.4 | 4.4 | (0.3) | (1.3) | 4.3 | 5.9 | % | 5.1 | % | |||||||||||||||||||||||||||
Education services | 0.2 | 1.6 | 2.2 | 0.8 | 0.1 | 0.5 | 0.5 | 0.5 | (0.1) | 1.0 | 1.2 | % | 0.2 | % | ||||||||||||||||||||||||||||
Health care and social assistance | (0.1 | ) | 2.1 | 2.1 | 0.6 | (0.6 | ) | 0.9 | 1.1 | (0.3) | (1.8) | 2.7 | 1.3 | % | 2.5 | % | ||||||||||||||||||||||||||
Arts, entertainment and recreation | 4.1 | (0.7 | ) | 2.9 | 3.4 | (1.5 | ) | 5.3 | 7.0 | (4.2) | 4.1 | 4.5 | 2.0 | % | 0.2 | % | ||||||||||||||||||||||||||
Accommodation and food services | 1.9 | 1.5 | 5.4 | 1.8 | 2.9 | 7.1 | 1.1 | 2.7 | 7.5 | 3.2 | 4.1 | % | 1.0 | % | ||||||||||||||||||||||||||||
Other services (except public administration) | 1.0 | 1.9 | 3.3 | 2.1 | 1.6 | 1.4 | 1.8 | 1.4 | 2.4 | 2.6 | (0.2 | )% | (1.1 | )% | ||||||||||||||||||||||||||||
Public administration | 2.4 | (1.4 | ) | 3.7 | (0.5 | ) | 2.9 | 0.7 | (1.4) | 2.0 | 2.4 | 0.3 | 0.2 | % | 1.8 | % | ||||||||||||||||||||||||||
| Note: |
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| (1) | Based on GDP calculated in constant |
| (2) | Preliminary figures. |
| (3) |
GDP figures relating to agricultural production set forth in this table and elsewhere herein are based on figures for “agricultural years,” with the definition of the relevant “agricultural year” varying from crop to crop based on the season during which it is grown. Calendar year figures are used for the other components of GDP. |
Source: INEGI.
According to preliminary figures, Mexico’s GDP increased by 2.6%2.0% in real terms during the third quarter of 2015,2018. This reflects slower growth as compared to the same periodan increase of 2014. This increase was2.1% in 2017, mainly due to growthlow industrial activity throughout the year and a negative trend in real termsinvestment. In particular, investment was affected by a drop in all sectors, except the mining sector which decreased by 5.6% in real terms. As with all quarterly GDP figures released by theInstituto Nacional de Estadística y Geografía (National Instituteconstruction and production of Statisticsmachinery, global economic slowdown and Geography, or INEGI), this GDP figure has been annualized by multiplying GDP for the third quarter by four. Quarterly real GDP data for the period presented is not necessarily indicativea greater level of performance for the full fiscal year.
Prices and Wages
Consumer inflation (as measureduncertainty regarding policies to be implemented by the change in the national consumer price index) for the nine months ended September 30, 2015 was 2.5% in annualized terms, 1.7 percentage points lower than during the same period of 2014. This was due mainly to an annualized decrease in the prices of professional services and air transportation.
On January 7, 2016, INEGI published its inflation report for December 2015 indicating an annual consumer inflation rate of 2.1% for 2015, almost 2 percentage points lower than the annual consumer inflation rate for 2014. Despite a depreciation of the peso/U.S. dollar exchange rate,administration. The decreases in the pricesindustrial activity and investment were partially offset by an increase in internal demand, which was boosted by increasing consumption of energy, commoditiesgoods and telecommunications services contributed to the favorable change in the rate of inflation.services.
Employment and Labor
According to preliminaryTasa de Desocupación Abierta (open unemployment rate) figures, Mexico’s unemployment rate was 4.6%3.4% as of September 30, 2015,December 31, 2018, a 0.60.3 percentage point decreaseincrease from the rate during the same period of 2014.
registered on December 31, 2017. As of September 30, 2015,December 31, 2018, the economically active population in Mexico older than fifteen years of age consisted of 53.2 million individuals, while the unemployed population in Mexico older than fifteen years of age consisted of 2.4was 56.0 million individuals. The table below sets forth
On December 20, 2018, President López Obrador, along with authorities of the total, as well asSecretaría del Trabajo y Previsión Social (Ministry of Labor) and the percentage,Comisión Nacional de los Salarios Mínimos (National Minimum Wage Commission), announced a new policy for determining the minimum wage. Under the new policy, Mexico will have two minimum wages: one rate applicable to municipalities located on the border with the United States, which were included in a newly created Northern Border Free Trade Zone, and a different rate applicable to the rest of unemployed individualsMexico.
Along with the new policy, the National Minimum Wage Commission announced the following new minimum wages, which have been in Mexico based on age and gender as of September 30, 2015:
Unemployed Population by Age and Gender
| Total | % | Men | % | Women | % | |||||||||||||||||||
Total | 2,445,263 | 100 | % | 1,468,202 | 60.0 | % | 977,061 | 40.0 | % | |||||||||||||||
15-24 years | 880,451 | 36.0 | % | 492,500 | 33.5 | % | 387,951 | 39.7 | % | |||||||||||||||
25-44 years | 1,130,412 | 46.2 | % | 659,345 | 44.9 | % | 471,067 | 48.2 | % | |||||||||||||||
45-64 years | 400,772 | 16.4 | % | 287,126 | 19.6 | % | 113,646 | 11.6 | % | |||||||||||||||
65+ years | 33,266 | 1.4 | % | 28,996 | 2.0 | % | 4,270 | 0.4 | % | |||||||||||||||
Unspecified | 362 | 0.0 | % | 235 | 0.0 | % | 127 | 0.0 | % | |||||||||||||||
Source: INEGI
Aseffect since January 1, 2019: Ps. 176.72 per day for municipalities in the past, unemployment continuesNorthern Border Free Trade Zone, a 100% increase from the minimum wage of Ps. 88.36 per day in effect prior to be particularly widespread in rural areas, where, according to INEGI’s 2010 housingJanuary 1, 2019, and population census, approximately 22.2% of the population resides. The following table sets forth preliminary figuresPs. 102.68 per day for the unemployment rate andrest of Mexico, a 16.2% increase from the total population in Mexico by state as of September 30, 2015:prior minimum wage.
| Unemployment Rate % | Population | |||||
Aguascalientes | 4.2 | 1,287,660 | ||||
Baja California | 3.6 | 3,484,150 | ||||
Baja California Sur | 4.2 | 763,929 | ||||
Campeche | 3.0 | 907,878 | ||||
Coahuila | 4.3 | 2,960,681 | ||||
Colima | 4.2 | 723,455 | ||||
Chiapas | 3.2 | 5,252,808 | ||||
Chihuahua | 3.3 | 3,710,129 | ||||
Distrito Federal | 5.2 | 8,854,600 | ||||
Durango | 3.9 | 1,764,726 | ||||
Guanajuato | 4.3 | 5,817,614 | ||||
Guerrero | 2.1 | 3,568,139 | ||||
Hidalgo | 3.1 | 2,878,369 | ||||
Jalisco | 4.3 | 7,931,267 | ||||
México | 5.7 | 16,870,388 | ||||
Michoacán | 3.1 | 4,596,499 | ||||
Morelos | 3.2 | 1,920,350 | ||||
Nayarit | 4.6 | 1,223,797 | ||||
Nuevo León | 3.8 | 5,085,848 | ||||
Oaxaca | 2.7 | 4,012,295 | ||||
Puebla | 3.0 | 6,193,836 | ||||
Querétaro | 4.6 | 2,004,472 | ||||
Quintana Roo | 3.7 | 1,574,824 | ||||
San Luis Potosí | 2.6 | 2,753,478 | ||||
Sinaloa | 4.3 | 2,984,571 | ||||
Sonora | 4.7 | 2,932,821 | ||||
Tabasco | 7.6 | 2,383,900 | ||||
Tamaulipas | 4.1 | 3,543,366 | ||||
Tlaxcala | 4.9 | 1,278,308 | ||||
Veracruz | 4.1 | 8,046,828 | ||||
Yucatán | 2.6 | 2,118,762 | ||||
Zacatecas | 3.6 | 1,576,068 | ||||
Source: INEGI and Consejo Nacional de Poblacion (National Population Council) |
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The services sector employs the largest percentage of Mexico’s economically active population. The following table sets forth preliminary figures for the percentage of Mexico’s economically active population by sector of the Mexican economy as of December 31, 2015:
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Interest Rates
During 2015, interest rates on 28-dayCetes (Mexico’s Federal Treasury Certificates) averaged 3.0%, as compared to 3.0% during 2014. Interest rates on 91-dayCetes averaged 3.1%, as compared to 3.1% during 2014.
On February 11, 2016, the 28-dayCetes rate was 3.2% and the 91-dayCetes rate was 3.4%.
Principal Sectors of the Economy
Manufacturing
The following table sets forth the change in industrial manufacturing output by sector for the periods indicated.
Industrial Manufacturing Output Differential by Sector
(% change against prior years)(1)
| 2010 | 2011(2) | 2012(2) | 2013(2) | 2014(2) | First nine months of 2014(2) | First nine months of 2015(2)(3) | ||||||||||||||||||||||||||||||||||||||||||||||
| 2013 | 2014 | 2015(2) | 2016(2) | 2017(2) | 2018(2) | |||||||||||||||||||||||||||||||||||||||||||||||
Food | 1.7 | % | 2.2 | % | 2.6 | % | 1.0 | % | 0.5 | % | 0.7 | % | 1.7 | % | 0.9% | 0.2% | 2.2% | 2.7% | 1.8% | 1.8% | ||||||||||||||||||||||||||||||||
Beverage and tobacco products | 0.6 | 4.6 | 2.6 | (0.5 | ) | 4.7 | 4.6 | 4.8 | 0.7 | 3.3 | 5.3 | 7.6 | 1.9 | 5.6 | ||||||||||||||||||||||||||||||||||||||
Textile mills | 10.9 | (4.4 | ) | 3.1 | (2.7 | ) | (3.1 | ) | (3.6 | ) | 2.0 | (2.4) | (1.9) | 5.0 | (0.7) | (0.8) | 2.0 | |||||||||||||||||||||||||||||||||||
Textile product mills | 2.5 | (2.9 | ) | (0.1 | ) | 3.5 | 6.3 | 3.0 | 11.6 | 0.4 | 5.9 | 6.9 | 3.9 | (10.8) | 6.6 | |||||||||||||||||||||||||||||||||||||
Apparel | 4.6 | 0.2 | (0.5 | ) | 3.3 | (3.0 | ) | (1.3 | ) | 5.7 | 3.5 | (0.2) | 4.1 | (1.7) | 0.5 | 0.8 | ||||||||||||||||||||||||||||||||||||
Leather and allied products | 7.7 | (0.7 | ) | 3.5 | (0.6 | ) | (1.7 | ) | (2.1 | ) | 2.0 | (0.8) | (0.7) | 1.9 | (0.7) | �� | (1.3) | (1.9) | ||||||||||||||||||||||||||||||||||
Wood products | 5.5 | 5.1 | 13.0 | (2.2 | ) | 1.1 | (0.2 | ) | 4.3 | (2.5) | 1.4 | 3.8 | (4.7) | 4.8 | (2.1) | |||||||||||||||||||||||||||||||||||||
Paper | 3.7 | (0.8 | ) | 4.8 | 2.1 | 3.1 | 2.5 | 3.8 | 2.3 | 2.7 | 3.5 | 3.5 | 2.1 | 1.2 | ||||||||||||||||||||||||||||||||||||||
Printing and related support activities | 10.0 | 4.2 | (4.1 | ) | (6.9 | ) | (2.2 | ) | (4.5 | ) | 0.6 | (7.8) | (0.2) | 2.0 | 0.4 | (1.7) | 7.4 | |||||||||||||||||||||||||||||||||||
Petroleum and coal products | (7.2 | ) | (3.6 | ) | 1.1 | 3.3 | (4.4 | ) | (3.0 | ) | (9.5 | ) | 4.1 | (4.8) | (7.1) | (13.1) | (18.4) | (16.9) | ||||||||||||||||||||||||||||||||||
Chemicals | (0.4 | ) | (0.1 | ) | (0.3 | ) | 0.8 | (0.8 | ) | (1.3 | ) | (1.1 | ) | 1.2 | (1.3) | (3.6) | (2.8) | (1.7) | (0.5) | |||||||||||||||||||||||||||||||||
Plastics and rubber products | 13.5 | 6.7 | 9.0 | (1.9 | ) | 5.3 | 4.9 | 4.6 | (5.4) | 2.5 | 5.8 | (0.9) | 3.4 | 1.3 | ||||||||||||||||||||||||||||||||||||||
Nonmetallic mineral products | 4.7 | 3.7 | 2.3 | (3.1 | ) | 2.0 | 0.8 | 5.4 | (2.5) | 2.8 | 6.6 | 2.3 | 2.4 | 0.8 | ||||||||||||||||||||||||||||||||||||||
Primary metals | 12.4 | 4.3 | 3.8 | 0.4 | 8.8 | 9.6 | (2.5 | ) | (0.1) | 8.1 | (5.6) | 1.9 | 1.5 | (1.8) | ||||||||||||||||||||||||||||||||||||||
Fabricated metal products | 8.8 | 7.0 | 3.9 | (3.3 | ) | 6.0 | 4.6 | 6.2 | (9.2) | 5.4 | 3.4 | 0.8 | 0.7 | 1.3 | ||||||||||||||||||||||||||||||||||||||
Machinery | 47.2 | 13.3 | 5.5 | 1.0 | (0.6 | ) | 0.2 | (0.6 | ) | (11.9) | 9.0 | 0.9 | 1.6 | 8.3 | 1.4 | |||||||||||||||||||||||||||||||||||||
Computers and electronic products | 3.7 | 6.7 | 0.5 | 3.8 | 10.6 | 9.0 | 7.7 | 5.1 | 12.7 | 7.5 | 6.1 | 6.8 | 3.7 | |||||||||||||||||||||||||||||||||||||||
Electrical equipment, appliances and components | 10.1 | (1.1 | ) | 1.7 | (2.0 | ) | 8.5 | 6.7 | 6.9 | (1.9) | 6.8 | 5.8 | 4.5 | 1.0 | 1.9 | |||||||||||||||||||||||||||||||||||||
Transportation equipment | 42.2 | 16.6 | 13.9 | 5.6 | 12.1 | 11.6 | 7.7 | 5.9 | 9.6 | 6.8 | 1.2 | 8.3 | 3.8 | |||||||||||||||||||||||||||||||||||||||
Furniture and related products | 7.1 | 1.2 | 2.8 | (6.0 | ) | (1.8 | ) | (5.0 | ) | 13.0 | (5.8) | (3.4) | 7.2 | (3.4) | (4.2) | 6.5 | ||||||||||||||||||||||||||||||||||||
Miscellaneous | 1.9 | 5.1 | 0.4 | 0.0 | 6.4 | 6.7 | 4.6 | 0.3 | 3.2 | 3.3 | 3.9 | 6.1 | (2.9) | |||||||||||||||||||||||||||||||||||||||
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Total expansion/contraction | 8.5 | 4.6 | 4.1 | 1.1 | 3.9 | 3.7 | 3.1 | 0.5 | 4.0 | 2.7 | 1.5 | 2.8 | 1.7 | |||||||||||||||||||||||||||||||||||||||
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(1) Percent change against prior years. Percent change reflects differential in constant 2013 pesos.
(2) Preliminary figures.
Source: INEGI.
According to preliminary figures, the manufacturing sector expanded by 0.6% in real terms during the first nine months of 2015 as compared to 2014. This expansion was primarily due to a 10.5% increase in real terms in the furniture and related products sectors, as well as a 9.1% increase in real terms in the textile product sectors. However, some other manufacturing sectors contracted in real terms, such as the petroleum and coal products sector and the primary metals sector (which decreased 12.0% and 5.0% respectively, in real terms). In total, eight manufacturing sectors contracted during the first nine months of 2015, while thirteen sectors grew in the first nine months of 2015, as compared to the same period in 2014.
Tourism
Tourism increased during the first seven months of 2015. As compared to the first seven months of 2014, the tourism sector experienced both increases and decreases in the following areas:
Financial System
2015 Monetary ProgramPolicy, Inflation and Interest Rates
Consistent with Mexico’sBanco de México’s M1 monetary program for 2014, the principal objective of Mexico’s 2015 monetary program is to achieve an inflation rate at or below the permanent target of 3.0% (+/-1.0%), which is intended to stabilize the purchasing power of the Mexican peso.
Mexico’s monetary program for 2015 is comprised of the following features:
Money Supply and Financial Savings
At December 31, 2015, the monetary base totaled Ps. 1,241.7 billion, a 16.8% nominal increase from the level of Ps. 1,062.9 billion at December 31, 2014, due to a 17.2% nominal increase in the amountaggregate consists of bills and coins held by the public, and a 9.8% nominal increase in checking account deposits. This increase was caused, in part, by fiscal reforms and the temporary effects of local campaigns and elections.
The M1 money supply of Mexico is the sum of bills and coins held by the public, plus: (1) checking accounts denominated in local currency and foreign currency, pluscurrency; (2) interest-bearing deposits denominated in pesos and operated by debit cards, pluscards; and (3) savings and loan deposits. AtM2 consists of M1,plus: (1) bank deposits; (2) Mexican Government-issued securities; (3) securities issued by firms andnon-bank financial intermediaries; and (4) Mexican Government and INFONAVIT liabilities related to the Retirement Savings System. M3 consists of M2,plus financial assets issued in Mexico and held bynon-residents. M4 consists of M3,plus deposits abroad at foreign branches and agencies of Mexican banks.
The following table shows Mexico’s M1 and M4 money supply aggregates at each of the dates indicated. The data in this table was calculated in accordance with the methodology for calculating money supply aggregates adopted on January 31, 2018 to reflect the Monetary and Financial Statistics Manual and Compilation Guide published by the International Monetary Fund (IMF) in 2016 and applied to all historical figures from December 31, 2015, Mexico’s M1 money supply2000.
| Money Supply | ||||||||||||||||||||||||
| December 31, | ||||||||||||||||||||||||
| 2013 | 2014 | 2015 | 2016 | 2017 | 2018(1) | |||||||||||||||||||
| (in millions of nominal pesos) | ||||||||||||||||||||||||
M1: | ||||||||||||||||||||||||
Bills and coins | Ps. 792,928 | Ps. | 928,052 | Ps. | 1,087,271 | Ps. 1,261,697 | Ps. 1,372,884 | Ps. 1,494,949 | ||||||||||||||||
Checking deposits | ||||||||||||||||||||||||
In domestic currency | 1,080,978 | 1,168,417 | 1,299,508 | 1,472,683 | 1,630,929 | 1,746,611 | ||||||||||||||||||
In foreign currency | 189,020 | 232,467 | 333,094 | 469,185 | 537,826 | 506,151 | ||||||||||||||||||
Interest-bearing peso | 438,012 | 534,973 | 614,312 | 647,414 | 702,744 | 739,278 | ||||||||||||||||||
Savings and loan deposits | 11,097 | 12,598 | 14,560 | 17,332 | 19,635 | 23,797 | ||||||||||||||||||
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Total M1 | Ps. 2,511,369 | Ps. | 2,876,506 | Ps. | 3,348,743 | Ps. 3,868,311 | Ps. 4,264,018 | Ps. 4,510,786 | ||||||||||||||||
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M4 | Ps. 8,648,389 | Ps. | 9,630,957 | Ps. | 10,127,696 | Ps.10,818,147 | Ps.11,705,849 | Ps. 12,285,498 | ||||||||||||||||
Note: Numbers may not total due to rounding.
(1) Preliminary figures.
Source: Banco de México.
Consumer inflation for 2018 was 18.6% greater in real terms4.8%, which was aboveBanco de México’s 3.0% (+/- 1.0%) target inflation for the year and 2.0 percentage points lower than the level at December 31, 2014. The amount6.8% consumer inflation for 2017. This was mainly a combined result of bills and coins held by the public was 19.4% greater in real terms than at December 31, 2014. In addition, the aggregate amount of checking account deposits denominated in pesos was 11.9% greater in real terms than at the same date in 2014.
At December 31, 2015, financial savings—defined as the difference between the monetary aggregate M4policy actions implemented byBanco de México, which helped anchormid- and billslong-term expectations, as well as lower annual growth rates in energy prices, such as LP gas, gasoline and coins held byelectricity rates.
The following table shows, in percentage terms, the public—were 7.0% greaterchanges in real terms than financial savingsprice indices and annual increases in the minimum wage for the periods indicated.
Changes in Price Indices
| National Producer Price Index(1)(3)(4)(5) | National Consumer Price Index(1)(2) | Increase in Minimum Wage(6) | ||||
2013 | 1.6 | 4.0 | 3.9 | |||
2014 | 3.3 | 4.1 | 3.9 | |||
2015 | 2.8 | 2.1 | 6.9 | |||
2016 | 8.5 | 3.4 | 4.2 | |||
2017 | 6.8 | 4.7 | 10.4 | |||
2018 | 4.8 | 6.4 | – | |||
2019 | – | |||||
January | 4.4 | 5.0 | – | |||
February | 3.9 | 4.5 | – |
(1) For annual figures, changes in price indices are calculated each December.
(2) For 2013, 2014, 2015, 2016 and 2017 National Consumer Price Index takes the second half of December 2010 as a base date. For 2018 and 2019 National Consumer Price Index uses the second half of July 2018 as a base date.
(3) National Producer Price Index figures represent the changes in the prices for basic merchandise and services (excluding oil prices). The index is based on a methodology implemented
in June 2012.
(4) 2018 and 2019 figures are preliminary
(5) National Producer Price Index takes June 2012 as a base date.
(6) Increase in Minimum Wage numbers for 2019 and 2019 not available.
Sources: INEGI; Ministry of Labor.
During 2018, interest rates on28-dayCetes averaged 7.6%, as compared to 6.7% in 2017. Interest rates on91-dayCetes averaged 7.8%, as compared to 6.9% in 2017.
For March 28, 2019, the28-dayCetes rate was 7.9% and the91-dayCetes rate was 8.1%.
Exchange Controls and Foreign Exchange Rates
On March 28, 2019, the peso/dollar exchange rate closed at December 31, 2014. Savings generated by Mexican residents increased by 10.0% and savings generated by non-residents increased by 1.3%, bothPs. 19.3793 = U.S.$1.00, a 1.6% appreciation in realdollar terms as compared to the same period of 2014.rate on December 31, 2018. The peso/dollar exchange rate published byBanco de México on March 26, 2019 (which took effect on the second business day thereafter) was Ps. 19.3500 = U.S.$1.00.
The Securities Markets
The BMVBolsa Mexicana de Valores (Mexican Stock Exchange, or BMV) is the onlylargest authorized stock exchange involved in the listing and trading of equity and debt securities in Mexico. Upon the consummation of the initial public offering of its shares on June 18, 2008, theThe BMV was transformed from asociedad anónima de capital variable (private company) tois asociedad anónima bursátil de capital variable (public company). In connection with the initial public offering of shares, certain of the former stockholders of the BMV (banks and brokerage houses) created a control trust into which they deposited more than 50% of the issued and outstanding shares of the BMV, for purposes of voting such shares in the future as a single block.
Both debt and equity securities are listed and traded on the BMV, including stocks and bonds of private sector corporations, equity certificates or shares issued by banks, commercial paper, bankers’ acceptances, certificates of deposit, Mexican Government debt and special hedging instruments linked to the dollar. Currently, institutional investors are the most active participants in the BMV, although retail investors also play a role in the market. instruments.
The Mexican equity market is one of Latin America’s largest in terms of market capitalization, but it remains relatively small and illiquid compared to major world markets.
On August 29, 2017, as part of its program to develop the Mexican securities market, the Ministry of Finance and Public Credit published a concession for a new stock exchange. The newBolsa Institutional de Valores (Institutional Stock Exchange, or BIVA) began operations on July 26, 2018.
The BMV publishes theÍndice de Precios y Cotizaciones (Stock Market Index, or IPC) based on a group of the 35thirty-five most actively traded shares.
At February 11, 2016,On March 28, 2019, the IPC stood at 42,359.342,942 points, representing a 1.44% decrease3.1% increase from the level at December 31, 2015.2018.
Banking SupervisionForeign Trade and Support
At December 31, 2015, the total loan portfolioBalance of the banking system was 15.9% greater in real terms than the total loan portfolio at December 31, 2014.
According to preliminary figures, at December 31, 2015, the total amount of past-due commercial bank loans (excluding those banks undergoing government intervention and those in special situations) was Ps. 85.4 billion, as compared to Ps. 91.3 billion at December 31, 2014. Moreover, the past-due loan ratio of commercial banks was 2.3%, as compared to a ratio of 2.8% at December 31, 2014. The amount of loan loss reserves held by commercial banks at December 31, 2015 totaled Ps. 114.4 billion, as compared to Ps. 115.6 billion at December 31, 2014. As a result, commercial banks had reserves covering 134.0% of their past-due loans, well exceeding the minimum reserve level of 10.5%.
External Sector of the EconomyPayments
Foreign Trade
According to preliminary figures, during 2015, Mexico registered a trade deficitThe following table provides information about the value of U.S. $14.5 billion, as compared to a trade deficit of U.S. $2.8 billion during 2014. This was caused mainly by a reduction in oilMexico’s merchandise exports and oil products exports. In particular, exports increased or decreased as follows, each as compared to 2014:imports (excluding tourism) for the periods indicated.
Exports and Imports
According to preliminary figures, during 2015, total imports decreased by 1.2%, to U.S. $395.2 billion, as compared to U.S. $400.0 billion during 2014. In particular, imports increased or decreased as follows, each as compared to 2014:
| 2013 | 2014 | 2015 | 2016 | 2017 | 2018(1) | |||||||||||||||||||
| (in millions of U.S. dollars, except average price of the Mexican crude oil mix) | ||||||||||||||||||||||||
Merchandise exports (f.o.b.) | ||||||||||||||||||||||||
Oil and oil products | U.S.$ | 49,481 | U.S.$ | 42,369 | U.S.$ | 23,100 | U.S.$ | 18,825 | U.S.$ | 23,701 | U.S.$ | 30,572 | ||||||||||||
Crude oil | 42,712 | 35,638 | 18,451 | 15,582 | 20,023 | 26,483 | ||||||||||||||||||
Other | 6,770 | 6,731 | 4,648 | 3,243 | 3,678 | 4,089 | ||||||||||||||||||
Non-oil products | 330,534 | 354,542 | 357,450 | 355,122 | 385,700 | 420,000 | ||||||||||||||||||
Agricultural | 11,246 | 12,181 | 12,971 | 14,672 | 15,828 | 16,255 | ||||||||||||||||||
Mining | 4,714 | 5,064 | 4,505 | 4,368 | 5,427 | 6,232 | ||||||||||||||||||
Manufactured goods(2) | 314,573 | 337,297 | 339,975 | 336,081 | 364,445 | 397,514 | ||||||||||||||||||
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Total merchandise exports | 380,015 | 396,912 | 380,550 | 373,947 | 409,401 | 450,572 | ||||||||||||||||||
Merchandise imports (f.o.b.) | ||||||||||||||||||||||||
Consumer goods | 57,329 | 58,299 | 56,279 | 51,950 | 57,333 | 63,111 | ||||||||||||||||||
Intermediate goods(2) | 284,823 | 302,031 | 297,713 | 295.395 | 322,022 | 355,280 | ||||||||||||||||||
Capital goods | 39,057 | 39,647 | 41,240 | 39,719 | 41,014 | 45,885 | ||||||||||||||||||
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Total merchandise imports | 381,210 | 399,977 | 395,232 | 387,064 | 420,369 | 464,277 | ||||||||||||||||||
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Trade balance | U.S.$ | (1,195 | ) | U.S.$ | (3,066 | ) | U.S.$ | (14,683 | ) | U.S.$ | (13,118 | ) | U.S.$ | (10,968 | ) | U.S.$ | (13,704 | ) | ||||||
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Average price of | U.S.$ | 98.44 | U.S.$ | 85.48 | U.S.$ | 43.12 | U.S.$ | 35.65 | U.S.$ | 46.79 | U.S.$ | 61.34 | ||||||||||||
Note: Numbers may not total due to rounding. (1) Preliminary figures. (2) Includes thein-bond industry. (3) In U.S. dollars per barrel. Source: Banco de México / PEMEX. |
Balance of Payments and International PaymentsReserves
According to preliminary figures, during the first nine months of 2015,In 2018, Mexico’s current account registered a deficit of 2.2%1.8% of GDP, or U.S. $24.7 billion,$22.2 million, a slight increase from the current account deficit in 2017 of 1.7% of GDP, or U.S.$19.4 million. The increase in the current account deficit, as compared to 2017, was principally due to increases in the deficits of the petroleum commercial balance and the primary income account. These increases were partially offset by a deficitgreater surplus of U.S. $18.9 billion for the same period of 2014,secondary income account, which was mainly due tothe result of record high remittances as well as a reductiongreater surplus balance of thenon-petroleum commercial
balance. In particular, in merchandise exports. The capitalthe current account registered a surplusdeficit in the fourth quarter of U.S. $32.5 billion during2018 was higher than the first nine months of 2015, as compared to a surplus of U.S. $38.3 billiondeficit during the same period of 2014. Foreign investment2017 in the context of a weakening of the global economy and increased trade tensions at a global scale.
The Mexican Government gradually removed price controls on gasoline and diesel over the course of 2017 to liberalize domestic fuel prices so that they are determined according to market forces. Domestic fuel prices may vary without regard to any specific range determined by the Mexican Government. On December 27, 2016, the Ministry of Finance and Public Credit announced an increase, effective January 1, 2017, in the maximum gasoline and diesel prices to be applied in certain regions of Mexico, totaled U.S. $28.7 billion duringwhich caused an increase of gasoline prices of up to 20% in those areas. The removal of price controls and the first nine monthsresulting price increases led to protests across Mexico. Mexico cannot predict the effect of 2015changes in gasoline and was composeddiesel prices and any related political and social unrest on the Mexican economy or whether the Mexican Government may alter its strategy for price liberalization in the future. The December 27, 2016 announcement by the Ministry of direct foreign investment inflows totaling U.S. $21.6 billionFinance and net foreign portfolio investment inflows (including securities placed abroad) totaling U.S. $7.1 billion.Public Credit further provided that the maximum fuel prices applicable to each region of the country would be determined daily as of February 18, 2017.
At March 20, 2015,The following table sets forthBanco de México’s international reserves and net international assets totaled U.S. $197.9 billion, an increaseat the end of U.S. $2.6 billion as compared to international reserves at December 31, 2014. At March 20, 2015,each period indicated.
International Reserves and Net International Assets(3)
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Year | End-of-Period International Reserves(1)(2) | End-of-Period Net International Assets | ||||||
| (in millions of U.S. dollars) | ||||||||
2013 | U.S.$ | 176,579 | U.S.$ | 178,686 | ||||
2014 | 193,045 | 196,288 | ||||||
2015 | 176,735 | 177,629 | ||||||
2016 | 176,542 | 178,057 | ||||||
2017 | 172,802 | 175,479 | ||||||
2018(4) | 174,609 | 176,096 | ||||||
2019(4) | ||||||||
January | 175,156 | 179,970 | ||||||
February | 175,694 | 180,589 | ||||||
| (1) | Includes gold, Special Drawing Rights (international reserve assets created by the IMF) and foreign exchange holdings. |
| (2) | “International reserves” are equivalent to: (a) gross international reserves, minus (b) international liabilities ofBanco de México with maturities of less than six months. |
| (3) | “Net international assets” are defined as: (a) gross international reserves, plus (b) assets with maturities greater than six months derived from credit agreements with central banks, less (x) liabilities outstanding to the IMF and (y) liabilities with maturities of less than six months derived from credit agreements with central banks. |
| (4) | Preliminary figures. |
Source: Banco de México’s net international reserves totaled U.S. $195.5 billion, an increase of U.S. $2.9 billion from the amount at December 31, 2014.
On November 7, 2014,Banco de México’s Foreign Exchange Commission submitted a request to the International Monetary Fund (IMF) for an advanced renewal and amendment of Mexico’s Flexible Credit Line (FCL) with the IMF. This request would extend the term of the credit line another two years. On November 26, 2014, the IMF granted this request. As of November 23, 2015, the amount available under Mexico’s credit line with the IMF was approximately U.S. $65.1 billion. As of the date of this report, no amounts have been disbursed under this credit line.
Exchange Controls and Foreign Exchange Ratesxico.
On February 11, 2016, the peso/U.S. dollar exchange rate closed at Ps. 18.7818 = U.S. $1.00, a 9.2% depreciation in dollar terms as compared to the rate on December 31, 2015. The peso/U.S. dollar exchange rate announced byBanco de México on February 11, 2016 (which took effect on the second business day thereafter) was Ps. 19.1754 = U.S. $1.00.
Public Finance
Fiscal Policy
ThePrograma Nacional de Financiamiento del Desarrollo 2013-2018 (National Program to Finance Development 2013-2018, or PRONAFIDE), which was announcedapproved on December 16, 2013, establishes the Mexican Government’s fiscal policy goals. These goals include securing sufficient fiscal resources to strengthen social infrastructure and productivity. To this end, PRONAFIDE has outlined several specific objectives, including the following specific objectives:
20152018 UMS Budget and Fiscal Results
On September 9, 2014,8, 2017, the President of Mexico submitted the proposed 2015 Revenue Law and the proposed 2015 Expenditure Budget to Congress for its approval. The 2015 Revenue Law and the 2015 Expenditure Budget were approved on October 30, 2014 and November 13, 2014, and were published in the Official Gazette of the Federation on November 13, 2014 and December 3, 2014, respectively. We refer to these two bills together as Mexico’s 2015 budget (the 2015 UMS Budget).
In nominal pesos and according to preliminary figures, the public sector balance registered a deficit of Ps. 637.6 billion (including physical investment expenditures by PEMEX) during 2015. This deficit was Ps. 543.1 billion during 2014. The public sector balance registered a deficit of Ps. 490.8 billion (excluding physical investment expenditures by PEMEX), as compared to a Ps. 410.4 billion deficit registered for the same period of 2014.
In nominal pesos and according to preliminary figures, including physical investment expenditures by PEMEX, the total primary balance registered a deficit of Ps. 217.6 billion during 2015, 13.4% lower in nominal terms than during 2014.
According to preliminary figures, during 2015, public sector budgetary revenues amounted to Ps. 4,264.6 billion in nominal pesos, 4.8% greater in real terms as compared to 2014. During 2015, revenues have increased or decreased as follows, each in real terms and as compared to 2014:
According to preliminary figures, during 2015, net public sector budgetary expenditures increased by 5.8% in real terms as compared to 2014. Net public sector budgetary programmable expenditures (excluding physical investment by PEMEX) increased by 7.0% in real terms as compared to 2014. During 2015, the financial cost of public sector debt increased by 15.4% in real terms as compared to 2014.
The following indicates the remaining amounts in various stabilization funds as of December 31, 2015:
2016 UMS Budget
On September 8, 2015, the President of Mexico submitted the proposedLey de Ingresos de la Federación para el Ejercicio Fiscal de 2016 (FederalFederal Revenue Law for 2016, or the 2016 Revenue Law)2018 and the proposedPresupuesto de Egresos de la Federación para el Ejercicio Fiscal de 20162018 (Federal Expenditure Budget for 2016,2018, or the 20162018 Expenditure Budget) to theMexican Congressfor its approval. The 2016Federal Revenue Law for 2018 was approved by the Chamber of Deputies on October 19, 2017 and by the Senate on October 29, 2015, and27, 2017. The Federal Revenue Law for 2018 was published in the 2016Official Gazette of the Federation on November 15, 2017. The 2018 Expenditure Budget was approved by the Chamber of Deputies on November 13, 2015. They were9, 2017 and was published in the Official Gazette of the Federation on November 18, 2015, and November 27, 2015, respectively.29, 2017. We refer to these two bills together as Mexico’s 20162018 budget (the 20162018 UMS Budget).
If certain conditions are met,
The following table illustrates the Federal Law for Budget and Fiscal Accountability authorizes the executive branch, acting through the Ministrycomposition of Finance and Public Credit, to approve additional expenditures above those adopted by the 2016 Expenditure Budget. Those expenditures could be approved if the budgetary balance is not negatively affected and if they would not increase a budgetary deficit.
A new provision of the Federal Law of Budget and Fiscal Accountability (article 19 Bis, which became effective on January 1, 2016), sets forth the obligation of the Mexican Government to useBanco de México’s operational surplus as follows: i) not less than 70% to pre-pay previously assumed public debt or to reduce the current year’s financing needs and ii) the remainder to strengthen the Budget Income Stabilization Fund, or to acquire assets to improve the Mexican Government’s financial position.
The 2016 UMS Budget provides for a public sector budget deficit excluding physical investments by PEMEX of 0.5% of GDP. Including PEMEX’s physical investment program, the 2016 UMS Budget provides for a public sector budget deficit of 3.0% of GDP. The 2016 UMS Budget contemplates public sector budgetary revenues totaling Ps. 4,763.9 billion, a 1.6% decrease in real terms as compared to public sector budgetary revenues estimated for Mexico’s 2015 budget (the 2015 UMS Budget). The 2016 UMS Budget estimates are based on an assumed weighted average Mexican crude oil export price of U.S. $50.00 per barrel2017 and an estimated volume of oil exports of 1.1 million barrels per day. Oil revenues are estimated at Ps. 884.4 billion in nominal pesos, a 28.3% decrease in real terms as compared to the estimated amount for the 2015 UMS Budget. In addition, approved non-oil revenues are Ps. 3,270.2 billion, a 12.2% increase as compared to the estimated amount for the 2015 UMS Budget. Finally, projected non-oil tax revenues also increased by 18.7% in real terms as compared to the amount approved for the 2015 UMS Budget.
The 2016 Expenditure Budget provides for a total of Ps. 4,285.6 billion in expenditures (excluding estimated physical investment expenditures by PEMEX totaling Ps. 478.2 billion), a 14.2% decrease in real terms as compared to the amount approved in thePresupuesto de Egresos de la Federación para el Ejercicio Fiscal de 2015(Federal Expenditure Budget for 2015, or the 2015 Expenditure Budget). Estimated budget expenditures include the following:2018.
| Actual | ||||||||||||||||
| 2017 | 2018 (1) | 2018 Budget (2) | 2019 Budget (2) | |||||||||||||
| (in billions of pesos)(3) | ||||||||||||||||
Budgetary revenues | Ps. 4,947.6 | Ps. 5,113.1 | Ps. 4,778.3 | Ps. 5,298.2 | ||||||||||||
Mexican Government | 3,838.1 | 3,871.6 | 3,584.9 | 3,952.4 | ||||||||||||
Taxes | 2,849.5 | 3,062.3 | 2,957.5 | 3,311.4 | ||||||||||||
Income tax | 1,573.8 | 1,664.6 | 1,566.2 | 1,752.5 | ||||||||||||
Value-added tax | 816.0 | 922.2 | 876.9 | 995.2 | ||||||||||||
Excise taxes | 367.8 | 347.4 | 421.8 | 437.9 | ||||||||||||
Import duties | 52.3 | 65.5 | 47.3 | 70.3 | ||||||||||||
Tax on the exploration and exploitation of hydrocarbons | 4.3 | 5.5 | 4.7 | 4.5 | ||||||||||||
Export duties | 0.0 | 0.0 | 0.0 | 0.0 | ||||||||||||
Other | 35.2 | 57.1 | 40.5 | 51.0 | ||||||||||||
Non-tax revenue | 988.5 | 809.3 | 627.4 | 641.0 | ||||||||||||
Fees and tolls | 61.3 | 64.3 | 46.4 | 46.3 | ||||||||||||
Transfers from the Mexican Petroleum Fund for Stabilization and Development | 442.9 | 541.7 | 456.8 | 520.7 | ||||||||||||
Contributions | 7.8 | 9.8 | 6.4 | 6.8 | ||||||||||||
Fines and surcharges | 476.5 | 193.4 | 117.8 | 67.2 | ||||||||||||
Other | 0.1 | 0.1 | 0.0 | 0.0 | ||||||||||||
Public enterprises and agencies | 1,109.5 | 1,241.5 | 1,193.4 | 1,345.8 | ||||||||||||
PEMEX | 389.8 | 436.8 | 423.3 | 524.3 | ||||||||||||
Others | 719.7 | 804.6 | 770.0 | 821.5 | ||||||||||||
Note: Numbers may not total budgetary programmable expenditures) on health and social security;
due to rounding.
The 2016 UMS Budget authorizes the Mexican Government to incur net domestic debt in the amount of Ps. 535.0 billion in nominal pesos, or 2.8% of GDP. The 2016 UMS Budget also authorizes the Mexican Government to incur an additional U.S. $6.0 billion in external indebtedness, which includes financing from international financial organizations.
The table below sets forth the budgetary results for 2014, as well as the first nine months of 2015. It also sets forth the assumptions and targets underlying Mexico’s 2015 UMS Budget and 2016 UMS Budget.
2014 and First Nine Months of 2015 Results; 2015 UMS Budget and 2016 UMS Budget Assumptions and Targets
| 2014 Results(1) | First nine months of 2014 Results(1) | 2015 Budget(2) | First nine months of 2015 Results(1) | 2016 Budget(5) | ||||||||||||||||
Real GDP growth (%) | 2.3 | % | 2.1 | % | 3.7 | % | 2.5 | % | 3.1 | %(6) | ||||||||||
Increase in the national consumer price index (%) | 4.1 | % | 2.2 | % | 3.0 | % | 0.6 | % | 3.0 | % | ||||||||||
Average export price of Mexican oil mix (U.S. $/barrel) | $ | 86.00 | $ | 93.21 | $ | 82.00 | (3) | $ | 46.37 | $ | 50.00 | |||||||||
Average exchange rate (Ps./$1.00) | 13.3 | 13.1 | 13.0 | 15.6 | 16.4 | |||||||||||||||
Average rate on 28-dayCetes (%) | 3.0 | % | 3.0 | % | 3.5 | % | 3.0 | % | 4.5 | % | ||||||||||
Public sector balance as % of GDP(4) | (3.8 | )% | (3.0 | )% | (3.5 | )% | (3.1 | )% | n.a. | |||||||||||
Primary balance as % of GDP(4) | (1.3 | )% | (1.4 | )% | (1.3 | )% | (1.3 | )% | (0.6 | )% | ||||||||||
Current account deficit as % of GDP | (2.4 | )% | (1.8 | )% | (2.0 | )% | (2.8 | )% | (2.6 | )% | ||||||||||
| (1) | Preliminary figures. |
| (2) | Figures for the 2018 UMS Budget, |
| (3) | ||
Current pesos. |
Source: Ministry of Finance and Public Credit.
2019 UMS Budget
On December 15, 2018, the Ministry of Finance and Public Credit submitted the proposed Federal Revenue Law for 2019 and the proposedPresupuesto de Egresos de la Federación para el Ejercicio Fiscal 2019 (Federal Expenditure Budget for 2019, or the 2019 Expenditure Budget) to the Mexican Congress for its approval. The Federal Revenue Law for 2019 was approved by the Senate on December 20, 2018. The 2019 Expenditure Budget was approved by the Chamber of Deputies on December 23, 2018. They were published in the Official Gazette of the Federation on December 28, 2018. We refer to these two bills together as Mexico’s 2019 budget (the 2019 UMS Budget).
Public Debt
Mexico’s external public debt goals for 2015 was intended to provide the Mexican Government with flexibility to finance its stated needs, while also accounting for market volatility and unforeseen developments. The policy also sought to maintain costs and risks at stable levels. Going forward, Mexico’s public debt policy will continue the practice of relying on local markets as the main source of funding for the Mexican Government, which will be supplemented by external financing from the U.S., Europe and Japan. Mexico’s principal objectives in connection with its external financing include:
Internal Public Debt
The Mexican Government’s “net internal debt” includes only the internal portion of indebtedness incurred directly by the Mexican GovernmentBanco de México’s general account balance and the assets of theFondo del Sistema de Ahorro Para el Retiro(Retirement Savings System Fund). In addition, “net internal debt” is comprised ofCetesand other securities sold to the public in auctions for new issuances (primary auctions), but does not include any debt allocated toBanco de Méxicofor its use inRegulación Monetaria (regulating the money supply). It also does not include debt by theInstituto para la Protección al Ahorro Bancario(Bank (Bank Savings Protection Institute, or IPAB) or the debt of budget-controlled or administratively-controlled agencies.
Over the last two decades, the Mexican Government has actively sought to increase its average debt maturity date. Accordingly, the Mexican Government has issued new debt instruments bearing longer maturities than those previously issued.maturities. In doing so, the Mexican Government hopes to mitigate any risk associated with the refinancing of its internal public debt. This practice has had the effect of establishing a long-dated benchmark yield curve (the line that plots interest rates across different contract lengths for bonds having equal credit quality).curve. These issuances have also encouraged long-term investments in the following areas: (1) fixed-rate contracts; (2) peso-denominated securities byof Mexican companies; (3) Mexican financial hedging products; and (4) the use of long-term savings in financing long-term investment projects.projects financed by long-term savings.
According to preliminary figures, at December 31, 2015, the Mexican Government’s net internal debt totaled Ps. 4,814.1 billion, an 11.3% increase in nominal terms as compared to Ps. 4,324.1 billion outstanding at December 31, 2014. This debt figure includes the Ps. 153.8billion liability associated with social security under the ISSSTE Law, as described under “The Economy—Employment and Labor” in Mexico’s 2014 Form 18-K. The net internal debt of the public sector, on the other hand, totaled Ps. 5,379.9 billion according to preliminary figures, a 12.0% increase in nominal terms as compared to the Ps. 4,804.3 billion outstanding at December 31, 2014.
According to preliminary figures, at December 31, 2015, the Mexican Government’s gross internal debt totaled Ps. 5,074.0billion, an 11.6 % increase in nominal terms as compared to Ps. 4,546.6 billion outstanding at December 31, 2014. Of the total gross internal debt of the Mexican Government at December 31, 2015, Ps. 490.6 billion represented short-term debt, as compared to Ps. 520.8 billion at the end of 2014, and Ps. 4,583.4 billion represented long-term debt, as compared to Ps. 4,025.8 billion at the end of 2014. The gross internal debt of the public sector, on the other hand, totaled Ps. 5,639.5 billion at December 31, 2015 according to preliminary figures, an 11.7% increase in nominal terms as compared to Ps. 5,049.5 billion outstanding at December 31, 2014. For purposes of this “Public Debt” section, public sector debt consists of the long-term indebtedness incurred directly by the Mexican Government, the long-term indebtedness incurred by budget-controlled agencies, the long-term indebtedness incurred directly or guaranteed by administratively controlled agencies (including, but not limited to, national development banks) and the short-term debt of the public sector. It does not include private sector debt guaranteed by the Mexican Government, unless and until the Mexican Government is called upon to make payment
under its guaranty. Also for purposes of this “Public Debt” section, long-term debt is defined as all debt with maturities of one year or more from the date of issue, while short-term debt is defined as all debt with maturities of less than one year from the date of issue.
According to preliminary figures, at December 31, 2015, the Mexican Government’s financing costs on its internal debt totaled Ps. 262.4 billion, representing an 6.9% nominal increase as compared to its financing costs of Ps. 245.4 billion, during the same period of 2014.
As of December 31, 2015, the average maturity of the Mexican Government’s internal debt remained at 8 years.
The following table summarizes the gross and net internal debt of the Mexican Government at each of the dates indicated.
Gross and Net Internal Debt of the Mexican Government(1)
| At December 31, | At December 31, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2010 | 2011 | 2012 | 2013 | 2014 | 2015(2) | 2013 | 2014 | 2015 | 2016 | 2017 | 2018(2) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (in billions of pesos, except percentages) | (in billions of pesos, except percentages) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Gross Debt | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Government Securities | Ps. | 2,553.9 | 88.4 | % | Ps. | 2,882.8 | 90.2 | % | Ps. | 3,257.8 | 91.1 | % | Ps. | 3,734.1 | 91.9 | % | Ps. | 4,223.3 | 92.9 | % | Ps. | 4,701.2 | 92.7 | % | Ps. 3,734.1 | 91.9% | Ps. 4,223.3 | 92.9% | Ps. 4,701.2 | 92.7% | Ps. 4,915.3 | 87.5% | Ps. 5,326.0 | 90% | Ps. 5,837.0 | 90.8% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cetes | 394.0 | 13.6 | 456.6 | 14.3 | 531.3 | 14.9 | 635.6 | 15.6 | 678.7 | 14.9 | 655.8 | 12.9 | 635.6 | 15.6 | 678.7 | 14.9 | 655.8 | 12.9 | 634.7 | 11.3 | 701.6 | 11.9 | 734.5 | 11.4 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Floating Rate Bonds | 183.1 | 6.3 | 202.5 | 6.3 | 200.4 | 5.6 | 216.6 | 5.3 | 232.6 | 5.1 | 296.5 | 5.8 | 216.6 | 5.3 | 232.6 | 5.1 | 296.5 | 5.8 | 397.9 | 7.1 | 471.3 | 8.0 | 548.2 | 8.5 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Inflation-Linked Bonds | 530.1 | 18.4 | 642.1 | 20.1 | 747.2 | 20.9 | 888.7 | 21.9 | 1,011.1 | 22.2 | 1,196.6 | 23.6 | 888.7 | 21.9 | 1,011.1 | 22.2 | 1,196.6 | 23.6 | 1,223.5 | 21.8 | 1,397.7 | 23.6 | 1,656.0 | 25.8 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fixed Rate Bonds | 1,446.8 | 50.1 | 1,581.6 | 49.5 | 1,777.9 | 49.7 | 1,989.6 | 49.0 | 2,295.8 | 50.5 | 2,546.2 | 50.2 | 1,989.6 | 49.0 | 2,295.8 | 50.5 | 2,546.2 | 50.2 | 2,652.1 | 47.2 | 2,747.9 | 46.4 | 2,890.3 | 45.0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
STRIPS of Udibonos | — | — | — | — | 1.0 | 0.0 | 3.6 | 0.1 | 5.1 | 0.1 | 6.1 | 0.1 | 3.6 | 0.1 | 5.1 | 0.1 | 6.1 | 0.1 | 7.2 | 0.1 | 7.6 | 0.1 | 7.9 | 0.1 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other(3) | 334.4 | 11.6 | 314.9 | 9.8 | 317.6 | 8.9 | 329.1 | 8.1 | 323.3 | 7.1 | 372.8 | 7.3 | 329.1 | 8.1 | 323.3 | 7.1 | 372.8 | 7.3 | 705.0 | 12.5 | 594.1 | 10.0 | 592.4 | 9.2 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Total Gross Debt | Ps. | 2,888.3 | 100.0 | % | Ps. | 3,197.7 | 100.0 | % | Ps. | 3,575.3 | 100.0 | % | Ps. | 4,063.2 | 100.0 | % | Ps. | 4,546.6 | 100.0 | % | Ps. | 5,074.0 | 100.0 | % | Ps. 4,063.2 | 100.0 % | Ps. 4,546.6 | 100.0% | Ps. 5,074.0 | 100.0 % | 5,620.3 | 100.0 % | Ps. 5,920.2 | 100.0 % | Ps. 6,429.3 | 100.0 % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Net Debt | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Financial Assets(4) | (79.4 | ) | (85.6 | ) | (74.2 | ) | (169.3 | ) | (222.5 | ) | (259.9 | ) | (169.3) | (222.5) | (259.9) | (224.0) | 205.9 | 225.7 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Total Net Debt | Ps. | 2,808.9 | Ps. | 3,112.1 | Ps. | 3,501.1 | Ps. | 3,893.9 | Ps. | 4,324.1 | Ps. | 4,814.1 | Ps. 3,893.9 | Ps. 4,324.1 | Ps. 4,814.1 | Ps. 5,396.3 | Ps. 5,714.3 | Ps. 6,203.6 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Gross Internal Debt/GDP | 20.6 | % | 20.5 | % | 22.1 | % | 24.2 | % | 25.4 | % | 26.9 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Internal Debt/GDP | 20.1 | % | 19.9 | % | 21.6 | % | 23.2 | % | 24.1 | % | 25.5 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Gross Internal Debt/GDP(5) | 25.0% | 26.0% | 27.4% | 28.0% | 27.0% | 27.3% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Internal Debt/GDP(5) | 23.9% | 24.7% | 26.0% | 26.8% | 26.1% | 26.3% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Note: Numbers may not total due to rounding.
| (1) | Internal debt figures do not include securities sold byBanco de México in open-market operations to manage liquidity levels pursuant toRegulación Monetaria |
| (2) | Preliminary figures. |
| (3) | Includes |
| (4) | Includes the net balance (denominated in pesos) of the Federal Treasury’s General Account inBanco de México. |
| (5) | Percentage of GDP for 2017 is calculated using the annual average of GDP calculated in constant pesos with purchasing power as of December 31, 2013. Percentage of GDP for 2018 is calculated using the estimated annual GDP for 2018 published in December 2018 by the Ministry of Finance and Public Credit in the 2019 General Economic PolicyPre-Guidelines. |
Source: Ministry of Finance and Public Credit
External Public Debt
“ExternalMexico’s external public debt goals are intended to provide the Mexican Government with flexibility to finance its stated needs, while also accounting for market volatility and unforeseen developments. The policy also seeks to maintain costs and risks at stable levels. Mexico primarily seeks debt financing through local markets, supplemented by external financing from the U.S., Europe and Japan. Mexico’s principal objectives in connection with its external financing include improving the terms and conditions of Mexico’s external liabilities, as well as strengthening and diversifying Mexico’s investor base, with specific consideration to Mexico’s continued presence in the most influential international markets. Objectives also include strengthening Mexico’s benchmark bonds and maintaining a constant relationship with international investors in order to ensure transparency and to promote investment in Mexico. “External public sector debt” consists of the external portion of the long-term indebtedness incurred directly by the Mexican Government, the external long-term indebtedness incurred by budget-controlled agencies the external long-term indebtedness incurred directly byand productive state-owned companies, the external long-term indebtedness incurred directly or guaranteed by administratively-controlled agencies (including, but not limited to, national development banks) and the short-term external debt of the public sector. PrivateExternal public sector debt guaranteed by the Mexican Government is not included, unless and until the Mexican Government is called upon to make payment under the applicable guaranty. “External public debt” does not include, among other things, repurchase obligations ofBanco de México with the IMF.IMF (none of which was outstanding as of December 31, 2018).
According to preliminary figures, atas of December 31, 2015,2018, outstanding gross public sector external debt totaled U.S. $162.2$202.4 billion, an approximate U.S. $14.5 million$8.4 billion increase from the U.S. $147.7$194.0 billion outstanding at the end of 2014.on December 31, 2017. Of this amount, U.S. $159.1billion$198.2 billion represented long-term debt and U.S. $3.2$4.2 billion represented short-term debt. Overall, total public debt (grossNet external debt plus net internal public sector debt) represented approximately 43.2% of nominal GDP, an increase of 4.6 percentage points from the end of 2014.indebtedness also increased by U.S.$9.0 billion during 2018.
The following tables set forth a summary of Mexico’s external public debt, including a breakdown of such debt by currency, net external public sector debt, the Mexican Government’s gross external debt, the Mexican Government’s net external debt and the Mexican Government’s net debt.
Summary of External Public Debt
By Type(1)
By Type
| Long-Term Direct Debt of the Mexican Government | Long-Term Debt of Budget- Controlled Agencies | Other Long- Term Public Debt(2) | Total Long- Term Debt | Total Short- Term Debt | Total Long- and Short-Term Debt | |||||||||||||||||||
| (in millions of U.S. dollars) | ||||||||||||||||||||||||
At December 31, | ||||||||||||||||||||||||
2010 | U.S.$ | 56,168 | U.S.$ | 45,536 | U.S.$ | 6,385 | U.S.$ | 108,089 | U.S.$ | 2,339 | U.S.$ | 110,428 | ||||||||||||
2011 | 60,590 | 47,436 | 5,625 | 113,651 | 2,769 | 116,420 | ||||||||||||||||||
2012 | 66,912 | 50,063 | 5,626 | 122,601 | 3,125 | 125,726 | ||||||||||||||||||
2013 | 71,817 | 53,358 | 5,734 | 130,909 | 3,527 | 134,436 | ||||||||||||||||||
2014 | 78,379 | 58,863 | 5,627 | 142,869 | 4,797 | 147,666 | ||||||||||||||||||
2015(3) | 82,493 | 69,621 | 6,943 | 159,057 | 3,152 | 162,209 | ||||||||||||||||||
| Long-Term Direct Debt of the Mexican Government | Long-Term Debt of Budget- Controlled Agencies | Other Long-Term Public Debt(2) | Total Long-Term Debt | Total Short- Term Debt | Total Long-and Short- Term Debt | |||||||||||||||||||
| (in billions of U.S. dollars) | ||||||||||||||||||||||||
At December 31, | ||||||||||||||||||||||||
2013 | U.S.$ | $71.8 | U.S.$ | 53.4 | U.S.$ | 5.7 | U.S.$ | 130.9 | U.S.$ | 3.5 | U.S.$ | 134.4 | ||||||||||||
2014 | 78.4 | 58.9 | 5.6 | 142.9 | 4.8 | 147.7 | ||||||||||||||||||
2015 | 82.5 | 69.6 | 6.9 | 159.1 | 3.2 | 162.2 | ||||||||||||||||||
2016 | 88.1 | 82.7 | 7.1 | 177.9 | 3.1 | 181.0 | ||||||||||||||||||
2017 | 91.1 | 91.8 | 7.9 | 190.7 | 3.3 | 194.0 | ||||||||||||||||||
2018(2) | 95.8 | 94.4 | 8.0 | 198.2 | 4.2 | 202.4 | ||||||||||||||||||
By Currency(4)(1)
| At December 31, | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2010 | 2011 | 2012 | 2013 | 2014 | 2015(3) | At December 31, | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (in millions of U.S. dollars, except for percentages) | 2013 | 2014 | 2015 | 2016 | 2017 | 2018(3) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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U.S. Dollars | U.S.$ | 90,882 | 82.3 | % | U.S.$ | 97,048 | 83.4 | % | U.S.$ | 105,836 | 84.2 | % | U.S.$ | 111,647 | 83.0 | % | U.S.$ | 121,927 | 82.6 | % | U.S.$ | 131,702 | 81.2 | % | U.S. $ | 111.6 | 83.0% | U.S. $ | 121.9 | 82.6% | U.S. $ | 131.7 | 81.2% | U.S. $ | 144.2 | 79.7% | U.S. $ | 148.7 | 76.7% | U.S. $ | 152.6 | 75.4% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Japanese Yen | 6,864 | 6.2 | 6,793 | 5.8 | 6,847 | 5.4 | 5,519 | 4.1 | 5,058 | 3.4 | 4,857 | 3.0 | 5.5 | 4.1 | 5.1 | 3.4 | 4.9 | 3.0 | 6.4 | 3.5 | 6.8 | 3.5 | 8.1 | 4.0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Swiss Francs | 953 | 0.9 | 910 | 0.8 | 961 | 0.8 | 969 | 0.7 | 401 | 0.3 | 1,011 | 0.6 | 1.0 | 0.7 | 0.4 | 0.3 | 1.0 | 0.6 | 1.3 | 0.7 | 1.4 | 0.7 | 1.5 | 0.7 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Pounds Sterling | 1,920 | 1.7 | 1,906 | 1.6 | 1,993 | 1.6 | 1,369 | 1.0 | 2,848 | 1.9 | 2,694 | 1.7 | 1.4 | 1.0 | 2.8 | 1.9 | 2.7 | 1.7 | 2.3 | 1.3 | 3.1 | 1.6 | 2.9 | 1.4 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Euro | 9,421 | 8.5 | 9,377 | 8.1 | 9,530 | 7.6 | 11,489 | 8.5 | 13,986 | 9.5 | 18,834 | 11.6 | 11.5 | 8.5 | 14.0 | 9.5 | 18.8 | 11.6 | 24.4 | 13.5 | 31.5 | 16.3 | 34.8 | 17.2 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Others | 389 | 0.4 | 385 | 0.3 | 558 | 0.4 | 3,443 | 2.6 | 3,445 | 2.3 | 3,113 | 1.9 | 3.4 | 2.6 | 3.4 | 2.3 | 3.1 | 1.9 | 2.4 | 1.3 | 2.5 | 1.3 | 2.5 | 1.2 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Total | U.S.$ | 110,428 | 100.0 | % | U.S.$ | 116,420 | 100.0 | % | U.S.$ | 125,726 | 100.0 | % | U.S.$ | 134,436 | 100.0 | % | U.S.$ | 147,666 | 100.0 | % | U.S.$ | 162,209 | 100.0 | % | U.S. $ | 134.4 | 100.0 | % | U.S. $ | 147.7 | 100.0 | % | U.S. $ | 162.2 | 100.0 | % | U.S. $ | 181.0 | 100.0 | % | U.S. $ | 194.0 | 100.0 | % | U.S. $ | 202.4 | 100.0 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
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Net External Debt of the Public Sector(1)
| At December 31, | ||||||||||||||||||||||||
| 2010 | 2011 | 2012 | 2013 | 2014 | 2015(3) | |||||||||||||||||||
| (in millions of U.S. dollars, except for percentages) | ||||||||||||||||||||||||
Total Net Debt | U.S.$ | 104,679.1 | U.S.$ | 113,631.6 | U.S.$ | 121,659.0 | U.S.$ | 130,949.7 | U.S.$ | 145,617.4 | U.S.$ | 161,609.5 | ||||||||||||
Gross External Debt/GDP | 9.8 | % | 10.4 | % | 10.1 | % | 10.5 | % | 12.1 | % | 14.8 | % | ||||||||||||
Net External Debt/GDP | 9.2 | % | 10.12 | % | 9.8 | % | 10.2 | % | 12.0 | % | 14.7 | % | ||||||||||||
| At December 31, | ||||||||||||||||||||||||
| 2013 | 2014 | 2015 | 2016 | 2017 | 2018(2) | |||||||||||||||||||
| (in billions of U.S. dollars, except for percentages) | ||||||||||||||||||||||||
Total Net Debt | U.S.$ | 130.9 | U.S.$ | 145.6 | U.S.$ | 161.6 | U.S.$ | 177.7 | U.S.$ | 192.3 | U.S.$ | 201.3 | ||||||||||||
Gross External Debt/GDP(4) | 10.8% | 12.4% | 15.1% | 18.7% | 17.5% | 16.9% | ||||||||||||||||||
Net External Debt/GDP(4) | 10.5% | 12.3% | 15.0% | 18.3% | 17.3% | 16.8% | ||||||||||||||||||
Gross External Debt of the Mexican Government(1)
| At December 31, | ||||||||||||||||||||||||||||||||||||||||||||||||
| 2010 | 2011 | 2012 | 2013 | 2014 | 2015(3) | |||||||||||||||||||||||||||||||||||||||||||
| (in millions of U.S. dollars, except for percentages) | ||||||||||||||||||||||||||||||||||||||||||||||||
U.S. dollars | U.S.$ | 47,869 | 83.7 | % | U.S.$ | 51,704 | 84.3 | % | U.S.$ | 57,465 | 85.2 | % | U.S.$ | 62,285 | 86.3 | % | U.S.$ | 65,127 | 82.9 | % | U.S.$ | 66,298 | 80.3 | % | ||||||||||||||||||||||||
Japanese yen | 3,756 | 6.6 | 3,933 | 6.4 | 4,433 | 6.6 | 3,643 | 5.0 | 3,686 | 4.7 | 3,672 | 4.4 | ||||||||||||||||||||||||||||||||||||
Swiss francs | 269 | 0.5 | 267 | 0.4 | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Pounds sterling | 746 | 1.3 | 741 | 1.2 | 774 | 1.1 | 789 | 1.1 | 2,302 | 2.9 | 2,177 | 2.6 | ||||||||||||||||||||||||||||||||||||
Euros | 4,537 | 7.9 | 4,694 | 7.7 | 4,771 | 7.1 | 5,447 | 7.6 | 7,437 | 9.5 | 10,422 | 12.6 | ||||||||||||||||||||||||||||||||||||
Others | 9 | 0.0 | 14 | 0.0 | 18 | 0.0 | 16 | 0.0 | 20 | 0.0 | 19 | 0.0 | ||||||||||||||||||||||||||||||||||||
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Total | U.S.$ | 57,187 | 100.0 | % | U.S.$ | 61,352 | 100.0 | % | U.S.$ | 67,461 | 100.0 | % | U.S.$ | 72,180 | 100.0 | % | U.S.$ | 78,573 | 100.0 | % | U.S.$ | 82,588 | 100.0 | % | ||||||||||||||||||||||||
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| At December 31, | ||||||||||||||||||||||||||||||||||||||||||||||||
| 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | |||||||||||||||||||||||||||||||||||||||||||
| (in billions of U.S. dollars, except for percentages) | ||||||||||||||||||||||||||||||||||||||||||||||||
U.S. Dollars | U.S.$ | 62.3 | 86.3 | % | U.S.$ | 65.1 | 82.9 | % | U.S.$ | 66.3 | 80.3 | % | U.S.$ | 67.5 | 76.6 | % | U.S.$ | 68.0 | 74.7 | % | U.S.$ | 70.8 | 73.9 | % | ||||||||||||||||||||||||
Japanese Yen | 3.6 | 5.0 | 3.7 | 4.7 | 3.7 | 4.4 | 4.5 | 5.1 | 4.7 | 5.1 | 5.9 | 6.1 | ||||||||||||||||||||||||||||||||||||
Swiss Francs | - | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
Pounds Sterling | 0.8 | 1.1 | 2.3 | 2.9 | 2.2 | 2.6 | 1.8 | 2.1 | 2.0 | 2.2 | 1.9 | 2.0 | ||||||||||||||||||||||||||||||||||||
Euros | 5.4 | 7.6 | 7.4 | 9.5 | 10.4 | 12.6 | 14.3 | 16.2 | 16.3 | 17.9 | 17.2 | 18.0 | ||||||||||||||||||||||||||||||||||||
Others | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.02 | 0.02 | 0.02 | 0.02 | ||||||||||||||||||||||||||||||||||||
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Total | U.S. $ | 72.2 | 100.0 | % | U.S. $ | 78.6 | 100.0 | % | U.S. $ | 82.6 | 100.0 | % | U.S. $ | 88.2 | 100.0 | % | U.S. $ | 91.1 | 100.0 | % | U.S. $ | 95.8 | 100.0 | % | ||||||||||||||||||||||||
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Net External Debt of the Mexican Government(1)
| At December 31, | ||||||||||||||||||||||||
| 2010 | 2011 | 2012 | 2013 | 2014 | 2015(3) | |||||||||||||||||||
| (in millions of U.S. dollars, except for percentages) | ||||||||||||||||||||||||
Total Net Debt | U.S.$ | 52,339.0 | U.S.$ | 59,642.5 | U.S.$ | 66,016.5 | U.S.$ | 69,910.4 | U.S.$ | 77,352.4 | U.S.$ | 82,320.3 | ||||||||||||
Gross External Debt/GDP | 5.1 | % | 5.5 | % | 5.4 | % | 5.6 | % | 6.4 | % | 7.5 | % | ||||||||||||
Net External Debt/GDP | 4.6 | % | 5.4 | % | 5.3 | % | 5.5 | % | 6.3 | % | 7.5 | % | ||||||||||||
| Net Debt of the Mexican Government | ||||||||||||||||||||||||
| At December 31, | ||||||||||||||||||||||||
| 2010 | 2011 | 2012 | 2013 | 2014 | 2015(3) | |||||||||||||||||||
External Debt | 18.7 | % | 21.1 | % | 19.7 | % | 19.0 | % | 20.8 | % | 22.7 | % | ||||||||||||
Internal Debt | 81.3 | % | 78.9 | % | 80.3 | % | 81.0 | % | 79.2 | % | 77.3 | % | ||||||||||||
| At December 31, | ||||||||||||||||||||||||
| 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | |||||||||||||||||||
| (in billions of U.S. dollars, except for percentages) | ||||||||||||||||||||||||
Total Net Debt | U.S.$ | 69.9 | U.S.$ | 77.4 | U.S.$ | 82.3 | U.S.$ | 86.7 | U.S.$ | 90.6 | U.S.$ | 95.7 | ||||||||||||
Gross External Debt/GDP(4) | 5.8% | 6.6% | 7.7% | 9.1% | 8.2% | 8.0% | ||||||||||||||||||
Net External Debt/GDP(4) | 5.6% | 6.5% | 7.6% | 8.9% | 8.2% | 8.0% | ||||||||||||||||||
Net Debt of the Mexican Government
| At December 31, | ||||||||||||||||||||||||
| 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | |||||||||||||||||||
External Debt(1) | 19.0% | 20.8% | 22.7% | 25.0% | 23.9% | 23.3% | ||||||||||||||||||
Internal Debt | 81.0% | 79.2% | 77.3% | 75.0% | 76.1% | 76.7% | ||||||||||||||||||
Note: Numbers may not total due to rounding.
| (1) | External debt denominated in foreign currencies other than U.S. dollars has been translated into dollars at exchange rates as of each of the dates indicated. External public debt does not include (a) repurchase obligations ofBanco de México with the IMF (none of which |
| (2) | Adjusted to reflect the effect of currency swaps. |
| (3) | Includes development banks’ debt and the debt of other administratively-controlled agencies whose finances are consolidated with those of the Mexican Government. |
| (4) | Percentage of GDP for 2017 is calculated using the |
Source: Ministry of Finance and Public Credit.
Recent Securities Offerings
Mexico offers additional debt securities from time to time, and in order to manage the composition of its outstanding liabilities, Mexico engages from time to time in a variety of transactions including tender offers, open market purchases and early redemptions.
On January 23, 2015,11, 2018, Mexico issued U.S. $1.0$2.6 billion of its 3.600%3.750% Global Notes due 20252028 and U.S. $3.0$0.6 billion of its 4.600% Global Notes due 2046. The transaction was part of2048. Concurrently, the Mexican Government conducted a tender offer pursuant to which Mexico offered to purchase for cash its outstanding notes of the series set forth in which holders of a certain series of Mexico’s outstanding U.S. dollar-denominated debt securities were allowedthe offer to tender those debt securities for cash. The notes were issued under Mexico’s U.S. $110 billion Medium-Term Notes Program.
On January 22, 2019, Mexico issued U.S. $2.0 billion of its 4.500% Global Notes due 2029.
On April 1, 2019, Mexico issued €1.5 billion of its 1.625% Global Notes due 2024 and €1.25 billion of its 3.000% Global Notes due 2045. The notes were issued under Mexico’s U.S. $110 billion Medium-Term Notes Program.
Legal and Political Reforms
HydrocarbonsAccess to Information and Government Transparency
On May 12, 2015,7, 2018, the NHC invited foreignSecretaría de la Función Pública (Ministry of Public Administration) announced that, as of June 30, 2018, it will make all information in the Declaranet system regarding thedeclaraciones patrimoniales (declarations of assets and national entities and productive state-owned companies to participate in a bid for contracts relatinginterests) of public servants available to the extractionpublic in open data, including historical data.
Since July 18, 2016, the Ministry of hydrocarbons in twenty-five onshore areas.Public Administration has been undergoing a process of institutional strengthening through implementation of theSistema Nacional Anticorrupción (National Anticorruption System) and thePlataforma Digital Nacional (National Digital Platform). The Ministry of Public Administration seeks to combat corruption by requiring that certain details of public officials’ personal finances be
made publicly available. On December 15, 2015,April 18, 2018, a report by the NHC awarded contractsSecretaría Ejecutiva del Sistema Nacional Anticorrupción (Executive Secretariat of the National Anticorruption System) provided logistical details for fourteen public institutions, including theInstituto Nacional de Estadística y Geografía (National Institute of Statistics and Geography, or INEGI), the Suprema Corte de Justicia de la Nación (Supreme Court) and theInstituto Federal de Telecomunicaciones (Federal Telecommunications Institute), on how to comply with this new regulatory framework.
Economic Development
On March 9, 2018, President Enrique Peña Nieto signed theLey para Regular las Instituciones de Tecnología Financiera, orLey FINTECH (FINTECH Law), which regulates the organization, operation, functioning and authorization of companies that offer alternative means of access to finance and investment, such as crowdfunding, the issuance and management of electronic payments and the exchange of virtual assets or cryptocurrency. The FINTECH Law also establishes new types of financial entities: the Crowdfunding and Electronic Payment Institutions. These entities undertake financing, investment, savings, payments or transfer activities through interfaces like electronic applications, the internet or any other means of electronic or digital communications and require an approval from the CNBV.
On May 21, 2018, INEGI and theAutoridad Federal para el Desarrollo de las Zonas Económicas Especiales (Federal Authority for the twenty-five onshore areas. On December 17, 2015, the NHC invited foreign and national entities and state-owned companies to participate inDevelopment of Special Economic Zones) signed a bid for contracts relating to the exploration and productiongeneral agreement of hydrocarbons in ten deep-water areas.
Education
In accordance with the educational objectives of theNational Development Plan, the first issuance of education infrastructure certificates (CIEN Program) took place in December 2015,collaboration in order to raise capital for improving infrastructure for education. Ps. 8.6 million were raised throughstrengthen the issuanceimplementation, operation and development of local bonds maturing in 2039. The program establishes a financing mechanism whereby states can receive funds from the Multiple Contribution Fund by making commitments to use such funds for specific infrastructure projects. The issuanceareas of influence of theZonas Económicas Especiales (Special Economic Zones). This agreement will facilitate training, research, dissemination and technical and technological support.
On November 6, 2018 theLey Federal de Remuneraciones de los Servidores Públicos(Federal Public Servants Salary Law) went into effect. This law was widely accepted among public investors,enacted with the participationpurpose of twenty-three institutions, including local pension fundsregulating the salaries, defined broadly, of federal public officials, which subject to certain limitations shall not exceed (i) the salary received by the President or (ii) the salary received by such public official’s hierarchical superior. On February 13, 2019, the Second Chamber of the Supreme Court ruled in favor of maintaining the suspension granted on December 7, 2018 against the Federal Public Servants Salary Law. As a result, this law remains suspended until a final determination is reached by the Supreme Court.
Judicial Review
In its first ever general declaration of unconstitutionality, on February 14, 2019 the Supreme Court struck down as excessive a provision of theLey Federal de Telecomunicaciones y Radiodifusión (Federal Telecommunications and insurance companies. This was the firstBroadcasting Law) that provided for a minimum fine of 1% of a seriesradio and television concessionaires’ and licensees’ taxable income for any violation of issuances expected to raise a totalthe regulatory framework not specifically provided for in the law.
In December 2018, federal legislators initiated actions challenging the constitutionality of Ps. 50.0 billion between 2015 andtheLey Orgánica de la Administración Pública Federal (Organic Law of the Federal Public Administration, or LOAPF) enacted on November 11, 2018.
UMS Budget
Reforms The LOAPF: (1) consolidates the Mexican Government’s procurement process, which was transferred to the Federal Lawdomain of Budget and Fiscal Accountability and the General Law of Public Debt, published in the Official Gazette of the Federation on August 11, 2014, established the possibility that the Mexican Government, acting through the Ministry of Finance and Public Credit could assumein an effort to prevent and reduce corruption; (2) creates a portionnewSecretaría de Seguridad y Protección Ciudadana (Ministry of PEMEX’s pension liabilities, subject to certain conditions. These conditions include: within a year afterSecurity and Citizen Protection) which will be directly responsible for, among others, public safety services; and (3) establishes federal delegates in each state of Mexico tasked with coordinating the decree comes into effect, PEMEX reaches an agreement to modifyfederal social and development programs among the collective bargaining agreement to which PEMEX and its subsidiaries are subject; modificationthree levels of government, among other things.
Anti-Money Laundering
On March 1, 2019 theReglamentoUnidad de Trabajo del Personal de Confianza de Petróleos Mexicanos y Organismos SubsidiariosInteligencia Financiera(Employment Regulation for White Collar Employees (Financial Intelligence Unit or FIU) of PEMEX and Subsidiary Entities); and the implementation of an austerity program. Such assumed liabilities would be equivalent to a corresponding reduction in liabilities achieved through reforms to PEMEX’s pension system. In December 2015, PEMEX notified the Ministry of Finance that such conditions were met. As published in the Official Gazette of the Federation on December 24, 2015, the Ministry of Finance and Public Credit issued Rulesand the mayor of Mexico City signed an agreement to exchange information to combat money laundering and the financing of terrorism. This agreement will allow for the Government’s assumptiongreater coordination to prevent and detect assistance of a portionany kind given to aid crime with resources of PEMEX’s pension liabilities. Those Rules called for an independent pension specialist to calculate the reduction in PEMEX’s liabilities. They also called for a temporary Ps. 50,000 million promissory note, which will be exchanged in 2016 for a series of promissory notes to be issued on the basis of the pension liability reduction that is ultimately verified by the independent pension specialist.illegal origin.
EnergyAnti-Corruption
On December 24, 2015,March 14, 2019 a new energy transition law was published in the Official Gazette of the Federation. The law aimsreform to combat climate change by promoting cleaner energy sources. The law establishes a program of clean energy certificatesArticles 22 and sets a goal that at least 35% of the country’s electricity supply must be generated from clean energy sources by 2024. Accordingly, the Law of Use of Renewable Energy and Financing of the Energy Transition and the Sustainable Use of Energy Law have been repealed.
Governmental Finances
Amendments to theLey General de Contabilidad Gubernamental (General Law on Governmental Accounting) and to the Federal Law of Budget and Fiscal Accountability were published in the Official Gazette of the Federation on December 30, 2015. These amendments require each state to create accounting councils in order to standardize public accounting throughout the different levels of government.
A newLey de Tesorería de la Federación (Treasury of the Federation Law) became effective on January 1, 2016. This law is designed to establish the rules for the collection and management of federal funds by the Treasury of the Federation and the making of payments therewith. The law also entrusts the Treasury of the Federation with supervising persons involved in activities relating to the management of federal funds and levying fines and other penalties.
Access to Information and Transparency Reform
On May 4, 2015, theLey General de Transparencia y Acceso a la Información Pública(Transparency and Access to Public Information Law) was published in the Official Gazette of the Federation. A wide range of entities are subject to this law, which establishes principles and proceedings to ensure the right to access information held by any authorities, entities, governmental agencies and bodies, autonomous public bodies, trusts and public funds, as well as particular unions that receive and manage public resources or act on behalf of the Federal Government, states and municipalities.
This law includes, among others, the following features:
On May 26, 2015, a decree amending articles 25, 73 79, 108, 116 and 117 of the Constitution was published in the Official Gazette of the Federation. The objectiveThis reform is intended, among other things, to extend the reach of the amendmentMexican Governmentextinción de dominio (seizures), which will now be permitted over assets related to a broader list of offenses now including acts of corruption, crimes committed by public officials, organized crime, kidnapping, extortion, human trafficking, crimes relating to hydrocarbons, among others, and for which there is to create a new legal frameworkno proof that controls the borrowing practices of the states and municipalities. Improved management of public resources and enhanced accountability at the local level are also among the primary objectives of the amendment. To this end, the amendment establishes rules that will lead to the efficient and responsible management of the borrowing practices employed by federal and local entities, with the ultimate goal of achieving sound, sustainable public finances among all three levels of government.they were obtained legally.
Item 4A. Unresolved Staff Comments
Not applicable.
Item 5. Operating and Financial Review and Prospects
General
We earn income from:from:
export sales, which consist of sales of crude oil and condensates, petroleum products and petrochemical products;
domestic sales, which consist of sales of natural gas, petroleum products (such as gasoline, diesel fuel and LPG) and petrochemical products; and
other sources, including financial and investment income and insurance revenues.revenue.
Our operating expenses include:
cost of sales, including the cost of purchases of imported petroleum and other products, depreciation and amortization, salaries, wages and benefits, a portion of the net cost of employee benefits for the period, the variation of inventories, maintenance, and exploration and unsuccessful drilling expenses;
transportation and distribution expenses (including a portion of the net cost of employee benefits for the period); and
administrative expenses (including a portion of the net cost of employee benefits for the period).
Our income is affected by a number of factors, including:
changes in international prices of crude oil, petroleum products and petrochemical products, which are denominated in U.S. dollars, and domestic prices of petroleum products, which are denominated in pesos;
the type and volume of crude oil produced and exported;
the type and volume of natural gas produced, processed and sold domestically and internationally;
the results of development and exploration activities;
the amount of taxes, duties and other payments that we are required to make to the Mexican Government;
fluctuations in thepeso-U.S. dollar exchange rate; and
Mexican and global economic conditions, including the levels of international interest rates.
Overview
2015 was another challenging year for us. Like the rest of the oil and gas industry,In 2018, we continued to be negatively impacted by theexperienced significant decline in crude oil prices that started in the second half of 2014. During 2015 crude oil prices decreased due to abundant crude oil supply, with global oil inventories reaching historic levelsoperational challenges as a result of increased production worldwidethe continued decline in our proved hydrocarbon reserves and lower than expected demand from important markets, such as China, Europeproduction. We focused on stabilizing our operations and our financial position. While we experienced significant operational challenges, we were favorably affected by improvedindustry-wide price conditions and the United States. Despite industry expectations that under the current price environment a realignment ofhigher peso to U.S. dollar exchange rate. However, prices remain significantly below 2014 levels and fluctuated greatly in 2018. The weighted average Mexican crude oil supplyexport price increased from U.S. $46.79 per barrel in 2017 to U.S. $61.34 per barrel in 2018 and demand will occur, we expect that such realignment will be gradual and believe that the current volatility and depressedour total crude oil prices could prevail for a longer than expected periodproduction in 2018 amounted to 1,822.5 thousand barrels per day, below our target of time.1,951.0 thousand barrels per day.
Going Concern
Our consolidated financial statements as of December 31, 20152018 and 20142017 have been prepared on a going concern basis, which assumes that we can meet our payment obligations. As we describe in Note 224-e to our consolidated financial statements, we have experienced recurring losses from our operations and have negative working capital and negative equity, which raisesthere exists substantial doubt regardingabout our ability to continue as a going concern. We discuss below, and inNote 224-e to theseour consolidated financial statements, the circumstances that have caused these negative trends as welland the concrete actions we are taking to improve our plans in regardresults, strengthen our ability to these matters.continue operating and achieve revenue maximization and efficiencies. We continue operating as a going concern, and our consolidated financial statements do not includecontain any adjustments that might result from the outcome of this uncertainty.
We have recognized continuous net losses during 2018, 2017 and 2016 of Ps. 180,419.8 million, Ps. 280,850.6 million and Ps. 191,144.3 million, respectively. In addition, we had a negative equity of Ps. 1,459,405.4 million and Ps. 1,502,352.8 million as of December 31, 2018 and 2017, respectively, mainly due to continuous net losses. We had a negative working capital of Ps. 54,666.3 million and Ps. 25,600.8 million, as of December 31, 2018 and 2017, respectively.
RedefinitionWe also have significant debt. This debt was incurred mainly to finance necessary operational investments. Due to our heavy fiscal burden resulting from the payment of Petróleos Mexicanoshydrocarbons extraction duties and other taxes that we are required to pay to the Mexican Government, in recent years the cash flow derived from our operations has not been sufficient to fund our operating and investment costs and other expenses. In turn, our indebtedness has increased significantly. Our working capital has also decreased in part as a State-Owned Productive Company within a Low Crude Oil Price Environment
Givenresult of the low crudedrop in oil prices that began at the end of 2014 and the subsequent ongoing oil price fluctuations.
In addition, at the beginning of 2019, certain rating agencies downgraded our resultscredit rating, which could have an impact on the cost and terms of operationsour new debt, as well as our contract renegotiations during 2019.
All these matters show the existence of substantial doubt about our ability to continue as a going concern.
New Business Plan and financial condition, particularly our liquidity, have been negatively impacted. Recent Initiatives
We are addressing this in two primary ways: (1) adjustingthe process of developing and refining our expenditures,newlong-term business plan. We are also, in collaboration with the Mexican Government, implementing initiatives intended to help us meet our working capital needs, to continue to service our debt as it comes due and (2) implementing a business strategy that redefines us as a state-owned productive companyto improve our capital expenditure programs. These initiatives incorporate strict internal cost-control measures designed to stabilize our debt. We are also coordinating closely and enables us to take advantage ofcontinuously with the opportunities made available to us by the recent energy reform in Mexico.
With respect to our expenditures, we have responded to the decline in crude oil prices with adjustments to our budget in February of last year and this year. This year, the Board of Directors of Petróleos Mexicanos approved a plan to reduce our budget by at least Ps. 100 billion, or 20.9%,Mexican Government in order to meet our financial balance goal for 2016, which we refer to as our 2016 Budget Adjustment Plan.secure additional external support measures. The 2016 Budget Adjustment Plan responds to the expected reduction in our revenues due to low crude oil prices and is an integral partfollowing sets forth a summary of the redefinition of Petróleos Mexicanos as a state-owned productive company in order to compete with other oil and gas companies. The 2016 Budget Adjustment Plan intends to accomplish four primary objectives:
Based on these objectives, the 2016 Budget Adjustment Plan reduces our operating expenses, is intended to increase our efficiency and defers and reassesses our capital expenditures, while minimizing, to the greatest extent possible, the impact on future crude oil and gas production. For more details regarding our liquidity condition, see “—Liquidity and Capital Resources” below in this Item 5 and for more details regarding the 2016 Budget Adjustments Plan, see “Item 4—Information on the Company—History and Development—Capital Expenditures and Investments—Capital Expenditures Budget.”
With respect to the opportunities made available to us by the recent landmark energy reform, we intend to enhance our financial flexibility by increasing committed liquidity sources and diversifying our sources of funding. Specifically, we are considering the following:initiatives:
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| o | Ps. 25.0 billion capital injection; |
| o | Ps. 34.9 billion in prepayment of promissory notes receivable to help pay our pension liabilities; |
| o | a reduction of our tax burden; and |
| o | expected additional revenues that |
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| • | Refinery Rehabilitation Plan: We intend to allocate additional resources for the maintenance of our six existing refineries, with the goal of improving efficiency. This improved efficiency, in turn, would help meet the national demand for refined products and maintain prices at competitive levels. We are |
| • | Improve Financial Position: We continue to take specific measures to improve our financial position, including the |
| o | Modified Financing Strategy: We intend to |
| o | Pension Reform: We continue to operate our defined contribution plan for employees hired since January 1, 2016, pursuant to which both we and |
Mexican Government Support
In addition to the 2016 Budget Adjustment Plan, the Ministry of Finance and Public Credit announced on April 13, 2016 the following two additional support mechanisms to provide us with a total capital injection of Ps. 73.5 billion, as described below.
| o | Crude Oil Hedge Program: We continue to carry out our crude oil hedge program in order to partially protect our cash flows from decreases in the price of Mexican crude oil. |
| • | New Budget: On July 13, 2018, the Board of Directors of Petróleos Mexicanos approved a proposal for the consolidated annual budget of Petróleos Mexicanos and the subsidiary entities for 2019, which was subsequently approved by the Mexican Congress on December 23, 2018 and published in the Official Gazette of the Federation on December 28, 2018. The consolidated annual budget of Petróleos Mexicanos and the subsidiary entities for 2019 approved by the Mexican Chamber of Deputies is Ps. 464.6 billion, an increase of approximately 18.5% as compared to the Ps. 391.9 billion consolidated annual budget for 2018. |
As a condition to receiving this additional support, we must reduce our liabilities with suppliers and contractors by the same amount—Ps. 73.5 billion in 2016.
Furthermore, the Mexican Government announced that it modified the fiscal regime applicable to us to enable us to deduct more of our exploration and production costs. Under the current low oil price environment, we estimate (based on a price of crude oil at U.S.$25.00 per barrel) that this will reduce the amount of taxes we will have to pay for the year ended December 31, 2016 by approximately Ps. 50.0 billion. If prices of crude oil increase, we would be able to take greater deductions. For more information see “Item 4—Information on the Company—Taxescircumstances that have caused these negative trends and Dutiesthe concrete actions we are taking to improve our results, strengthen our ability to continue operating and other Paymentsachieve revenue maximization and efficiencies, see Note24-e to the Mexican Government—Fiscal Regime for PEMEX.”
The foregoing support mechanisms, together with the Ps. 15 billion credit line provided to us in March 2016 by Mexican development banks—Banco Nacional de Obras y Servicios Públicos, S.N.C., Institución de Banca de Desarrollo;Nacional Financiera, S.N.C., Institución de Banca de Desarrollo; andBanco Nacional de Comercio Exterior, S.N.C., Institución de Banca de Desarrollo—will allow us to reduce our short term liabilities with suppliers and contractors.consolidated financial statements included herein.
Results of operations and financial condition in 20152018
The decline in crude oil prices had a direct effect on our results of operations and financial condition for the year ended December 31, 2015, and the continuation of prices at or around these levels or future declines in international crude oil and natural gas prices will have similar effects. For the year ended December 31, 2015,2018, we haddecreased our net loss by 35.8%, from a net loss of Ps. 712.6280.9 billion (U.S. $41.4$14.2 billion). in 2017 to a net loss of Ps. 180.4 billion (U.S. $9.2 billion) in 2018. This increasedecrease in net loss was primarily explained by: (1) due to:
a Ps. 455.3284.1 billion increase in impairment of fixed assets, which was mainly due to the decrease in future cash flows as a result of lower hydrocarbon prices; (2) a Ps. 420.4 billion decrease intotal sales, mainly due to an increase in the average price of crude oil and natural gas;
a Ps. 172.9 billion decrease in the Mexican crude oil export priceimpairment of wells, pipelines, properties, plant and domestic sales prices and decrease in our crude oil production; (3) equipment;
a Ps. 77.817.9 billion increase in foreign exchange loss; (4) a Ps. 39.9 billion decrease in other revenues, net; and (5)
a Ps. 16.21.2 billion increase in profit sharing in joint ventures, associates and other; and
a Ps. 0.5 billion increase in exchange gain, net.
These effects were partially offset by:
a Ps. 195.3 billion increase in cost of sales, mainly due to an increase in total sales;
a Ps. 128.6 billion increase in taxes and other duties;
a Ps. 35.3 billion increase in financing costs, net. This increase was partially offset by cost, net; and
a Ps. 414.616.8 billion decreaseincrease in taxesgeneral expenses.
For more information on our results of operations, see “—Results of Operations of Petróleos Mexicanos, the Subsidiary Entities and duties and a Ps. 184.3 billion decrease in the net periodic cost of employee benefits following modificationsSubsidiary Companies—For the Year Ended December 31, 2018 Compared to our pension regime.the Year Ended December 31, 2017” below.
In 2015,2018, our total equity decreased(deficit) improved by Ps. 564.043.0 billion from negative Ps. 767.71,502.4 billion as of December 31, 20142017 to negative Ps. 1,331.71,459.4 billion as of December 31, 2015.2018. For more information on the improvement of our total equity decrease,(deficit) see “—Liquidity and Capital Resources—Equity Structure and Mexican Government Contributions” below. This improvement was mainly due to a Ps. 222.5 billion increase in actuarial gains on employee benefits and a Ps. 1.3 billion accumulated income from the foreign currency translation effect, partially offset by our net loss for the year of Ps. 180.4 billion.
Our accounts receivable decreased 0.6% in 2018, from Ps. 168.1 billion as of December 31, 2017 to Ps. 167.1 billion as of December 31, 2018, mainly due to a decrease was primarilyin our accounts receivable from customers caused by a decrease in sales in the net loss described above and an increase in financial debt, andmonth of December 2018, which was partially offset by a reductionan increase in reserves for employee benefits and byour accounts receivable from sundry debtors (mainly IEPS tax) from larger gasoline imports at the Mexican Government’s assumptionend of a portionthe year. .
As of December 31, 2018, we owed our pension liabilities with asuppliers Ps. 50.0 billion promissory note issued to us, which we recognized as long-term account receivable and Mexican Government equity contribution. This assumption was a result of our successful renegotiation of our pension agreement with the Petroleum Workers’ Union in 2015 as part of our effort to modernize our pension regime and reduce our pension liabilities. The new agreement reduced our pension liabilities by approximately Ps. 196.0 billion. For more information regarding our pension agreements, see “Item 6—Directors, Senior Management and Employees—Employees” and “Item 4—History and Development—Recent Energy Reform—Pension Liabilities.”
The decline in crude oil prices has also negatively impacted our liquidity, and we are facing short-term financial difficulties. During 2015, our net funds from operating activities totaled Ps. 102.3149.8 billion as compared to net funds from operating activitiesPs. 140.0 billion as of Ps. 134.4 billion in 2014. Because of the decrease in net funds from operating activities, we were forced in 2015 to rely more heavily on our financing activities. Our net cash flows from financing activities totaled Ps. 134.9 billion in 2015, as compared to net cash flows of Ps. 117.1 billion used in financing activities in 2014. One of the most critical problems we continue to face is our accounts payable to suppliers.December 31, 2017. As of December 31, 2015,2018, we owed ourhave paid the total outstanding balance due to suppliers and contractors as of December 31, 2017 and, as of March 31, 2019, we have paid approximately Ps. 167.3 billion. However, we73.7% of the total outstanding balance due to suppliers and the Mexican Government have adjusted investment, taxation and financing plans to address this issue,contractors as described above.of December 31, 2018.
Operating Challenges
Notwithstanding our exploration and development efforts in shallow and deep waters thatIn 2018, we carried out in 2015 and the new techniques and strategies we applied to improve the timeline for the completion and drilling of new wells, during 2015experienced significant operating challenges. Our crude oil production totaled 1,822.5 thousand barrels per day, which, was below our crude oil production totaled 2,266.8target of 1,951.0 thousand barrels per day and represented a decrease of 161.9125.8 thousand barrels per day, or 6.7%6.5%, as compared to 2014.our 2017 production of 1,948.3 thousand barrels per day. This declinedecrease was primarily a result ofdue to the natural decline of somecertain of our mature fields and an increase in fractional water flow of wells at certain of our fields, particularly production atincluding the fields located in the Cantarell business unit.Xanab field. We describe the reasons for thisthe natural decline of our fields under “Item 4—Information on the Company—Business Overview—Exploration and Production—Crude Oil and Natural Gas Production.”
Despite the fact that the total For 2019, we have set a crude oil we processed in 2015 decreased by 7.8% to 1,064.5production target of 1,725.0 thousand barrels per day the ratioand a natural gas production target, excluding nitrogen, of heavy3,486.0 million cubic feet per day.
In 2018, we processed a total of 611.9 thousand barrels of crude oil per day, a 20.2% decrease as compared to total crude oil processed increased by 2.2 percentage points, which was2017, mainly as a result of operational challenges relating to the reliability of certain of our strategyrefineries. As a result, we used 37.6% of our primary distillation capacity in 2018, a 20.2% decrease as compared to maximize the utilization of high conversion and coking units and to improve the yields of intermediate distillates. Although we had a decrease in crude oil processing and our petroleum products output,2017. In 2018, our variable refining margin increaseddecreased by 75% due to an increase in the unit contribution margin of U.S. $1.59$ 4.47 per barrel to U.S. $0.96 per barrel, an 82.3% decrease as compared to 2017. This decrease was primarily as a result of a decrease in prices and weak refining margins in the increaseU.S. Gulf Coast region in industry marginsNovember and the improvementDecember 2018, which were caused by decreased demand for gasoline and heightened levels of certain operating variables, such as the effective use of intermediate streams, processing of a heavier crude oil mix and better yields in intermediate distillates.
Benefits from Energy Reform
Despite the negative results we obtained in 2015, we remain optimistic that we will gradually benefit from the energy reforms implemented in 2014. We continue to develop the reserves that were assigned to us pursuant to Round Zero and continue to assess the opportunities presented by the Round One bidding process, including the opportunity to form new strategic partnerships to enhance our financial, technical and operational capabilities along the entire value chain. We have implemented the corporate reorganization plan, which we believe will enable us to operate more efficiently. This reorganization involved the merger of our natural gas, refining and petrochemicals business units into the new subsidiary entity called Industrial Transformation, and the creation of five new subsidiaries to focus on drilling, logistics, cogeneration of steam and power, fertilizers and ethylenerefinery production.
As we noted above, in 2015 we achieved a historic milestone by concluding the negotiations and modification of our pension regime, which reduced our pension liabilities by approximately Ps. 196.0 billion. During 2016, we will focus on introducing a voluntary migration process for our current union employees in order to transition them to a defined contribution plan, which could yield additional savings for us. In addition, the Mexican Government may assume a portion of our pension liabilities in an amount equivalent to the reduction in our pension liabilities, once that amount is reviewed by an independent expert. Any resources that we may receive from the Mexican Government arising from its assumption of our pension liabilities will be used exclusively for pension liability payments. We have already received a contribution of Ps. 50.0 billion from the Mexican Government (see Note 21(a) to our consolidated financial statements included herein).
Near Future
The recent energy reform, together with the 2016 Budget Adjustment Plan, enabled us to redefine ourselves as a productive state-owned company and provides us with clear guiding principles with respect to the efficient allocation of resources and value maximization. In addition, as described above, it provides us with mechanisms to stabilize and increase our production, add additional reserves and improve our fiscal regime. As a result, it offers us an opportunity to make PEMEX more competitive and efficient.
As a productive state-owned company, our business model contemplates maximizing value for Mexico and, accordingly, we intend to focus on high-yield projects with growth potential. Every action taken under our business plan will be directed towards the efficient allocation of resources, developing profitable businesses and considering the development of new businesses with third parties.
Going forward, our budget planning and execution will be based on conservative forecasts that enhance our redefinition as a productive state-owned company. We intend to take advantage of all the opportunities made available to us by the recent energy reform in order to stabilize production, gradually reduce our leverage and obtain additional revenues from the sale of non-strategic assets.
Critical Accounting Policies
Some of our accounting policies require the application of estimates, judgments and assumptions by management which affect the reported amounts of assets and liabilities as of the date of our financial statements, as well as the reported amounts of revenues and expenses during the periods presented in this report. By their nature, these estimates, judgments and assumptions are subject to a degree of uncertainty and are based on: our historical experience; terms of existing contracts; management’s view of trends in the oil and gas industry, both internationally and within Mexico; economic factors in Mexico; and information from outside sources. We believe that the following critical accounting policies, among others, affect management’s judgments and estimates used in the preparation of our consolidated financial statements according to IFRS, and could potentially impact our financial results and future financial performance. There can be no assurance that actual results do not differ from these estimates. These policies are more fully described in Note 3 to our consolidated financial statements included herein.
Successful Efforts Method of Oil and Gas Accounting
We apply the successful efforts method for the exploration and production of crude oil and gas activities, considering the criteria mentioned in IFRS 6, “Exploration for and Evaluation of Mineral Resources,” in relation to the recognition of exploration and drilling assets. Costs of development wells and related plant, property and equipment involved in the exploitation of oil and gas are recorded as part of the cost of assets. The costs of exploratory wells in areas that have not yet been designated as containing proved reserves are recorded as intangible assets until it is determined whether such reserves are commercially viable. Otherwise, the costs of drilling an exploratory well are charged to exploration expense. Other expenditures on exploration are charged to exploration expense, as incurred.
Depreciation and amortization of capitalized costs associated with wells are based on the estimated commercial life of the field to which the well corresponds, taking into account the relationship between the field’s production levels for the period and proved developed reserves, as of the beginning of the year and as updated on a quarterly basis for new development investments.
Reserves estimates are determined in accordance with earth science and petroleum engineering principles and practices pursuant to Rule4-10(a) and, where necessary, in accordance with the Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information promulgated by the SPE as of February 19, 2007. These procedures are consistent with international reserves reporting practices. The estimation of these reserves depends on assumptions made and the interpretation of the data available, and can vary as a result of changes in such factors as forecasted oil and gas prices, reservoir performance and developments in oil field technology. The results of drilling activities, test wells and production after the date of estimation are utilized in future revisions of reserves estimates.
Downward revision of reserves estimates can result in: higher depreciation and depletion expense per barrel in future periods; an immediatewrite-down of an asset’s book value in accordance with accounting rules for the impairment of properties; or changes in our accrual of the asset retirement obligation. An impairment of oil and gas producing fixed assets will result if the downward revisions are so significant that the estimated future cash flows from the remaining reserves in the field are insufficient to recover the unamortized capitalized costs. Conversely, if the oil and gas reserves quantities are revised upward, our per barrel depreciation and depletion expense will be lower.
The application of successful efforts accounting can also cause material fluctuations between periods in exploration expenses if drilling results are different than expected or if we change our exploration and development plans. The determination that exploratory drilling was unsuccessful in finding economically producible reserves requires the immediate expensing of previously capitalized drilling costs. We make periodic assessments of the amounts included within intangible assets to determine whether capitalization is initially appropriate and should continue. Exploration wells capitalized beyond 12 months are subject to additional evaluation as to whether the facts and circumstances have changed, and therefore whether the conditions described below no longer apply. Exploration wells more than 12 months old are expensed unless: they are in an area requiring major capital expenditures before production can begin, commercially productive quantities of reserves have been found, and they are subject to further exploration or appraisal activity, in that either drilling of additional exploratory wells is underway or firmly planned for the near future; or proved reserves are identified within 12 months following the completion of exploratory drilling.
Environmental Remediation and Asset Retirement Obligations
We are required to make judgments and estimates in recording liabilities for environmental cleanup and asset retirement obligations. In accordance with applicable legal requirements and accounting practices, we recognize an environmental liability when the cash outflows are probable and the amount is reasonably estimable. We account for disbursements related to the conservation of the environment that are linked to revenue from current or future operations as costs or assets, depending on the circumstances of each disbursement. Moreover, we account for disbursements related to past operations, which no longer contribute to current or future revenues, as current period costs. We accrue a liability for a future disbursement when an obligation related to environmental remediation is identified and the amount thereof can be reasonably estimated.
Estimated liabilities for environmental remediation and asset retirement obligations are subject to change as a result of: changes in laws, regulations and their interpretation; the review of additional information on the extent and nature of site contamination; the determination of additional works that need to be undertaken; improvements in technology; the nature and timing of expenditure; foreign currency exchange rates to the extent that some of these costs are incurred in U.S. dollars; and changes in discount rates.
We do not recognize the obligations related to the costs of future retirement of assets associated with the principal refining processes for gas and petrochemicals. These assets are considered to have an indefinite useful life due to the potential for maintenance and repairs, and, accordingly, we lack sufficient information to reasonably determine the date on which they will be decommissioned.
Financial Instruments
We face market risk caused by the volatility of hydrocarbon prices, exchange rates and interest rates. In order to monitor and manage this risk, Petróleos Mexicanos and the subsidiary entities have developed policies and guidelines that promote an integrated scheme for market risk management, regulate the use of DFIs, guide the development of hedging strategies and provide strategies for the formulation of risk limits.
We enter into derivatives transactions with the sole purpose of hedging financial risks related to our operations. Nonetheless, some of these transactions do not qualify for hedge accounting treatment because they do not meet the strict requirements of IAS 39, “Financial Instruments Recognition and Measurement” for designation as hedges. They are therefore recorded in the financial statements asnon-hedge instruments or as
instruments entered into for trading purposes, despite the fact that their cash flows are offset by the cash flows of the positions to which they relate. As a result, the changes in their fair value are recognized in the financing cost. See Notes 10Note 3, Note 8 and 15Note 19 to our consolidated financial statements included herein.
Impairment ofNon-Financial Assets
At each reporting date, we evaluate whether there is objective evidence thatnon-financial assets, other than inventory or deferred taxes, are impaired. Significant judgment is required to appropriately assess the recoverable amount, represented by the higher of the value in use and the fair value, less costs to sell or otherwise dispose of our reporting units. Our future net cash flow projections are based on the best available estimates of thecash-generating unit income and expenses using forecasts, prior results and the outlook for the business’s performance and the market’s development. Our annual budget and business plan set macroeconomic forecasts for each of thecash-generating units, which are calculated based on different assumptions regarding projected commodity sales prices, volume of production and overhead costs, foreign currency exchange rates and inflation, among other items, that are used to quantify income and expense estimates. Any change in the assumptions upon which the forecasts for eachcash-generating unit are based can materially affect the anticipated cash flows to be generated bynon-financial assets.
These estimated future net cash flows are discounted at present value usingcash-generating unit specific discount rates determined as a function of the currency in which their respective cash flows are denominated and the risks associated with these cash flows. The discount rates are intended to reflect current market assessments of the time value of money and the risks specific to the asset. Accordingly, the various discount rates used take into consideration country risk. To ensure that the calculations are consistent and avoid double counting, the cash flow projections do not factor in risks that have already been built into the discount rates used. The discount rates used reflect current market conditions and specific risks related to those fixed assets. SeeNote 3(i)3-H and Note 15 to our consolidated financial statements included herein.
As of December 31, 2015,2018, we have carried out an impairment test to assess the carrying amount ofnon-financial assets, other than inventories and deferred taxes. The impairment test has resulted in a net reversal of impairment of Ps. 21.4 billion, primarily resulting from a Ps. 65.0 billion reserval of impairment for Pemex Exploration and Production, mainly due to a decrease in the discount rate used to calculate the value in use from 14.40% in 2017 to 7.03% in 2018, as well as lower discount rates used to calculate the value in use of certain of our other business units. This was partially offset by an impairment charge of Ps. 477.940.3 billion primarily relatedfor Pemex Logistics, mainly due to (1) wellsa 46% decrease in annual average income and a 40% increase in the Aceite Terciario del Golfo, Cantarell, Crudo Ligero Marino and Burgos projects, and (2) the redefinitioncost of the cash-generating units of the refining segment fromnon-operating losses, partially offset by a national refinery system to the following separate refineries: Cadereyta, Minatitlán, Salamanca, Salina Cruz, Madero and Tula, which resulted58% decrease in an impairment charge for the cash-generating units of Madero and Minatitlán.direct operating costs. For more information on the impairment of ournon-financial assets, see Notes 3(i) and 12(d)Note 15 to our audited consolidated financial statements included herein. Pursuant to theLineamientos que regulan el procedimiento de cuantificación y certificación de reservas de la Nación y el informe de los recursos contingentes relacionados (Guidelines that regulate the quantification and certification procedure of the Mexican reserves and the reporting of related contingent resources) published in the Official Gazette of the Federation by NHC on August 13, 2015, the reserves used for our impairment computation were calculated based on the contractual limit, which was 19 years as of December 31, 2015. However, on April 15, 2016, the NHC published a modification to these guidelines allowing us to base the computation of our reserves on their economic limit instead of their contractual limit, which may have a positive effect on our anticipated future cash flows to be generated by non-financial assets.
Income Taxes
As described under “Item 4—Information on the Company—Taxes, Duties and Other Payments to the Mexican Government” above and in Note 203-M and Note 23 to our consolidated financial statements included herein, the fiscal regime applicable to Petróleos Mexicanos and the subsidiary entities and certain subsidiary companies as of December 31, 20152018 became effective on January 1, 2015. Effective as of this date, the Hydrocarbons Revenue Law and the Federal Revenue Law of the applicable year comprise the fiscal regime applicable to us.
As of December 31, 2015,2018, Petróleos Mexicanos and the subsidiary entities are required to estimate taxable income according to IAS 12, “Income Taxes.” This process involves an estimation of our actual current tax and an assessment of temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred assets and liabilities, which are included within our consolidated balance sheet. We must then assess the likelihood that our deferred assets will be recovered from future taxable income.
Management judgment is required in determining our provision for income taxes. In the event that actual results differ from our estimates, any adjustments recorded will affect our net income during the corresponding period.
Exploration and Production Taxes and Duties
The fiscal regime applicable to the exploration and production assignments granted to us by the Mexican Government includes the following taxes and duties:
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| • | Hydrocarbons Extraction Duty. The Hydrocarbons Extraction Duty is calculated based on a rate that varies according to (i) the type of hydrocarbon (e.g., crude oil, associated natural gas,non-associated natural gas or condensates), (ii) the volume of production and (iii) the relevant market price. |
| • | Exploration Hydrocarbons Duty. The Exploration Hydrocarbons Duty is calculated by applying a quote per square kilometer for each assigned phase of production and extraction phase. Pemex Exploration and Production must make monthly payments of this duty. The Mexican Government is entitled to collect a monthly payment of Ps. |
For more information on the taxes and duties applicable to and paid by Pemex Exploration and Production, see Note 23 to our consolidated financial statements included herein.
Contingencies
In the ordinary course of business, we are named in a number of lawsuits of various types. We evaluate the merit of each claim and assess the likely outcome. Liabilities for loss contingencies are recorded when it is probable that a liability has been incurred and the amount thereof can be reasonably estimated. We do not recognize contingent revenues, earnings or assets until their realization is assured. We have not recorded provisions related to ongoing legal proceedings whenever we do not expect an unfavorable resolution in such proceedings, except as disclosed in “Item 8—Financial Information—Legal Proceedings—Civil Actions” and Notes 621 and 2529 to our consolidated financial statements included herein.
Employee Benefits
As described under “Item 6—Directors, Senior Management and Employees—Employees” below and in Note 173-L and Note 20 to our consolidated financial statements included herein, untilas of January 1, 2016, we are operating both a defined contribution plan and defined benefit pension plan. Until December 31, 2015, we only operated a defined benefit pension plan. Our
Contribution Plan
Under the defined contribution plan, both we and our employees contribute to each employee’s individual account, in contrast to the existing defined benefit plan, pursuant to which only we contribute. We account for our contributions as costs, expenses or assets. Contributions to the defined contribution plan that are not expected to be fully settled within 12 months after the end of the annual reporting period in which the employee rendered related toservices will be discounted using the defined benefits plan discount rate.
Benefit Pension Plan
Under the defined benefit pension plan, we are madethe only contributor to a fund thattrust, which is administratedmanaged separately. We recognize the cost for the defined benefit pension plan based on independent actuarial computations applying the projected unit credit method. Actuarial gains and losses are recognized within other comprehensive results for the period in which they occur. The costs of prior services are recognized within profit or loss for the period in which they are incurred.
Our net obligation with respect to the defined benefit pension plan equals the present value of the defined benefit obligation less the fair value of plan assets.assets for which obligations have yet to be settled. The value of any asset is limited to the present value of availablethe economic benefit represented by the plan reimbursements and reductions in future contributions to the plan.
In addition, otherlong-term employee benefits include seniority premiums payable for disability, are recognized within other long-term employee benefits.death and survivors’ benefits, medical services, gas and basic food baskets for beneficiaries. Termination benefits are recognized in profit or loss for the periodyear in which they are incurred.
Benefits to employees were approximately 41.2%30.6% and 50.9%34.6% of our total liabilities as of December 31, 20152018 and 2014,2017, respectively, and any adjustments recorded will affect our net income and/or comprehensive net income during the corresponding period.
As ofNew Accounting Standards
IFRS 9
On January 1, 2016,2018, we adopted the new accounting standard IFRS 9 “Financial Instruments” as issued by the International Accounting Standards Board. IFRS 9 sets out, among others, new requirements for classification and measurement of financial assets, measurement and recognition of expected credit losses on financial assets, changes in accordancethe terms of financial assets and financial liabilities, hedge accounting and related disclosures. We expect that the new measurement and recognition of expected credit losses on financial assets could lead to increased impairment losses and increased volatility in the value of financial instruments. The initial application of IFRS 9 on January 1, 2018 did not have a significant impact on our reserves of financial assets and we have not restated the comparative information.
IFRS 15
On January 1, 2018, we adopted the new accounting standard IFRS 15 “Revenue from Contracts with Customers” as issued by the pension agreement thatInternational Accounting Standards Board. IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognized. We adopted IFRS 15 using the modified retrospective transition method on January 1, 2018 and, accordingly, we renegotiated withhave not restated comparative information. As a result of our adoption of IFRS 15, sales to our Trading Company are no longer presented as intersegment sales and are instead classified as trade sales.
IFRIC 22
On January 1, 2018, we adopted the Petroleum Workers’ Union in 2015, we also operatenew interpretation of accounting standard IFRIC 22 “Foreign Currency Transactions and Advance Considerations” as issued by the International Accounting Standards Board. The interpretation clarified when an entity recognizes a defined contribution plan, in which wenon-monetary asset ornon-monetary liability arising from the payment or receipt of advance consideration before the entity recognizes the related asset, expense or income. Our adoption of IFRIC 22 did not have an impact on our consolidated financial statements included herein.
For more information on the requirements and each individual employee contributeimpacts of IFRS 9, IFRS 15 and IFRS 22, see Note4-A to the employee’s individual account.our consolidated financial statements included herein.
Recently Issued Accounting Standards
Notes 3(t) and 3(u) to our audited consolidated financial statements discuss newNew accounting interpretations and revisions under IFRS that apply to annual periods beginning on or after January 1, 2015. There are no2019, including IFRS 16 “Leases,” as well as additional standards, amendments or interpretations that, even though not yet effective, could have a material impact on our consolidated financial statements, and a breakdown of the effect of such new accounting interpretations and revisions are disclosed in Note 31 to our consolidated financial statements included in this report.herein.
Sales Volumes and Prices
The profitability of our operations in any particular accounting period is directly related to the sales volume of, and average realized prices for, the crude oil and natural gas that we sell. These average realized prices for crude oil and natural gas fluctuate from one period to another due to world market conditions and other factors.
Export Volumes and Prices
Pemex Exploration and Production sells crude oil to PMI, which then sells it to international clients. The volume of crude oil that we export is the volume delivered to international clients as adjusted for water content according to the bill of lading and standard market practice. PMI bases crude oil export price formulas on a basket of international reference prices and a constant set according to specific market conditions. We determine export prices of refined products, petrochemicals and natural gas by reference to market conditions and direct negotiations with our clients.
Significant changes in international crude oil prices directly affect our financial results. The impact of changes in crude oil prices on our refining activities and petrochemicals business depends on:
the magnitude of the change in crude oil prices;
how quickly petroleum and petrochemical product prices in international markets adjust to reflect changes in crude oil prices; and
the extent to which prices in Mexico, where we sell most of our petroleum products and petrochemicals, reflect international prices for those products.
The following table sets forth the weighted average market price per barrel of crude oil that PMI received from exports and the average price of itsthe United States benchmark, West Texas Intermediate (or WTI) crude oil, for the years indicated. Between 2011The average price differential between WTI and 2013, the average prices of crude oil that we exported were higher thanin the average prices of WTI crude oil. As of December 31,last five years fluctuated between U.S. $7.8 in 2014 and 2015, however,U.S. $3.86 in 2018, which is mainly the average priceresult of crude oil that we exported fell below the average price of WTI crude oil, primarily due to the strengthening of the WTI crude oil against the prices of certain benchmark crudes, such as West Texas Sour, Light Louisiana Sweet and Brent Dated, and againstfluctuations in the price of high sulfur fuel oil, uponother benchmarks on which theour pricing formulas for our crude oil are based. See “Item 4—Information on the Company—Business Overview—International Trading.”
| Year ended December 31, | ||||||||||||||||||||||||||||||||||||||||
| Year ended December 31, | ||||||||||||||||||||||||||||||||||||||||
| 2011 | 2012 | 2013 | 2014 | 2015 | 2014 | 2015 | 2016 | 2017 | 2018 | |||||||||||||||||||||||||||||||
| (in dollars per barrel) | (in dollars per barrel) | |||||||||||||||||||||||||||||||||||||||
West Texas Intermediate crude oil average price | U.S. $ | 95.04 | U.S. $ | 94.13 | U.S. $ | 97.90 | U.S. $ | 93.28 | U.S. $ | 48.71 | U.S. $ | 93.28 | U.S. $ | 48.71 | U.S. $ | 43.34 | U.S. $ | 50.79 | U.S. $ | 65.20 | ||||||||||||||||||||
PEMEX crude oil weighted average export price | 101.13 | 101.82 | 98.46 | 86.00 | 43.39 | 85.48 | 43.12 | 35.65 | 46.73 | 61.34 | ||||||||||||||||||||||||||||||
| Note: | The numbers in this table are daily average prices for the full year, which differ from spot prices at year end. On |
PEMEX’s oil statistics and Platt’s U.S. Marketscan (S&P Global Inc.).Sources: PMI operating statistics and Platt’s U.S. Marketscan (McGraw-Hill Company)Sources:
Domestic Prices
UntilAs of December 31, 2015, the formulas used to determine prices for petroleum products and petrochemical products sold in the Mexican market were determined by the Ministry of Finance and Public Credit and the Energy Regulatory Commission, in
accordance with the Federal Public Administration Organic Law, as amended, theLey de Planeación(Planning Law), theReglamento Interior (Internal Regulations) of the Ministry of Finance and Public Credit and theLey de la Comisión Reguladora de Energía (Energy Regulatory Commission Law). The Ministry of Finance and Public Credit and the Energy Regulatory Commission received input from us and other governmental ministries through committees composed of officers of Petróleos Mexicanos, the subsidiary entities, some of the subsidiary companies, and representatives of various government ministries, including, among others, the Ministry of Finance and Public Credit, the Ministry of Energy, theSecretaría de la Función Pública (Ministry of Public Function, or the SFP) and theSecretaría de Economía (Ministry of Economy). The Ministry of Finance and Public Credit and the Energy Regulatory Commission determined wholesale and first-hand sale prices based on opportunity cost, which considers international prices, and makes adjustments to reflect transportation expenses and differences in the quality of our products relative to international benchmarks. The retail price was determined based on the wholesale price plus the value added tax, the retailer’s margin and freight costs. The Ministry of Finance and Public Credit adjusted prices for petroleum and petrochemical products sold in the Mexican market, so that they are consistent with the Mexican Government’s macroeconomic targets.
As a part of the recent energy reform,2017, domestic fuel prices are to befully liberalized and to beare determined according to market forces by 2018. During 2016 and 2017, domestic fuel prices will be allowedmay vary without regard to vary within aany specific range determined by the Mexican Government based on the references points set in 2015 and taking into account international benchmarks.Government. For further information on domestic prices, see “Item 4—Information on the Company—Business Overview—Industrial Transformation—Refining—Pricing Decrees” and “—“Item 4—Business Overview —Industrial Transformation—Gas and Basic Petrochemicals—Aromatics—Pricing Decrees.”Decrees” above.
The following table compares the average prices in nominal terms of selected petroleum and petrochemical products in Mexico and in the United States for the years indicated.indicated:
| 2011 | 2012 | 2013 | 2014 | 2015 | ||||||||||||||||||||||||||||||||||||
| Mexico | U.S. | Mexico | U.S. | Mexico | U.S. | Mexico | U.S. | Mexico | U.S. | |||||||||||||||||||||||||||||||
Petroleum Products | ||||||||||||||||||||||||||||||||||||||||
Unleaded regular gasoline(1) | U.S. $ | 118.55 | U.S. $ | 140.36 | U.S. $ | 131.36 | U.S. $ | 145.42 | U.S. $ | 143.36 | U.S. $ | 139.70 | U.S. $ | 153.16 | U.S. $ | 132.21 | U.S. $ | 135.94 | U.S. $ | 91.18 | ||||||||||||||||||||
Premium gasoline(1) | 132.67 | 152.62 | 139.82 | 159.03 | 150.46 | 156.82 | 161.52 | 152.23 | 144.15 | 114.42 | ||||||||||||||||||||||||||||||
Diesel(1) | 123.15 | 154.25 | 135.95 | 159.89 | 147.85 | 158.62 | 159.37 | 152.72 | 144.25 | 114.11 | ||||||||||||||||||||||||||||||
Jet fuel(2) | 126.53 | 126.15 | 137.29 | 129.08 | 124.55 | 123.11 | 115.54 | 113.94 | 70.08 | 64.67 | ||||||||||||||||||||||||||||||
Kerosene(3) | 123.16 | 125.84 | 135.96 | 128.37 | 147.85 | 122.78 | 159.37 | 113.25 | 142.25 | 64.07 | ||||||||||||||||||||||||||||||
Natural Gas(4) | ||||||||||||||||||||||||||||||||||||||||
Industrial | 4.98 | 5.13 | 3.65 | 3.88 | 5.27 | 4.64 | 5.70 | 5.53 | 3.38 | 3.81 | ||||||||||||||||||||||||||||||
Residential | 15.89 | 11.03 | 12.73 | 10.65 | 15.22 | 10.32 | 15.71 | 10.97 | 12.14 | 12.27 | ||||||||||||||||||||||||||||||
Selected Petrochemicals | ||||||||||||||||||||||||||||||||||||||||
Ammonia(5) | 496.17 | 533.62 | 530.77 | 562.83 | 453.92 | 505.16 | 451.93 | 494.33 | 397.69 | 361.48 | ||||||||||||||||||||||||||||||
Polyethylene L.D.(6) | 1,834.27 | 1,624.92 | 1,667.72 | 1,447.47 | 1,701.00 | 1,493.94 | 1,928.41 | 1,632.48 | 1,531.95 | 1,235.44 | ||||||||||||||||||||||||||||||
Polyethylene H.D.(7) | 1,588.15 | 1,365.56 | 1,576.48 | 1,359.29 | 1,660.18 | 1,438.83 | 1,855.88 | 1,570.89 | 1,485.01 | 1,189.62 | ||||||||||||||||||||||||||||||
Styrene(8) | 1,728.37 | 1,511.64 | 1,825.91 | 1,559.16 | 1,991.57 | 1,706.27 | 1,839.24 | 1,678.04 | 1,170.08 | 1,144.37 | ||||||||||||||||||||||||||||||
| Year ended December 31, | ||||||||||||||||||||
| 2014 | 2015 | 2016 | 2017 | 2018 | ||||||||||||||||
| Petroleum Products | ||||||||||||||||||||
Unleaded regular gasoline(1) | Ps. 1,460.45 | Ps. 1,463.02 | Ps. 1,460.19 | Ps. 1,413.27 | Ps. 1,813.33 | |||||||||||||||
Premium gasoline(1) | 1,272.73 | 1,127.40 | 931.81 | 1,277.53 | 1,948.66 | |||||||||||||||
Diesel(1) | 1,457.16 | 1,482.90 | 1,457.27 | �� | 1,543.52 | 1,935.54 | ||||||||||||||
Jet fuel(1) | 1,458.34 | 1,370.67 | 1,268.38 | 1,187.40 | 1,815.91 | |||||||||||||||
Natural Gas(2) | 5.44 | 6.18 | 5.81 | 6.99 | 5.57 | |||||||||||||||
Liquified Petroleum(2) | 21.77 | 22.18 | 30.43 | 36.13 | 39.24 | |||||||||||||||
Selected Petrochemicals | ||||||||||||||||||||
Ammonia(3) | 6,125.17 | 6,275.83 | 6,083.33 | 6,433.61 | 7,905.97 | |||||||||||||||
Polyethylene(3) | 20,300.29 | 19,798.58 | 23,402.82 | 22,300.62 | 22,945.27 | |||||||||||||||
Pesos per barrel. |
Pesos per hundred cubic feet. |
Pesos per |
| Source: |
|
IEPS Tax, Hydrocarbon Duties and Other Taxes
The following table sets forth the taxes and duties that we recorded for each of the past three years.
| Year ended December 31, | ||||||||||||||||||||||||
| 2016 | 2017 | 2018 | ||||||||||||||||||||||
| Year ended December 31, | ||||||||||||||||||||||||
| 2013 | 2014 | 2015 | (in millions of pesos)(1) | |||||||||||||||||||||
| (in millions of pesos)(1) | ||||||||||||||||||||||||
Hydrocarbon extraction duties and others | Ps. | 857,356 | Ps. | 760,912 | Ps. | 377,087 | Ps. 277,162 | Ps. 338,044 | Ps. 469,934 | |||||||||||||||
Hydrocarbons income tax | 3,788 | (18,735 | ) | — | ||||||||||||||||||||
Income tax | 3,752 | 3,898 | (45,587 | ) | (12,640 | ) | (5,064 | ) | (8,355 | ) | ||||||||||||||
IEPS tax(2) | — | — | — | |||||||||||||||||||||
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Total | Ps. | 864,896 | Ps. | 746,075 | Ps. | 331,500 | Ps. 264,522 | Ps. 332,980 | Ps. 461,579 | |||||||||||||||
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| Note: | For a description of these taxes and duties, see “Item 4—Information on the Company—Taxes, Duties and Other Payments to the Mexican Government.” |
| Numbers | may not total due to rounding. |
| (1) | Figures are stated in nominal pesos. |
PEMEX’s audited financial statements, prepared in accordance with IFRS. |
Source: PEMEX’s audited financial statements, prepared in accordance with IFRS.
The IEPS tax ensures that we retain the portion of our sales revenues that represents the adjusted international reference prices of our products, and the Mexican Government receives the difference between the domestic retail prices, which are prices that are set by the Mexican Government based on target rates of inflation, and the adjusted international reference prices of diesel and gasoline. The Ministry of Finance and Public Credit determines retail prices of gasoline and diesel before the beginning of each fiscal year in conjunction with the preparation of the Mexican Government’s budget for that year.
Our retail prices for gasoline and diesel reflect the addition of the IEPS tax when the IEPS tax rate is positive, as well as the value added tax.
For automotive fuels, the IEPS tax is equal to (a) the retail price at which gasoline and automotive diesel are sold to retailers, less (b) value-added tax, less (c) Pemex Industrial Transformation’s wholesale price, less (d) freight to gas stations and less (e) retailer’s margin.
When international prices increase, our wholesale price will increase and, as a result, the IEPS tax that we collect from consumers and transfer to the Mexican Government will decrease, since the retail prices of gasoline and diesel are fixed.
From the end of 2005 through April 2015, the retail prices of gasoline and diesel have been less than the sum of Pemex-Refining’s wholesale price, the value-added tax, the freight to gas stations and the retailer’s margin, which has generated a “negative” IEPS tax rate, and, therefore, no IEPS tax was paid during these years. From 2006 to 2014 for the applicable year, the Federal Revenue Law established that PEMEX was permitted to credit negative IEPS taxes against its IEPS tax liability. Any remaining surplus could then be credited first toward its value added tax liability and then toward ordinary hydrocarbon duties. These IEPS tax credits are recorded in our income statement under “other revenues.” In 2014, we were permitted to credit Ps. 43.1 billion of negative IEPS tax, of which we credited Ps. 40.3 billion against our IEPS tax and value added tax liabilities. As of January 1, 2015, the Federal Revenue Law no longer allows us to credit negative IEPS taxes against any tax or liability. As a result, no such amounts were recorded as “other revenues” during 2015.
As of January 1, 2016, the IEPS tax is collected by Pemex Industrial Transformation on domestic sales of gasoline and diesel on behalf of the Mexican Government. The amount of this tax depends on the class of fuel and is fixed monthly by the Ministry of Finance and Public Credit.
Relation to the Mexican Government
Petróleos Mexicanos and the subsidiary entities are public entities of the Mexican Government, rather than Mexican corporations. Therefore, we do not have the power to issue shares of equity securities evidencing ownership interests and are not required, unlike Mexican corporations, to have multiple shareholders. However, our financing obligations do not constitute obligations of and are not guaranteed by the Mexican Government. The President of Mexico appoints five of the ten members of the Board of Directors of Petróleos Mexicanos as representatives of the Mexican Government, including the Secretary of Energy, who serves as the Chairperson of the Board of Directors of Petróleos Mexicanos, and the Secretary of Finance and Public Credit. The President of Mexico also appoints five independent members to the Board of Directors of Petróleos Mexicanos, whose appointments are ratified by the Senate.
Pursuant to the Petróleos Mexicanos Law, the consolidated annual budget of Petróleos Mexicanos and the subsidiary entities, including our financing program, must be submitted to the Ministry of Finance and Public Credit, which has the authority
to adjust our financial balance goal and the ceiling on our wage and salary expenditures for the fiscal year. The Mexican Government incorporates our consolidated annual budget and financing program into its budget, which the Chamber of Deputies must approve each year. The Mexican Congress has the authority to adjust our annual financial balance goal at any time by amending the applicable law. In addition, any adjustment proposed by the Board of Directors of Petróleos Mexicanos to change our annual financial balance goal or increase the limit on our wage and salary expenditures or our financing program must be approved by the Chamber of Deputies.
Inflation
Mexico experienced high inflation during the 1980s. The annual rate of inflation (as measured by the change in the NCPI) decreased from a high of 159.2% in 1987 to 11.9% in 1992, 8.0% in 1993 and 7.1% in 1994. However, the economic events that followed the devaluation of the peso against the U.S. dollar in late 1994 and 1995, along with turbulence in international financial markets, caused inflation to increase to 52.0% in 1995. After 1995, inflation decreased to 27.7% in 1996 and 15.7% in 1997. The annual inflation rate was 3.6% in 2009, 4.4% in 2010, 3.8% in 2011, 3.6% in 2012, 4.0% in 2013, 4.1% in 2014, and 2.1% in 2015.2015, 3.4% in 2016, 6.8% in 2017 and 4.8% in 2018.
We do not use inflation accounting, unless the economic environment in which we operate qualifies as “hyperinflationary,” as defined by IFRS. In accordance with IFRS, the threshold for considering an economy hyperinflationary, and consequently, adjusting certain line items in the financial statements for inflation, is reached when the cumulativethree-year inflation rate is 100% or more. Because the economic environment in thethree-year periods ended December 31, 2013, 20142016, 2017 and 20152018 did not qualify as hyperinflationary, we did not use inflation accounting to prepare our consolidated financial statements as of December 31, 2013, 20142016, 2017 and 20152018 included herein.
Consolidation
Our financial statements consolidate the results of Petróleos Mexicanos, the subsidiary entities and the subsidiary companies. Certainnon-material subsidiary companies are not consolidated and are accounted for under either the cost method or the equity method. For a list of the consolidated subsidiary companies, seeNote 3(a)3-A and Note 5 to our consolidated financial statements included herein.
Export Agreements
Though Mexico is not a member of OPEC, it has periodically announced increases and decreases in our crude oil exports, reflecting production revisions made by other oil producing countries in order to contribute to crude oil prices stabilization. However, we have not changed our export goals because of announcements made by OPEC since 2004, and we believe that Mexico has no plans to change our current level of crude oil exports.
Results of Operations of Petróleos Mexicanos, the Subsidiary Entities and the Subsidiary Companies—For the Year Ended December 31, 20152018 Compared to the Year Ended December 31, 20142017
Total Sales
Total sales decreasedincreased by 26.5%20.3%, or Ps. 420.3284.1 billion, in 2015,2018, from Ps. 1,586.71,397.0 billion in 20142017 to Ps. 1,166.41,681.2 billion in 2015,2018, primarily due to increases in the decrease in average sales prices of Mexican crude oil,our petroleum products and natural gas in the international markets. During 2015, the weighted average price of Mexican crude oil export price decreased by 50.3%, from U.S. $86.00 per barrel in 2014 to U.S. $42.70 per barrel in 2015. Crude oil export volumes increased by 2.3% in 2015 as compared to 2014. The impact of price decreases on both domestic and export sales is explained in further detail below.oil.
Domestic Sales
Domestic sales decreasedincreased by 21.0% in 2015,11.8%, from Ps. 945.0877.4 billion in 20142017 to Ps. 746.2980.6 billion in 2015,2018, primarily due to a decreasean increase in the average prices of gasoline, diesel, fuel oil and jet fuel. Domestic sales of petroleum products decreasedincreased by 20.3%14.7% in 2015,2018, from Ps. 830.5738.9 billion in 20142017 to Ps. 662.3847.5 billion in 2015,2018, primarily due to decreasesa 19.7% increase in the average pricesprice of gasoline, a 20.1% increase in the average price of diesel, turbosinea 46.0% increase in the average price of fuel oil and fuel oil.a 38.8% increase in the average price of jet fuel. These price increases were partially offset by a 14.0% decrease in the volume of sales of premium gasoline, primarily due to a decrease in demand from retail service stations. Domestic sales of natural gas and liquefieddecreased by 28.2% in 2018, from Ps. 70.9 billion in 2017 to Ps. 50.9 billion in 2018, primarily due to a 23.1% decrease in the average sales price of natural gas decreased by 30.0%and a 6.6% decrease in 2015, from Ps. 77.8 billion in
2014the volume of sales of natural gas, mainly due to Ps. 54.5 billion in 2015, primarily as a result of lower prices for these products.competition. Domestic petrochemical sales (including sales of certainby-products of the petrochemical production process) decreasedincreased by 19.4%43.0%, from Ps. 36.616.0 billion in 20142017 to Ps. 29.522.9 billion in 2015,2018, primarily as a result of lower prices for these products.an increase in the volume of sales of polyethylene.
Export Sales
Export sales decreasedincreased by 35.4% 36.1%in peso terms in 20152018 (with U.S.dollar-denominated export revenues translated to pesos at the exchange rate on the date of the corresponding export sale), from Ps. 630.3508.5 billion in 20142017 to Ps. 407.2691.9 billion in 2015.2018. This decreaseincrease was primarily due to a 50.3% decrease31.8% increase in the weighted average Mexican crude oil export price. The decreaseprice in export sales was partially offset by a 2.3% increase2018, from U.S. $47.26 per barrel in the volume of crude oil exports2017 to U.S. $62.29 per barrel in 2015.2018.
Excluding the trading activities of the PMI GroupTrading Companies (in order to show only the amount of export sales related to the subsidiary entities), export sales by the subsidiary entities to the PMI GroupTrading Companies and third parties decreasedincreased by 39.8% 32.8%in peso terms, from Ps. 546.6430.6 billion in 20142017 to Ps. 329.0571.8 billion in 2015.2018. In U.S. dollar terms, excluding the trading activities of the PMI Group,Trading Companies, total export sales (which are U.S.dollar-denominated) decreased increased by 49.4%30.1% in 2015,2018, from U.S. $41.2$22.7 billion in 20142017 to U.S. $20.9$29.7 billion in 2015.2018. This was primarily due to the 50.5% decrease31.8% increase in the weighted average Mexican crude oil export price and a 2.3% increase in the volume of crude oil exports.price. The trading and export activities of the PMI GroupTrading Companies generated additional marginal revenues of Ps. 78.2120.0 billion in 2015, 6.8%2018, 54.5% higher in peso terms than the Ps. 83.977.9 billion of additional revenues generated in 2014,2017, mainly due to higher internationalan increase in the average prices of gasoline tradeddiesel and gasoline. Export sales ofPMI-NASA, one of our principal Trading Companies, increased by the PMI Group.The weighted average price per barrel of crude oil that the PMI Group sold35.6% in 2018, from Ps. 65.8 billion in 2017 to third partiesPs. 89.2 billion in 2015 was U.S. $43.29, or 49.6%, lower than the weighted average price of U.S. $86.00 in 2014.2018.
Crude oil and condensate export sales to PMI accounted for 87.6%89.7% of total export sales (excluding the trading activities of the PMI Group)Trading Companies) in 2015,2018, as compared to 87.0%88.4% in 2014.2017. These crude oil and condensate sales decreasedincreased in peso terms by 39.3%34.9% in 2015,2018, from Ps. 475.1380.5 billion in 20142017 to Ps. 288.2513.2 billion in 2015,2018, and decreased in U.S. dollar terms by 48.9% in 2015,32.3%, from U.S. $35.8$20.1 billion in 20142017 to U.S. $18.3$26.6 billion in 2015.2018. The weighted average Mexican crude oil export price in 2018 was U.S. $62.29 per barrel, of crude oil that Pemex Exploration and Production sold to PMI for export in 2015 was U.S. $42.70, 50.3% lower31.8% higher than the weighted average price of U.S. $86.0$47.26 per barrel in 2014.2017.
Export sales of petroleum products, including natural gas and natural gas liquids, by our refining and gas and petrochemicals segments to the PMI Group and third partiesindustrial transformation segment decreased from 12.7%10.7% of total export sales (excluding the trading activities of the PMI Group)Trading Companies) in 20142017 to 12.1%9.2% of those export sales in 2015.2018. Export sales of petroleum products, including products derived from natural gas and natural gas liquids, decreasedincreased by 42.6%15.2%, from Ps. 69.546.0 billion in 20142017 to Ps. 39.953.0 billion in 2015,2018, primarily due to a decrease in prices andan increase in the volumeaverage sales price of fuel oil sold. In U.S. dollar terms, export sales of petroleum products, including products derived from natural gas and natural gas liquids, decreased by 52.8%, from U.S. $5.3 billion in 2014 to U.S. $2.5 billion in 2015. Export sales of natural gas decreased by 50.0%, from Ps. 0.06 billion in 2014 to Ps. 0.03 billion in 2015. This was primarily due to a decrease in the price and volume of sales of natural gas sold as a result of lower demand in the international market.naphthas.
Petrochemical products accounted for the remainder of export sales in 2014 and 2015.
Export sales of petrochemical products (including certainby-products of the petrochemical process) decreasedincreased by 47.0%Ps. 1,043.4 million in 2015,2018, from Ps. 1.7 billion4,625.3 million in 20142017 to Ps. 0.9 billion5,668.7 million in 2015,2018, primarily as a result of decreasesdue to an increase in the prices and volumes of sales of styrene, sulfur and ethylene. In U.S. dollar terms, export sales of petrochemical products (including certain by-products of the petrochemical process) decreased by 57.5%Fertinal in 2015, from U.S. $131.2 million in 2014 to U.S. $55.8 million in 2015.2018.
Services Income
Services income increaseddecreased by 13.2%21.6% in 2015,2018, from Ps. 11.411.1 billion in 20142017 to Ps. 12.98.7 billion in 2015,2018, primarily as a result of a Ps. 1.0 billion increasethe recognition of transportation services as part of sales in services provided by Pemex Logistics to third parties, a Ps. 0.7 billion increase in revenues from freight and managerial services provided by Pemex Industrial Transformation and a Ps. 0.2 billion increase in insurance revenues from Kot Insurance Company, AG.2018.
Cost of Sales Impairment of Wells, Pipelines, Properties, Plant and Equipment, Cost of Employee Benefits and General Expenses
Cost of sales increased by 6.2%19.4%, from Ps. 842.61,004.2 billion in 20142017 to Ps. 895.11,199.5 billion in 2015.2018. This increase was mainly due to: (1) the recognitionan increase of Ps. 53.9175.0 billion in new hydrocarbon extraction and exploration duties and taxes in connection with the new fiscal regime that took effect on January 1, 2015; (2)product purchases, mainly a Ps. 20.4123.0 billion increase in the amortizationvalue of wells;imports, primarily Magna gasoline, diesel and (3)jet fuel, mainly due to an increase in the price of imports, (2) a Ps. 11.124.2 billion increase in hydrocarbon exploration and extraction duties and taxes due to higher average sales prices in 2018, (3) a Ps. 16.5 billion increase innon-operating losses resulting from the illicit market in fuels and (4) a Ps. 15.8 billion increase in the cost of unsuccessful wells.wells and exploration expenses. This increase was partially offset by a Ps. 54.53.3 billion decrease in depreciation of fixed assets and amortization of wells, primarily due to the purchasesdecreased value of imports, primarily gasolineassets to be depreciated as a result of the impairment recorded in 2017.
Impairment of Wells, Pipelines, Properties, Plant and diesel.Equipment
Impairment of wells, pipelines, properties, plant and equipment decreased by Ps. 172.8 billion in 2018, from a net impairment of Ps. 151.4 billion in 2017 to a net reversal of impairment of Ps. 21.4 billion in 2018, mainly due to a decrease in the discount rate used to calculate the value in use of our Cantarell business unit from 14.40% in 2017 to 7.03% in 2018, as well lower discount rates used to calculate the value in use of certain other business units, including Aceite Terciario del Golfo.
General Expenses
General expenses increased by Ps. 455.316.9 billion, from Ps. 22.6141.8 billion in 20142017 to Ps. 477.9158.7 billion in 2015,2018, mainly due to an increase in administrative expenses relating to the decrease in future cash flows as a result of lower hydrocarbon prices, adjustments incontributions to the discount ratesdefined contribution pension plan and changes inincentives to encourage employees to migrate from the criteria for identifyingdefined benefit pension plan to the cash-generating units of the refineries. See Note 12(d) to our consolidated financial statements.
During 2015 we had a Ps. 103.9 billion decrease in net periodic cost of employee benefits recognized as a separate line item due to modifications to our pension regime, as described in “Item 6—Directors, Senior Managementdefined contribution plan and Employees—Employees.”
General expenses decreased by 1.5%, from Ps. 143.5 billion in 2014 to Ps. 141.4 billion in 2015. This decrease was primarily due to a Ps. 2.5 billion decrease in the net periodic cost of employee benefits recognized under general expenses due to modifications to our pension regime.benefits.
Other Revenues/Expenses, Net
Other revenues, net, decreasedincreased by 106.4%Ps. 17.9 billion in 2015,2018, from other revenues, net, of Ps. 37.65.2 billion in 20142017 to other expenses,revenues, net, of Ps. 2.423.1 billion in 2015.2018. This decreaseincrease was primarily due to contracts signed for participation rights in theCardenas-Mora, Misión, Santuario and Ogarrio blocks in the amount of Ps. 14.2 billion, partially offset by the recognition of a Ps. 40.012.5 billion decreaseloss in the credit attributable to the negative IEPS tax rate in 2015 as compared to 2014. The credit attributable to the negative IEPS tax rate is generated when the prices at which we sell gasolinedisposal of wells, pipelines, property, plant and diesel in the domestic market are lower than the international market prices for such products. We recognized revenues from IEPS tax credits of Ps. 2.5 billion in 2015, as compared to Ps. 43.1 billion in 2014.equipment.
Financing Income
Financing income increased by Ps. 12.015.4 billion in 2015,2018, from Ps. 3.016.2 billion in 20142017 to Ps. 15.031.6 billion in 2015,2018, primarily due toto: (1) the effect of changes to the discount rate used in the computationrecognition of the provision forpremium from notes exchanged in February 2018, (2) interest income on the promissory notes issued by the Mexican Government in relation to our pension liabilities, (3) increased interest income on other financial products and securities as a result of higher interest rates and (4) gains on the plugging of wells.wells as a result of a lower discount rate.
Financing Cost
Financing cost increased by 31.4%2.6% in 2015,2018, from Ps. 51.6117.6 billion in 20142017 to Ps. 67.8120.7 billion in 2015,2018, primarily due to an increase in interest expense in 20152018 following higher levels of indebtedness and the depreciation of the peso against the U.S. dollar in 2015 as compared to 2014.indebtedness.
Derivative Financial Instruments Income (Cost)
Derivative financial instruments income, (cost), net, increaseddecreased by Ps. 12.047.6 billion, from a net costincome of Ps. 9.425.3 billion in 20142017 to a net cost of Ps. 21.422.3 billion in 2015,2018, primarily due to an increase in costs associated with certain derivative financial instruments as a result of the appreciation of the U.S. dollar relative to other foreign currencies that we hedge.hedge, such as euros, Japanese yen and pounds.
Exchange Loss,Gain, Net
A substantial portion of our indebtedness, 77.9%86.9% as of December 31, 2015,2018, is denominated in foreign currencies. Our exchange lossgain, net, increased by Ps. 77.80.5 billion in 2018, from an exchange lossgain of Ps. 77.023.2 billion in 20142017 to an exchange lossgain of Ps. 154.823.7 billion in 2015,2018, primarily as a result of the higher rate of depreciationa 0.5% appreciation of the peso againstrelative to the U.S. dollar which depreciated by 16.9% in 2015 as compared to 12.6% in 2014. However, due2018. Due to the fact that over 93.7%100.0% of our revenues from exports and domestic sales are referenced to prices denominated in U.S. dollars, and only 68.2 %75.0% of our expenses, including financing costs, are linked to U.S. dollar prices, the depreciationappreciation of the peso relative to the U.S. dollar did havehad a significantfavorable effect on our ability to meet U.S. dollar- denominated financial obligations and improved our ability to meet peso-denominated financial obligations in 2015.
obligations. The value of the peso in U.S. dollar terms depreciatedappreciated by 16.9%0.5% in 2015,2018, from Ps. 14.7180 =19.7867 per U.S. $1.00 on December 31, 20142017 to Ps. 17.2065 =19.6829 per U.S. $1.00 on December 31, 2015,2018, as compared to a 12.6% depreciation4.3% appreciation of the peso in U.S. dollar terms in 2014.2017.
Taxes, Duties and Other
Hydrocarbon extraction duties and other duties and taxes paid decreasedincreased by 55.6%38.6% in 2015,2018, from Ps. 746.1333.0 billion in 20142017 to Ps. 331.5461.6 billion in 2015,2018, primarily due to the 50.3% decrease38.6% increase in the weighted average price of the Mexican crude oil basket,export price, from U.S. $86.00$47.26 per barrel in 20142017 to U.S. $42.70$62.29 per barrel in 2015.2018. Income related duties and taxes represented 28.4%27.5% of total sales in 2015,2018, as compared to 47.0%23.8 % of total sales in 2014, partly because certain hydrocarbon extraction and exploration duties and taxes under the new tax regime are recognized under cost of sales, as described above. Prior to January 1, 2015, all of our duties and taxes were income-based taxes and were therefore recognized under the “taxes, duties and other” line item.2017.
Net Income/Loss
In 2015,2018, we had a net loss of Ps. 712.6180.4 billion (U.S. $41.4 billion) from Ps. 1,166.41,681.2 billion in total sales revenues, as compared to a net loss of Ps. 265.5280.9 billion (U.S. $15.4 billion) from Ps. 1,586.71,397.0 billion in total sales revenues in 2014.2017. This increasedecrease in net loss relative to 2017 was primarily explained by: (1)
a Ps. 455.3284.1 billion increase in impairment of fixed assets, which was mainly due to the decrease in future cash flows as a result of lower hydrocarbon prices; (2) a Ps. 420.4 billion decrease intotal sales, mainly due to an increase in the average price of crude oil and natural gas;
a Ps. 172.9 billion decrease in the Mexican crude oil export priceimpairment of wells, pipelines, properties, plant and decrease in our crude oil production and domestic sales prices; (3) equipment;
a Ps. 77.817.9 billion increase in foreign exchange loss; (4) a Ps. 39.9 billion decrease in other revenues, net; and (5)
a Ps. 16.21.2 billion increase in profit sharing in joint ventures, associates and other; and
a Ps. 0.5 billion increase in exchange gain, net.
These effects were partially offset by:
a Ps. 195.3 billion increase in cost of sales, mainly due to an increase in total sales;
a Ps. 128.6 billion increase in taxes and other duties;
a Ps. 35.3 billion increase in financing costs, net. This increase was partially offset by cost, net; and
a Ps. 414.616.8 billion decreaseincrease in taxes and duties and a Ps. 184.3 billion decrease in the net periodic cost of employee benefits following modifications to our pension regime.general expenses.
Other Comprehensive Results
In 2015,2018, we had a net gain of Ps. 88.6223.4 billion in other comprehensive results, as compared to a net lossgain of Ps. 265.311.5 billion in 2014,2017, primarily due to a decrease in the reserve for employee benefits that resulted from the increase in the discount rate and expected rate of return on plan assets used in the actuarial computation method from 6.98%7.9% in 20142017 to 7.41%9.3% in 2015.2018.
Results of Operations of Petróleos Mexicanos, the Subsidiary Entities and the Subsidiary Companies—For the Year Ended December 31, 20142017 Compared to the Year Ended December 31, 20132016
Total Sales
Total sales decreasedincreased by 1.3%30.1%, or Ps. 322.9 billion, in 2014,2017, from Ps. 1,608.21,074.1 billion in 20132016 to Ps. 1,586.71,397.0 billion in 2014. This decrease resulted2017, primarily from lowerdue to an increase in the volume of our domestic and export sales, mainly due to an increase in the average sales prices of Mexican crude oilour petroleum products for the reasons explained in the international markets and a decrease in the volume of crude oil exports. During 2014, the weighted average Mexican crude oil export price decreased by 12.7%, from U.S. $98.46 per barrel in 2013 to U.S. $86.00 per barrel in 2014.further detail below.
Domestic Sales
Domestic sales increased by 3.8%30.9% in 2014,2017, from Ps. 910.2670.0 billion in 20132016 to Ps. 945.0877.4 billion in 2014,2017, primarily due to increasesan increase in the average prices of fuel oil, diesel, gasoline and liquefied natural gas. Domestic sales of petroleum products increased by 39.6% in 2017, from Ps. 529.3 billion in 2016 to Ps. 738.9 billion in 2017, primarily due to a 34.1% increase in the average price of gasoline, a 60.7% increase in the average price of diesel, a 26.2% increase in the average price of jet fuel and LPG.a 78.9% increase in the average price of fuel oil. These price increases were partially offset by a 27.1% decrease in the volume of sales of premium gasoline, primarily due to a decrease in demand from retail service stations and a 15.8% decrease in the volume of sales of liquefied natural gas. Domestic sales of natural gas increased by 9.9%19.0% in 2014,2017, from Ps. 70.859.6 billion in 20132016 to Ps. 77.870.9 billion in 2014,2017, primarily due to a 43.0% increase in the average sales price of natural gas, partially offset by a 16.8% decrease in the volume of sales of natural gas. Domestic sales of liquefied natural gas decreased by 3.7% in 2017, from Ps. 50.9 billion in 2016 to Ps. 49.0 billion in 2017, primarily as a result of an increase in the price of natural gas and despite a 0.4%15.8% decrease in the volume of domestic sales of liquefied natural gas from 3,464 million cubic feet per day in 2013 to 3,451 million cubic feet per day in 2014. Domestic sales of petroleum products increased by 3.1% in 2014, from Ps. 805.5 billion in 2013 to Ps. 830.5 billion in 2014, primarily due to higher gasoline, diesel and LPG prices.the market share loss that resulted from increased competition due to the liberalization of imports that began in 2016, which was partially offset by a 14.4% increase in the average sales price of liquefied natural gas. Domestic petrochemical sales (including sales of certainby-products of the petrochemical production process) increaseddecreased by 8.0%47.0%, from Ps. 33.930.2 billion in 20132016 to Ps. 36.616.0 billion in 2014,2017, primarily due to an increase in the pricesas a result of most petrochemical products sold by us, despite a 63.9% decrease in the volume of petrochemical product sales.sales of polyethylene.
Export Sales
Export sales decreasedincreased by 8.3% 28.7%in peso terms in 20142017 (with U.S.dollar-denominated export revenues translated to pesos at the exchange rate on the date of the corresponding export sale), from Ps. 687.7395.1 billion in 20132016 to Ps. 630.3508.5 billion in 2014.2017. This decreaseincrease was primarily due to the 12.7% decreasea 33.9% increase in the weighted average Mexican crude oil export price, a 63.4% increase in the export sales of fuel oil, mainly due to an increase in the average sales price of fuel oil, a 4.5% increase in the export sales of naphthas and a 4.7%Ps. 1,087.8 million increase in the export sales of petrochemical products. This increase in export sales was partially offset by a 2.7% decrease in the volume of crude oil exports in 2014.export sales of petroleum products.
Excluding the trading activities of the PMI GroupTrading Companies (in order to show only the amount of export sales related to the subsidiary entities), export sales by the subsidiary entities to the PMI GroupTrading Companies and third parties decreasedincreased by 11.8% 31.4%in peso terms, from Ps. 619.8327.8 billion in 20132016 to Ps. 546.6430.6 billion in 2014.2017. In U.S. dollar terms, excluding the trading activities of the PMI Group,Trading Companies, total export sales (which are U.S.dollar-denominated) decreased increased by 15.0%29.7% in 2014,2017, from U.S. $48.5$17.5 billion in 20132016 to U.S. $41.2$22.7 billion in 2014.2017. This decrease was primarily due to the 12.7% decrease33.9% increase in the weighted average Mexican crude oil export price and a 4.7% decrease in the volume of crude oil exports.price. The trading and export activities of the PMI GroupTrading Companies generated additional marginal revenues of Ps. 83.977.9 billion in 2014, 23.6%2017, 15.6% higher in peso terms than the Ps. 67.967.4 billion of additional revenues generated in 2013,2016, mainly due to higher internationalan increase in the average prices of gasolines tradeddiesel and gasoline. Export sales ofPMI-NASA, one of our principal Trading Companies, increased by the PMI Group.13.6% in 2017, from Ps. 57.9 billion in 2016 to Ps. 65.8 billion in 2017. The weighted average price per barrel of crude oil that the PMI Group sold to third parties in 20142017 was U.S. $86.00,$47.73, or 12.7%33.9%, lowerhigher than the weighted average price of U.S. $98.46$35.63 in 2013.2016.
Crude oil and condensate export sales by Pemex-Exploration and Production to PMI accounted for 87.0%88.4% of total export sales (excluding the trading activities of the PMI Group)Trading Companies) in 2014,2017, as compared to 88.5%88.1% in 2013.2016. These crude oil and condensate sales decreasedincreased in peso terms by 13.4%31.8% in 2014,2017, from Ps. 548.4288.6 billion in 20132016 to Ps. 475.1380.5 billion in 2014,2017, and decreasedincreased in U.S. dollar terms by 16.6%29.7 % in 2014,2017, from U.S. $42.9$15.5 billion in 20132016 to U.S. $35.8$20.1 billion in 2014.2017. The weighted average price per barrel of crude oil that Pemex-ExplorationPemex Exploration and Production sold to PMI for export in 20142017 was U.S. $86.00, 12.7% lower$47.26, 34.4% higher than the weighted average price of U.S. $98.46$35.17 in 2013.2016.
Export sales of petroleum products, including natural gas and natural gas liquids, by Pemex-Refining and Pemex-Gas and Basic Petrochemicalsour industrial transformation segment to the PMI GroupTrading Companies and third parties increaseddecreased from 11.2%10.9% of total export sales (excluding the trading activities of the PMI Group)Trading Companies) in 20132016 to 12.7%10.7% of those export sales in 2014.2017. Export sales of petroleum products, including products derived from natural gas and natural gas liquids, increased by 0.6%29.2%, from Ps. 69.135.6 billion in 20132016 to Ps. 69.546.0 billion in 2014,2017, primarily due to an increase in the volumeaverage sales prices of fuel oil sold.and naphthas. In U.S. dollar terms, export sales of petroleum products, including products derived from natural gas and natural gas liquids, decreasedincreased by 1.9%26.3%, from U.S. $5.4$1.9 billion in 20132016 to U.S. $5.3$2.4 billion in 2014.2017. Export sales of natural gas increased by 50.0%3.3%, from Ps. 0.04 billion21.0 million in 20132016 to Ps. 0.06 billion21.7 million in 2014. This increase was2017, primarily due to an increase in the average sales price and volume of natural gas sold as a result of higher demand in the international market.gas.
Petrochemical products accounted for the remainder of export sales in 20132016 and 2014.2017. Export sales of petrochemical products (including certainby-products of the petrochemical process) decreasedincreased by 22.7%Ps. 1,087.8 million in 2014,2017, from Ps. 2.2 billion3,537.5 million in 20132016 to Ps. 1.7 billion4,625.3 million in 2014,2017, primarily as a resultdue to an increase in export sales of decreasesFertinal in the prices and volumes of ammonia, sulfur and styrene.2017. In U.S. dollar terms, export sales of petrochemical products (including certainby-products of the petrochemical process) decreased by 23.4%2.7% in 2014,2017, from U.S. $171.3$218.7 million in 20132016 to U.S. $131.2$212.8 million in 2014.2017.
Services Income
In 2013 and 2014, services income totaled Ps. 10.3 billion and Ps. 11.4 billion, respectively. Services income increased by 23.3% in 2017, from Ps. 1.19.0 billion or 10.7%, during 2014,in 2016 to Ps. 11.1 billion in 2017, primarily as a result of a Ps. 0.8 billionan increase in revenues from managerialtransportation services provided by Pemex-PetrochemicalsPemex Logistics to CENAGAS and an increase in freight services provided by Pemex Industrial Transformation to third parties and a Ps. 0.7 billion increase in insurance revenues from Kot AG.parties.
Cost of Sales
Cost of sales increased by 16.0%, from Ps. 865.8 billion in 2016 to Ps. 1,004.2 billion in 2017. This increase was mainly due to: (1) an increase of Ps. 131.2 billion in purchases of imports, primarily Magna gasoline, diesel and natural gas, mainly due to an increase in the price of imports and an increase in the volume of imports required to meet domestic demand; (2) a Ps. 15.5 billion increase in hydrocarbon exploration and extraction duties and taxes due to higher average sales prices in 2017; (3) a Ps. 9.5 billion increase in operating expenses, mainly due to an increase in expenses for materials and spare parts; and (4) a Ps. 6.2 billion increase in depreciation of fixed assets and amortization of wells, primarily due to the increased value of assets to be depreciated as a result of the partial reversal of the impairment recorded in 2016. This increase was partially offset by a Ps. 26.0 billion decrease in the cost of unsuccessful wells, primarily due to a decrease in investment.
Impairment of Wells, Pipelines, Properties, Plant and Equipment and General Expenses
Cost of sales increased by 3.5%, from Ps. 814.0 billion in 2013 to Ps. 842.6 billion in 2014. This increase was primarily due to: (1) a Ps. 25.0 billion increase in costs associated with our share in the Deer Park refinery; (2) a Ps. 15.4 billion increase in purchases of imported gasoline, natural gas, natural gas liquids, turbosine and diesel and (3) a Ps. 9.0 billion increase in operating expenses. This increase was partially offset by: (1) a Ps. 7.8 billion decrease in the amortization of assets; (2) a Ps. 5.4 billion decrease in maintenance costs and (3) a Ps. 5.3 billion decrease in the net periodic cost of employee benefits in 2014, which was primarily due
to the change in the applicable discount rate from 8.45% in 2013 to 6.98% in 2014 and the expected rate of return on plan assets for retirement benefits.
Impairment of wells, pipelines, properties, plant and equipment decreasedincreased by Ps. 3.0 billion from Ps. 25.6482.7 billion in 2013 to2017, from a net reversal of impairment of Ps. 22.6331.3 billion in 2014,2016 to a net impairment of Ps. 151.4 billion in 2017, mainly due to: (1) the deferral of the development investments in the first five years of the economic horizon in the proved reserves, (2) insufficient cash flows to make up for costs recovery at the Burgos and Lakach projects resulting from the 4.3% appreciation of the Mexican peso against the U.S. dollar from a peso–U.S. dollar exchange rate of Ps. 20.6640 to U.S. $1.00 as of December 31, 2016 to a peso–U.S. dollar exchange rate of Ps. 19.7867 to U.S. $1.00 as of December 31, 2017, due to the fact that cash inflows are denominated in U.S. dollars and then translated to the value in usereporting currency using the exchange rate at the end of the Integral Burgos, Poza Rica, Macuspanaperiod; (3) a 0.3% increase in the discount rate; (4) a 7.2% decrease in crude oil forward prices, and Pemex Petrochemical projects was more unfavorable in 2013 as compared to 2014 due to(5) the natural decline in gas pricesproduction in the international market as well as the condition of economic hydrocarbon reserves located at these projects.Macuspana project.
General Expenses
General expenses increased by 9.4%,Ps. 3.9 billion, from Ps. 131.1137.9 billion in 20132016 to Ps. 143.5141.8 billion in 2014. This increase was primarily2017, mainly due to a Ps. 11.7 billionan increase in administrative expenses relating to the net cost of employee benefits forcontributions to the perioddefined contribution pension plan and a Ps. 1.0 billion increase in operating expenses.incentives to encourage employees to migrate from the defined benefit pension plan to the defined contribution plan.
Other Revenues (Principally IEPS Benefit),Revenues/Expenses, Net
Other revenues, net, decreased by 58.3% in 2014, from Ps. 90.117.5 billion in 2013 to2017, from other revenues, net, of Ps. 37.622.7 billion in 2014.2016 to other revenues, net, of Ps. 5.2 billion in 2017. This decrease was primarily due to the recognition of a Ps. 8.4 billion loss in the disposal of wells, pipelines, properties, plant and equipment and a Ps. 3.3 billion loss in the sale of our shares in Repsol. The decrease in other revenues, net, was partially offset by a Ps. 3.1 billion gain from the credit attributablesale of our 50% interest in Ductos y Energéticos del Norte and the recovery of a Ps. 13.6 million insurance payment relating to the negative IEPS tax ratean accident that occurred on ourAbkatún-A platform in 2014 as compared to 2013, which is generated when the prices at which we sell gasoline and diesel in the domestic market are lower than the international market prices for such products. As a result, we recognized revenues from IEPS tax credits of Ps. 43.1 billion in 2014, as compared to Ps. 94.5 billion in 2013.April 2015.
Financing Income
Financing income decreasedincreased by 65.5%Ps. 2.4 billion in 2014,2017, from Ps. 8.713.8 billion in 20132016 to Ps. 3.016.2 billion in 2014,2017, primarily due to a Ps. 5.7 billion decreaseinterest on the promissory notes issued by the Mexican Government in interest income.relation to our pension liabilities.
Financing Cost
Financing cost increased by 30.3%18.8% in 2014,2017, from Ps. 39.698.8 billion in 20132016 to Ps. 51.6117.6 billion in 2014,2017, primarily due to a Ps. 12.0 billionan increase in interest expense resulting from ain 2017 following higher levellevels of debtindebtedness and the 4.3% appreciation of the peso relative to the U.S. dollar in 20142017 as compared to 2013 and an increase in foreign exchange rates.2016.
Derivative Financial Instruments Income (Cost)
DFI costDerivative financial instruments income (cost), net, increased by Ps. 10.739.3 billion, from a gainnet cost of Ps. 1.314.0 billion in 20132016 to a lossnet income of Ps. 9.425.3 billion in 2014,2017, primarily due to a Ps. 7.6 billion increase in costs associated with certain DFIs resulting from the appreciationdepreciation of the U.S. dollar relative to other foreign currencies that we hedge.hedge and the restructuring of certain of our derivative financial instruments.
Foreign Exchange Gain, Net
A substantial portion of our indebtedness, 77.8%86.6% as of December 31, 2014,2017, is denominated in U.S. dollars and other foreign currencies. The higher depreciationOur exchange gain, net, increased by Ps. 277.2 billion in 2017, from an exchange loss of Ps. 254.0 billion in 2016 to an exchange gain of Ps. 23.2 billion in 2017, primarily as a result of a 4.3% appreciation of the peso relative to the U.S. dollar during 2014 as compared to 2013 resulted in a Ps. 73.0 billion increase in our foreign exchange loss, from a loss of approximately Ps. 4.0 billion in 2013 to a loss of approximately Ps. 77.0 billion in 2014. However, due2017. Due to the fact that over 95%100.0% of our revenues from exports and domestic sales are referenced to prices denominated in U.S. dollars, and only 73%74.0% of our expenses, including financing costs, are linked to U.S. dollar prices, the depreciationappreciation of the peso relative to the U.S. dollar did not affecthad an unfavorable effect on our ability to meet U.S. dollar-denominated financial obligations and improved our ability to meet peso-denominated financial obligations in 2014. obligations. The value of the peso in U.S. dollar terms depreciatedappreciated by 12.6%4.3% in 2014,2017, from Ps. 13.076520.6640 = U.S. $1.00 on December 31, 20132016 to Ps. 14.718019.7867 = U.S. $1.00 on December 31, 2014,2017, as compared to a 0.5%20.1% depreciation of the peso in U.S. dollar terms in 2013. The higher depreciation of the peso relative to the U.S. dollar was partially offset by the appreciation of the peso relative to the euro in 2014 as compared to 2013.2016.
Taxes, Duties and DutiesOther
TaxesHydrocarbon extraction duties and other duties (including the IEPS tax) decreasedand taxes paid increased by 13.7%25.9% in 2014,2017, from Ps. 864.9264.5 billion in 20132016 to Ps. 746.1333.0 billion in 2014,2017, primarily due to the 12.7% decrease34.4% increase in the weighted average price of the Mexican crude oil export price, from U.S. $98.46 per barrel to
U.S. $86.00$35.63 per barrel in 2014. In 2014,2016 to U.S. $47.26 per barrel in 2017. Income related duties and taxes represented 47.0%23.8% of total sales whereas in 2013 they represented 53.8%2017, as compared to 24.6 % of total sales because the decrease in our sales in 2014 directly impacted the amount of taxes and duties owed.2016.
Net Income/Loss
In 2014,2017, we had a net loss of Ps. 265.5280.9 billion from Ps. 1,586.71,397.0 billion in total sales revenues, as compared to a net loss of Ps. 170.1191.1 billion from Ps. 1,608.21,074.1 billion in total sales revenues in 2013.2016. This increase in net loss in 2014 iswas primarily explained by: (1)
a Ps. 77.0482.7 billion foreign exchange loss, which was partially offset byincrease in the appreciationimpairment of fixed assets;
a Ps. 68.5 billion increase in taxes and other duties, mainly due to the increase in the weighted average price of the peso relative to the euro in 2014 as compared to 2013; (2) Mexican crude oil export price; and
a Ps. 52.517.5 billion decrease in other revenues, net; (3) net.
This increase was partially offset by:
a Ps. 19.6322.9 billion increase in financing cost, net; (4) total sales, mainly due to the increase in average sales prices of our domestic refined petroleum products and export crude oil;
a Ps. 25.7277.2 billion increase in cost of sales, which was partially offset by the Ps. 118.8 billion decrease in taxesexchange gain, net; and duties and (5)
a Ps. 21.539.3 billion decreaseincrease in sales.derivative financial instruments income, net.
Other Comprehensive Results
In 2014,2017, we had a net lossgain of Ps. 265.311.5 billion in other comprehensive results, as compared to a net incomegain of Ps. 254.3127.9 billion in 2013,2016, primarily due to an increase in the reserve for employee benefits that resulted from athe decrease from 8.45% in 2013 to 6.98% in 2014, in the discount rate applied as partand expected rate of return on plan assets used in the actuarial computation method.method from 8.2% in 2016 to 7.9% in 2017, as well as the effect of employees migrating from the defined benefits pension plan to the defined contribution plan.
Changes in Statement of Financial Position of Petróleos Mexicanos, the Subsidiary Entities and the Subsidiary Companies—from December 31, 2017 to December 31, 2018
Assets
Cash and cash equivalents decreased by Ps. 16.0 billion, or 16.3%, in 2018, from Ps. 97.9 billion as of December 31, 2017 to Ps. 81.9 billion as of December 31, 2018. This decrease was mainly due to an increase in payments to suppliers and contractors, payments on our debt instruments and taxes.
Accounts receivable, net, decreased by Ps. 1.0 billion, or 0.6%, in 2018, from Ps. 168.1 billion as of December 31, 2017 to Ps. 167.1 billion as of December 31, 2018. This was mainly due to a decrease in our accounts receivable from customers caused by a decrease in sales in the month of December 2018, which was partially offset by an increase in our accounts receivable from sundry debtors (mainly IEPS tax) from larger gasoline imports at the end of the year.
The current portion of our promissory notes increased by Ps. 35.7 billion in 2018, mainly due to recognition of the current portion of six promissory notes with original maturities ranging from 2032 to 2047.
Inventories increased by Ps. 18.1 billion, or 28.3%, in 2018, from Ps. 63.9 billion as of December 31, 2017, to Ps. 82.0 billion as of December 31, 2018, mainly due to an increase in the value of imports of refined products.
Derivative financial instruments decreased by Ps. 7.7 billion in 2018, from Ps. 30.1 billion as of December 31, 2017 to Ps. 22.4 billion as of December 31, 2018. This decrease was mainly due to the decrease in the fair value ofcross-currency swaps as a result of the appreciation of the U.S. dollar relative to most of the other relevant currencies.
Wells, pipelines, properties, plant and equipment decreased by Ps. 34.0 billion in 2018, from Ps. 1,436.5 billion as of December 31, 2017 to Ps. 1,402.5 billion as of December 31, 2018. This decrease was primarily due to depreciation of Ps. 153.4 billion and disposals of wells, pipelines, property, plant and equipment of Ps. 16.8 billion, which were partially offset by acquisitions of wells, pipelines, properties, plant and equipment of Ps. 114.8 billion and a net reversal of impairment of Ps. 21.4 billion.
Deferred taxes decreased by Ps. 23.4 billion, or 16.0%, in 2018, from Ps. 146.2 billion as of December 31, 2017 to Ps. 122.8 billion as of December 31, 2018, mainly due to an increase in the valuation reserve for our deferredProfit-Sharing Duty assets.
Liabilities
Total debt, including accrued interest, increased by Ps. 44.4 billion, or 2.2%, in 2018, from Ps. 2,037.9 billion as of December 31, 2017 to Ps. 2,082.3 billion as of December 31, 2018, mainly due to higher levels of indebtedness.
Line items related to suppliers and contractors increased by Ps. 9.8 billion, or 7.0%, in 2018, from Ps. 140.0 billion as of December 31, 2017 to Ps. 149.8 billion as of December 31, 2018, primarily due to an increase in our operations towards the end of 2018.
Taxes and duties payable increased by Ps. 14.3 billion, or 28.0%, in 2018, from Ps. 51.0 billion as of December 31, 2017 to Ps. 65.3 billion as of December 31, 2018, primarily due to a Ps. 9.6 billion increase in the IEPS tax and a Ps. 4.6 billion increase in theProfit-Sharing Duty.
Derivative financial instruments liabilities decreased by Ps. 1.8 billion, or 10.2%, in 2018, from Ps. 17.7 billion as of December 31, 2017 to Ps. 15.9 billion as of December 31, 2018. This decrease was mainly due to a decrease in the fair value of our crude oil options and the termination of our currency forwards, which was partially offset by the decrease in the fair value of ourcross-currency swaps.
Employee benefits liabilities decreased by Ps. 177.9 billion, or 14.1%, in 2018, from Ps. 1,258.4 billion as of December 31, 2017 to Ps. 1,080.5 billion as of December 31, 2018. This decrease was primarily due to an increase in actuarial gains and contributions made to theFondo Laboral Pemex(Pemex Labor Fund) trust.
Total Equity (Deficit)
Our total equity (deficit) improved by Ps. 43.0 billion, or 2.9%, in 2018, from negative Ps. 1,502.4 billion as of December 31, 2017 to negative Ps. 1,459.4 billion as of December 31, 2018. This improvement was mainly due to a Ps. 222.5 billion increase in actuarial gains on employee benefits and a Ps. 1.3 billion accumulated gain from the foreign currency translation effect, partially offset by our net loss for the year of Ps. 180.4 billion.
Liquidity and Capital Resources
Overview
The sharp decline in crude oil prices beginning at the end of 2014 negatively impactedDuring 2018, we were able to strengthen our liquidity. liquidity position by increasing our accounts receivable, decreasing our accounts payable to suppliers and managing our liquidity risk through derivative financial instruments.
Our principal use of funds in 20152018 was capital expenditures, including exploration expenditures (amounting to Ps. 259.2 billion), which we metthe repayment of debt, primarily with cash provided by net cash flows from financing activities.borrowings, which amounted to Ps. 2,082.3 billion. During 2015,2018, our net cash flow from operating activities, together with our funds from financing activities, was less than the resources neededsufficient to fund our capital expenditures and other expenses. Our net funds from operating activities totaled Ps. 102.3 billionSee “—Overview—New Business Plan and Recent Initiatives” above for more information and a discussion of actions being taken in 2015, as comparedresponse to net funds from operating activitiesthe imbalance of Ps. 134.5 billion in 2014. Total sales decreased by 26.5% in 2015, from Ps. 1,586.7 billion in 2014 to Ps. 1,166.4 billion in 2015. Because of the decrease in net funds from operating activities, we were forced in 2015 to rely more heavily on our financing activities. Our net cash flows from financing activities totaled Ps. 134.9 billion in 2015, as compared to net cash flows of Ps. 117.1 billion used in financing activities in 2014.resources.
For 2016, we are forecasting2018, our capital expenditures ofincreased slightly by approximately Ps. 156.7 billion, a decrease as0.2% from 2015, which is primarily due to the expected price levels of our products in 2016 and our expected borrowing capacity. Additionally, one of the most critical problems we face in 2016 is our accounts payable to suppliers.2017. As of December 31, 2015,2018, we owed our suppliers approximately Ps. 167.3 billion. However,149.8 billion as compared to Ps. 140.0 billion as of December 31, 2017. As of December 31, 2018, we have paid the total outstanding balance due to suppliers and contractors as of December 31, 2017. The average number of days outstanding of our accounts payable decreased from 62 days as of December 31, 2017 to 53 days as of December 31, 2018. Despite these obligations, we believe net cash flows from our operating and financing activities, together with available cash and cash equivalents, will be sufficient to meet our working capital, debt service and capital expenditure requirements in 20162019 because, we andin collaboration with the Mexican Government, we have adjusted investment, taxationbegun to implement initiatives intended to help us meet our working capital needs, continue to service our debt as it comes due and financing plans to address declining oil pricesimprove our capital expenditure programs and maintain our financial strength and flexibilitywe are in the following manner:process of developing and refining our newlong-term business plan, as described above under “—Overview—New Business Plan and Recent Initiatives” and as further described below:
| • | Changes to Our Business Plan.We |
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| • | Modified Financing Strategy.We intend to continue our strategy of decreased reliance on debt financing and we expect further liability management transactions in 2019 will allow us to improve the terms of our outstanding debt, in line with our objective of reducing our net debt. |
| • | Crude Oil Hedge Program.We continue to carry out our crude oil hedge program in order to partially protect our cash flows from decreases in the price of Mexican crude oil. |
| • | No Payment of Dividend.The Mexican Government announced that Petróleos Mexicanos was not |
Moreover, on April 13, 2016, the Ministry of Finance and Public Credit announced additional support mechanisms to provide us with a total cash flow injection of Ps. 73.5 billion composed of (1) a capital contribution of Ps. 26.5 billion, which was received on April 21, 2016 and (2) Ps. 47.0 billion of short-term Mexican government debt securities, which we will receive later this year in exchange for the Ps. 50.0 billion promissory note issued to us by the Mexican Government last year. As a condition to receiving this additional support, we must reduce our liabilities with suppliers and contractors by the same amount—Ps. 73.5 billion in 2016.
Furthermore, the Mexican Government announced that it modified the fiscal regimeThe Federal Revenue Law applicable to us to enable us to deduct moreas of our exploration and production costs. Under the current low oil price environment, we estimate (based on a price of crude oil at U.S.$25.00 per barrel) that this will reduce the amount of taxes we will have to pay for the year ended December 31, 2016 by approximately Ps. 50.0 billion. If prices of crude oil increase, we would be able to take greater deductions.
As noted above, successful completion of financings is an integral part of our plan to satisfy our working capital, capital expenditure, debt maturities and other requirements for the foreseeable future. Our financing program for 2016, included in theLey de Ingresos de la Federación para el Ejercicio Fiscal 2016 (Federal Revenues Law for the Fiscal Year 2016),January 1, 2019, provides for the incurrence of up to U.S. $15.7Ps. 112.8 billion in netindebtedness (i.e., U.S. $21.0 billion of new financings minus U.S. $5.3 billion of debt payments)net indebtedness through a combination of domestic and international capital markets offerings and borrowings from domestic and international financial institutions.
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.debt. 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. The sharp decline inincreased and our working capital has deteriorated. Relatively low oil prices that began in late 2014 hasand declining production have also had a negative impact on our ability to generate positive cash flows, which, together with our continued heavy tax burden, has further exacerbated our ability to fund our capital expenditures and other expenses fromexpenses. Despite the relatively low and fluctuating oil prices and our heavy tax burden, our cash flow from operations. Therefore,operations in order2018, together with our funds from financing activities, was sufficient to developfund our hydrocarbon reservescapital expenditures and amortize scheduledother expenses. We expect that net cash flows from our operations and financing activities will also be sufficient to meet our working capital requirements, debt maturities, we will need to raise significant amounts of financing from a broad range of funding sources.service and capital expenditures for 2019.
As of December 31, 2015,2018, our total indebtedness, including accrued interest, was approximately U.S. $86.8Ps. 2,082.3 billion (Ps 1,493.4(U.S. $105.8 billion), in nominal terms, which represents a 11.7%2.2% increase (a 30.6% increase in peso terms) compared to our total indebtedness, including accrued interest, of approximately U.S. $77.7Ps. 2,037.9 billion (Ps. 1,143.3(U.S. $103.5 billion) as of December 31, 2014. 26.7%2017. 27.2% of our existing debt as of December 31, 2015,2018, or U.S. $23.1Ps. 566.1 billion (U.S. $28.8 billion), is scheduled to mature in the next three years. Our working capital decreased from a negative working capital of Ps. 25.6 billion (U.S. $1.3 billion) as of December 31, 2017 to a negative working capital of Ps. 54.7 billion (U.S. $2.8 billion) as of December 31, 2018. Our level of debt may increase further in the short or medium term, as a result of new financing activities or future depreciation of the peso as compared to the U.S. dollar, and may have an adverse effect on our financial condition, results of operations and liquidity position. To service our debt, we have relied and may continue to rely on a combination of cash flow from operations, drawdowns under our available credit facilities and the incurrence of additional indebtedness (including refinancings of existing indebtedness). In addition, we are taking actions to improve our financial position, such as those discussed above.
Certain rating agencies have expressed concerns regarding: (1) our heavy tax burden; (2) the total amount of our debt; (2)debt and the ratio of our debt to our proven reserves; (3) the significant increase in our indebtedness over the last several years; (3)(4) our negative free cash flow during 2015, primarily resulting fromflow; (5) the natural decline of certain of our significant capital investment projectsoil fields and the declining pricelower quality of crude oil; (4)(6) our substantial unfunded reserve for retirement pensions and seniority premiums, which was equal to Ps. 1,279.41,080.5 billion (U.S. $74.4$54.9 billion) as of December 31, 2015 and (5)2018; (7) the resiliencepersistence of our operating expenses notwithstanding the sharp declinedeclines in oil pricesprices; (8) the possibility that beganour budget for capital expenditures will be insufficient to maintain and exploit reserves; and (9) the involvement of the Mexican Government in late 2014. our strategy, financing and management.
On January 29, 2016, Standard & Poor’s announced the downgrade of ourstand-alone credit profile from BB+ to BB. On March 31, 2016,April 12, 2018, Moody’s Investors Service announced the revision of its outlook for our credit ratings from negative to stable and affirmed our global foreign currency rating as Baa3 and our global local currency credit ratingsrating as Aa3. On January 29, 2019, Fitch Ratings lowered our credit rating from Baa1BBB+ to Baa3BBB- in both global local and changedglobal foreign currency and affirmed the outlook for itsour credit ratings as negative. On March 4, 2019, Standard and Poor’s announced the revision of the outlook for our credit ratings from stable to negative.negative and affirmed our global foreign currency credit rating as BBB+ and our global local currency rating asA-.
Any further lowering of our credit ratings, particularly below investment grade, may have material 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 or at all,In turn, this could hamper our ability to obtain further financing on favorable terms as well as investment in projects financed through debt and impairsignificantly harm our ability to meet our principal and interest paymentexisting 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 needed to maintain our current production levels and to maintain, and increase, our proved hydrocarbon reserves, which may adversely affect our financial condition and results of operations.
If such constraints occur at a time when our cash flow from operations is less than the resources needed to fund our capital expenditures ornecessary 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. SuchAdditionally, such measures may not be sufficient to permit us to meet our obligations.
Going Concern
Our consolidated financial statements have been prepared under the assumptionon a going concern basis, which assumes that we will continue as a going concern.can meet our payment obligations. As we describe in Note 224-e to our audited consolidated financial statements, we have experienced recurring losses from our operations and have negative working capital and negative equity, which raisesthere exists substantial doubt regardingabout our ability to continue as a going concern, as stated by our independent auditors in their most recent report.concern. We discuss the circumstances that have caused these negative trends, as well our plans in regard to these matters in “Item 5—Operating“Operating and Financial Review and Prospects—Overview” above in this Item 5 and Note 224-e to our consolidated financial statements included herein. We are currently evaluating our new business plan in light of the recent announcements by the Mexican Government in connection with the energy sector in Mexico, and we intend to continue taking actions to improve our results of operation, capital expenditures plans and financial condition. We continue operating as a going concern, and our consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Equity Structure and Mexican Government Contributions
Our total equity (deficit) as of December 31, 20152018 was negative Ps. 1,331.71,459.4 billion, and our total capitalization (long-term(long-term debt plus equity) totaled negative Ps. 30.81,555.5 billion. During 2015,2018, our total equity decreased(deficit) improved by Ps. 564.043.0 billion from negative Ps. 767.7Ps 1,502.4 billion as of December 31, 2014,2017, primarily due to a Ps. 222.5 billion increase in actuarial gains on employee benefits and a Ps. 1.3 billion accumulated gain from the foreign currency translation effect, partially offset by our Ps. 623.9 billion total comprehensivenet loss for the year resulting from our Ps. 712.4 billion net loss, our net gain of Ps. 88.6 billion in other comprehensive results and the Ps. 60.0 billion net increase in Mexican Government contributions to Petróleos Mexicanos.180.4 billion. Under theLey deConcursos Mercantiles(Commercial (Commercial Bankruptcy Law of Mexico), Petróleos Mexicanos and the subsidiary entities cannot be subject to a bankruptcy proceeding. In addition, our current financing agreements do not include financial covenants or events of default that would be triggered as a result of our having negative equity.
On December 23, 2014, Petróleos Mexicanos made a Ps. 70.0 billion payment to
In 2018 and 2017, we did not receive any capital contribution from the Mexican Government. This payment was made pursuant to a request by the SHCP in accordance with Article 6 of the 2014 Revenue Law for 2014), Article 26 of the Federal Law of Budget and Fiscal Accountability and the fourteenth transitional article of the Petróleos Mexicanos Law. This withdrawal was partially offset by the Ps. 20.0 billion equity contribution made by the Mexican Government to Petróleos Mexicanos in the form of Certificates of Contribution “A” on December 26, 2014. The net effect of this withdrawal and contribution was a Ps. 50.0 billion decrease in our equity.
On January 27, 2014, the Mexican Government contributed Ps. 2.0 billion to the Oil Revenues Stabilization Fund. This contribution was recognized as a Ps. 2.0 billion increase in Mexican Government contributions to Petróleos Mexicanos.
On January 19, 2015, the Mexican Government made an equity contribution of Ps. 10.0 billion to Petróleos Mexicanos in accordance with the Federal Law of Budget and Fiscal Accountability, as amended. This payment was recognized as a Ps. 10.0 billion increase in Mexican Government contributions to Petróleos Mexicanos.
On December 24, 2015, the Mexican Government issued, through the Ministry of Finance and Public Credit published in the Official Gazette of the Federation theDisposiciones de carácter general relativas a la asunción por parte del Gobierno Federal de obligaciones de pago de pensiones y jubilaciones a cargo de Petróleos Mexicanos y sus empresas productivas subsidiarias (General provisions regarding the assumption by the Mexican Government of the payment obligations related to pensions and retirement plans of Petróleos Mexicanos and its productivestate-owned subsidiaries). On August 3, 2016, the Ministry of Finance and Public Credit informed us that the Mexican Government would assume Ps. 184.2 billion in payment liabilities related to our pensions and retirement plans, and accordingly replaced the Ps. 50.0 billion promissory note dueissued to us on December 31, 2050 payable to Petróleos Mexicanos. The24, 2015 with Ps. 184.2 billion in promissory note, which accrues interest at a rate of 6.93% per year, is expected to be exchanged for different credit instruments once the independent expert concludes its review of the decrease in our benefits liabilities as disclosed in Note 21 to our consolidated financial statements included herein. We recognized this promissory note as a long-term account receivable and a Mexican Government equity contribution to Petróleos Mexicanos.notes.
As of December 31, 20142017 and 2015,2018, the balance of Mexican Government contributions to Petróleos Mexicanos was Ps. 43.7 billion. As of December 31, 20142017 and 2015,2018, the total amount of contributions in the form of Certificates of Contribution “A” was Ps. 134.6356.5 billion.
On January 31, 2019, the Mexican Government notified the Board of Directors of Petróleos Mexicanos that the Mexican Government would make payments to us through the SENER in a total amount of Ps. 25.0 billion. On March 8, 2018, we received a payment for Ps. 10.0 billion and on April 11, 2019, we received a payment for Ps. 194.6 billion, respectively.5.0 billion. These payments are part of the Mexican Government’s Strengthening Program for Petróleos Mexicanos. See “Item 5—Operating and Financial Review and Prospects—Overview.”
Cash Flows from Operating, Financing and Investing Activities
During 2015,2018, net funds provided by operating activities totaled Ps. 102.3141.8 billion, as compared to Ps. 134.463.4 billion in 2014. Net loss was2017, due to an increase in sales and a lower corresponding increase in cost of sales resulting from improvements in our operations. During 2018, our net cash flows used in investing activities totaled Ps. 712.6101.1 billion, in 2015, as compared to net losscash flows used in investing activities of Ps. 265.580.7 billion in 2014.2017. Our net cash flows fromused in financing activities totaled Ps. 134.956.6 billion in 2015,2018, as compared to Ps. 117.1 billion in 2014. During 2015, we applied net cash flows used in financing activities of Ps. 254.8 billion for net investments at cost in fixed assets, including exploration expenses, as compared to our application of cash flows of Ps. 222.746.3 billion in 2014 for net investments at cost in fixed assets, including exploration expenses.2017.
At December 31, 2015,2018, our cash and cash equivalents totaled Ps. 109.481.9 billion, as compared to Ps. 118.097.9 billion at December 31, 2014.2017. See Note 9 to our consolidated financial statements included herein for more information about our cash and cash equivalents.
Liquidity Position
We define liquidity as funds available under our lines of credit as well as cash and cash equivalents. The following table summarizes our liquidity position as of December 31, 20142018 and 2015.2017.
| As of December 31, | As of December 31, | |||||||||||||||
| 2015 | 2014 | 2018 | 2017 | |||||||||||||
| (millions of pesos) | (millions of pesos) | |||||||||||||||
Borrowing base under lines of credit | Ps. | 11,337 | Ps. | — | Ps.152,170 | Ps.130,348 | ||||||||||
Cash and cash equivalents | 109,369 | 117,989 | 81,912 | 97,852 | ||||||||||||
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Liquidity | Ps. | 120,706 | Ps. | 117,989 | Ps.235,082 | Ps.228,200 | ||||||||||
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The following table summarizes our sources and uses of cash for the years ended December 31, 20142018 and 2015:2017.
| For the years ended December 31, | ||||||||||||||||
| 2018 | 2017 | |||||||||||||||
| For the years ended December 31, | ||||||||||||||||
| 2015 | 2014 | (millions of pesos) | ||||||||||||||
| (millions of pesos) | ||||||||||||||||
Net cash flows (used in) from operating activities | Ps. | 102,337 | Ps. | 134,356 | Ps. | 141,787 | Ps. | 63,398 | ||||||||
Net cash flows used in investing activities | (254,832 | ) | (222,668 | ) | (101,084 | ) | (80,690 | ) | ||||||||
Net cash flows from financing activities | 134,915 | 117,112 | ||||||||||||||
Net cash flows (used in) financing activities | (56,554 | ) | (46,255 | ) | ||||||||||||
Effect of change in cash value | 8,960 | 8,442 | (88 | ) | (2,133 | ) | ||||||||||
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Net (decrease) increase in cash and cash equivalents | Ps. | (8,620 | ) | Ps. | 37,242 | |||||||||||
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Net increase (decrease) in cash and cash equivalents | Ps. | (15,939 | ) | Ps. | (65,682 | ) | ||||||||||
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Note: Numbers may not total due to rounding.
Investment Policies
Our Finance and Treasury Department maintains financial resources sufficient to meet our payment commitments and those of the subsidiary entities, as well as a comprehensive, consolidated cash position and related projections in anticipation of such commitments.
Our investment policies attempt to take advantage of favorable market conditions by accessing the most favorable terms offered to us by financial institutions. Investments of financial resources by our Finance and Treasury Department are made in accordance with the following policies:
Investments of Mexican Pesos
In connection with investments in Mexican pesos, we are obligated, during the structuring and development phase of our financial transactions, to observe and comply with the investment guidelines for resources in pesos that were approved by our Financial Resources Committee on December 21, 2006,July 24, 2017, as modified from time to time. We may only invest in the following:
| (a) | securities issued or guaranteed by the Mexican Government; |
| (b) | securities issued by Sociedades Nacionales de Crédito (National Credit Societies), the balance of which may not exceed 50% of our cash and cash equivalents; |
| (c) | repurchase agreements that use securities issued or guaranteed by the Mexican Government; |
time deposits with major financial institutions, the balance of which may not exceed |
shares of mutual funds whose investments are limited to securities issued or guaranteed by the Mexican Government. |
In addition to the above limits, repurchase agreements (which are sometimes called repo transactions) may onlydemand deposit accounts must be entered intotraded with financial institutions that maintain, at a minimum, the following credit ratings as issued by the applicable rating agency:
Domestic scale | Fitch Ratings | S&P | Moody’s | |||
Long term | ||||||
Short term | F1(mex) | A-1 | Mx-1 |
Investments of Financial Resources in Dollars
Investments of financial resources in dollars must meet our operational and strategic requirements and must be previously approved byBanco de México on acase-by-case basis. Currently, our investments in dollars are limited to operational accounts,short-term money market funds and time deposits. Our dollar investments are managed byBanco de México.
Operational Currencies
The main currencies for investing cash and cash equivalents are pesos and dollars. Similarly, we generate revenues from the domestic and international sales of our products in those two currencies and our expenses, including those relating to our debt service, are payable in these two currencies.
Commitments for Capital Expenditures and Sources of Funding
Our current aggregate commitments for capital expenditures for 20162019 total approximately Ps. 156.7159.1 billion. For a general description of our current commitments for capital expenditures, see “Item 4—Information on the Company—History and Development—Capital Expenditures and Investments.Expenditures.” The amount of our aggregate capital expenditures commitments for 20162019 remains subject to adjustment by the Mexican Government. See “Item 3—Key Information—Risk Factors—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.”
The following table sets forth our total capital expenditures, excludingnon-capitalizable maintenance, by segment for the year ended December 31, 2015,2018, and the budget for these expenditures for 2016.2019. 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. For more information see “Item 4—History and Development—Capital Expenditures and Investments—Capital Expenditures Budget.Expenditures.”
Exploration and Production(2) Refining(3) Gas and Basic Petrochemicals(4) Petrochemicals(5) Drilling and Services(6) Logistics(7) Fertilizers(8) Ethylene(9) Corporate and other Subsidiaries Total Year ended December 31, Budget 2015 2016(1) (millions of pesos) Ps. 151,546 Ps. 121,576 29,646 18,919 5,160 2,093 494 357 1,564 1,663 9,827 4,449 1,044 444 1,869 1,786 2,157 5,422 Ps. 203,307 Ps. 156,709
| Year ended December 31, | Budget 2019(1) | |||||||
| 2018 | ||||||||
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Exploration and Production | Ps.71,107 | Ps.98,226 | ||||||
Industrial Transformation | 17,026 | 57,500 | ||||||
Drilling and Services | 1,388 | 1,295 | ||||||
Logistics | 5,042 | 1,200 | ||||||
Ethylene | 975 | 300 | ||||||
Fertilizers | 331 | 500 | ||||||
Corporate and other Subsidiaries | 893 | 107 | ||||||
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Total | Ps.96,762 | Ps.159,128 | ||||||
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Note:
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Our current commitments for capital expenditures have fluctuated in recent years as compared to previous years. Based on past experience, we expect to generate sufficient funds for our working capital, capital expenditures and investments through:
cash flow generated by operations;
the issuance of debt securities in the international capital markets;
the renewal of existing lines of credit and the entering into of new lines of credit from international and local commercial banks; and
other financing activities. The securities that we issue may vary in tenor, amount, currency and type of interest rate. We may issue debt securities in U.S. dollars, Japanese yen, euros, pounds, pesos or Swiss francs, among others; these securities may be issued with fixed or floating rates and with maturities of one or more years, including perpetual debt securities, depending on market conditions and funding requirements. We may issue securities in the international capital markets or in the Mexican domestic market, or in both markets. Commercial bank syndicated loans may be established with single or multiple tranches with varying maturities. Bilateral loans may vary in tenor and range, which may be of one year or more. See also “—Financing Activities” below.
Financing Activities
2018 Financing Activities.During 2018, we participated in the following activities:
On February On February 12, 2018, Petróleos Mexicanos consummated an exchange offer pursuant to which it exchanged (1) U.S. $952,454,000 aggregate principal amount of its outstanding 5.500% Bonds due 2044 for U.S. $881,899,000 aggregate principal amount of its new 6.350% Bonds due 2048 and (2) U.S. $1,021,065,000 aggregate principal amount of its outstanding 5.625% Bonds due 2046 for U.S. $946,764,000 aggregate principal amount of its new 6.350% Bonds due 2048. On February 12, 2018, Petróleos Mexicanos consummated a tender offer pursuant to which it purchased U.S.$ 2,052,000 aggregate principal amount of its outstanding 5.500% Bonds due 2044 and U.S.$ 2,488,000 aggregate principal amount of its outstanding 5.625% Bonds due 2046. On March 5, 2018, Petróleos Mexicanos consummated a tender offer pursuant to which it purchased U.S. $138,598,000 aggregate principal amount of its outstanding 3.125% Notes due 2019, U.S. $558,644,000 aggregate principal amount of its outstanding 5.500% Notes due On March 27, 2018, Petróleos Mexicanos entered into a loan agreement in the amount of U.S. $181,101,291, which bears interest at a floating rate linked to LIBOR and matures in 2025. On April 17, 2018, Petróleos Mexicanos increased itsMedium-Term Notes Program from U.S. $92,000,000,000 to U.S. $102,000,000,000. On May 24, 2018, Petróleos Mexicanos issued €3,150,000,000 of debt securities under its U.S. $102,000,000,000 Medium Term Notes Program, Series C in four tranches: (1) €600,000,000 of its 2.500% Notes due 2022, (2) €650,000,000 of its Floating Rate Notes due 2023, (3) €650,000,000 of its 3.625% Notes due 2025 and (4) €1,250,000,000 of its 4.750% Notes due 2029. All debt securities issued under this program are guaranteed by Pemex Exploration and Production, Pemex Industrial Transformation, Pemex Drilling and Services and Pemex Logistics and
On
On
On
On October On November On November 30, 2018, Petróleos Mexicanos borrowed U.S. $250,000,000 from a bilateral credit line, which bears interest at a floating rate linked to As of December 31, 2018, Petróleos Mexicanos 2017 Financing Activities.During 2017 we participated in the following activities: On February 14, 2017, Petróleos Mexicanos issued €4,250,000,000 of debt securities under its U.S. $72,000,000,000Medium-Term Notes Program, Series C, in three tranches: (1) €1,750,000,000 of its 2.5% Notes due 2021; (2) €1,250,000,000 of its 3.75% Notes due 2024; and (3) €1,250,000,000 of its 4.875% Notes due 2028. All debt securities issued under this On April 6, 2017, Petróleos Mexicanos obtained a a loan from a line of credit for U.S. $132,000,000, which bears interest at a fixed rate of 5.25% and matures in 2024. The line of credit is guaranteed by Pemex Exploration and Production, Pemex Industrial Transformation, Pemex Drilling and Services and Pemex Logistics. On May 15, 2017, Petróleos Mexicanos entered into a term loan credit facility in the amount of U.S. $400,000,000, which bears interest at a floating rate linked to LIBOR and matures in 2020. The term loan is guaranteed by Pemex Exploration and Production, Pemex Industrial Transformation, Pemex Drilling and Services and Pemex Logistics. On June 16, 2017, Petróleos Mexicanos increased itsMedium-Term Notes Program from U.S. $72,000,000,000 to U.S. $92,000,000,000. On July 17, 2017, Petróleos Mexicanos entered into a revolving credit facility in the amount of U.S. $1,950,000,000, which matures in 2020. On July 18, 2017, Petróleos Mexicanos issued U.S. $5,000,000,000 of debt securities under its U.S. $92,000,000,000Medium-Term Notes Program, Series C, in two tranches: (1) U.S. $2,500,000,000 of its 6.50% Notes due 2027 and (2) U.S. $2,500,000,000 of its 6.75% Bonds due 2047. All debt securities under this program are guaranteed by Pemex Exploration and Production, Pemex Industrial Transformation, Pemex Drilling and Services and Pemex Logistics and their respective successors and assignees. On July 21, 2017, Petróleos Mexicanos consummated a tender offer pursuant to which it purchased U.S. $922,485,000 aggregate principal amount of its outstanding 5.750% Notes due 2018, U.S. $644,374,000 aggregate principal amount of its outstanding 3.500% Notes due 2018 and U.S. $172,591,000 aggregate principal amount of its outstanding 3.125% Notes due 2019.
On December
On December As of December 31, Indebtedness During As of December 31, The following table sets forth the analysis of our total indebtedness (not including accrued interest) as of December 31,
The table below sets forth our total indebtedness as of December 31 for each of the three years from Total Indebtedness of PEMEX
Financing Activities of Pemex Finance, Ltd. Commencing on December 1, 1998, Petróleos Mexicanos,Pemex-Exploration and Production, PMI and P.M.I. Services, B.V. have entered into several agreements with Pemex Finance, Ltd. Under these contracts, Pemex Finance, Ltd. purchases certain existing PMI accounts receivable for crude oil as well as certain accounts receivable to be generated in the future by PMI related to crude oil. The receivables sold are those generated by the sale of Maya and Altamira crude oil to designated customers in the United States, Canada and Aruba. The net proceeds obtained by Pemex Exploration and Production, which assumed all of the rights and obligations ofPemex-Exploration and Production under these agreements, from the sale of such receivables under the agreements are utilized for capital expenditures. Pemex Finance, Ltd. obtains resources for the acquisition of such accounts receivable through the placement of debt instruments in the international markets. On July 1, 2005, we entered into an option agreement with BNP Paribas Private Bank and Trust Cayman Limited giving us an option to acquire 100% of the shares of Pemex Finance, Ltd. As a result, the financial results of Pemex Finance, Ltd. under IFRS are consolidated into our financial statements, and PMI’s sales of accounts receivable to Pemex Finance, Ltd. have been reclassified as debt. On December 17, 2018, we exercised the option to As of December 31,
2017 Financing Activities. During 2017, Pemex Finance, Ltd. made payments of U.S. $100.0 million in principal of its notes. Pemex Finance, Ltd. did not incur any additional indebtedness during Off-Balance Sheet Arrangements As of
Contractual Obligations Information about ourlong-term contractual obligations Contractual Obligations as of December 31,
Results of Operations by Business Segment This section presents the results of our operations by business segment, including our central corporate operations and the operations of the consolidated subsidiary companies.
Revenue by Business Segment The following table sets forth our trade and intersegment net sales revenues by business segment for the fiscal years ended December 31,
Exploration and Production Trade sales(2) Intersegment sales Total net sales Industrial Transformation Total trade sales Total intersegment sales Total net sales Drilling and Services Trade sales(2) Intersegment sales Total net sales Logistics Trade sales(2) Intersegment sales Total net sales Cogeneration and Services(3) Trade sales(2) Intersegment sales Total net sales Fertilizers Trade sales(2) Intersegment sales Total net sales Ethylene Trade sales(2) Intersegment sales Total net sales Trading Companies Trade sales(2) Intersegment sales Total net sales Corporate and other subsidiary companies Trade sales(2) Intersegment sales and eliminations Total net sales Total net sales
Income by Business Segment The following table sets forth our net income (loss) by business segment for each year in thethree-year period ended December 31,
Exploration and Production In 2018, total sales increased by 15.3%, primarily due to the increase in crude oil export prices. In 2017, sales of crude oil to the Trading Companies were presented as intersegment sales but, as a result of our implementation of accounting standard IFRS 15 in 2018 and the determination that PMI is considered an agent of Pemex Exploration and Production, all of Pemex Exploration and Production’s crude oil export sales are recognized as sales to third parties in 2018. For further information on the impact of our implementation of IFRS 15, see Note4-A to our consolidated financial statements included herein. The Industrial Transformation In 2018, trade sales related to industrial transformation activities increased by 11.3%, from Ps. 863,573 million in 2017 to Ps. 961,104 million in 2018, primarily due to an increase in the average sales prices of petroleum products. Intersegment sales decreased by 5.6%, from Ps. 150,360 million in 2017 to Ps. 141,997 million in 2018, primarily due to a decrease in sales of natural gas. In 2018, our net loss related to industrial transformation activities was Ps. 57,049 million, 2.3% higher than the loss of Ps. 55,787 million in 2017. The increase in loss was primarily due to an increase in operating expenses. Drilling and Services In 2018, total sales related to the drilling and services segment increased by 5.0%, from Ps. 3,442 million in 2017 to Ps. 3,613 million in 2018. This increase was primarily due to an increase in services provided to Pemex Exploration and Production. Net income related to drilling and services decreased by Ps. 1,048 million, from a net income of Ps. 1,266 million in 2017 to net income of Ps. 217 million in 2018, primarily due to an increase in operating expenses. Logistics In 2018, total sales related to the logistics segment decreased by 8.1%, from Ps. 74,387 million in 2017 to Ps. 68,381 million in 2018, primarily due to a decrease in the services provided to Pemex Industrial Transformation. In 2018, our net loss related to logistics activities was Ps. 62,576 million, which was Ps. 61,742 million more than our net loss of Ps. 834 million in 2017. The increase in net loss was primarily due to net impairment of our fixed assets in this segment. Cogeneration and Services In 2018 our cogeneration and services segment did not have operations, as all of the assets, liabilities, rights and obligations of Pemex Cogeneration and Services were assumed by, and transferred to, Pemex Industrial Transformation and Pemex Cogeneration and Services was subsequently dissolved. For further information on the dissolution of Pemex Cogeneration and Services, see “Item 4— Information on the Company—History and Development—Corporate Structure” and Notes 1 and 6 to our consolidated financial statements included herein. Fertilizers In 2018, total sales related to the fertilizers segment decreased by 37.0%, from Ps. 4,768 million in 2017 to Ps. 3,004 million in 2018. This decrease was primarily due to a decrease in the trade sales of ammonia. In 2018, our net loss related to our fertilizers activities increased by 24.8%, from a net loss of Ps. 4,270 million in 2017 to a net loss of Ps. 5,330 million in 2018, primarily due to a decrease in profit sharing in joint ventures and associates. Ethylene In 2018, total sales related to our ethylene segment increased by 1.7%, from Ps. 14,214 million in 2017 to Ps. 14,457 million in 2018, primarily due to an increase in sales of monoethylenglecol. In 2018, our net loss related to our ethylene activities increased by Ps. 3,544 million, from a net loss of Ps. 1,442 million in 2017 to a net loss of Ps. 4,986 million in 2018. This increase in loss was primarily due an increase in cost of sales and taxes. Trading Companies In 2018, total sales relating to the Trading Companies’ exports of crude oil and petroleum products to third parties (including services income) decreased in peso terms, from Ps. 508,606 million in 2017 to Ps. 204,168 million in 2018, primarily as a result of the derecognition of revenue from sales by Pemex Exploration and Production to the Trading Companies as a result of our implementation of IFRS 15 in 2018. For further information on the impact of our implementation of IFRS 15, see Note4-A to our consolidated financial statements included herein. In 2018, net income related to the Trading Companies decreased by 60.3%, from Ps. 12,045 million in 2017 to Ps. 4,778 million in 2018, primarily as a result of our implementation of IFRS 15. Corporate and Other Subsidiary Companies In 2018, the total sales relating to corporate and other subsidiary companies afterinter-company eliminations decreased from Ps. 1,524,600 million in 2017 to Ps. 1,235,474 million in 2018, primarily due to a decrease in total intercompany sales as a result of an increase in the import of products. Net loss related to corporate and other subsidiary companies afterinter-company eliminations decreased 41.3%, from a net loss of Ps. 80,699 million in 2017 to a net loss of Ps. 47,330 million in 2018, primarily due to favorable results from subsidiary companies. 2017 compared to We present below the results of our operations by business segment. For more information on our operating segments, see “Item 4— Information on the Company—History and Development—Corporate Structure” and Note 1 to our consolidated financial statements included herein. For a detailed description of the financial results of each segment, see Note 1 and Note 6 to our consolidated financial statements included herein. Exploration and Production In 2017, total intersegment sales, which include sales to our industrial transformation segment and the Trading Companies, increased by 23.7%, primarily due to the increase in crude oil export prices. As compared to
In
In Logistics In 2017, total sales related to the logistics segment increased by Ps. 3,256 million, from Ps. Cogeneration and In 2017, total sales related to our cogeneration and services segment increased by
In Ethylene In 2017, total sales related to our ethylene segment decreased by Ps. 3,003 million, from Ps. Trading Companies In Corporate and Other Subsidiary Companies In Research and Development Our research and development activities are focused on developing the Mexican energy sector through advancing products and solutions that are intended to be high quality, high performance and technologically efficient. TheInstituto Mexicano del Petróleo (Mexican Petroleum Institute or IMP) is a public research organization under the SENER. The objective of the For example, we collaborate with the IMP on the development of our gasoline additives. On October 11, 2018, we launched the seventh generation of our high end performance additive that blends with our Pemex Magna and Pemex Premium gasolines. This additive will be promoted as Additionally, we collaborate with the IMP through theirCentro de Tecnología para AguasProfundas (Deep-Water Technology Center or CTAP). The CTAP is equipped with various laboratories to research drilling of wells, characterization of natural and operational risks and qualification and design of production tools, equipment and systems for use by the petroleum sector in deep water. The center is located in Boca del Río, Veracruz. Item 6. Directors, Senior Management and Employees Under the
the Secretary of Energy, who serves as the Chairperson and has the right to cast atie-breaking vote;
the Secretary of Finance and Public Credit;
three Mexican Government representatives, who are appointed by the President of Mexico; and
The Under the Except in the case of the independent members first appointed in 2014 under the Petróleos Mexicanos Law, the five independent members
Under the
The The following tables set forth certain information with respect to directors and executive officers of Petróleos Mexicanos and each of the subsidiary entities as of April Petróleos Mexicanos—Directors and Executive Officers
Pemex Drilling and Services—Directors and Executive Officers
Board Appointments On April 11,
Mr.
Mr. As of
Compensation of Directors and Officers For the year ended December 31, Board Practices Except in the case of the independent members with respect to the Board of Directors of Petróleos Mexicanos, neither the members of the boards of directors nor the executive officers of Petróleos Mexicanos or the productivestate-owned subsidiaries are appointed for a specific term. The length of the terms of the Secretary of Energy and the Secretary of Finance and Public Credit is, however, limited by the length of their respective positions in the Mexican Government. Except in the case of the independent members first appointed under the Petróleos Mexicanos Law, the five independent members of the Board of Directors of Petróleos Mexicanos will be appointed forfive-year terms, and may be appointed for an additional term of the same length. The Mexican Government representatives that serve as members of the boards of directors of Petróleos Mexicanos and each of the existing subsidiary entities may be removed at the discretion of the President of Mexico. The independent members of the Board of Directors of Petróleos Mexicanos may be removed for cause, including failure to carry out the duties and obligations set forth in the Petróleos Mexicanos Law, by the President of Mexico upon Senate approval. On October 14, 2014, the Board of Directors of Petróleos Mexicanos appointed members to and convened the four committees established by the The committees may authorize a representative of the Director General to attend their meetings as a guest with the right to participate, but not vote, when deemed advisable for the performance of their duties. Audit Committee The Audit Committee of the Board of Directors of Petróleos Mexicanos is required to, among other duties, oversee our management, evaluate our financial and operational performance, monitor the status of our internal control systems, as well as nominate our external auditors, whose appointments are approved by the Board of Directors of Petróleos Mexicanos. See “Item 16C—Principal Accountant Fees and Services.”
Human Resources and Compensation Committee The Human Resources and Compensation Committee is chaired by an independent member of the Board of Directors of Petróleos Mexicanos and includes the Secretary of Finance and Public Credit as a permanent member. The duties of the Human Resources and Compensation Committee include, among others, proposing the compensation of the Director General and other members of senior management of Petróleos Mexicanos within three levels of the Director General, as well as proposing hiring policies, performance management guidelines and the compensation of all other employees of Petróleos Mexicanos. The Human Resources and Compensation Committee of Petróleos Mexicanos consists of the following members:
Mr. Carlos ElizondoMayer-Serra, independent member of the Board of Directors of Petróleos Mexicanos and Chairperson of the Human Resources and Compensation Committee;
Mr. Octavio Francisco Pastrana Pastrana, independent member of the Board of Directors of Petróleos Mexicanos;
Mr.
Ms. Graciela Márquez Colín, member of the Board of Directors of Petróleos Mexicanos; and
Ms. Josefa González Blanco Ortiz Mena, member of the Board of Directors of Petróleos Mexicanos. Strategy and Investment Committee The Strategy and Investment Committee is chaired by an independent member of the Board of Directors of Petróleos Mexicanos on a rotating annual basis and is required to, among other duties, analyze our business plan and assist the Board of Directors of Petróleos Mexicanos in the approval of guidelines, priorities and general policies related to investments made by Petróleos Mexicanos. The Strategy and Investment Committee of Petróleos Mexicanos consists of the following members:
Mr. Mr. Carlos ElizondoMayer-Serra, independent member of the Board of Directors of Petróleos Mexicanos;
Ms. Norma Rocío Nahle García, member of the Board of Directors of Petróleos Mexicanos;
Mr.
Ms. Graciela Márquez Colín, member of the Board of Directors of Petróleos Mexicanos. Acquisitions, Leasing, Public Works and Services Committee The Acquisitions, Leasing, Public Works and Services Committee, The Acquisitions, Leasing, Public Works and Services Committee of Petróleos Mexicanos consists of the following members:
Ms. Norma Rocío Nahle García, member of the Board of Directors of Petróleos
Mr.
Mr. The two remaining seats are currently vacant. Employees Excluding employees
Source: Petróleos Mexicanos and the As of December 31, Union are PEMEX employees and they elect their own leadership from among their ranks. Our relationship with our employees is regulated by theLey Federal de Trabajo(which we refer to as the Federal Labor Law), a collective bargaining agreement between Petróleos Mexicanos and the Petroleum Workers’ Union and the On
On December 24, 2015, the Ministry of Finance and Public Credit published in the Official Gazette of the Federation theDisposiciones de carácter general relativas a la asunción por parte del Gobierno Federal de obligaciones de pago de pensiones y jubilaciones a cargo de Petróleos Mexicanos y sus empresas productivas subsidiarias (General provisions regarding the assumption by the On January 25, 2019, the In accordance with the Federal Labor Law and collective bargaining agreement in effect as of December 31, On November 5, 1997, the Ministry of Finance and Public Credit and the Board of Directors of Petróleos Mexicanos authorized the formation of a trust called the Pemex Labor Fund. This fund is a vehicle to fund labor liabilities, current pension payments and seniority premiums. We have designed a contribution plan to increase the funds held in this trust and to continue to make payments on outstanding labor and pension liabilities. Our contributions to the plan assets for our retirement benefits totaled Ps. Item 7. Major Shareholders and Related Party Transactions Major Shareholders Petróleos Mexicanos and the subsidiary entities have no shareholders because they are public entities of the Mexican Government. The Mexican Government controls us and incorporates the consolidated annual budget and financing program of Petróleos Mexicanos and the subsidiary entities into its budget, which must be approved by the Chamber of Deputies each year. Any adjustment proposed by the Board of Directors of Petróleos Mexicanos to change our annual financial balance goal or increase the limit on our wage and salary expenditures budget or our financing program must be approved by the Chamber of Deputies. See “Item 4—Information on the Company—General Regulatory Framework” for more information about the Mexican Government’s authority with respect to our budget. Our operations in the oil and gas sector are also regulated by the Mexican Government and its ministries. Mexican Government officials hold five of the ten seats on the Board of Directors of Petróleos Mexicanos, and the Secretary of Energy is the Chairperson of the Board of Directors of Petróleos Mexicanos with the power to cast atie-breaking vote. An additional five seats on the Board of Directors are held by independent members appointed by the President of Mexico and ratified by the Senate. The Director General of Petróleos Mexicanos is a member of the President of Mexico’s cabinet. See also “Item 3—Key Information—Risk Factors—Risk Factors Related to our Relationship with the Mexican Government.” Related Party Transactions
The Board of Directors of Petróleos Mexicanos, including the independent members who are not public officials, are subject to the duties of loyalty and diligence. In accordance with the Petróleos Mexicanos Law, an independent member of the Board of Directors of Petróleos Mexicanos may be removed from his or her position for, among other causes: (1) utilizing for personal benefit or for the benefit of any third party the information made available to him or her in connection with the exercise of his or her duties as a board member; (2) disclosing such information in violation of applicable law; or (3) not recusing him or herself from discussion of and voting on matters in respect of which he or she has a conflict of interest. A member of the Board of Directors of Petróleos Mexicanos or of the board of directors of an existing subsidiary entity who acts in contravention of the Petróleos Mexicanos Law may be held liable for any damages that he or she caused to Petróleos Mexicanos or an existing subsidiary entity. As an employee benefit, we offer salary advances to all of our eligible Petroleum Workers’ Union andnon-union workers, including our executive officers, pursuant to the programs set forth in the collective bargaining agreement and in the Employment Regulation of White Collar Employees of Petróleos Mexicanos and Subsidiary Entities, respectively. The salary advances, which arenon-interest bearing, are offered to each eligible employee in an amount up to a maximum of four months’ salary and are repaid through salary deductions in equal installments over a period of either one or two years, as elected by the employee. Most of our employees take advantage of this benefit. The largest amount of salary advances outstanding to executive officers at any one time during
Consolidated Statements and See Item 18. “Financial Statements”. Legal Proceedings Labor-Related Proceedings We are a party to various legal actions involving labor claims of former and present employees. These labor disputes relate to severance payments, life insurance benefits, extensions of labor contracts, level of wages, improper termination and employee housing. We do not expect these lawsuits to have a material adverse effect on our financial condition or future results of operations. For information on our negotiations with the Petroleum Workers’ Union and collective bargaining agreements, see “Item 6—Directors, Senior Management and Employees—
The Liabilities Unit at Petróleos Mexicanos, which is part of theSecretaría de la Función Pública (Ministry of Public Function, or the SFP), is responsible for receiving complaints and investigating violations of the
On
Key Energy Services On August 11, 2016, the SEC announced that Key Energy Services, Inc. agreed to pay U.S. $5 million to settle SEC charges that it violated the internal controls andbooks-and-records provisions of the U.S. Foreign Corrupt Practices Act. These violations arose from payments allegedly made by its subsidiary, Key Mexico, to one of our employees to induce him to provide advice, assistance and inside information that was used by Key Energy Services, Inc. and Key Mexico in negotiating contracts with us. The Liabilities Unit at Petróleos Mexicanos conducted an investigation, and, on November 6, 2018, sent a report of alleged liability to the Liabilities Unit at Pemex Exploration and Production. The report of alleged liability indicated misuse ofnon-public information, fraudulent payments and fraudulent cost adjustments by several Pemex Exploration and Production employees. On November 29, 2018, the report was declared inadmissible due to limitations on the powers of the Liabilities Unit. As of the date of this annual report, this matter has concluded. Odebrecht On December 21, 2016, the U.S. Department of Justice publicly disclosed that Odebrecht, a global construction conglomerate based in Brazil, pleaded guilty to charges of bribery and corruption in connection with, among other things, bribes paid for more than 100 projects in twelve countries. The report further disclosed that, between 2010 and 2014, Odebrecht had bribed officials of the Mexican government for an amount equal to U.S. $10.5 million, including the payment to ahigh-level official of a Mexicanstate-owned andstate-controlled company of a bribe of U.S. $6 million. On December 22, 2016, the Liabilities Unit at Petróleos Mexicanos commenced an investigation into instances of bribery or corruption related to these As a result of investigations being conducted by the Liabilities Unit at Petróleos Mexicanos, the SFP and the Federal Attorney General’s Office, agreements executed by Odebrecht and its affiliates with various public entities of the Mexican Government have been reviewed. As of the date of this annual report, the SFP has initiated a total of eight administrative sanctioning proceedings, four against Odebrecht and its affiliates, two against legal representatives of Odebrecht and two against employees of PEMEX. In addition, as of the date of this annual report, the SFP is preparing three additional administrative sanctioning proceedings against Odebrecht affiliates and an additional investigation is outstanding. The results of these investigations have resulted in the following actions: On June 14, 2017, the Ministry of the Public Function, through the Liabilities Unit at Petróleos Mexicanos, initiated four administrative sanctioning proceedings against two affiliates of Odebrecht and its representatives for probable wrongful payments related to a public work contract in our Miguel Hidalgo refinery. On June 16, 2017, we notified Odebrecht Ingeniería y Construcción Internacional de México, S.A. de C.V. (or ODM) of the termination of the engineering, procurement and construction contract between ODM and Pemex Industrial Transformation dated November 12, 2015. This contract was valued at Ps. 1.8 billion and covered works related to the construction of access ways and external works for the residual exploitation project for the Miguel Hidalgo refinery. We terminated this contract due to ODM’s failure to comply with its obligations. ODM filed a commercial claim (file No.564/2018-V) against Pemex Industrial Transformation seeking Ps. 1,838.7 million for failure to make payments and breach of contract. On March 6, 2019, Pemex Industrial Transformation filed a response to this claim. On March 29, 2019, ODM filed a reply to this response. As of the date of this annual report, a final resolution is still pending. On September 11, 2017 and October 8, 2017, the SFP, through the Liabilities Unit at Petróleos Mexicanos, announced that it had identified additional irregularities in connection with payments of Ps. 119 million and Ps. 2.5 million, respectively, related to the execution of public work contracts in our Miguel Hidalgo refinery involving an affiliate of Odebrecht and an employee of Pemex Industrial Transformation. As a result of the administrative sanctioning proceedings initiated in September and October 2017, respectively, the SFP has issued a total of four sanctioning resolutions, two banning Constructora Norberto Odebrecht, S.A. from bidding for and entering into contracts with the Mexican Government and PEMEX for four years and two years, respectively, and two against the employee of Pemex Industrial Transformation, who was barred from public sector employment for a period of ten years and was fined Ps. 119 million and Ps. 2.5 million due to irregularities related to improper payments of indirect costs and duplicated services, respectively. On April 17, 2018, the Liabilities Unit at Petróleos Mexicanos announced that it had banned each of ODM and Constructora Norberto Odebrecht, S.A for two years and six months from bidding for and entering into Mexican government contracts, including contracts with PEMEX, and fined each of them in an aggregate amount of Ps. 543.5 million for wrongful acts committed in connection with, and failure to comply with the requirements of, the contract executed with Pemex Industrial Transformation for the Miguel Hidalgo refinery. The SFP also announced it had banned each of the Director General, Mr. Luis Alberto de Meneses Weyll, and the Director of Management and Finance, Mr. Gleiber José de Faria, of ODM, for two years and three months and fined each of them in an aggregate amount of Ps. 1.26 million for wrongful acts committed in connection with, and failure to comply with the requirements of, the contract executed with Pemex Industrial Transformation for the Miguel Hidalgo refinery. On August 16, 2018, the SFP announced it had initiated an administrative sanctioning proceeding against an Odebrecht affiliate for giving false information in connection with a SEMARNAT license related to the execution of works for our Miguel Hidalgo refinery. As of the date of this annual report, the SFP is in the process of preparing a resolution. On October 29, 2018, the SFP announced it had initiated an administrative sanctioning proceeding against Constructora Norberto Odebrecht, S.A. for excess charges related to the execution of a contract for our Miguel Hidalgo refinery. As of the date of this annual report, the SFP is in the process of preparing a resolution.
On November 27, 2018, the SFP announced it had barred an employee of Pemex Industrial Transformation from public sector employment for a period of ten years and imposed a fine of Ps. 8.3 million, for failure to apply conventional penalties to an affiliate of Odebrecht related to works performed at our Miguel Hidalgo refinery. On April 26, 2019, the Liabilites Unit at Pemex Industrial Transformation announced that it had concluded an administrative sanctioning proceeding (file No.PTRI-S-001/2018) banning ODM for three years from bidding for and entering into Mexican government contracts. The administrative sanctions imposed by the SFP are independent of any criminal charges that may be brought as a result of the criminal investigation that is being carried out by the Attorney General’s Office, which, as of the date of this annual report, is still ongoing. We are collaborating with the SFP, the Liabilities Unit at Petróleos Mexicanos, and the Federal Attorney General’s Office in order to hold those responsible for these acts accountable and ensure that we recover any damages to which we are entitled. Pemex Fertilizers On September 9, 2018, the SFP announced that it had initiated, through the Liabilities Unit at Petróleos Mexicanos, an administrative sanctioning proceeding against a former employee of Pemex Fertilizers in connection with alleged irregularities in the 2016 acquisition of Fertinal by one of our subsidiary companies, PMX Fertilizantes Pacífico, S.A. de C.V. As of the date of this annual report, a resolution of this sanctioning proceeding is still pending. On September 9, 2018, the SFP also announced that it had initiated an administrative sanctioning proceeding against a former employee of Pemex Fertilizers for alleged damages against PEMEX of U.S. $273 million in connection with the 2014 acquisition of assets from Agro Nitrogenados, S.A. de C.V., a subsidiary of Altos Hornos de México. On November 30, 2018, the SFP announced that it had concluded its investigation and had initiated a liability proceeding against a former employee for alleged damages of U.S. $193.9 million. The proceedings relate to the rehabilitation of the Agro Nitrogenados plant for alleged damages of Ps. 4,206 million (U.S. $212 million). As of the date of this annual report, this proceeding is in the evidentiary stage, pleadings to be filed by the employee are still pending and a final resolution Pemex Logistics
Actions Against the Illicit Market in Fuels
Illegal tapping of our pipelines, which threatens the integrity of our pipeline system, thereby increasing the associated risks for personnel, facilities, the general population and the environment. Illegal tapping of our pipelines has caused explosions, loss of life, injuries and environmental damage. Tampering with product quality, which negatively impacts consumers and our reputation. Theft and illegal trade in fuels, which reduces our revenues by the amount that would have been generated from the sale of the stolen products and reduces our net income because the production cost of stolen product is included in our cost of sales. In recent years we have experienced an increase in theft of and illegal trade in the Ps. 22,945.4 million, respectively. Given the sophistication and breadth of
integrate a strategic safeguard system, allowing us to illegal activity;
optimize our modernize our information systems to improve our strategic decision making and our response time; and revise our security strategy to incorporate innovations from the Additionally, the
Removal of personnel involved in the illicit market Improved monitoring of our pipeline systems, supported by the
Special attention to Closure of Identification and guard control of These measures led to the recovery of These efforts also led to the identification and sealing of
On January Additionally, some of our personnel have been implicated for their involvement in organized fuel theft and On February 14, 2018, the Liabilities Unit at Petróleos Mexicanos imposed penalties on eight employees from the storage and distribution terminal of Pemex Logistics in the On March 14, 2018, the Liabilities Unit at Petróleos Mexicanos dismissed three employees from Sector Pipelines Bajío of Pemex Logistics and barred them from holding public sector positions for ten years for the tapping of diesel in the Tula-Salamanca pipeline in Celaya, Guanajuato. The three employees filed claims against the resolutions under which they were dismissed. Two resolutions have been ratified. A final judgment on the claim against the third resolution is still pending as of the date of this annual report. On March 27, 2018, the Liabilities Unit at Petróleos Mexicanos suspended an employee from Sector Pipelines Minatitlán of Pemex Logistics. This employee allegedly belongs to
Civil Actions In the ordinary course of our business, we are a party to a number of lawsuits of various types. We evaluate the merit of each claim and assess the likely outcome, accruing a contingent liability when an unfavorable decision is probable and the amount is reasonably estimable. At December 31, Dividends Pursuant to the Petróleos Mexicanos Law, as of January 1, 2016, Petróleos Mexicanos and its subsidiary entities are subject to a Trading in the debt securities issued by Petróleos Mexicanos takes place primarily in theover-the-counter market. All the debt securities issued by Petróleos Mexicanos that are registered pursuant to the U.S. Securities Act of 1933 (which we refer to as the Securities Act) are also listed on the Luxembourg Stock Exchange and traded on the Euro MTF market of the Luxembourg Stock Exchange. Item 10. Additional Information Memorandum and Articles of Association The Mexican Congress established Petróleos Mexicanos by a decree dated June 7, 1938, effective July 20, 1938. None of Petróleos Mexicanos or the subsidiary entities has bylaws or articles of association. Petróleos Mexicanos and the subsidiary entities, are public entities of the Mexican Government and each is a legal entity empowered to own property and carry on business in its own name. The activities of Petróleos Mexicanos and the subsidiary entities are regulated by the Mexican Constitution, the Petróleos Mexicanos Law, Regulations to the Petróleos Mexicanos Law, the Hydrocarbons Law and other federal laws and regulations. See “Item 4—Information on the Company—History and Development.” Under the Petróleos Mexicanos Law, the Board of Directors of Petróleos Mexicanos has the following committees: the Audit Committee, the Human Resources and Compensation Committee, the Strategy and Investment Committee and the Acquisitions, Leasing, Public Works and Services Committee. As of the date of this annual report, the entire Board of Directors of Petróleos Mexicanos is presently acting as our audit committee. See “Item 6—Directors, Senior Management and Employees.” Under the Petróleos Mexicanos Law and the Regulations to the Petróleos Mexicanos Law, our directors are obligated to abstain from voting on a proposal, arrangement or contract in which they have a personal, family or business interest. Our directors do not have the power to vote compensation to themselves or any other member of the board. Except in the case of the independent board members, our directors do not receive compensation for their services as members of the boards of directors of Petróleos Mexicanos and the subsidiary entities. Under the Petróleos Mexicanos Law, our directors must perform their duties without obtaining or attempting to obtain any benefits greater than those granted by law. Therefore, our directors do not have borrowing powers exercisable by themselves. There is no requirement for early retirement for our directors. Material Contracts As of December 31, On January 27, 2009, Petróleos Mexicanos entered into an indenture with Deutsche Bank Trust Company Americas, as Trustee. This agreement provides for the issuance by Petróleos Mexicanos from time to time of unsecured debt securities. On the same date, Petróleos Mexicanos entered into a distribution agreement with Calyon Securities (USA) Inc. (now known as Credit Agricole Securities (USA) Inc.), Citigroup Global Markets Inc., Citigroup Global Markets Limited, HSBC Securities (USA) Inc. and Santander Investment Securities Inc. pursuant to which Petróleos Mexicanos established a U.S. $7.0 billionmedium-term note, Series C, program. Pursuant to the 1996 guaranty agreement referred to above, Petróleos Mexicanos’ obligations under all notes issued under this program are jointly and severally guaranteed byPemex-Exploration and Production,Pemex-Refining andPemex-Gas and Basic Petrochemicals. In December 2010, Petróleos Mexicanos appointed Credit Suisse Securities (USA) LLC as an agent under the 2009 distribution agreement referred to above. In each of December 2010 and January 2010, Petróleos Mexicanos increased the size of this program to U.S. $12.0 billion and U.S. $22.0 billion, respectively. Petróleos Mexicanos issued U.S. $3.5 billion of notes and bonds under this program in 2011. In 2012, Petróleos Mexicanos issued U.S. $5.3 billion of notes and bonds under this program. In 2013, Petróleos Mexicanos increased the size of this program to U.S. $32.0 billion and issued U.S. $6.9 billion of notes and bonds under it. In 2014, Petróleos Mexicanos increased the size of this program to U.S. $42.0 billion and issued U.S. $7.9 billion of notes and bonds under it. Exchange Controls Mexico has had a free market for foreign exchange since 1991, and the Mexican Government has allowed the peso to float freely against the U.S. dollar since December 1994. We have no control over or influence on this exchange rate policy. The Mexican Government has announced that it does not intend to change its floating exchange rate policy, but there is no guarantee that the Mexican Government will not change this policy. Taxation The 1997 As of the date of this annual report, we have registered the following securities with the Securities and Exchange Commission. Pursuant to a registration statement on FormF-4 (FileNo. 333-7796), which was declared effective by the SEC on October 17, 1997, Petróleos Mexicanos,Pemex-Exploration and Production,Pemex-Refining andPemex-Gas and Basic Petrochemicals registered pursuant to the Securities Act up to U.S. $400,000,000 of 9.50% Global Guaranteed Bonds due 2027, which we refer to as the 1997 Securities. In December 2004 and February 2006, an aggregate amount of U.S. $376,250,000 of the 1997 Securities were exchanged for bonds issued by the Pemex Project Funding Master Trust (which we refer to as the Master Trust). Pursuant to a registration statement on Form
Pursuant to a registration statement on FormF-4 (FileNo. 333-103197), which was declared effective by the SEC on February 24, 2003, the Master Trust, Petróleos Mexicanos,Pemex-Exploration and Production,Pemex-Refining andPemex-Gas and Basic Petrochemicals registered pursuant to the Securities Act up to U.S. $500,000,000 of 8.625% Bonds due 2022. Pursuant to a registration statement on FormF-4 (FileNo. 333-107905), which was declared effective by the SEC on August 21, 2003, the Master Trust, Petróleos Mexicanos,Pemex-Exploration and Production,Pemex-Refining andPemex-Gas and Basic Petrochemicals registered pursuant to the Securities Act up to U.S. $510,154,000 of 8.625% Bonds due 2022. We refer to the securities registered in 2003 under these registration statements as the 2003 Securities. Pursuant to a registration statement on FormF-4 (FileNo. 333-118373), which was declared effective by the SEC on August 31, 2004, the Master Trust, Petróleos Mexicanos,Pemex-Exploration and Production,Pemex-Refining andPemex-Gas and Basic Petrochemicals registered pursuant to the Securities Act up to U.S. $47,085,000 of 8.625% Bonds due 2022. We refer to the securities registered in 2004 as the 2004 Securities. Pursuant to a registration statement on FormF-4 (FileNo. 333-126941), which was declared effective by the SEC on January 13, 2006, the Master Trust, Petróleos Mexicanos,Pemex-Exploration and Production,Pemex-Refining andPemex-Gas and Basic Petrochemicals registered pursuant to the Securities Act up to effective by the SEC on January 13, 2006, the Master Trust, Petróleos Mexicanos,Pemex-Exploration and Production,Pemex-Refining andPemex-Gas and Basic Petrochemicals registered pursuant to the Securities Act up to Pursuant to a registration statement on FormF-4 (FileNo. 333-152486), which was declared effective by the SEC on December 18, 2008, the Master Trust, Petróleos Mexicanos,Pemex-Exploration and Production,Pemex-Refining andPemex-Gas and Basic Petrochemicals registered pursuant to the Securities Act Pursuant to a registration statement on FormF-4 (FileNo. 333-160799), which was declared effective by the SEC on August 25, 2009, Petróleos Mexicanos,Pemex-Exploration and Production,Pemex-Refining andPemex-Gas and Basic Petrochemicals registered pursuant to the Securities Act up to U.S. $2,000,000,000 of 8.00% Notes due 2019. We refer to the securities registered in 2009 as the 2009 Securities. Effective as of September 30, 2009, Petróleos Mexicanos assumed, as primary obligor, all of the Master Trust’s obligations as issuer of the 2001 Securities, the 2003 Securities, the 2004 Securities, the 2006 Securities and the 2008 Securities. As a result, effective as of September 30, 2009, Petróleos Mexicanos is the issuer of all Registered Securities (as defined below). Pursuant to a registration statement on FormF-4 (FileNo. 333-168326), which was declared effective by the SEC on August 31, 2010, Petróleos Mexicanos,Pemex-Exploration and Production,Pemex-Refining andPemex-Gas and Basic Petrochemicals registered pursuant to the Securities Act up to U.S. $63,314,000 of 8.00% Notes due 2019, up to U.S. $1,000,000,000 of 6.000% Notes due 2020, up to U.S. $2,000,000,000 of 5.50% Notes due 2021 and up to U.S. $1,000,000,000 of 6.625% Bonds due 2035. We refer to the securities registered in 2010 as the 2010 Securities. Pursuant to a registration statement on FormF-4 (FileNo. 333-175821), which was declared effective by the SEC on August 31, 2011, Petróleos Mexicanos,Pemex-Exploration and Production,Pemex-Refining andPemex-Gas and Basic Petrochemicals registered pursuant to the Securities Act up to U.S. $1,000,000,000 of 5.50% Notes due 2021 and up to U.S. $1,250,000,000 of 6.500% Bonds due 2041. We refer to the securities registered in 2011 as the 2011 Securities. Pursuant to a registration statement on FormF-4 (FileNo. 333-182553), which was declared effective by the SEC on July 23, 2012, Petróleos Mexicanos,Pemex-Exploration and Production,Pemex-Refining andPemex-Gas and Basic Petrochemicals registered pursuant to the Securities Act up to U.S. $2,100,000,000 of 4.875% Notes due 2022 and up to U.S. $1,750,000,000 of 5.500% Bonds due 2044. We refer to the securities registered in 2012 as the 2012 Securities. Pursuant to a registration statement on FormF-4/A (FileNo. 333-189852), which was declared effective by the SEC on July 25, 2013, Petróleos Mexicanos,Pemex-Exploration and Production,Pemex-Refining andPemex-Gas and Basic Petrochemicals registered pursuant to the Securities Act Pursuant to a registration statement on FormF-4 (FileNo. 333-198588), which was declared effective by the SEC on September 22, 2014, Petróleos Mexicanos,Pemex-Exploration and Production,Pemex-Refining and Pemex-Gas and Basic Petrochemicals registered pursuant to the Securities Act Pursuant to a registration statement on FormF-4 (FileNo. 333-205763), which was declared effective by the SEC on February 22, 2016, Petróleos Mexicanos, Pursuant to a registration statement on FormF-4 (FileNo. 333-220721), which was declared effective by the SEC on February 22, 2018, Petróleos Mexicanos, Pemex Exploration and Production, Pemex Industrial Transformation, Pemex Drilling and Services and Pemex Logistics registered pursuant to the Securities Act up to U.S. $1,500,000,000 5.375% Notes due 2022, up to U.S. $1,000,000,000 Floating Rate Notes due 2022, up to U.S. $5,500,000,000 6.500% Notes due 2027 and up to U.S. $2,500,000,000 6.750% Bonds due 2047. Pursuant to a registration statement on FormF-4/A (FileNo. 333-227508), which was declared effective by the SEC on November 16, 2018, Petróleos Mexicanos, Pemex Exploration and Production, Pemex Industrial Transformation, Pemex Drilling and Services and Pemex Logistics registered pursuant to the Securities Act up to U.S. $2,500,000,000 5.350% Notes due 2028, up to U.S. $2,000,000,000 6.500% Notes due 2029 and up to U.S. $3,328,663,000 6.350% Bonds due 2048. We refer to the securities registered in 2018 as the 2018 Securities and, together with the 1997 Taxation Generally The following summary contains a description of the principal Mexican and U.S. federal income tax consequences of the ownership and disposition of the Registered Securities, but it does not purport to be a comprehensive description of all of the tax considerations that may be relevant to a decision to invest in, or dispose of, the Registered Securities. This summary is based on the federal tax laws of Mexico and the United States in force on the date of thisForm 20-F, including the provisions of the income tax treaty between the United States and Mexico together with related protocols (which are subject to change), and does not describe any tax consequences arising under the laws of any state or municipality in Mexico, the United States or any other jurisdiction, or the laws of any taxing jurisdiction other than the federal laws of Mexico and the United States. Mexico has also entered into, or is negotiating, tax treaties with various countries that may have effects on holders of Registered Securities. This report does not discuss the consequences (if any) of such treaties. Each holder or beneficial owner of Registered Securities should consult its tax advisor as to the Mexican, United States or other tax consequences of the ownership and disposition of those securities, including the effect of any foreign, state or municipal tax laws, and the consequences of the application of any tax treaty to which Mexico is a party. Mexican Taxation This summary of certain Mexican federal tax considerations refers only to holders of Registered Securities that are not residents of Mexico for Mexican tax purposes and that will not hold the Registered Securities or a beneficial interest therein through a permanent establishment for tax purposes (we refer to any suchnon-resident holder as a Foreign Holder). For purposes of Mexican taxation, an individual is a resident of Mexico if he/she has established his/her domicile in Mexico. When an individual also has a place of residence in another country, that individual will be considered a resident of Mexico for tax purposes, if such individual has his/her center of vital interest in Mexico. An individual would be deemed to have his/her center of vital interest in Mexico if, among other things: (a) more than 50% of his/her total income for the year were derived from Mexican sources, or (b) his/her principal center of professional activities were located in Mexico. A legal entity is a resident of Mexico if:
it maintains the principal administration of its business in Mexico; or
it has established its effective management in Mexico. A Mexican national is presumed to be a resident of Mexico unless such person can demonstrate the contrary. If a legal entity or individual has a permanent establishment in Mexico, such permanent establishment shall be required to pay taxes in Mexico on income attributable to such permanent establishment in accordance with Mexican federal tax law. Taxation of Interest. Under the Mexican Income Tax Law and rules issued by the Ministry of Finance and Public Credit applicable to PEMEX, payments of interest (which are deemed to include any amounts paid in excess of the original issue price of the relevant securities), made by a Mexican issuer (including Petróleos Mexicanos) in respect of notes or bonds and other debt securities to a Foreign Holder will generally be subject to a Mexican withholding tax assessed at a rate of 4.9%, if the following requirements are met:
notice relating to the offering of such notes or bonds is given to the CNBV as required under the Securities Market Law and evidence of such notice is timely filed with the Ministry of Finance and Public Credit;
such notes or bonds are placed outside of Mexico through banks or brokerage houses in a country that is party to a treaty to avoid double taxation with Mexico; and
the issuer duly complies with the information requirements established in the general rules issued by the Ministry of Finance and Public Credit for such purposes. If the effective beneficiaries, directly or indirectly, individually or jointly with related parties, receive more than 5% of the interest paid on such notes or bonds and are holders, directly or indirectly, individually or jointly, with related parties of more than 10% of the voting stock of the issuer or entities 20% or more of whose stock is owned directly or indirectly, individually or jointly, by parties related to the issuer, the withholding tax rate applicable to payment of interest on such notes or bonds may be significantly higher. Payments of interest made by Petróleos Mexicanos or the subsidiary entities, except for Pemex Fertilizers and Pemex Ethylene, in respect of the Registered Securities tonon-Mexican pension or retirement funds will be exempt from Mexican withholding taxes, provided that:
such fund is duly organized pursuant to the laws of its country of origin and is the effective beneficiary of the interest payment;
the income from such interest payment is exempt from income tax in its country of residence; and
such fund delivers certain information as per rules issued by the Ministry of Finance and Public Credit. Additional Amounts. Petróleos Mexicanos and the subsidiary entities, except for Pemex Fertilizers and Pemex Ethylene, have agreed, subject to specified exceptions and limitations, to:
pay Additional Amounts (as defined in the indenture dated as of September 18, 1997, as supplemented, between Petróleos Mexicanos and Deutsche Bank) to the holders of the 1997 Securities in respect of the Mexican withholding taxes mentioned above;
pay Additional Amounts (as defined in the indenture dated as of August 7, 1998, as supplemented, between Petróleos Mexicanos and Deutsche Bank) to the holders of the 1998 Securities in respect of the Mexican withholding taxes mentioned above; pay Additional Amounts (as defined in the indenture dated as of July 31, 2000, as supplemented, between Petróleos Mexicanos and Deutsche Bank) to the holders of the 2003 Securities and the 2004 Securities in respect of the Mexican withholding taxes described above;
pay Additional Amounts (as defined in the indenture dated as of December 30, 2004, as supplemented, between Petróleos Mexicanos and Deutsche Bank) to the holders of the 2006 Securities and the 2008 Securities in respect of the Mexican withholding taxes described above; and
pay Additional Amounts (as defined in the indenture dated as of January 27, 2009, as supplemented, between Petróleos Mexicanos and Deutsche Bank) to the holders of the 2009 Securities, the 2010 Securities, the 2011 Securities, the 2012 Securities, the 2013 Securities, the 2014 Securities and the 2016 Securities in respect of the Mexican withholding taxes described above. If Petróleos Mexicanos pays Additional Amounts in respect of such Mexican withholding taxes, any refunds received with respect to such Additional Amounts will be for the account of Petróleos Mexicanos. Holders or beneficial owners of the Registered Securities may be required to provide certain information or documentation necessary to enable Petróleos Mexicanos and the subsidiary entities to apply the appropriate Mexican withholding tax rate applicable to holders or beneficial owners of the Registered Securities. In the event that the specified information or documentation concerning such holder or beneficial owner, if requested, is not provided on a timely basis, the obligation of Petróleos Mexicanos and the subsidiary entities to pay Additional Amounts may be limited. Taxation of Dispositions. Capital gains resulting from the sale or other disposition of the Registered Securities by a Foreign Holder will not be subject to Mexican income or withholding taxes. Other Mexican Tax Considerations. Under the Income Tax Law, any discount received by anon-resident upon purchase of the notes or bonds from a Mexican resident or anon-resident with a permanent establishment in Mexico is deemed interest income, and therefore, subject to taxes in Mexico. Such interest income results from the difference between the face value (plus accrued interest not subject to withholding) and the purchase price of such notes or bonds. Transfer and Other Taxes. There are no Mexican stamp, registration or similar taxes payable by a Foreign Holder in connection with the purchase, ownership or disposition of the Registered Securities. A Foreign Holder of the Registered Securities will not be liable for Mexican estate, succession, gift, inheritance or similar tax with respect to such securities.
United States Taxation This summary of certain U.S. federal income tax considerations deals principally with persons that hold the Registered Securities as capital assets and whose functional currency is the U.S. dollar. As used in this section “Taxation,” the term “United States Holder” means a beneficial owner of a Registered Security that is an individual who is a citizen or resident of the United States, a U.S. domestic corporation or any other person that is subject to U.S. federal income taxation on a net income basis in respect of its investment in the Registered Securities. This summary does not purport to be a comprehensive description of all the tax considerations that may be relevant to any particular investor, including tax considerations that arise from rules of general application or that are assumed to be known to investors. This summary generally does not address the tax treatment of holders that may be subject to special tax rules, such as banks, insurance companies,tax-exempt organizations, dealers in securities or currencies, certainshort-term holders of Registered Securities, traders in securities electing tomark-to-market, or persons that hedge their exposure in the Registered Securities or hold the Registered Securities as a position in a “straddle” for tax purposes or as part of a “synthetic security” or a “hedging” or “conversion” transaction or other integrated investment comprised of such In addition, this summary does not discuss the application of the Medicare contribution tax on net investment income or the alternative minimum tax. United States Holders should consult their own tax advisers concerning the U.S. federal, state, local, and other tax consequences of purchasing, owning, and disposing of a Registered Security in their particular circumstances. United States Holders that use an accrual method of accounting for tax purposes (“accrual method holders”) generally are required to include certain amounts in income no later than the time such amounts are reflected on certain financial statements (the “book/tax conformity rule”). The application of the book/tax conformity rule thus may require the accrual of income earlier than would be the case under the general tax rules described below. It is not clear to what types of income the book/tax conformity rule applies, or in some cases, how the rule is to be applied if it is applicable. Accrual method holders should consult with their tax advisors regarding the potential applicability of the book/tax conformity rule to their particular situation. Taxation of Interest and Additional Amounts. A United States Holder will treat the gross amount of interest and Additional Amounts (i.e., without reduction for Mexican withholding taxes) as ordinary interest income in respect of the Registered Securities. Mexican withholding taxes paid at the appropriate rate applicable to the United States Holder will be treated as foreign income taxes eligible, subject to generally applicable limitations and conditions, for credit against such United States Holder’s U.S. federal income tax liability, at the election of such United States Holder, or for deduction in computing such United States Holder’s taxable income, provided that the United States Holder does not elect to claim a foreign tax credit for any foreign income taxes paid or accrued for the relevant taxable year. Interest and Additional Amounts will constitute income from sources without the United States and generally will be treated separately along with other items of “passive” income for purposes of determining the credit for foreign income taxes allowed under the Internal Revenue Code of 1986, as amended. The calculation and availability of foreign tax credits or deductions involves the application of rules that depend on a United States Holder’s particular circumstances. United States Holders should consult their own tax advisors regarding the availability of foreign tax credits and the treatment of Additional Amounts.
Taxation of Dispositions. Upon the sale, exchange or retirement of a Registered Security, a United States Holder will generally recognize a gain or loss equal to the difference between the amount realized (less any amounts attributable to accrued and unpaid interest not previously includible in gross income, which will be taxable as ordinary income) and the holder’s tax basis in such security, which is generally equal to the cost of the
Backup Withholding and Information Reporting. Information returns may be filed with the Internal Revenue Service with respect to payments made to certain United States Holders of the Registered Securities. In addition, certain United States Holders may be subject to a backup withholding tax in respect of such payments, unless they (1) provide their accurate taxpayer identification numbers to the principal paying agent and certify that they are not subject to backup withholding or (2) otherwise establish an exemption from the backup withholding tax. Backup withholding is not an additional tax.Non-United States Holders may be required to comply with applicable certification procedures to establish that they are not United States Holders in order to avoid the application of such information reporting requirements and backup withholding tax. Specified Foreign Financial Assets. Certain United States Holders that own “specified foreign financial assets” with an aggregate value in excess of U.S. $50,000 are generally required to file an information statement along with their tax returns, currently on Form 8938, with respect to such assets. “Specified foreign financial assets” include any financial accounts held at anon-U.S. financial institution, as well as securities issued by anon-U.S. issuer (which would include the Registered Securities) that are not held in accounts maintained by financial institutions. Higher reporting thresholds apply to certain individuals living abroad and to certain married individuals. Regulations extend this reporting requirement to certain entities that are treated as formed or availed of to hold direct or indirect interests in specified foreign financial assets based on certain objective criteria. United States Holders who fail to report the required information could be subject to substantial penalties. In addition, the statute of limitations for assessment of tax would be suspended, in whole or part. Prospective investors should consult their own tax advisors concerning the application of these rules to their investment in the Registered Securities, including the application of the rules to their particular circumstances. Documents on Display We are subject to the information requirements of the Exchange Act. In accordance with these requirements, we file reports, including annual reports on Form20-F, and other information with the SEC. QUALITATIVE DISCLOSURE Policies for Risk Management and the Use of Derivative Financial Instruments We face market risk caused by the volatility of hydrocarbon prices, exchange rates and interest rates, credit risk associated with investments and financial derivatives, as well as liquidity risk. In order to monitor and manage these risks, we have This regulatory framework establishes that DFIs should In addition, Approved DFIs are mainly traded on the The different types of DFIs that we One of our policies is to As part of the regulatory framework for financial risk management, we have established the counterparties Given that the
For those portfolios with an open market risk exposure, our financial risk management regulatory framework establishes the implementation and monitoring of market risk limits such as VaR and capital at risk We have also established credit guidelines for DFIs
DFIs held with financial counterparties do not require collateral exchange clauses. Notwithstanding, our regulatory framework promotes credit risk mitigation strategies such as collateral exchange We do not have an independent third party to verify the compliance with these internal standards; however, we have internal control procedures that certify our compliance with existing policies and guidelines. Description about Valuation Techniques Fair Value of DFIs We periodically evaluate our exposure to international hydrocarbon prices, interest rates and foreign currencies, and we use derivative instruments as a mitigation mechanism when potential sources of market risk are identified. We monitor the fair value of our DFI portfolio on a periodic basis. The fair value represents the price at which one party would assume the rights and obligations of the other, and is calculated for DFIs through models commonly used in the international financial markets, based on inputs obtained from major market information systems and price providers.
We calculate the fair value of our DFIs Our DFI portfolio is composed primarily of swaps, for which fair value is estimated by projecting future cash flows and discounting them by the corresponding discount factor. For currency options, this is done through the Black Scholes model and, for crude oil options, through the Levy model for Asian options. Because our hedges are cash flow hedges, their effectiveness is preserved regardless of Fair value hierarchy
The fair values determined by Level 1 inputs utilize quoted prices in When available, we measure fair value using Level 1 inputs, because they generally provide the most reliable evidence of fair value. The fair-value assumptions and inputs utilized in the valuation of our DFIs’ fair value, fall under Level 2 of the fair value hierarchy. Liquidity Sources Liquidity Risk Our main internal source of liquidity comes from our In addition, as of December 31, 2018, we have acquired committed revolving credit lines in order to mitigate liquidity risk, Finally, the investment strategies of our portfolios are structured by selecting time horizons that consider each currency’s cash flow requirements in order to preserve liquidity.
Changes in Exposure to Main Risks Market Risk
We are exposed to fluctuations in floating interest rate liabilities. We are exposed to U.S. dollar LIBOR and to Mexican peso TIIE. As of December 31, Moreover, we invest in pesos and U.S. dollars in compliance with applicable internal regulations, through portfolios that have different purposes that seek an adequate return subject to risk parameters that reduce the probability of capital losses. The objective of the investments made through these portfolios is to meet our obligations payable in pesos and U.S. dollars. The investments made through our portfolios are exposed to domestic and international interest rate risk and credit spread risk derived from government and corporate securities, and inflation risk arising from the relationship between UDIs and pesos. However, these risks are mitigated by established limits on exposure to market risk. Interest Rate Swaps Occasionally, for strategic reasons or in order to offset the expected inflows and outflows, we have entered into interest rate swaps. Under our interest rate swap agreements, we acquire the obligation to make payments based on a fixed interest rate and are entitled to receive floating interest rate payments based on LIBOR, TIIE or a rate referenced to or calculated from TIIE. As of December 31, Similarly, in order to eliminate the volatility associated with variable interest rates of long-term financing operations, PMI NASA has executed interest rate swap agreements denominated in U.S. dollars for an
Our expenses related to hydrocarbon duties are calculated based on international U.S. dollar-denominated prices and the cost of hydrocarbon imports that we acquire for resale in Mexico or use in our facilities are indexed to international U.S. dollar-denominated prices. By contrast, our capital As a result of this cash flow structure, the depreciation of the peso Cross-Currency Swaps
As a consequence of the
The underlying currencies of our DFIs are the euro, Swiss franc, Japanese yen
In 2018, in order to hedge
Moreover, in Additionally, in 2017, we entered into, without cost, a structure which is composed of a cross-currency swap We recorded a total net foreign exchange December 31, 2016 to Ps. 19.7867 per U.S. $1.00 on December 31, 2017. Our foreign exchange loss in Certain of the
Finally, a significant amount of PMI Trading’s income and expenses, including the cost of sales and related sales costs, is derived from the trade of refined products, petrochemicals and gas liquids to our subsidiaries and third parties, whose prices are determined and are payable in U.S. dollars. PMI Trading’s exposure to foreign currency risk results primarily from the need to fund tax payments denominated in domestic currency, PMI Trading believes it can adequately manage the risk created by the payment of taxes in domestic currency without the need to enter into hedging instruments because the exposure to this risk is marginal relative to the total flows of U.S. dollar. In addition, in the event that a potential foreign exchange risk arises in connection with a commercial transaction, PMI Trading may implement risk mitigation measures by entering into
We periodically assess our revenues and expenditures structure in order to identify the main market risk factors that our cash flows are exposed to in connection with international hydrocarbon prices. Based on this assessment, we monitor our exposure to the most significant risk factors and quantify their impact on our financial balance.
Our exposure to hydrocarbon prices is partly mitigated by natural hedges between our inflows and outflows. Additionally, we continuously evaluate the implementation of Commodity Derivatives
In During 2018, the crude oil hedge for fiscal year 2019 was implemented, pursuant to which we hedged 320 thousand barrels per day for the period between December 2018 and In addition to supplying natural gas, Pemex Industrial Transformation Pemex Industrial Transformation maintains a negligible or even null exposure to market risk. These portfolios have VaR and CaR limits in order to PMI Trading faces market risk generated by the terms of the purchase and sale of refined products and natural gas liquids, as well as the volatility of oil prices. Accordingly, it frequently enters into DFIs in order to mitigate this risk, thereby reducing the volatility of its financial results. In accordance with the risk management regulatory framework that PMI Trading has implemented, VaR and the change in profit and loss by portfolio are calculated daily and compared to the maximum applicable limits in order to implement risk mitigation mechanisms as necessary.
Counterparty or Credit Risk When the fair value of a DFI is favorable to us, we face the risk that the counterparty will not be able to meet its obligations. We monitor our counterparties’ creditworthiness and calculate the credit risk exposure for our DFIs. As a risk mitigation strategy, we only enter into DFIs with major financial institutions with a minimum credit rating ofBBB-. These ratings are issued and revised periodically by risk rating agencies. Furthermore, we seek to maintain a diversified portfolio of counterparties. In order to estimate Moreover, we have entered into various long-term cross-currency swaps agreements with “recouponing” provisions (pursuant to which the payments on the swaps are adjusted when the MtM exceeds the relevant threshold specified in the swap), thereby limiting our exposure with our counterparties to a specific threshold amount. The specified thresholds were reached in In addition, we have entered into long-term DFIs with mandatory early termination clauses (pursuant to which, at a given date, and irrespective of the then current MtM, the DFI will terminate and settle at the corresponding MtM, and we can either enter into a new DFI with the same counterparty or a new counterparty), which reduces the credit risk generated by the term of the DFI by bounding it to a specific date. As of December 31, 2018, we have entered into two Japanese yen Seagull Option structures, with termination clauses in 2021. According to IFRS 13 “Fair Value Measurement,” the fair value or For each DFI, the CVA is calculated by determining the difference between the MtM and the estimated MtM adjusted for credit risk. In determining the credit risk, the CVA method takes into account the current market perception about the credit risk of both counterparties, using the following inputs: Furthermore, by means of its credit guidelines for DFI operations, Pemex Industrial Transformation has significantly reduced its credit risk exposure related to the DFIs offered to its customers to assist them in mitigating the risk associated with the volatility of the natural gas In order to qualify for these DFIs, Pemex Industrial Additionally, beginning on October 2, 2009, DFIs with these customers must be initially secured by cash deposits, letters of credit or other collateral provisions, as required. In accordance with these guidelines, in the event that a client does not meet its payment obligations, DFIs related to this client are terminated, On August 20, 2014, certain amendments to the credit guidelines were deposit collateral. If a client suffers an event of default, DFIs related to this client are terminated early and natural gas supply is suspended until the payment is made. PMI Trading’s credit risk associated with DFI transactions is mitigated through the use of futures and standardized instruments that are cleared through Accounting Standards Applied and the Impact on Results We enter into derivatives transactions with the sole purpose of hedging financial risks related to our operations, firm commitments, planned transactions and assets and liabilities recorded on our statement of financial position. Nonetheless, some of these transactions do not qualify for hedge accounting treatment because they do not meet the requirements of As of December 31, For the According to established accounting policies, we have analyzed the different contracts that we have entered into and have determined that according to the terms thereof none of these agreements meet the criteria to be classified as embedded derivatives. Accordingly, as of December 31, As of December 31, 2018, we recognized a loss of Ps. 3,412.7 million in the “Derivative financial instruments (cost) income, net” line item which resulted from changes in the fair value of accounts receivable from the sale of hydrocarbons whose performance obligations have been met and whose determination of the final price is indexed to future prices of the hydrocarbons. QUANTITATIVE DISCLOSURE Fair Value The following tables show our cash flow maturities as well as the fair value of our debt and DFI portfolios as of December 31,
For debt obligations, these tables present principal cash flow and
For interest rate
Weighted average variable rates are based on implied forward rates obtained from the interbank market yield curve at the reporting For natural gas DFIs, volumes are presented in millions of British thermal units (MMBtu), and fixed average
For crude oil, volumes are presented in millions of barrels, and fixed average and strike prices are presented in U.S. dollars per barrel. A DFI’s fair value includes CVA and is calculated based on market quotes obtained from market sources such as
For PMI Trading, the prices used in commercial transactions and DFIs are published by reputable sources that are widely used in international markets, such asCME-NYMEX, Platts and Argus, among
Fair value is calculated internally, either by discounting cash flows with the corresponding
For all instruments, the tables are based on the contract terms in order to determine the future cash flows that are categorized by expected maturity dates.
Note: Numbers may not total due to rounding.
Source: Quantitative Disclosure of Cash Flow’s Maturities from Derivative Financial Instruments Held or Issued for Purposes
Numbersmay not total due to rounding.
Source: Quantitative Disclosure of Cash Flow’s Maturities from Derivative Financial Instruments (Natural Gas) Held or Issued for Purposes other than Trading as of December 31,
Quantitative Disclosure of Cash Flows’ Maturities from Derivative Financial Instruments (Petroleum Products) Held or Issued for Purposes other than Trading as of December 31,
Source: Sensitivity Analysis We have entered into DFIs with the purpose to completely mitigate the market risk for specific flows or
Natural gas DFIs that Pemex Industrial Transformation offers to its domestic customers are reported as transactions with trading purposes. However, such operations are fully compensated by the operations entered into Other DFIs seek to hedge the changes in the price of the commercialized products, such that Item 12. Description of Securities Other than Equity Securities Not applicable. PART II Item 13. Defaults, Dividend Arrearages and Delinquencies None. Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds None. Item 15. Controls and Procedures (a) Disclosure Controls and Procedures We carried out an evaluation under the supervision and with the participation of our management, including ourDirector General Based upon our evaluation, and because of the material (b) Management’s Annual Report on Internal Control over Financial Reporting Management is responsible for establishing and maintaining adequate internal control over financial
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness
Management concluded that our internal control over financial reporting was not effective as of December 31, Our management concluded that, as of December 31, 2018, a material weakness existed in our internal control over financial reporting due to the ineffectiveness of the design and implementation of controls providing reasonable assurances regarding prevention of unauthorized disposition of assets by having certain employees involved in the illicit market in fuels, which could have a material effect on our financial statements. During 2018, we have experienced a significant increase in non-operating losses resulting from the illicit market in fuels due in part to the ineffectiveness of our internal controls. Although formal governmental procedures exist for reporting illegal activity to the authorities, we did not have in place internal procedures to detect and investigate such matters. For the year ended December 31, 2018, we recognized losses in the amount of Ps. 39.4 billion resulting from the illicit market in fuels. In response to the material weakness described above, we are in the process of executing a remediation plan that includes, among other things, designing and implementing formal internal procedures to detect and investigate incidents related to the illicit market in fuels in our facilities in order to mitigate the risk that our financial reporting could be affected. We have created a special tip line for the reporting of complaints and put in place further mechanisms dedicated to monitoring and investigating these incidents, and we have allocated additional capital and human resources to these remediation plans. In addition, the Mexican Government has announced additional measures aimed at further preventing and eliminating the illicit market in fuels. See “Item 8—Financial Information—Legal Proceedings—Actions Against the Illicit Market in Fuels.” Our management also concluded that, as of December 31, In response to the material weakness described above, we are in the process of executing a remediation plan that includes the following actions:
Remediation We also reported material weaknesses in internal control over financial reporting in our annual reports on Form20-F for the years ended December 31, 2015 and 2016, both of which related to the calculation of the impairment of our assets, and the year ended December 31, 2017, related to our calculation of recognized deferred taxes at the time that we filed our unaudited consolidated financial statements with the Mexican Stock Exchange. 2017 For the year ended December 31, 2017, we lacked consistency in the reporting of, and failed to timely determine, the amounts of the variables used in the calculation of deferred taxes, and our controls to review and authorize such calculation were ineffective. We were therefore unable to ascertain with reasonable assurance the amount of deferred taxes for the fiscal year ended December 31, 2017. In addition, the calculation of deferred taxes included in our unaudited consolidated financial statements did not take into account new regulations issued by the Ministry of Finance and Public Credit. As a result, our unaudited consolidated financial statements as of and for the year ended December 31, 2017 reflected a net loss in the amount of Ps. 333.4 billion. In connection with the preparation of our audited consolidated financial statements, we were able to determine the definitive amounts of the variables used in the calculation of deferred taxes and performed the calculation in accordance with the new regulations. As a result, we reported a net loss of Ps. 280.9 billion, or Ps. 52.5 billion less than the Ps. 333.4 billion we reported in our unaudited consolidated financial statements. This favorable effect was primarily due to the Ps. 37.2 billion increase in deferred taxes resulting from the implementation of the new regulations issued by the Ministry of Finance and Public Credit. In response to the material weaknesses described above, we executed remediation plans that, among other things, ensure that we respond adequately and in a timely manner to updated regulatory criteria for the calculation of deferred taxes that may affect our financial reporting, such that this material weakness no longer exists. 2016 For the year ended December 31, 2016, we incorrectly assumed, for purposes of the impairment analysis of our exploration and production cash generating units, the economic landscape related to thetwo-yearlife-of-field for certain fields assigned to Petróleos Mexicanos on a temporary basis rather than25-yearlife-of-field allowed by the CNH. As a result, our unaudited consolidated financial statements as of and for the year ended December 31, 2016 only reflected a net reversal of impairment in the amount of Ps. 246.3 billion. In connection with the preparation of our audited consolidated financial statements as of and for the year ended December 31, 2016, we applied the25-yearlife-of-field assumption allowed by the CNH which, combined with the certified reserves data, resulted in a net reversal of impairment in the amount of Ps. 331.3 billion, a difference, while favorable, of Ps. 85.0 billion. In response to the material weakness described above, in 2017 we remediated the material weakness by executing remediation plans that, among other things, ensure that we apply the accurate life-of-field criteria in the calculation of the impairment of our assets such that this material weakness no longer exists. 2015 For the year ended December 31, 2015, we had not, at the relevant time, established an effective design of processes and procedures to effectively respond to the nature and magnitude of the changes in the economic
Not applicable.
Except for these changes, there has been no change in our internal control over financial reporting during Item 16A. Audit Committee Financial Expert
The Board of Directors of Petróleos Mexicanos has determined that it does not have an “audit committee financial In accordance with the Petróleos Mexicanos Law, on November 2016, we Our Code of On December 7, 2016, our Ethics Committee was formed to monitor the implementation and enforcement of the Code of Ethics. See “Item 4—Information on the Company—Business Overview—PEMEX Corporate Matters—Ethics Committee” for more information. On August 28, 2017, theCódigo de Conducta de Petróleos Mexicanos, sus empresas productivas subsidiarias y, en su caso, empresas filiales(Code of Conduct of Petróleos Mexicanos, its productive subsidiary entities and, where applicable, affiliated companies, or the Code of Conduct) was published in the Official Gazette of the Federation. This Code of Conduct delineates behaviors expected of and banned for our employees, in accordance with the values established in the Code of Ethics approved by the Board of the Directors of Petróleos Mexicanos in November 2016. On September 11, 2017, the Políticas y Lineamientos Anticorrupción para Petróleos Mexicanos, sus empresas productivas subsidiarias y, en su caso, Empresas Filiales (Anticorruption Policies and Guidelines for Petróleos Mexicanos, its productive subsidiary entities and, where applicable, affiliated companies) and the Políticas y Lineamientos para el desarrollo de la Debida Diligencia en Petróleos Mexicanos, sus empresas productivas subsidiarias y, en su caso, Empresas Filiales, en Materia de Ética e Integridad Corporativa (Policies and Guidelines to carry out Due Diligence in Petróleos Mexicanos, its productive subsidiary entities and, where applicable, affiliated companies, in Ethics and Corporate Integrity matters) became effective. Additionally, we have an Ethics Line and a telephone number available on our website, as a mechanism to provide advice to address questions on ethics and integrity issues within PEMEX and to facilitate receipt of complaints about possible violations to our Code of Ethics or our Code of Conduct. The information received is channeled to the Ethics Committee and the appropriate areas authorized to investigate and, if applicable, pursue cases in accordance with the applicable laws. We believe that the regulations and mechanisms mentioned above, along with the legal framework applicable to PEMEX, will allow us to improve our ability to mitigate our exposure to bribery and corruption risks in our relationships with third parties. See “Item 3—Key Information—Risk Factors—Risk Factors Related to Our Operations—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.” Item 16C. Principal Accountant Fees and Services In its meeting held on October
Audit andNon-Audit Fees The following table sets forth the aggregate fees billed to us for the fiscal
Audit fees for the year ended December 31, 2017 in the table above are the aggregate fees billed by BDO Mexico and audit fees for the year ended December 31, 2018 in the table above are the aggregate fees billed by KPMG Mexico, in each case for services provided in connection with the audits of our annual financial statements, Audit Committee Approval Policies and Procedures In accordance with the Petróleos Mexicanos Law, the
Item 16D. Exemptions from the Listing Standards for Audit Committees Not applicable. Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers Not applicable. Item 16F. Change in Registrant’s Certifying Accountant
BDO Mexico’s reports with respect to our consolidated financial statements as of and for the years ended December 31, 2016 and 2017 did not contain any adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles. During the fiscal years ended December 31, 2016 and 2017 and the subsequent interim period through March 31, 2018, there were no disagreements with BDO Mexico, whether or not resolved, on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedures, which if not resolved to BDO Mexico’s satisfaction would have caused it to make reference to the subject matter of the disagreements in connection with any reports it would have issued. During the fiscal years ended December 31, 2016 and 2017, there were no “reportable events” as that term is defined in Item 16F(a)(1)(v) of Form20-F other than the identification of material weaknesses in our internal control over financial reporting as described in our annual report on Form20-F for the year ended December 31, 2016 (the “201620-F”) and our annual report on Form20-F for the year ended December 31, 2017 (the “201720-F”). As more fully disclosed in the 201720-F, our management concluded that our internal control over financial reporting was not effective as of December 31, 2017 due to a material weakness that affected our calculation of recognized deferred taxes at the time that we filed our unaudited consolidated financial statements with the Mexican Stock Exchange. Due to the lack of consistency in the reporting of, and the failure to timely determine, the amounts of the variables used in the calculation of deferred taxes, and the ineffectiveness of controls to review and authorize such calculation, we were unable to ascertain with reasonable assurance the amount of deferred taxes for the fiscal year ended December 31, 2017. In addition, the calculation of deferred taxes included in our unaudited consolidated financial statements did not take into account new regulations issued by the Ministry of Finance and Public Credit. Further, as more fully disclosed in the 201620-F, our management concluded that our internal control over financial reporting was not effective as of December 31, 2016 due to a material weakness because, when we calculated the impairment effect at the time of our unaudited financial statements, we incorrectly assumed, for purposes of the impairment analysis of our exploration and production cash generating units, the economic landscape related to thetwo-yearlife-of-field for those fields assigned to Petróleos Mexicanos on temporary basis pursuant to Round Zero rather than25-yearlife-of-field allowed by the CNH. Our Board of Directors has discussed these material weaknesses with BDO Mexico and we have authorized BDO Mexico to respond fully to the inquiries of the successor independent registered public accounting firm concerning these matters. We have provided BDO Mexico with a copy of the foregoing disclosure and have requested that BDO Mexico furnish us a letter addressed to the SEC stating whether or not BDO Mexico agrees with such disclosure. A copy of BDO Mexico’s letter, dated April 30, 2019, is filed as Exhibit 15.1 to this report. During the fiscal years ended December 31, 2016 and 2017, we did not consult with KPMG Mexico regarding either (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on our consolidated financial statements or (ii) any matter that was either the subject of a disagreement or a “reportable event” as that term is defined in Item 16F(a)(1)(v) of Form20-F. Further, during the fiscal years ended December 31, 2016 and 2017, KPMG Mexico did not provide any written report or oral advice that was an important factor considered by us in reaching a decision as to any such accounting, auditing or financial reporting issue. Item 16G. Corporate Governance Not applicable. Item 16H. Mine Safety Disclosure Not applicable. PART III Not applicable. See pages F-1 through Item 19. Exhibits. Documents filed as exhibits to this Form20-F:
The registrant agrees to furnish to the U.S. Securities and Exchange Commission, upon request, copies of any instruments that define the rights of holders oflong-term debt of the registrant that are not filed as exhibits to this report.
(P) Filed via paper. SIGNATURE Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, as amended, the registrant hereby certifies that it meets all of the requirements for filing on Form20-F and has duly caused and authorized the undersigned to sign this annual report on its behalf.
Date: PETRÓLEOS MEXICANOS, PRODUCTIVE STATE-OWNED SUBSIDIARIES AND SUBSIDIARY COMPANIES
CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM PETRÓLEOS MEXICANOS, PRODUCTIVE STATE-OWNED SUBSIDIARIES AND SUBSIDIARY COMPANIES
CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31,
To
Petróleos (figures stated in thousands of pesos) Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated Going Concern The accompanying consolidated financial statements have been prepared assuming that PEMEX will continue as a going concern. As discussed in Note 24 e) to the consolidated financial statements, PEMEX has suffered recurring losses from operations, has a net capital deficiency and net equity deficit. These issues, together with its fiscal regime, the significant increase in its indebtedness and the reduction of its working capital raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 24 e). The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Change in Accounting Principle As discussed in note 15 to the consolidated financial statements, in 2018 PEMEX has elected to change its method of computing the discount rate applied to cash flows derived from its oil and gas production activities for the impairment calculation of long lived assets, related to exploration and production cash generating units. Illicit fuel market Non-operating losses As discussed in note 25 to the consolidated financial statements, transportation of hydrocarbons and other products through the pipeline network is affected by unauthorized subtractions resulting in an illicit fuel market risk. These non-operating losses significantly increased 71.8% during 2018, representing a total cost of $39,439,107 at December 31, 2018. (Continued) Basis for Opinion These consolidated financial statements are the responsibility of We conducted our Our audit
We have served as PEMEX’s auditor since 2018 Mexico City, April 30, 2019 Report of Independent Registered Public Accounting Firm The Board of Directors Petróleos Mexicanos Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated statement of financial position of Petróleos Mexicanos, Productive State-Owned Subsidiaries and Subsidiary Companies (“PEMEX”) as of December 31, 2017 and 2016, and the related consolidated statements of comprehensive income, changes in equity (deficit), and cash flows for each of the two years in the period ended December 31, 2017, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements Going concern The accompanying consolidated financial statements have been prepared assuming that PEMEX will continue as a going concern. As described in Note Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the PEMEX’s consolidated financial statement based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB and in accordance with International Standards on Auditing issued by International Federation of Accountants. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion. CASTILLO MIRANDA Y COMPAÑÍA, S. C. /s/ JOSE LUIS VILLALOBOS ZUAZUA C.P.C. Jose Luis Villalobos Zuazua Mexico City,
PETRÓLEOS MEXICANOS, PRODUCTIVE STATE-OWNED SUBSIDIARIES AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION AS OF DECEMBER 31, (
The accompanying notes are an integral part of these consolidated financial statements. PETRÓLEOS MEXICANOS, PRODUCTIVE STATE-OWNED SUBSIDIARIES AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, (Figures stated in thousands, except as noted)
The accompanying notes are an integral part of these consolidated financial statements.
PETRÓLEOS MEXICANOS, PRODUCTIVE STATE-OWNED SUBSIDIARIES AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (DEFICIT) FOR THE YEARS ENDED DECEMBER 31, (Figures stated in thousands, except as noted) (See Note
The accompanying notes are an integral part of these consolidated financial statements. PETRÓLEOS MEXICANOS, PRODUCTIVE STATE-OWNED SUBSIDIARIES AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, (Figures stated in thousands, except as noted)
The accompanying notes are an integral part of these consolidated financial statements. PETRÓLEOS MEXICANOS, PRODUCTIVE STATE-OWNED SUBSIDIARIES AND SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, (
NOTE 1. STRUCTURE AND BUSINESS OPERATIONS OF PETRÓLEOS MEXICANOS, SUBSIDIARY ENTITIES AND SUBSIDIARY COMPANIES Petróleos Mexicanos was created by a decree issued by the Mexican Congress on June 7, 1938. The decree was published in theDiario Oficial de la Federación On December 20, 2013, 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), was published in the Official Gazette of the Federation,
As part of
Once the Petróleos Mexicanos Law came into effect, Petróleos Mexicanos was transformed from a decentralized public entity to a productive state-owned company. Petróleos Mexicanos is a legal entity empowered to own property and carry on business in its own name with the purpose of
The Subsidiary Entities,Pemex Exploración y Producción (Pemex Exploration and Production),Pemex Transformación Industrial (Pemex Industrial Transformation),Pemex Perforación y Servicios The Subsidiary Entities of Petróleos Mexicanos prior to the Corporate Reorganization (defined below) werePemex-Exploración y Producción, Pemex-Refinación (Pemex-Refining),Pemex-Gas and Petroquímica Básica
Pursuant to the The Board of Directors of Petróleos Mexicanos also approved the creation of the following On March 27, 2015, the Board of Directors of Petróleos Mexicanos approvedthe
On April 28, 2015 the creation resolutions of the seven productive state-owned subsidiaries were published On May 29, 2015 the statements related to the creation resolution of the productive state-owned subsidiary Pemex Exploration and Production and the productive state-owned subsidiary Pemex Cogeneration and Services issued by the Board of Directors of Petróleos Mexicanos were published in the Official Gazette of the Federation and, accordingly, these creation resolutions came into effect on June 1, 2015.
the Official Gazette of the Federation and became effective that same date, respectively. On July 31, 2015, the statements related to the creation resolution of the productive state-owned subsidiary Pemex Drilling and Services, the productive state-owned subsidiary Pemex Fertilizers and the productive state-owned subsidiary Pemex Ethylene issued by the Board of Directors of Petróleos Mexicanos were published in the Official Gazette of the Federation and, accordingly, these creation resolutions came into effect on August 1, 2015. On October 1, 2015, the statement related to the creation resolution of the productive state-owned subsidiary Pemex Logistics issued by the Board of Directors of Petróleos Mexicanos was published in the Official Gazette of the Federation and, accordingly, these creation resolutions came into effect on October 1, 2015. On October 6, 2015, the statement related to the creation resolution of the productive state-owned subsidiary Pemex Industrial Transformation issued by the Board of Directors of Petróleos Mexicanos was published in the Official Gazette of the Federation and, accordingly, these creation resolutions came into effect on November 1, 2015. On July 13, 2018, the Board of Directors of Petróleos Mexicanos issued the Declaration of Liquidation and Extinction of Pemex Cogeneration and Services, which was published in the Official Gazette of the Federation and became effective on July 27, 2018. As of The Subsidiary Entities, and their primary purposes, are as follows: Pemex Exploration and Production: This entity is in charge of exploration and extraction of crude oil and solid, liquid or gaseous hydrocarbons in Mexico, in the exclusive economic zone of Mexico and abroad. Pemex Industrial Transformation: This entity performs activities related to refining, processing, importing, exporting, trading and the sale of hydrocarbons. Pemex Drilling and Services: This entity performs drilling services and repair and services of wells. Pemex Logistics: This entity provides transportation, storage and related services for crude oil, petroleum products and petrochemicals to PEMEX (as defined below) and other companies, through pipelines and maritime and terrestrial means, and provides guard and management services. Pemex Fertilizers: This entity produces, distributes and commercializes ammonia, fertilizers and its derivatives, as well as provides related services. Pemex Ethylene: This entity commercializes, distributes and trades methane, ethane and propylene, directly or through others. The principal distinction between the Subsidiary Entities and the Subsidiary Companies (as defined below) is that the Subsidiary Entities are productive state-owned entities, whereas the Subsidiary Companies are affiliate companies that were formed in accordance with the applicable laws of each of the respective jurisdictions in which they were incorporated. The “Subsidiary Companies” are defined as those companies which are controlled, directly or indirectly, by Petróleos Mexicanos (see Note “Associates,” as used herein, means those companies in which Petróleos Mexicanos Petróleos Mexicanos, the Subsidiary Entities and the Subsidiary Companies are referred to collectively herein as “PEMEX.” PEMEX’s address and its principal place of business is: Av. Marina Nacional No. 329, Col. Verónica Anzures, NOTE 2. AUTHORIZATION AND BASIS OF PREPARATION Authorization On April 30, 2019, these consolidated financial statements under IFRS and the notes hereto were authorized for issuance by the following officers: Mr. Octavio Romero Oropeza, Chief Executive Officer, Mr. Alberto Velázquez García, Chief Financial Officer, Mr. Manuel Salvador Cruz Flores, Deputy Director of Accounting and Tax Matters, and Mr. Oscar René Orozco Piliado, Associate Managing Director of Accounting. These consolidated financial statements and the notes hereto as of December 31, 2018 were approved by the Board of Petróleos Mexicanos on April 23, 2019, pursuant to the terms of Article 13 Fraction VI of the Petróleos Mexicanos Law, Article 104 Fraction III, paragraph a, of the Ley del Mercado de Valores (Securities Market Law), and of Article 33 Fraction I, paragraph a, section 3 and Article 78 of the Disposiciones de carácter general aplicables a las emisoras de valores y a otros participantes del mercado de valores (“General provisions applicable to securities´ issuers and other participants of the securities market”). Audit appraisal matters are reported to the Audit Committee. These consolidated financial statements are PEMEX’s first annual consolidated financial statements in which Basis of accounting A. Statement of compliance PEMEX prepared its consolidated financial statements as of December 31,
These consolidated financial statements have been prepared using the historical cost basis method,
C. Going concern The consolidated financial statements have been prepared on a going concern basis, which assumes that PEMEX can meet its payment obligations.
These consolidated financial statements are presented in Mexican pesos, which is both PEMEX’s functional currency and reporting currency, due to the following:
Although the sales prices of several products are based on international U.S. dollar-indices, final domestic selling prices are governed by the economic and financial policies established by the Mexican Government. Accordingly, cash flows from domestic sales are generated and Mexico’s monetary policy regulator, the Banco de México, requires that Mexican Government entities other than financial entities sell their foreign currency to the Banco de México in accordance with its terms, receiving Mexican pesos in exchange, which is the currency of legal
References in these consolidated financial statements and the related notes to “pesos” or “Ps.” refers to Mexican pesos, “U.S. dollars” or “US$” refers to dollars of the United States of America, “yen” or “¥” refers to Japanese yen, “euro” or “€” refers to the legal currency of the European Economic and Monetary Union, “Pounds sterling” or “£” refers to the legal currency of the United Kingdom and “Swiss francs” or “CHF” refers to the legal currency of the Swiss
The preparation of the consolidated financial statements in accordance with IFRS requires the use of estimates and assumptions made by PEMEX’s management that affect the recorded amounts of assets and liabilities and the disclosures of contingent assets and liabilities as of the date of these consolidated financial statements, as well as the recorded amounts of income, costs and expenses during the year.
Actual results may differ from these estimates. Significant estimates and underlying assumptions are reviewed,
Information about estimates, assumptions
Note
Note
Note
Note
Note
Note
Note Note 3-N Contingencies – probalility assessment
Some of PEMEX’s accounting policies and disclosures require the measurement of the fair values of financial assets and liabilities, as well as non-financial assets and liabilities. PEMEX has an established control framework with respect to the measurement of fair values. This includes a valuation team that has overall responsibility for overseeing all significant fair value measurements, including Level 3 fair values. The valuation team regularly reviews significant unobservable inputs and valuation adjustments. If third party information, such as broker quotes or pricing services, is used to measure fair values, then the valuation team assesses the evidence obtained from When measuring the fair value of an asset or a liability, PEMEX uses market observable data as far as possible. Fair values are categorized into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows. Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs). If the inputs used to measure the fair value of an asset or a liability might be categorized in different levels of the fair value hierarchy, then the fair value measurement is categorized in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement. PEMEX recognizes transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred. NOTE 3. SIGNIFICANT ACCOUNTING POLICIES PEMEX has consistently applied the following accounting policies to each of the periods presented in the preparation of its consolidated financial statements, except for what is mentioned in Note 4, Accounting changes. Below is a summary of the principal accounting
The consolidated financial statements include
Subsidiaries are entities
entity. The financial For more information about the Subsidiary Companies, see Note
NCI are measured initially at their proportionate share of the acquiree’s identifiable net assets at the date of acquisition. Changes in the ownership interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions.
When PEMEX loses control over a subsidiary, it derecognizes the assets and liabilities of the subsidiary, and any related NCI and other components of equity. Any resulting gain or loss is recognized in profit or loss. Any interest retained in the former subsidiary is measured at fair value when control is lost.
PEMEX’s interests in equity-accounted investees comprise interests in associates and a joint Associates are those entities in which PEMEX has significant influence, but not control or joint control, over the
When the value of the share of losses exceeds the value of PEMEX’s investment in an associate or joint venture, the carrying value of the investment, including any long-term investment, is reduced to zero and PEMEX ceases to recognize additional losses, except in cases where PEMEX is For more information about associates and joint
Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rate at the reporting date.Non-monetary assets and liabilities that are measured at fair value in a foreign currency are translated into the functional currency at the exchange rate when the fair value was determined.Non-monetary items that are measured based on historical cost in a foreign currency are translated at the exchange rate at the date of the
The financial statements of foreign subsidiaries and associates are translated into the reporting currency by first identifying if the functional currency is different from the currency for recording the foreign operations, and, if so, the recording currency is translated into the functional currency and then into the reporting currency using theyear-end exchange rate of each period for assets and liabilities reported in the Foreign currency differences are recognized in OCI and accumulated in the currency translation effect, except to the extent that the translation difference is allocated to NCI. When a foreign operation is disposed of in its entirety or partially such that control, significant influence or joint control is lost, the cumulative amount in the translation reserve related to that foreign operation is reclassified to the consolidated statement of comprehensive income as part of the gain or loss on disposal. If PEMEX disposes of part of its interest in a
Financial assets and liabilities, including accounts receivable and payable, are initially recognized Financial assets and financial liabilities (unless it is
Financial Assets- Applicable policy beginning January 1, 2018 On initial recognition, a financial asset is classified as measured at: Amortized Cost; Fair Value Through Other Comprehensive Income (“FVTOCI”)-debt investment; FVTOCI–equity investment; or FVTPL. Financial assets are not reclassified subsequent to their initial recognition unless PEMEX changes its business model for managing financial assets, in which case all affected financial assets are reclassified on the first day of the first reporting period following the change in the business model.
All financial assets not classified as measured at amortized cost or FVTOCI (as described above) are measured at FVTPL. This includes all derivative financial assets (see Note 19). On initial recognition, PEMEX may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortized cost or at FVOCI as FVTPL, if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise. Financial assets - Business model assessment: Applicable policy beginning January 1, 2018 PEMEX makes an assessment of the objective of the business model in which a financial asset is held at a portfolio level because this best reflects the way the business is managed and information is provided to management. The information considered includes: the stated policies and objectives for the portfolio and the operation of those policies in practice, which include whether management’s strategy focuses on earning contractual interest income, maintaining a particular interest rate profile, matching the duration of the financial assets to the duration of any related liabilities or expected cash outflows or realizing cash flows through the sale of the how the performance of
the
how managers of the
the frequency, volume and timing of sales in prior periods, the reasons for such sales and expectations about future sales activity. Transfers of financial assets to third parties in transactions that Financial assets that are held for trading or managed and the performance of which is evaluated on a fair value basis are measured at FVTPL. Financial Asset - Assessment whether contractual cash flows are solely payments of principal and interest: Applicable policy beginning January 1, 2018 For the purposes of this assessment, principal is defined as the fair value of the financial assets on initial recognition. Interest is defined as consideration for the time value of money and for the credit risk associated with the principal amount outstanding during the relevant period of time and for the basic lending risks and costs (e.g., liquidity risk and administrative costs), as well as profit margin. In assessing whether the contractual cash flows are solely payments of principal and interest, PEMEX considers the contractual terms of the instrument, which includes assessing whether the financial asset contains a contractual term that could change the timing or
contingent events that would change the amount or timing of cash flows; terms that may adjust the contractual coupon rate, including variable rate features; prepayment and extension features; and terms that limit PEMEX’s claim to cash flows from specified assets (for example,non-recourse features). A prepayment feature is consistent solely with the payments of principal and interest criterion if the prepayment amount substantially represents unpaid amounts of principal and interest on the principal amount outstanding, which may include reasonable additional compensation for early termination of the contract. Additionally, for a financial asset acquired at a significant discount or premium to its contractual par amount, a feature that permits or requires prepayment at an amount that substantially represents the contractual par amount plus accrued (but unpaid) contractual interest (which may also include reasonable additional compensation for early termination) is treated as consistent with this criterion if the fair value of the prepayment feature is insignificant at initial recognition. Financial
Financial assets - Applicable policy before January 1, 2018 Financial instruments are classified as: (i) financial instruments measured at fair value through profit or loss; (ii) financial instruments held to maturity;(iii) available-for-sale financial assets; (iv) investments in equity instruments; (v) loans and receivables;
Financial instruments measured at fair value through profit or loss A financial instrument is measured at fair value through profit or loss if it is classified as held for trading or designated as such upon initial recognition. Financial assets are designated at fair value through profit or loss if PEMEX manages such investments and makes purchase and sale decisions based on their fair value in accordance with PEMEX’s documented risk management or investment strategy. In addition, directly attributable transaction costs are recognized in the consolidated statements of comprehensive income for the year. These financial instruments are recognized at fair value and corresponding changes relating to dividend income are recognized in the consolidated statements of comprehensive income. Available-for-sale financial assets
Subsequent to initial recognition,available-for-sale financial assets are measured at fair value. In addition, any gains or losses associated with such instruments, as well as foreign exchange differences are recognized in other comprehensive Sales and purchases of financial assets that require the delivery of such assets within a period of time established by market practice are recognized as of the negotiation date (the date on which PEMEX commits to purchase or sell the asset). Loans and receivables Loans and receivables are initially recognized at fair value. After initial recognition, loans and debt securities that bear interest are measured at amortized cost using the effective interest rate (“EIR”) method, less impairment losses. The amortized cost is calculated based on any discount or premium on acquisition and fees and costs that are an integral part of the EIR method. Amortization of costs is included under the heading of financing cost in the Derivative financial instruments The DFIs presented in the consolidated statement of financial position are Embedded derivatives PEMEX evaluates the potential existence of embedded derivatives, which may be found in the terms of its contracts, or combined with other host contracts, which could be structured financial instruments (debt or equity instruments with embedded derivatives). Embedded derivatives have terms that implicitly or explicitly meet the characteristics of a DFI. In some instances, these embedded derivatives must be segregated from the underlying contracts and measured, recognized, presented and disclosed as DFIs, such as when the economic risks and terms of the embedded derivative are not clearly and closely related to the underlying contract. Financial liabilities: Classification, subsequent measurement and gains and losses Financial liabilities are classified as measured at amortized cost or FVTPL. A financial liability is classified as FVTPL if it is classified asheld-for-trading, it is a derivative or it is designated as such on initial recognition. Financial liabilities at FVTPL are measured at fair value and net gains and losses, including any interest expense, are recognized in profit or loss. Other financial liabilities are subsequently measured at amortized cost using the effective interest method. Interest expense and foreign exchange gains and losses are recognized in profit or loss. Any gain or loss on derecognition is also recognized in profit or loss.
Financial assets PEMEX derecognizes a financial asset when the contractual rights to the cash flows from the financial asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are transferred or in which PEMEX neither transfers nor retains substantially all of the risks and rewards of ownership and it does not retain control of the financial asset. PEMEX enters into transactions whereby it transfers assets recognized in its statement of financial position but retains either all or substantially all of the risks and rewards of the transferred assets. In these cases, the transferred assets are not derecognized. Financial liabilities PEMEX derecognizes a financial liability when its contractual obligations are discharged, cancelled or expired. PEMEX also derecognizes a financial liability when its terms are modified and the cash flows of the modified liability are substantially different, in which case a new financial liability based on the modified terms is recognized at fair value. On derecognition of a financial liability, the difference between the carrying amount extinguished and the consideration paid (including anynon-cash assets transferred or liabilities assumed) is recognized in profit or loss.
Financial assets and financial liabilities are offset, and the net amount is presented in the statement of financial position when, and only when, PEMEX has a legally enforceable right to set off the amounts and it intends either to settle them on a net basis or to realize the asset and settle the liability simultaneously.
PEMEX uses DFIs to hedge the risk exposure in foreign currency, interest rate and the price of commodities related to its products. Embedded derivatives are separated from the host contract and accounted for separately if the host contract is not a financial asset and certain criteria are met. DFIs are initially measured at fair value. Subsequent to initial recognition, DFIs are measured at fair value, and changes therein are generally recognized in profit or loss. However, these contracts are not accounted as designated hedging instruments. DFIs are initially recognized at fair value on the date on which a derivative contract is entered into and after initial recognition are measured again at fair value. DFIs are accounted for as financial assets when the fair value is positive and as a financial liability when the fair value is negative. Any gain or loss arising from changes in the fair value of the DFIs is recognized directly in the income statement.
Financial instruments and contract assets PEMEX recognizes loss allowances for Estimated Credit Losses (“ECLs”) on: financial assets measured at amortized cost; debt investments measured at FVOCI; and contract assets. PEMEX measures loss allowances at an amount equal to lifetime ECL, except for the following, which are measured as12-month ECLs: debt securities that are determined to have low credit risk at the reporting date; and other debt securities and bank balances for which credit risk (i.e. the risk of default occurring over the expected life of the financial instrument) has not increased significantly since initial recognition. Loss allowances for trade receivables and contract assets are always measured at an amount equal to lifetime ECL. When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECL, PEMEX considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on PEMEX’s historical experience and informed credit assessment which includes forward-looking information. PEMEX assumes that the credit risk on a financial asset has increased significantly if it does not comply with the terms established in the contract. PEMEX considers a financial asset to be in default when the borrower is unlikely to pay its credit obligations to PEMEX in full, without recourse by PEMEX to actions such as realizing security (if any is held). PEMEX considers that a debt instrument has a low credit risk, when its credit rating is classified as “investment grade”. The investment grade classification is based on minimum credit ratings of Baa3 (Moody’s) andBBB- (S & P and Fitch), as well as its equivalent in other rating agencies Lifetime ECLs are the credit losses that result from all possible default events over the expected life of a financial instrument. 12-month ECLs are the portion of ECLs that result from default events that are possible within the 12 months after the reporting date (or a shorter period if the expected life of the instrument is less than 12 months). The maximum period considered when estimating ECLs is the maximum contractual period over which PEMEX is exposed to credit risk. Measurement of ECLs ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls (for example, the difference between the cash flows due to the entity in accordance with the contract and the cash flows that PEMEX expects to receive). ECLs are discounted at the effective interest rate of the financial asset. Credit-impaired financial assets At each reporting date, PEMEX assesses whether financial assets carried at amortized cost and debt securities at FVOCI are credit-impaired. A financial asset is ‘credit-impaired’ when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred. Evidence that a financial asset is credit-impaired includes the following observable data: significant financial difficulty of the borrower or issuer; a breach of contract such as a default or being more than 90 days past due; the restructuring of a loan or advance by PEMEX on terms that it would not consider otherwise; it is probable that the borrower will enter bankruptcy or other financial reorganization; or the disappearance of an active market for a security because of financial difficulties. Presentation of allowance for ECL in the statement of financial position Loss allowances for financial assets measured at amortized cost are deducted from the gross carrying amount of the assets. For debt securities at FVOCI, the loss allowance is charged to profit or loss and is reclassified from OCI. Write-off The gross carrying amount of a financial asset is written off (either partially or in full) to the extent that there is no realistic prospect of recovery. This is generally the case when PEMEX determines that the debtor does not have assets or sources of income that could generate sufficient cash flows to repay the amounts subject to thewrite-off. However, financial assets that are written off could still be subject to enforcement activities in order to comply with PEMEX’s procedures for recovery of amounts due. Impairment of financial assets - Policy applicable before January 1, 2018 At each reporting date, PEMEX evaluates whether there is objective evidence that a financial asset or group of financial assets is impaired, in which case the value of the recoverable amount of the asset is calculated. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of the financial asset. Objective evidence that a financial asset or group of assets is impaired includes significant financial difficulty of the issuer or obligor, a breach of contract, such as a default or delinquency in interest or principal payments; the lender, for economic or legal reasons relating to the borrower’s financial difficulty, granting
Impairment of financial assets carried at amortized cost The impairment of financial assets carried at amortized cost is measured as the difference between the If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the impairment loss previously recognized shall be reversed in Impairment in
When there is objective evidence of the impairment of an asset, the accumulated loss recognized in If, in a subsequent period, the impairment loss decreases,
Cost of sales represents the cost of production or acquisition of inventories at the time of sale, increased, where appropriate, by declines in net realizable value of inventories during the year. Advance payment to suppliers for inventory purchases are recognized as part of inventory when the risks and benefits of the ownership of the inventory have been transferred to PEMEX.
Items of wells, pipelines, properties, plant and equipment are recorded at acquisition or construction cost, which includes capitalized borrowing cost, less accumulated depreciation and accumulated impairment losses.
The cost of financing projects that require large investments The cost of self-constructed assets includes the cost of materials and direct labor, interest on financing and any other costs directly attributable to start up. In some cases, the cost also includes the Expenditures related to the construction of wells, pipelines, properties, plant and equipment during the stage prior to commissioning are stated at cost as intangible assets or construction in progress, in accordance with the characteristics of the asset. Once the assets are ready for use, they are transferred to the respective component of wells, pipelines, properties, plant and equipment and depreciation or amortization begins. If significant parts of an item of wells, pipelines, properties, plant and equipment have different useful lives, then they are accounted for as separate items (major components) of property, plant and equipment. The capitalized value of finance leases is also included in the line item of wells, pipelines, properties, plant and equipment. Any gain or loss on disposal of an item of wells, pipelines, properties, plant and equipment is recognized in profit or loss. Advance payments for the acquisition of pipelines, properties, plant and equipment are also recognized in the line item of wells, pipelines, properties, plant and equipment when the risks and benefits of the ownership have been transferred to PEMEX.
The costs of major maintenance or replacement of a significant component of an item of wells, pipelines, properties, plant and equipment are recognized in the carrying amount of the item if it is probable that the future economic benefits embodied within the component will flow to PEMEX and its cost can be measured reliably. The costs of recurring maintenance, repairs and renovations of wells, pipelines, properties, plant and equipment carried out to maintain the facilities in normal operation conditions
Depreciation and amortization of capitalized costs in wells are determined based on the estimated economic life of the field to which the wells belong, considering the relationship between the production of barrels of oil equivalent for the Depreciation of other elements of pipelines, properties, plant and equipment is recognized in profit or loss on a straight-line basis over the estimated useful life of the asset, beginning as of the date that the asset is available for use, or in the case of construction, from the date that the asset is completed and ready for use.
Estimated useful lives of items of properties, plant and equipment are reviewed and updated prospectively if expectations differ from previous estimates.
Intangible assets mainly include expenditure on the
Intangible assets acquired separately are measured at the time the initial cost of acquisition is recognized. After the initial recognition, intangible assets are measured at their acquisition cost, less (i) accumulated amortization, measured using the straight-line method during the estimated useful life of the intangible asset and (ii) accumulated impairment. Rights-of-way and easements and licenses software are amortized over the contract period or over the remaining life of the fixed asset or property to which they pertain. The estimated useful lives of intangible assets for current and comparative periods are described in Note 15. The estimated useful lives and residual values of intangible assets are reviewed at each reporting date and adjusted if appropriate.
Oil and natural gas exploration, appraisal and development expenditure is accounted for using the principles of the successful efforts method of accounting as described below. Exploration and appraisal expenditure Geological and geophysical exploration costs are recognized as an expense as incurred. Costs directly associated with an exploration well are initially capitalized as an intangible asset until the drilling of the well is complete and the results have been evaluated. These costs include employee remuneration, materials and fuel used, rig costs and payments made to contractors. If potentially commercial quantities of hydrocarbons are not found, the exploration well costs are written off against profit or loss. If hydrocarbons are found and, subject to further appraisal activity, are likely to be capable of commercial development, the costs continue to be carried as an asset. If it is determined that development will not occur, then the costs are expensed against profit or loss. Costs directly associated with appraisal activity undertaken to determine the size, characteristics and commercial potential of a reservoir following the initial discovery of hydrocarbons, including the costs of appraisal wells where hydrocarbons were not found, are initially capitalized as an intangible asset. When proved reserves of oil and natural gas are determined and development is approved by management, the relevant expenditure is transferred to wells, pipelines, properties, plant and equipment. Exploration wells more than 12 months old are expensed unless: (i) they are in an area requiring mayor capital expenditure before production can begin, (ii) commercially productive quantities of reserves have been found, and (iii) they are subject to further exploration or appraisal activity, in that either drilling or additional exploration wells is underway or firmly planned for the near future. PEMEX periodically assesses the amounts included within fixed assets to determine whether capitalization is initially appropriate and can continue. Exploration wells capitalized beyond 12 months are subject to additional scrutiny as to whether the facts and circumstances have changed and therefore whether the conditions described in the preceding paragraph no longer apply. Development expenditure Expenditure on the construction, installation and completion of infrastructure facilities such as platforms, pipelines and the drilling of development wells, including service and unsuccessful development or delineation wells, is capitalized within wells, pipelines, properties, plant and equipment and is depreciated from the commencement of production as described in the accounting policy for wells, pipelines, properties, plant and equipment.
Under Mexican law, all crude oil and other hydrocarbon reserves located in the subsoil of Mexico are owned by the Mexican nation and not by PEMEX. Although PEMEX does not own the oil and other hydrocarbon reserves within Mexico, these
The carrying amounts of PEMEX’snon-financial assets, other than inventories and deferred taxes, are assessed for indicators of impairment at the end of each reporting period. If the net carrying value of the asset or its cash-generating unit exceeds the recoverable amount, PEMEX records an impairment charge in its consolidated statement of comprehensive income. A cash-generating unit is the smallest identifiable group of assets which can generate cash The recoverable amount of an asset or a cash-generating unit is defined as the higher of
In the case of cash-generating assets or items dedicated to the exploration and evaluation of hydrocarbons reserves, the recoverable amount is determined Both impairment losses and reversals are recognized in the statement of comprehensive income in the costs and expenses line items in which the depreciation and amortization
The determination of whether an agreement is or contains a lease is based on the Finance leases, which transfer to PEMEX substantially all the inherent benefits and risks of the leased property, are capitalized at the date the lease commences, and the value is recorded as the lower of the fair value of the leased property and the present value of the minimum lease payments. Payments on the lease are divided between the financial costs and the amortization of the remaining debt principal in order to achieve a constant effective interest rate for the outstanding liability. The financing costs are recognized in the consolidated statement of comprehensive income. Operating lease payments
Non-current assets, or disposal groups comprising assets and liabilities, are classified asheld-for-sale if it is highly probable that Such assets, or disposal groups, are generally measured at the lower of their carrying amount and fair value less costs to Once classified asheld-for-sale, intangible assets and property, plant and equipment are no longer amortized or depreciated, and any equity-accounted investee is no longer equity accounted.
Provisions are determined by discounting the expected future cash flows at apre-tax rate that reflects current market assessments of the time value of money and the risks
PEMEX recognizes provisions when, as a result of a past event, PEMEX has incurred a legal or assumed present obligation for which a future disbursement is probable and the value of such disbursement is reasonably estimable. In certain cases, such amounts are recorded at their present value. Environmental liabilities In accordance with applicable legal requirements and accounting practices, an environmental liability is recognized when the cash outflows are probable and the amount is reasonably estimable. Disbursements related to the conservation of the environment that are linked to revenue from current or future operations are accounted The accrual of a liability for a future disbursement occurs when an obligation related to environmental remediation, for which PEMEX has the information necessary to determine a reasonable estimated cost, is identified.
Retirement of assets The obligations associated with the future retirement of assets, including those related to the retirement of The obligations related to the costs of future retirement of assets associated with the principal refining processes for gas and petrochemicals are not recognized. These assets are considered to have an indefinite useful life due to the potential for maintenance and repairs. The abandonment costs related to wells currently in production and wells temporarily closed are recorded in the statement of comprehensive income based on the units of production method. Total cost of abandonment and plugging fornon-producing wells is recognized in the statement of comprehensive income at the end of each period. All estimations are based on the useful lives of the wells, considering their discounted present value. Salvage values are not considered, as these values commonly have not traditionally existed.
Short-term employee benefits are expensed as the related service is provided. A liability is recognized for the amount expected to be paid if PEMEX
Obligations for contributions to defined contribution plans are expensed as the related service is provided. Prepaid contributions are recognized as an asset to the extent that a
PEMEX’s net obligation in respect of defined benefit plans The calculation of defined benefit obligations is performed annually by a qualified actuary using the projected unit credit method.
When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that relates to past service or the gain or loss on curtailment is recognized immediately in profit or loss. PEMEX recognizes gains and losses from the settlement of a defined benefit plan when the settlement occurs.
PEMEX’s net obligation in respect of long-term employee
Termination benefits are expensed at the earlier of when PEMEX can no longer withdraw its offer of those benefits and when PEMEX recognizes costs for a restructuring. If benefits are not expected to be settled in full within 12 months of the reporting date, then they are discounted.
Income tax expense comprises current and deferred tax. It is recognized in profit or loss except to the extent that it relates to a business combination, or items recognized directly in equity or in OCI. The interest and penalties related to income taxes, including uncertain tax treatments, do not meet the definition of income taxes, and are therefore accounted for under IAS 37 “Provisions, Contingent Liabilities and Contingent Assets.”
Current tax comprises the expected tax payable or receivable on the taxable income or loss for the year and any adjustment to the tax payable or receivable in
Current
Deferred tax is recognized in respect of amounts used for taxation purposes. Deferred tax
temporary differences on the initial recognition of
temporary differences taxable temporary differences arising from the initial recognition of goodwill. Deferred tax assets are recognized
Unrecognized deferred tax assets are Deferred tax The measurement of deferred tax reflects the tax consequences that would follow from the manner in which PEMEX expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities. Deferred tax assets and
PEMEX is subject to These taxes and duties are recognized in accordance with IAS 12,
‘Fair value’ is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or, in its absence, the most advantageous market to which PEMEX has access at that date. The fair value of a liability reflects itsnon-performance risk. A number of PEMEX accounting policies and disclosures require the measurement of fair values, for both financial andnon-financial assets and liabilities (see Note 8). When one is available, PEMEX measures the fair value of an instrument using the quoted price in an active market for that instrument. A market is regarded as ‘active’ if transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. If there is no quoted price in an active market, then PEMEX uses valuation techniques that maximize the use of relevant observable inputs and minimize the use of unobservable inputs. The chosen valuation technique incorporates all of the factors that market participants would take into account in pricing a transaction. If an asset or a liability measured at fair value has a bid price and an ask price, then PEMEX measures assets and long positions at the bid price and liabilities and short positions at the ask price. The best evidence of the fair value of a financial instrument on initial recognition
PEMEX initially applied IFRS 15 as of January 1, 2018. Information about accounting policies relating to contracts with customers and the effect of initially applying IFRS 15 is described in
Operating profit is the result generated from the continuing principal revenue-producing activities of PEMEX as well as other income and expenses related to operating activities. Operating profit excludes net finance costs, share of profit of equity-accounted investees and income taxes. Revenues Represents revenues from sale or products or services. Cost of sales Cost of sales represents the
Other revenues Other revenues (expenses), net consist primarily of income Transportation, distribution and sale expenses Transportation, distribution and sale expenses are costs in connection Administrative expenses Administrative expenses are costs related to PEMEX’s areas that provide administrative
Financing income Financing income is comprised of interest income, financial income and other income from financial operations between PEMEX and third parties. Financing cost Financing cost is comprised of interest expenses, commissions and other expenses related to PEMEX’s financing operations
Derivative financial instruments Includes the NOTE 4. ACCOUNTING CHANGES AND RECLASSIFICATIONS
As of January 1, 2018, PEMEX adopted IFRS 15 and IFRS 9.
IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognized. It replaces existing revenue recognition guidance, including IAS 18 Revenue, IAS 11 Construction Contracts, IFRIC 13 Customer Loyalty Programs and IFRIC 15 Agreements for the Construction of Real Estate. PEMEX adopted IFRS 15 using the modified retrospective transition method at January 1, 2018. Under this transition method, comparative information has not been restated and continues to be presented under IAS 18, IAS 11 and related interpretations. As of January 1, 2018, no significant uncompleted contracts were identified, so there was no impact on the consolidated financial statements due to the initial adoption of the Under IFRS 15, revenue is measured based on the consideration specified in a contract with a customer and excludes amounts collected on behalf of third parties. PEMEX recognizes revenue when it transfers control over a product or In the case of comparative periods, revenue was measured at the fair value of the consideration received or receivable. Revenue from the sale of goods was recognized when the significant risks and rewards of ownership had been transferred to the customer, recovery of the consideration was probable, the associated costs and possible return of goods could be estimated reliably. Revenue from rendering of services was recognized in proportion to the stage of completion of the work performed at the reporting date. The details of the main impacts generated by the adoption of IFRS 15 are the following:
For a description of the nature and sources of PEMEX’s primary revenues, see Note 6. Crude oil sales Nature, performance obligations and timing of revenue recognition Export sales of crude oil are based on delivery terms established in contracts or orders. All sales are performed by the Free on Board International commercial term (“FOB” Incoterm). Therefore, revenue is recognized at a point in time when control of the crude oil has transferred to the customer, which occurs when the product is delivered at the point of shipping. Invoices are generated at that time and are mostly payable within the deadlines established in contracts or orders. Determination and allocation of the transaction price The price of the product is determined based on a market components formula and, with respect to crude oil, in accordance with the provisions of the Hydrocarbon Trading Strategies Management. For international market crude oil sales, revenue is recognized with a provisional price, which undergoes subsequent adjustments until the product has arrived at the port of destination. There may be a period of up to 2 months in determining the final sale price, such as in the case of sales to the European market, the Middle East and Asia. Crude oil sale contracts consider possible customers’ claims due to product quality, volume or delays in boarding, which are estimated in the price of the transaction. Therefore, due to the implementation of IFRS 15, the main impacts on revenue recognition with respect to the previous year are as follows:
Sale of petroleum products Nature, performance obligations and timing of revenue recognition Refined products and their derivatives are sold within the national market. TheComisión Federal de Electricidad (Federal Electricity Commission, or “CFE”) purchases a significant portion of the fuel oil production, whileAeropuertos y Servicios Auxiliares (the Airports and Auxiliary Services Agency) purchases most of the jet fuel. The most important refined products are gasoline and diesel. Revenue is recognized at a point in time when control is transferred to the customer, which occurs either at the point of shipping or when it is delivered at the customer’s facilities. Therefore, transportation fees can be included in the price of sale of the product and are considered part of a single performance obligation since transportation is rendered before control is transferred. Determination and allocation of the transaction price The price is determined based on the price at the point of delivery, adding the price of the services rendered (freight, handling of jet fuel, etc.) with the provisions and terms established by theComisión Reguladora de Energía (Energy Regulatory Commission or “ERC”). There are penalties for delivery failures and/or payment obligations, as well as quality and volume claims, which are known days after the transaction. Therefore, due to the implementation of IFRS 15, the main impacts on revenue recognition with respect to the previous year are as follows:
Sales of natural gas The sale of natural gas, liquefied petroleum gas, naphtha, butane, ethane and some other petrochemicals such as methane derivatives, ethane derivatives, aromatics and derivatives are mainly carried out in the domestic market. Revenue is recognized at a point in time when control is transferred to the customer, which occurs when it is delivered at the customer’s facilities. Therefore, transportation fees can be included in the price of sale of the product and are considered part of a single performance obligation since transportation is rendered before control is transferred. Determination and allocation of the transaction price The transaction price is established at the time of sale, including the estimation of variable considerations such as capacity, penalties, extraordinary sales not included in contracts, adjustments for quality or volume claims, and incentives for the purchase of products; which are known days after the transaction. Therefore, due to the implementation of IFRS 15, the main impacts on revenue recognition with respect to the previous year
Drilling services PEMEX provides drilling, termination and repair of wells services, as well as the execution of well services. The services are provided in accordance with
Therefore, due to the implementation of IFRS 15, the main impacts on the recognition of income with
Logistics services PEMEX provides transport for hydrocarbons, oil and petrochemicals, through transport strategies by employing pipelines and offshore and onshore resources, as Therefore, due to the implementation of IFRS 15, the main impacts on the recognition of income with respect to the previous year are as follow:
Other products Ethylene receives revenues from sales of methane, ethane and propylene products, as well as fertilizers and their derivatives. Most sales are made in the domestic market. The sale and delivery of the product are The transaction price is established at the time of sale, including the estimation of variable considerations such as capacity, penalties, extraordinary sales not included in contracts, adjustments for quality or volume claims, and incentives for the purchase of products; which are known days after the transaction. In the case of fertilizers and their derivatives, there are three types of prices, the list price, the retail customer price (which represents a discount compared to the list price) and the wholesale customer price (which represents a discount compared to the retail customer price). Therefore, due to the implementation of IFRS 15, the main impacts on the recognition of income with respect to the previous year are as follow:
In July 2014, the IASB finalized the accounting reform of financial instruments and issued IFRS 9 which contains: (a) the requirements for the classification and measurement of financial assets and liabilities, (b) the requirements for the impairment methodology, and (c) general information about hedge accounting. IFRS 9 replaces IAS 39 “Financial Instruments: Recognition and Measurement” (“IAS 39”) as of its PEMEX has adopted IFRS 9 issued in July 2014 with a date of initial application of January 1, 2018. The requirements of IFRS 9 represent a significant change from IAS 39. The nature and As a result of the adoption of IFRS 9, PEMEX adopted consequential amendments to IAS 1 Presentation of Financial Statements, which requires impairment of financial assets to be presented in a separate line item in the
Classification of
IFRS 9 contains three principal classification categories for financial assets: measured at amortized cost, FVOCI and FVTPL. The classification of financial assets under IFRS 9 is generally based on the business model in With respect to financial liabilities, the current classification and measurement criteria under IAS 39 have been transferred to IFRS 9, including the criteria for using the fair value option. The only change contemplated by IFRS 9 in relation to financial liabilities is related to liabilities designated at FVTPL. Changes in the fair value of such financial liabilities attributable to changes in the entity’s own credit risk will be presented in OCI instead of in the period’s results. The adoption of IFRS 9 has not had a significant effect on Impairment of financial assets IFRS 9 replaces the “incurred loss” model in IAS 39 with an ECL model. The new impairment model applies to financial assets measured at amortized cost, contract assets and debt investments at FVOCI, but not to investments in equity instruments. Under IFRS 9, credit losses are recognized earlier than under IAS 39. Hedge accounting PEMEX, as part of the initial adoption of, and as permitted under, IFRS 9, elected to continue applying the hedge accounting requirements of IAS 39, instead of those included in
PEMEX has defined January 1,
Classification and measurement The following table sets forth the original measurement categories under IAS 39
Impairment PEMEX has concluded that the financial assets most affected by the impairment estimate under the ECL model will be its accounts receivables, in relation to PEMEX’s holding of the long-term notes issued by the Mexican Government. The evaluation of the possible impairment of the notes was made using the general approach for calculating impairment contemplated under IFRS 9. The evaluation does not have material effects. PEMEX considers it probable that impairment losses increase and present more volatility for instruments under the new ECL model. Furthermore, PEMEX considers that most of its accounts receivable are short-term without a significant financial component. Accordingly, PEMEX has elected to apply the simplified approach. PEMEX considers that the application of the impairment requirements of IFRS 9 as of December 31, 2017 did not significantly impact the reserves as of January 1, 2018. The adjustment as of January 1, 2018 of the reserves of financial assets in comparison with impairment losses incurred under IAS 39 was approximately Ps. 24,957.
As of December 2016, the IASB published an interpretation of IFRIC 22 developed by the International Financial Reporting Standards Interpretations Committee (the Interpretations Committee). The interpretation clarified when to recognize payments and collections of foreign currency transactions paid in advance due the fact that it observed some diversity in practice regarding these transactions. The
The Interpretations Committee concluded that: The date of If there are multiple payments or receipts in advance, a
IFRIC 22 is effective for annual reporting periods beginning on or after January 1, 2018.
NOTE As
P.M.I. Campos Maduros SANMA, S. de R. L. de C. V. (SANMA) Pro-Agroindustria, S. A. de C. V. (AGRO)
PEMEX Procurement International, Inc. (PPI)
Mex Gas Internacional, S. L. (MGAS) Pemex Desarrollo e Inversión Inmobiliaria, S. A. de C. V. (PDII) Kot Insurance Company, AG. (KOT) PPQ Cadena Productiva, S.L. (PPQCP) III Servicios, S. A. de C. V. (III Servicios)
PMX Fertilizantes Holding, S.A de C.V. (PMX FH) PMX Fertilizantes Pacífico, S.A. de C.V. (PMX FP) Grupo Fertinal (GP FER)
PEMEX’s primary business is the exploration and production of crude oil and natural gas, as well as the production, processing, marketing and
The primary sources of revenue for PEMEX’s business segments
The exploration and production segment earns revenues from domestic sales of
The The industrial transformation segment also earns revenues from domestic
The cogeneration segment The drilling segment receives income from drilling services, and
The logistics segment
The ethylene segment earns revenues from the distribution and trade of methane, ethane and propylene in the domestic market.
The fertilizers segment earns revenues from trading ammonia, fertilizers and its derivatives, mostly in the domestic market.
The trading companies segment, which consist of PMI CIM, PMI NASA, PMI
The segment related to corporate and other operating Subsidiary Companies provides administrative, financing, consulting and logistical services, as well as economic, tax and legal advice andre-insurance services to PEMEX’s entities and companies.
The following tables present the condensed financial information of these segments, after elimination of unrealized intersegment gain (loss)
PEMEX’s management measures the performance of the segments based on operating income and net segment income before elimination of unrealized intersegment gain (loss), as well as by analyzing the impact of the results of each segment
The following tables present accounting
Supplemental geographic information:
PEMEX does not have significant long-lived assets outside of Mexico. The following table shows income by product:
NOTE As of December 31, A. Revenue disaggregation
B. Accounts receivable in the Statement of Financial Position As of December 31, 2018 and 2017, PEMEX had accounts receivable derived from customer contracts in the amounts of Ps. 87,740,515 and Ps. 114,486,024, respectively (see Note 10). C. Practical expedients
PEMEX has no outstanding performance obligations to meet as of December 31, 2018 due to the nature of its operations (see Note4-A).
PEMEX does not need to adjust the amount committed in consideration for goods and services to account for the effects of a significant financing component, since the transfer and the time of payment of a good or service committed to the customer is less than one year.
When PEMEX is entitled to consideration for an amount that directly corresponds to the value of the performance that PEMEX has completed, it may recognize an income from ordinary activities for the amount to which it has the right to invoice. NOTE 8. FINANCIAL INSTRUMENTS A. Accounting classifications and fair values of financial instruments The following tables present information about PEMEX’s carrying amounts and fair values of financial assets and financial liabilities, including their levels in the fair value hierarchy, as of December 31, 2018 and 2017. It does not include fair value information for financial assets and financial liabilities not measured at fair value if the carrying amount is a reasonable approximation of fair value.
Debt is valued and registered at amortized cost and the fair value of debt is estimated using quotes from major market sources which are then adjusted internally using standard market pricing models. As a result of relevant assumptions, the estimated fair value does not necessarily represent the actual terms at which existing transactions could be liquidated or unwound. As of December 31, 2018 and 2017, PEMEX had monetary assets and liabilities denominated in foreign currency as indicated below:
The information related to “Cash and cash equivalents”, “Accounts receivable, net”, “Equity instruments”, “Investment in joint ventures and associates”, “Long-term notes receivable and other assets”, “Debt” and “Derivative Financial Instruments” is described in the following notes, respectively: Note 9, Cash and cash equivalents. Note 10, Accounts receivable, net. Note 12, Equity instruments. Note 14, Investment in joint ventures and associates. Note 17, Long-term notes receivable and other assets. Note 18, Debt. Note 19, Derivative financial instruments. B. Fair value hierarchy PEMEX values the fair value of its financial instruments under standard methodologies commonly applied in the financial markets. PEMEX’s related assumptions and inputs therefore fall under the three Levels of the fair value hierarchy for market participant assumptions, as described below. The fair values determined by Level 1 inputs utilize quoted prices in active markets for identical assets or liabilities. Fair values determined by Level 2 inputs are based on quoted prices for similar assets or liabilities in active markets, and inputs other than quoted prices that are observed for assets or liabilities. Level 3 inputs are unobservable inputs for the assets or liabilities, and include situations where there is little, if any, market activity for the assets or liabilities. Management uses appropriate valuation techniques based on the available inputs to measure the fair values of PEMEX’s applicable financial assets and liabilities. When available, PEMEX measures fair value using Level 1 inputs, because they generally provide the most reliable evidence of fair value. NOTE 9. CASH AND CASH EQUIVALENTS a. As of December 31, 2018 and 2017, cash and cash equivalents were as follows:
As of December 31,
The following table shows a breakdown of accounts receivable based on their credit history at December 31,
As of December 31, 2018 and 2017, PEMEX has exposure to credit risk related to accounts receivable with an average payment term of 36 and 43 days, respectively. Additionally, the reconciliation for impaired accounts receivable is as follows:
Methodology to determine the estimation of the impairment of the accounts receivable PEMEX allocates each exposure to a credit risk grade based on data that is determined to be predictive of the risk of loss (including but not limited to, audited financial statements, management accounts and cash flow projections and available information about customers) and applying experienced credit judgment. Credit risk grades are defined using qualitative and quantitative factors that are indicative of the risk of default. Exposures within each credit risk grade are segmented by each Subsidiary Entity and its commercial business lines, so the expected credit loss rate is calculated for each segment based on actual credit loss experienced over the past two years. These rates are multiplied by scale factors to reflect differences between the economic conditions during the period over which historical data has been collected, current conditions and PEMEX’s view of economic conditions over the expected lives of the receivables. As of December 31, The amount of impairment of accounts receivables recognized in the income statement was Ps. 582,855, which includes the impairment of customers and other accounts receivables. NOTE 11. INVENTORIES As of December 31, 2018 and 2017, inventories were as follows:
NOTE
As of December 31,
On September 4 and 5, 2018, PEMEX received the payment for the sale of its 5% interest in TAG Norte Holding, S. de R.L. de C.V., which was recorded as equity instruments in the amount of U.S.$ 43,036 (Ps. 826,046), obtaining a net profit of Ps.10,257. As of December 31, Before the initial application of NOTE 13.HELD-FOR-SALENON-FINANCIAL ASSETS As of December 31, These held-for-sale current non-financial assets consisted of
The details relating to the potential sale of these assets are classified as “reserved”, pursuant to Article 110, sections VIII and XIII of the Ley Federal de Transparencia y Acceso a la información Pública (Federal Law on Transparency and Access to Public Information), in relation to Article 82 and Article 111 of the Petróleos Mexicanos Law, since the details are still being considered and evaluated and contain sensitive facts about the commercial and economic scope, which only pertain to PEMEX and its commercial partners. In addition to the Ps. 1,072,537, there are Ps. 181,101 inheld-for-sale assets to CENAGAS, composed of 74 buildings and 10 undeveloped properties. NOTE The
Profit (loss) sharing in joint ventures and associates:
The following tables show condensed financial information of major investments recognized under the equity
Additional information about the significant
NOTE
Cash Generating Units of Pemex Logistics
Cash Generating Units of Pemex Fertilizers Cash generating The recoverable amount of As of December 31, 2018, Pemex Fertilizers recognized an impairment of Ps. (2,246,264). The impairment is presented as a separate line item in the consolidated statement of comprehensive income. Cash Generating Units of PMI NASA As of December 31, 2018, PMI NASA recognized an impairment of Ps. (1,719,627), due to the disuse of the Cerro de la Pez Flotel, as a consequence of the reduction in the development of projects in recent months. This impairment was calculated by comparing the disbursement that would have to be made to acquire a flotel with similar characteristics compared to the valuation made by a specialized company of the flotel. Cash Generating Unit of Pemex Exploration and Production As of December 31, 2018, Pemex Exploration and Production recognized a net reversal of impairment in the amount of Ps. 65,013,616 mainly due to (i) an advance of production in Cantarell for rethinking physical goals for the period from 2024 to 2029 with a recovery of Ps. 98,673,388. This computation was projected using a discount rate of 7.03% and a tax rate of 30% (observable market) on the operating profit with an economic horizon of 25 years, compared to a discount rate of 14.40% that includes the cost of financing and the pyramiding of taxes and observable rights in similar companies, including the Profit-sharing; (ii) application in the fourth quarter of the relevant discount rate and tax rate (observable market), a net benefit was generated in most of the projects with respect to the previous year, mainly in the Aceite Terciario del Golfo project in the amount of Ps. 29,592,863. The foregoing was partially offset by an impairment of Ps. (63,252,635), mainly in (i) the Aguas Someras 2 projects in the amount of Ps. (58,318,030), (ii) the Crudo Ligero Marino projects, mainly due to higher water and salt content in the hydrocarbons reserves, (iii) the Yaxche Project, due to operating impacts in the fields directly related to production, and (iv) the Tsimin Xux and Chuc projects, mainly due to the natural decline of proved hydrocarbon reserves. The cash generating units of Pemex Exploration and Production are investment projects Each project represents the smallest unit which can concentrate the core revenues, To determine the value in use of long-lived assets associated to hydrocarbon extraction, the net present value of reserves is determined based on the following assumptions:
Pemex Exploration and Production, in compliance with practices observed in the industry, estimates the recovery value of asset by determining its value in use, based on cash flows associated with proved reserves after taxes and using a discount rate, also after taxes. During 2018, Pemex Exploration and Production performed an analysis of the discount rate for its oil and gas activities cash flows in the domestic and international markets, taking into account the international price conditions, to value its production reserves. In 2017, Pemex Exploration and Production used cash flows associated with proved reserves before tax and used an equallypre-tax discount rate, which was based on a weighted average cost of capital (“WACC”)grossed-up after taxes with a weight of the corporate tax rate of 30%, and the median of taxes and duties on hydrocarbon extraction from countries with similar conditions to the fields in Mexico, which discount rate was 57%. As a result of the analysis performed in 2018, Pemex Exploration and Production noted that the industry is currently using after tax discount rates. Accordingly, Pemex Exploration and Production determined it would comply with the practices observed in the industry and started using the after-tax discount rate. Theafter-tax discount rate considers the present value of future cash flows, increasing interest rates of debt incurred by Petróleos Mexicanos, the risk of the country and specific industry-related risks (calculated as the median of the beta of industry companies), which is then used to calculate the WACC. The discount rate is independent of the capital structure of the subsidiary entity. The WACC considers the median proportion of debt and capital observed for companies in the sector. Taking into consideration the assumptions described above, thepre-tax discount rate used by Pemex Exploration and Production in 2018 for the value in use was 7.03%, resulting in a net reversal or impairment of Ps. 65,013,616 for 2018. For 2017, the pre-tax discount rate was 14.40%. If the same methodology had been applied in 2018, the discount rate after tax would have been 16.12% (the result of thegross-up of the 7.03% discount rate) and the net impairment would have been Ps. (958,060). The total forecast production, calculated with a horizon of 25 years is 6,192 million barrels per day of crude oil equivalent. Pemex Exploration and Production determines the recoverable amount of fixed assets based on the long-term estimated prices for Pemex Exploration and Production’s proved reserves. The recoverable amount on each asset is the value in use. Cash Generating Units of Pemex Industrial Transformation As of December 31, 2018, Pemex Industrial Transformation recognized a net reversal of impairment of Ps. 659,610. The net reversal of impairment was in the following cash generating units:
The net reversal of impairment was mainly due to (i) an increase in processing of refined products due to higher imports of crude oil and humid gas resulting in an increase in income related to transportation fees; (ii) the appreciation of the U.S. dollar against the peso, from apeso-U.S. dollar exchange rate of Ps.19.7867 to U.S. $1.00 as of December 31, 2017 to apeso-U.S. dollar exchange rate of Ps. 19.6829 to U.S. $1.00 as of December 31, 2018; (iii) a decrease in the discount rate of cash generating units of refined products and gas and petrochemicals by 0.1% and 8.1%, respectively; and (iv) an increase in maintenance of the refineries and a decrease in gas production. Cash-generating units in Pemex Industrial Transformation are processing centers grouped according to their types of processes as refineries, gas complex processors, and petrochemical centers. These centers produce various finished products for direct sale to customers or intermediate products that can be processed in another of its cash generating units or by a third party. Each processing center of Pemex Industrial Transformation represents the smallest unit that can concentrate the core revenues, with clear costs and expenses that enable future cash flows (value in use) to be determined. Cash flow determinations are made based on PEMEX’s business plans, operating financial programs, forecasts of future prices of products related to the processes of the cash generating units, budget programs and various statistical models that consider historical information of processes and the capacity of various processing centers. To determine the value in use of long-lived assets associated with the cash-generating units of Pemex Industrial Transformation, the net present value of cash flows was determined based on the following assumptions:
The recoverable amount of assets is based on each asset’s value in use. The value in use for each asset is calculated based on cash flows, taking into consideration the volumes to be produced and sales to be carried out. As of December 31, 2018, the value in use for the impairment or reversal of impairment of fixed assets was as follows:
Cash Generating Unit of Pemex Exploration and Production Pemex Exploration and Production recognized an impairment in the amount of Ps. (129,350,315) as of December 31, 2017, arising from: (i) the deferral of the development investments in the first 5 years of the economic horizon in the proved reserves, which caused a decrease in production and consequently in income, as well as there-categorization of part of the proved reserves as probable reserve, as a consequence of budget adjustments in the strategic investments in the Cantarell, Aceite terciario del Golfo, Crudo Ligero Marino, Antonio J. Bermúdez and Tzimin Xux projects, (ii) insufficient cash flows to make up for costs recovery at the Burgos and Lakach projects as a result of the appreciation of the Mexican peso against the U.S. dollar by 4.3%, from a peso–U.S. dollar exchange rate of Ps. 20.6640 to U.S. $1.00 as of December 31, 2016 to a peso–U.S. dollar exchange rate of Ps. 19.7867 to U.S. $1.00 as of December 31, 2017, given that cash inflows are denominated in U.S. dollars and then translated to the reporting currency using the exchange rate at the date of report; (iii) a 0.3% increase in the discount rate; (iv) a 7.2% decrease in crude oil forward prices from 60.24 usd/bl in 2016 to 55.89 usd/bl in 2017 and (v) the natural decline in production in the Macuspana project. The cash generating units of Pemex Exploration and Production are investment projects in productive fields with hydrocarbon reserves associated with proved reserves. These productive hydrocarbon fields contain varying degrees of heating power consisting of a set of wells and are supported by fixed assets associated directly with production, such as pipelines, production facilities, offshore platforms, specialized equipment and machinery. Each project represents the smallest unit which can concentrate the core revenues, with clear costs and expenses that enable future cash flows (value in use) to be determined. To determine the value in use of long-lived assets associated with hydrocarbon extraction, the net present value of reserves is determined based on the following assumptions:
The total forecast production, calculated with a horizon of 25 years is 7,091 million barrels per day of crude oil equivalent. Pemex Exploration and Production determines the recoverable amount of fixed assets based on the long-term estimated prices for Pemex Exploration and Production’s proved Cash Generating Units of Pemex Industrial Transformation As of December 31, The impairment was in the
The impairment was mainly due to (i) an increase in Cash-generating units in Pemex Industrial Transformation are processing centers grouped according to Cash
To determine the value in use of long-lived assets associated with
Pro-Agroindustria, S.A. de C.V. Pro-Agroindustria, S.A. de C.V. recognized an impairment for Ps. (4,206,653) related to its nitric acid, amonium nitrate and UAN 32 acquired plants, the rehabilitation of which has not yet commenced. The company will not be able to develop an alternate plan for the rehabilitation of these plants in the following five years due to its financing commitments. Cash Generating Units of Pemex Cash generating units are plants used in the ammonia process. Pemex Fertilizers recognized an impairment of Ps. (1,935,500) for the year ended December 31, 2017 resulting from (i) a decrease in the production capacity in fertilizers plants due to a shortage of raw material; (ii) an increase in raw material prices; and (iii) a decrease in ammonia sale prices. The recoverable amount of assets is based on each asset’s value in use. To determine cash flows, volumes to be produced and sales to be carried out were taken into consideration. The value in use for
As of December 31, 2013, PEMEX had entered into As of December 31, 2015, PEMEX had entered into certain capital lease arrangements for two offshore platforms. These leases expire on various dates over the next 10 years. As of December 31,
The liabilities relating to the assets listed above are payable in the years following December 31,
The
EECs as of December 31, 2018 are:
The object of the Profit-sharing contracts is the execution of oil activities under shared production contracts among Mexico through the Mexican Government via the NHC, Pemex Exploration and Production (as contractor), for the contractual area and the sharing of costs, risks, and terms and conditions involved in the contract and in accordance with the applicable regulations and best practices of the industry receiving, in exchange, benefits in favor of the contractor. Exploration and Extraction Contract related to Block 2 Tampico Misantla, pursuant to a consortium formed by Pemex Exploration and Production and DEA and Compañía Española de Petróleos, S. A. U., (jointly liable). The object of the contract is the realization of oil activities, under shared production contracts, by the contractor for the contractual area and the sharing of costs, risks, terms and conditions involved in the contract and in accordance with the applicable regulations and best practices of the industry, receiving in exchange, benefits in favor of the contractor. Pemex Exploration and Production and DEA each have a 50% interest in this contractual area. Pemex Exploration and Production is the operator under this contract. Exploration and Extraction Contract, related to Block 8 Cuencas del Sureste, pursuant to a consortium formed by Pemex Exploration and Production, EPC Hidrocarburos México, S. A. de C. V. (EPC). and Ecopetrol Global Energy, S. L. U. (jointly liable). Pemex Exploration and Production was designated by all the participating companies and with the approval of the NHC as the operator of this contract and all operational aspects of the petroleum activities will be carried out only by the operator on behalf of all participating companies. Pemex Exploration and Production and EPC each have a 50% interest in this contractual area. Exploration and Extraction Contract, related to Block 16, Tampico Misantla, pursuant to a consortium by Pemex Exploration and Production, DEUTSCHE Erdoel México S. de R.L. de C.V. (as operator) and CEPSA E.P. México S. de R.L. de C.V., as jointly liable. Pemex Exploration and Production owns 40% of this contractual area, DEUTSCHE Erdoel México S. de R.L. de C.V. owns 40%, and CEPSA E.P. México S. de R.L. de C.V. owns 20%. Exploration and Extraction Contract, related to Block 17, Tampico Misantla, pursuant to a consortium by Pemex Exploration and Production, DEUTSCHE Erdoel México S. de R.L. de C.V. (as operator) and CEPSA E.P. México S. de R.L. de C.V., as jointly liable. Pemex Exploration and Production owns 40% of this contractual area, DEUTSCHE Erdoel México S. de R.L. de C.V. owns 40%, and CEPSA E.P. México S. de R.L. de C.V. owns 20%. Exploration and Extraction Contract, related to Block 18, Tampico Misantla, pursuant to a consortium by Pemex Exploration and Production (as operator) and CEPSA E.P. México S. de R.L. de C.V. (as partner). Pemex Exploration and Production owns 80% of this contractual area, and CEPSA E.P. México S. de R.L. de C.V. owns 20%. Hydrocarbons Exploration and Extraction Contract for Block 29, Cuenca del Sureste, in which Pemex Exploration and Production owns 100% of the project. Hydrocarbons Exploration and Extraction Contract for Block 32, Cuenca del Sureste, by Pemex Exploration and Production (as operator) and Total E&P México, S.A. de C.V. (as partner). Pemex Exploration and Total E&P México, S.A. de C.V each have a 50% interest in this contractual area. Hydrocarbons Exploration and Extraction Contract for Block 33, Cuenca del Sureste, by Pemex Exploration and Production (as operator) and Total E&P México, S.A. de C.V. Pemex Exploration and Total E&P México, S.A. de C.V each have a 50% interest in this contractual area. Hydrocarbons Exploration and Extraction Contract for Block 35, Cuenca del Sureste, by Shell Exploración y Extracción de México, S.A. de C.V (as operator) and Pemex Exploration and Production. Total E&P México, S.A. de C.V. and Pemex Exploration each have a 50% interest in this contractual area. Hydrocarbon Extraction Contract for theEk-Balam (shallow water) Block. Pemex Exploration and Production owns 100% of this contractual area. Exploration and Extraction Contract, related to the Santuario El Golpe Block, pursuant to a consortium formed by Pemex Exploration and Production (as partner) and Petrofac México, S.A. de C.V. (PETROFAC), as operator. Pemex Exploration and Production owns 64% of this contractual area and PETROFAC owns 36%. Exploration and Extraction Contract, related to the Misión Block, pursuant to a consortium formed by Pemex Exploration and Production (as partner) and Servicios Múltiples de Burgos, S.A. de C.V. (as operator). Pemex Exploration and Production owns 51% of this contractual area and Servicios Múltiples de Burgos owns 49%. Exploration and Extraction Contract, related to Ébano Blocl, pursuant to a consortium formed by Pemex Exploration and Production (as partner), DS Servicios Petroleros, S.A. de C.V. (as operator) and D&S Petroleum S.A. de C.V. (as partner). Pemex Exploration and Production owns 45% of this contractual area, Servicios Múltiples de Burgos owns 54.99%, while D&S Petroleum S.A. de C.V. owns 0.01%.
The nature of the contract relationship is the execution of oil activities, under the license contracting modality, under which the contractor is granted the right to explore and extract at its exclusive cost and risk hydrocarbons owned by the Mexican nation, who must comply with the obligations arising from the contract in the name and representation of each of the signatory companies in the contractual area in accordance with the applicable regulations, industry best practices and the terms and conditions of the contract. The contractor shall be entitled to payment for hydrocarbons produced, in accordance with the terms of the contracts, and after payments to the Mexican Government are made. Hydrocarbons Exploration and Extraction Contract for Block 3 “Plegado Perdido”, in deep waters, formed by INPEX Corporation (“INPEX”) (as partner), Chevron Energía de Mexico, S. de R.L. de C.V. (“Chevron”) (as operator) and Pemex Exploration and Production, (as partner). Chevron, Pemex Exploration and Production and Inpex have a 37.50%, 27.50% and 35.00% interest in this project, respectively, and will be jointly liable for all obligations of the contractors according to this contract regardless of their participation interest. Hydrocarbons Exploration and Extraction Contract for Block 2, Plegado Perdido, formed by Pemex Exploration and Production (as partner) and Shell Exploración y Extracción de México, S.A. de C.V. (as operator). Pemex Exploration and Production and Shell Exploración y Extracción de México, S.A. de C.V. each have a 50% interest in this project. Hydrocarbons Exploration and Extraction Contract for Block 5, Plegado Perdido, in which Pemex Exploration and Production owns 100% of the project. Hydrocarbons Exploration and Extraction Contract for Block 18, Cordilleras Mexicanas, in which Pemex Exploration and Production owns 100% of the project. Hydrocarbons Exploration and Extraction Contract for Block 22, Cuenca Salina, formed by Pemex Exploration and Production, Inpex E&P México, S.A. de C.V., (as partners), and Chevron (as operator). Chevron, Pemex Exploration and Production and Inpex E&P México, S.A. de C.V., have a 37.5%, 27.5% and 35% interest in this project, respectively. A licensing contract with BHP Billiton Petróleo Operaciones de México, S. de R.L. (“BHP Billiton”) for the Trión Block. BHP Billiton owns 60% of the contractual area, while Pemex Exploration and Production owns 40%, and each of the signatory companies are jointly liable for all obligations of the contractors. Hydrocarbons Exploration and Extraction Contract for the Cárdenas Mora Block, for onshore fields, formed by Pemex Exploration and Production (as partner), Petrolera Cárdenas Mora, S. A. P. I. de C. V. (as operator) and Cheiron Holding Limited (jontly liable). Pemex Exploration and Production and Petrolera Cárdenas Mora, S. A. P. I. de C. V. each have a 50% of interest in this project. Hydrocarbons Exploration and Extraction Contract for the Ogarrio Block, for onshore fields, formed by Pemex Exploration and Production (as partner), Deutche Erdoel México, S. de R.L. de C.V. (as operator) and DEA Deutche Erdoel, A.G. (“DEA”) (jointly liable). Pemex Exploration and Production and DEA each have a 50% interest in this project. Hydrocarbons Exploration and Extraction Contract for the Miquetla Block, for onshore fields, formed by Pemex Exploration and Production (as partner) and Operadora de Campos DWF, S.A. de C.V. (as operator). Pemex Exploration and Production has a 49% interest in this project while Operadora de Campos DWF, S.A. de C.V. has a 51% interest. Certain of the EECs are operated though joint arrangements, for which PEMEX recognizes in its financial statements, both the rights to the assets and the obligations for the liabilities, as well as profits and losses relating to the arrangements. See below for a condensed statement of comprehensive income and condensed statement of financial position, summarizing the projects listed above:
NOTE At December 31,
In addition, as of December 31, 2018 and 2017, PEMEX recognized expenses related to unsuccessful wells of Ps. 2,508,180 and Ps. 2,500,638, respectively, directly in its statement of comprehensive income. The other components of intangible assets are:
NOTE
As of December 31,
Promissory notes issued by the Mexican Government
On December 24, 2015, the SHCP published in the Official Gazette of the Federation theDisposiciones de carácter general relativas a la asunción por parte del Gobierno Federal de obligaciones de pago de pensiones y jubilaciones a cargo de Petróleos Mexicanos y sus empresas productivas subsidiarias (General provisions regarding the assumption by the In accordance with these provisions and prior to the completion of the independent expert’s review described above, on December 24, 2015, the Mexican Government issued in advance payment, through the SHCP, a Ps. 50,000,000non-negotiable promissory note due December 31, 2050 payable to Petróleos Mexicanos. The promissory note, which On August 5, 2016, Petróleos Mexicanos received promissory notes issued by the Mexican Government at a value of Ps. 184,230,586 as of June 29, 2016, as part of the Mexican Government’s assumption of a portion of the payment liabilities related to Petróleos Mexicanos and Subsidiary Entities’ pensions and retirement plans, which notes were delivered in exchange for the Ps. 50,000,000 promissory notes issued to Petróleos Mexicanos on December 24, 2015. On August 15, 2016, Petróleos Mexicanos exchanged Ps. 47,000,000 of these promissory notes for short-term floating rate Mexican Government debt securities, known as Bonos de Desarrollo del Gobierno Federal (Development Bonds of the Mexican Government or “BONDES D”). Petróleos Mexicanos then sold the BONDES D to Mexican development banks at market prices. Petróleos Mexicanos recognized a Ps. 135,439,612 increase in equity as a result of the Ps. 184, 230,586 of the promissory notes as of June 29, 2016, minus the Ps. 50,000,000 promissory note
From January 1 to December 31, 2018 PEMEX recognized Ps. 9,737,131 in accrued yields from these promissory notes, of which Ps. 28,818 corresponds to accrued interests. This amount was recognized as financing income in the consolidated statement of comprehensive income. Yield rates for these promissory notes are fixed all throughout their lifespans and up to their maturities. In addition, PEMEX believes the promissory notes do not have a credit risk because they are issued by the Mexican Government in Mexican pesos. The expected credit losses as of December 31, 2018 are zero. As of December 31, 2018 two promissory notes have expired: the first with maturity on March 31, 2017 in the amount of Ps. 1,562,288 (Ps 1,518,932 of principal and Ps. 43,356 of interest), and the second with maturity on March 31, 2018 in the amount of Ps. 2,551,024 (Ps. 2,364,053 of principal and Ps. 186,971 of interest), which were transferred to the Fondo Laboral PEMEX (Pemex Labor Fund or “FOLAPE”), for the payment obligations related to pensions and retirement plans. The payment of the second promissory note was carried out two days after the expiration date, which generated additional interest of $644. The monetized amount of the second promissory note was Ps. 2,551,668 (Ps. 2,364,053 of principal and Ps. 187,615 of interest).
At December 31, 2018 and 2017, the balance of other assets was as follows:
NOTE The Federal Income Law applicable to PEMEX as of January 1,
The Board of Directors approves the terms and conditions for the incurrence of obligations that constitute public debt of Petróleos Mexicanos for each fiscal year, in accordance with the Petróleos Mexicanos Law and theReglamento de la Ley de Petróleos Mexicanos (Regulations to the Petróleos Mexicanos Law). These terms and conditions are promulgated in Subsequently, the Board of Directors of PEMEX approved the debt program for fiscal year 2018 in accordance with Article 13 section XXVI of the Petróleos Mexicanos Law. During On February, 12, 2018, Petróleos Mexicanos issued U.S. $4,000,000 of debt securities under its U.S. $92,000,000 Medium-Term Notes Program, Series C, in two tranches: (1) U.S. $2,500,000 5.35% Notes due 2028 and (2) U.S. $1,500,000 6.35% Bonds due 2048. On February 12, 2018, Petróleos Mexicanos consummated an exchange offer pursuant to which it exchanged (1) U.S. $952,454, aggregate principal amount of its outstanding 5.500% Bonds due 2044 for U.S. $881,899, aggregate principal amount of its new 6.350% Bonds due 2048 and (2) U.S. $ 1,021,065, aggregate principal amount of its outstanding 5.625% Bonds due 2046 for U.S. $946,764, aggregate principal amount of its new 6.350% Bonds due 2048. On March 5, 2018, Petróleos Mexicanos consummated a tender offer pursuant to which it purchased U.S. $138,598 aggregate principal amount of its outstanding 3.125% Notes due 2019, U.S. $558,644 aggregate principal amount of its outstanding 5.500% Notes due 2019, U.S. $91,843 aggregate principal amount of its outstanding 8.000% Notes due 2019, U.S. $183,017 aggregate principal amount of its outstanding 6.000% Notes due 2020 and U.S. $817,303 aggregate principal amount of its outstanding 3.500% Notes due 2020. On March 27, 2018, Petróleos Mexicanos entered into a credit line in the amount of U.S. $181,101, which bears interest at a rate linked to LIBOR plus 70 basis points, due February 2025 and was used on April 13, 2018. On April 16, 2018, Petróleos Mexicanos increased its Medium-Term Notes Program, Series C, from U.S. $92,000,000 to U.S. $102,000,000. On May 24, 2018, Petróleos Mexicanos issued €3,150,000 of debt securities under its U.S.$102,000,000 Medium Term Notes Program, Series C in four tranches: (i) €600,000 of its 2.500% Notes due on November 24, 2022; (ii) €650,000 of its Floating Rate Notes due on August 24, 2023; (iii) €650,000 of its 3.625% Notes due on November 24, 2025; and (iv) €1,250,000 of its 4.750% Notes due on February 26, 2029. All debt securities issued under this program are guaranteed by Pemex Exploration and Production, Pemex Industrial Transformation, Pemex Drilling and Services, Pemex Logistics and Pemex Cogeneration and Services and their respective successors and assignees. On June 4, 2018, Petróleos Mexicanos issued CHF365,000 of its 1.750% Notes due 2023 under its U.S.$102,000,000 Medium Term Notes Program, Series C. On June 26, 2018,Pro-Agroindustrias, refinanced a credit line for U.S. $250,000 by entering into a new credit line for the same amount, which bears interest at a floating rate linked to LIBOR plus 300 basis points on a quarterly basis and matures on December 26, 2025. This credit agreement is guaranteed by Petróleos Mexicanos. On August 23, 2018, Petróleos Mexicanos entered into a loan agreement in the amount of U.S. $200,000, which bears interest at a floating rate linked to LIBOR and matures in 2023. On October 23, 2018 Petróleos Mexicanos issued U.S. $ 2,000,000, of debt securities under U.S. $ 102,000,000 of its 6.500%, Medium-Term Notes Program, Series C, due 2029. On November 9, 2018, Petróleos Mexicanos entered into a revolving credit facility in the amount of Ps. 9,000,000, which matures in 2023. On November 30, 2018, Petróleos Mexicanos borrowed U.S. $250,000 from a bilateral credit line, which bears interest at a floating rate linked to LIBOR plus 80 basis points and matures in 2028. As of December 31, 2018, Petróleos Mexicanos had U.S. $6,700,000 and Ps. 32,500,000 in available credit lines in order to ensure liquidity, which U.S. $6,400,000 and Ps. 26,200,000 are available. All the financing activities were guaranteed by Pemex Exploration and Production, Pemex Industrial Transformation, Pemex Drilling and Services, Pemex Logistics and Pemex Cogeneration and Services (in the case of Pemex Cogeneration and Services, until July 27, 2018, the date it was liquidated (see Note 1)). From January 1 to December 31, 2018, PMI HBV (until July 31, 2018) and P.M.I. Holdings Holland Services, B.V., obtained U.S. $ 21,449,200 from its revolving credit line and repaid U.S. $ 21,099,000. As of December 31, 2017, the outstanding amount under this revolving credit line was U.S. $350,000. As of December 31, 2018, the outstanding amount under this revolving credit line was U.S. $ 700,000. The Federal Income Law applicable to PEMEX as of January 1, 2017, published in the Official Gazette of the Federation on November 17, 2016, authorized Petróleos Mexicanos and its Subsidiary Entities to incur an internal net debt up to Ps. 28,000,000 and an external net debt up to U.S. $7,100,000. PEMEX can incur additional internal or external debt, as long as the total amount of net debt (Ps. 150,000,000 equivalent to U.S. $8,055,900) does not exceed the ceiling established by the Federal Income Law. On July 8, 2016, the Board of Directors of Petróleos Mexicanos approved policies and general requirements for obligations that constitute public debt of Petróleos Mexicanos and Subsidiary Entities, in accordance with Article 106 section I of the Petroleos Mexicanos Law. Subsequently, the Board of Directors of PEMEX, During the period from January 1 to December 31, 2017, PEMEX participated in the following financing activities:
$92,000,000.
financing from its revolving credit line and repaid U.S. $14,914,000. As of December 31, 2017, the outstanding amount under this revolving credit line was U.S. $227,500. As of December 31, Various financial transactions (including credit facilities and bond issuances) require compliance with various covenants that, among other things, place restrictions on the following types of transactions by PEMEX, subject to certain exceptions:
The sale of substantial assets essential for the continued operations of its business.
The incurrence of liens against its assets.
Transfers, sales or assignments of rights to payment not yet earned under contracts for the sale of crude oil or natural gas, accounts receivable or other negotiable instruments. As of December 31, As of December 31,
Rate of interest (1) Maturity U.S. dollars Bonds Purchasing loans Project financing Direct loans Syndicated loans Bank loans Financial leases Lease-back(4) Total financing in U.S. dollars Euros Bonds Financial leases Direct loans Total financing in Euros Japanese yen: Bonds Pesos Certificados bursátiles Direct loans Syndicated loans Total financing in pesos Unidades de Inversión Certificados bursátiles Certificados bursátiles Other currencies: Bonds Total principal in pesos(2) Plus: accrued interest Notes payable to contractors(3) Total principal and interest Less: short-term maturities Short-term portion of financing lease Current portion of notes payable to contractors(3) Accrued interest Total short-term debt and current portion of long-term debt Long-term debt
As of December 31,
Rate of interest (1) U.S. dollars Bonds Purchasing loans Project financing Direct loans Syndicated loans Bank loans Financial leases Lease-back(4) Total financing in U.S. dollars Euros Bonds Project financing Total financing in Euros Japanese yen: Bonds Pesos Certificados bursátiles Direct loans Syndicated loans Total financing in pesos Unidades de Inversión Certificados bursátiles Certificados bursátiles Other currencies: Bonds Total principal in pesos(2) Plus: accrued interest Notes payable to contractors(3) Total principal and interest Less: short-term maturities Short-term portion of financing lease Current portion of notes payable to contractors(3) Accrued interest Total short-term debt and current portion of long-term debt Long-term debt
This transaction was recognized as a financing activity due to the fact that PEMEX retained all of the risks and benefits associated with ownership of the asset and substantially all of the operating rights to the assets. The outstanding liability for this transaction is payable as follows:
NOTE PEMEX faces market risk caused by the volatility of hydrocarbon prices, exchange rates and interest rates, credit risk associated with investments and financial derivatives, as well as liquidity risk. In order to monitor and manage these risks, PEMEX has This regulatory framework establishes that DFIs should Approved DFIs are mainly traded on the OTC (Over the Counter) market; however, exchange traded instruments may also be used. In the case of PMI Trading, DFIs are traded onCME-ClearPort. The different types of DFIs that PEMEX trades are described below, in the subsections corresponding to the applicable trading markets. One of PEMEX’s policies is to contribute As part of the regulatory framework for financial risk management, PEMEX has established the eligible counterparties with which it may trade DFIs and other financial instruments. In addition,
Given that PEMEX’s outstanding DFIs have been entered into for risk mitigation purposes, particularly with economic hedging purposes, there is no need to establish and monitor market risk limits. For those portfolios with an open market risk exposure, PEMEX’s financial risk management regulatory framework establishes the implementation and monitoring of market risk limits such as VaR and capital at risk (an aggregation of fair value ormark-to-market (“MtM”) and profit and loss (“P&L”), or “CaR”). PEMEX has also established credit guidelines for DFIs that Pemex Industrial Transformation offers to its domestic customers, which include the use of guarantees and credit lines. For exchange traded DFIs, PEMEX trades under the margin requirements of the corresponding exchange market, and therefore does not have internal policies for these DFIs. DFIs held with financial counterparties do not require collateral exchange clauses. Notwithstanding, PEMEX’s regulatory framework promotes credit risk mitigation strategies such as collateral exchange. PEMEX does not have an independent third party to verify compliance with these internal standards; however, PEMEX has internal control procedures that certify compliance with existing policies and guidelines.
PEMEX is exposed to fluctuations in floating interest rate liabilities. PEMEX is exposed to U.S. dollar LIBOR and to Mexican peso TIIE. As of December 31, Occasionally, for strategic reasons or in order to offset the expected inflows and outflows, PEMEX has entered into interest rate swaps. Under its interest rate swap agreements, PEMEX acquires the obligation to make payments based on a fixed interest rate and is entitled to receive floating interest rate payments based on LIBOR, TIIE or a rate referenced to or calculated from TIIE. As of December 31, Similarly, in order to eliminate the volatility associated with variable interest rates of long-term financing operations, Moreover, PEMEX invests in pesos and U.S. dollars in compliance with applicable internal regulations, through portfolios that have different purposes that seek an adequate return subject to risk parameters that reduce the probability of capital losses. The objective of the investments made through these portfolios is to meet PEMEX’s obligations payable in pesos and U.S. dollars. The investments made through PEMEX’s portfolios are exposed to domestic and international interest rate risk and credit spread risk derived from government and corporate securities, and inflation risk arising from the relationship between UDIs and pesos. However, these risks are mitigated by established limits on exposure to market risk.
PEMEX’s expenses related to hydrocarbon duties are calculated based on international U.S. dollar-denominated prices and the cost of hydrocarbon imports that PEMEX acquires for resale in Mexico or use in its facilities are indexed to international U.S. dollar-denominated prices. By contrast, PEMEX’s capital expenditure and operating expenses are As a result of this cash flow structure, the depreciation of the peso against the U.S. dollar increases PEMEX’s financial balance. The appreciation of the peso relative to the U.S. dollar has the opposite effect. PEMEX manages this risk without the need for hedging instruments, because the impact on PEMEX’s revenues of fluctuations in the exchange rate between the U.S. dollar and the peso is offset in whole or in part by its impact on its obligations.
As a consequence of the
The underlying currencies of PEMEX’s DFIs are the
Additionally, in 2018, PEMEX entered into, without cost, structures which are composed of a cross-currency swap and the
Additionally, in 2017, PEMEX entered into, without cost, a structure which is composed of a cross-currency swap PEMEX recorded a total net foreign exchange
do not impact PEMEX’s cash flows. Due to the cash flow structure described above, the depreciation of the peso relative to the U.S. dollar does not affect PEMEX’s ability to meet U.S. dollar-denominated financial obligations and improves PEMEX’s ability to meetpeso-denominated financial obligations. On the other hand, the appreciation of the peso relative to the U.S. dollar may increase PEMEX’s peso debt service costs on a U.S. dollar basis. PEMEX’s foreign exchange gain in 2018 was due to the appreciation of the peso, from Ps. 19.7867 = U.S. $1.00 on December 31, 2017 to Ps. 19.6829 = U.S. $1.00 on December 31, 2018. PEMEX’s foreign exchange gain in 2017 was due to the appreciation of the peso, from Ps. 20.6640 = U.S. $1.00 on December 31, 2016 to Ps. 19.7867 = U.S. $1.00 on December 31, 2017. PEMEX’s foreign exchange loss in Certain of the
Finally, a significant amount of PMI Trading’s income and expenses, including the cost of sales and related sales costs, is derived from the trade of refined products, petrochemicals and gas liquids to PEMEX subsidiaries and third parties, whose prices are determined and are payable in U.S. dollars. PMI Trading’s exposure to foreign currency risk results primarily from the need to fund tax payments denominated in domestic currency, PMI Trading believes it can adequately manage the risk created by the payment of taxes in domestic currency without the need to enter into hedging instruments because the exposure to this risk is marginal relative to the total flows of U.S. dollar. In addition, in the event that a potential foreign exchange risk arises in connection with a commercial transaction, PMI Trading may implement risk mitigation measures by entering into DFIs.
PEMEX periodically assesses its revenues and expenditures structure in order to identify the main market risk factors that PEMEX’s cash flows are exposed to in connection with international hydrocarbon prices. Based on this assessment, PEMEX monitors its exposure to the most significant risk factors and quantifies their impact on PEMEX’s financial balance. PEMEX’s exports and domestic sales are directly or indirectly related to international hydrocarbon prices. Therefore, PEMEX is exposed to fluctuations in these prices. In terms of crude oil and natural gas, part of this risk is transferred to the Mexican Government under PEMEX’s current fiscal regime. PEMEX’s exposure to hydrocarbon prices is partly mitigated by natural hedges between its inflows and outflows. Additionally, PEMEX continuously evaluates the implementation of
In During 2018, the crude oil hedge for fiscal year 2019 was implemented, pursuant to which PEMEX hedged 320 thousand barrels per day for the period between December 2018 and
December 2019, for U.S. $149,588. In addition to supplying natural gas, Pemex Industrial Transformation offers DFIs to its domestic customers in order to provide them with support to mitigate the risk associated with the volatility of natural gas prices. Until 2016, Pemex Industrial Transformation Due to the above, PMI Trading faces market risk generated by the terms of the purchase and sale of refined products and natural gas liquids, as well as the volatility of oil prices. Accordingly, it frequently enters into DFIs in order to mitigate this risk, thereby reducing the volatility of its financial results.
The quantification of market risk exposure in PEMEX’s financial instruments is presented below, in accordance with the applicable international risk management practices. Interest rate risk quantification The quantification of interest rate risk of investment portfolios is carried out by using theone-day horizon historical VaR, with a confidence level of 95%, over a period of one year. The VaR incorporates interest rate and spread risks. In addition, for portfolios in domestic currency, the VaR includes the inflation risk embedded in securities denominated in UDI. For portfolio management purposes, interest rate risk is mitigated by VaR limits. As of December 31, In addition to the exposure to interest rate fluctuations of the DFIs in which PEMEX is obligated to pay floating rates, PEMEX’s DFIs are exposed to
Interest rate risk quantification was calculated for DFIs in conjunction with the interest rate risk quantification for the debt portfolio. The following table shows the sensitivity of PEMEX’s DFIs and debt portfolio to a parallel shift of 10 basis points (bp) over the zero coupon rate curves. The 10bp parallel shift may be used to estimate in a simple manner the impact for proportional values to this shift and was selected in accordance with market practices for financial risk management. For the debt portfolio, interest rate risk sensitivity was calculated taking into account both the DFI interbank market yield curves and the PEMEX curves (which were also used to estimate the debt portfolios’ fair value). These metrics were calculated solely for informational purposes and are not used for portfolio management purposes because PEMEX does not intend to prepay its debt or terminate its DFIs early. Therefore, there is no interest rate risk arising from fixed rate obligations.
In addition, PEMEX performed a retrospective sensitivity analysis of the impact on its financial statements for the years ended December 31, At December 31, Exchange rate risk quantification The investments of PEMEX’s portfolios do not face foreign exchange rate risk because the funds of such portfolios are used to meet obligations in pesos and U.S. dollars. Currency DFIs are entered into in order to hedge exchange rate risk arising from debt flows in currencies other than pesos and U.S. dollars or inflation risk arising from debt flows in UDIs. However, due to the accounting treatment, net income is exposed tomark-to-market volatility as a result of changes in the exchange rates used in their valuation. Exchange rate risk quantification was calculated for DFIs in conjunction with the exchange rate risk quantification for the debt portfolio. The following table shows the sensitivity of PEMEX’s DFIs and debt portfolio to an increase of 1% to the exchange rates of currencies against the U.S. dollar. The 1% may be used to estimate in a simple manner the impact for proportional values to this increase and was selected in accordance with market practices for financial risk management. For the debt portfolio, exchange rate risk sensitivity was calculated taking into account both, interbank market yield curves and the PEMEX curves. In addition, the table shows theone-day horizon historical VaR of the remaining open position, with a confidence level of 95%, over a period of one year. These metrics were calculated solely for informational purposes. Nevertheless, in order to carry out management activities related to its debt portfolio, PEMEX periodically conducts quantitative analyses in order to estimate the exchange rate risk exposure generated by its debt issuances. Based on these analyses, PEMEX has elected to enter into DFIs as an exchange rate risk mitigation strategy.
As shown in the table above, In addition, PEMEX performed a retrospective sensitivity analysis of the impact on its financial statements of the years ended December 31, At December 31,
Hydrocarbon price risk quantification Pemex Industrial Transformation occasionally faces market risk due to open positions arising from the mismatch between the DFI portfolio offered to domestic customers and hedges with international counterparties. As of December 31, Market risk exposure is measured using the20-day Delta-Gamma VaR methodology, with a confidence level of 95%, based on 500 daily observations; VaR and
It should be noted that sensitivity analyses were not carried out for other financial instruments, such as accounts receivable and payable (as defined in the financial reporting standards). Such accounts are cleared in In accordance with the risk management regulatory framework that PMI Trading has implemented, VaR and the change in profit and loss by portfolio are calculated daily and compared to the maximum applicable limits in order to implement risk mitigation mechanisms as necessary. PMI Trading’s global
When the fair value of a DFI is favorable to PEMEX, PEMEX faces the risk that the counterparty will not be able to meet its obligations. PEMEX monitors In order to estimate PEMEX’s credit risk exposure to each financial counterparty, the potential future exposure is calculated by projecting the risk factors used in the valuation of each DFI in order to estimate the MtM value for different periods, taking into account any credit risk mitigation provisions. Moreover, PEMEX has entered into various long-term cross-currency swaps agreements with “recouponing” provisions (pursuant to which the payments on the swaps are adjusted when the In addition, PEMEX has entered into long-term DFIs with mandatory early termination clauses (pursuant to which, at a given date and irrespective of the current MtM, the DFI will terminate and settle at the corresponding MtM, and PEMEX can either enter into a new DFI with the same counterparty or a new counterparty), which reduces the credit risk generated by the term of the DFI by bounding it to a specific date. As of December 31, 2018, PEMEX has entered into two Japanese yen Seagull Option structures, with termination clauses in 2021. According to IFRS 13 “Fair Value Measurement,” the fair value or MtM value of DFIs must reflect the creditworthiness of the parties. Consequently, the fair value of a DFI takes into account the risk that either party may default on its obligation. For each DFI, the CVA is calculated by determining the difference between the MtM and the estimated MtM adjusted for credit risk. In determining the credit risk, the CVA method takes into account the current market perception about the credit risk of both counterparties, using the following inputs: a) the MtM projection for each payment date based on forward yield curves; b) the implied default probability obtained
The current and potential exposures, aggregated by credit rating, are as follows:
PEMEX also faces credit risk derived from its investments. As of December 31,
The table above does not include domestic currency Mexican Government bonds
Furthermore, by means of its credit guidelines for DFI operations, Pemex Industrial Transformation has significantly reduced its credit risk exposure related to the DFIs offered to its customers to assist them in mitigating the risk associated with the volatility of natural In order to qualify for these DFIs, Pemex Industrial Transformation’s customers must be party to a current natural gas supply contract and sign a domestic master derivative agreement. Additionally, beginning on October 2, 2009, DFIs with these customers must be initially secured by cash deposits, letters of credit or other collateral provisions, as required. In accordance with these guidelines, in the event that a client does not meet its payment obligations, DFIs related to this client are terminated, rights to collateral are exercised and, if the collateral is insufficient to cover the fair value, natural gas supply is suspended until the payment is made. On August 20, 2014, certain amendments to the credit guidelines were enacted, which allowedPemex-Gas and Petrochemicals, and now Pemex Industrial Transformation, to offer to its clients with an adequate credit rating, based on an internal financial and credit assessment, DFIs with an exemption from collateral requirements up to certain amount through a credit line approved by the credit committee. Moreover, if the credit line is insufficient to cover each client’s exposure, the client is obligated to deposit collateral. If a client suffers an event of default, DFIs related to this client are terminated early and natural gas supply is suspended until the payment is made.
As of December 31, As of December 31, As of December 31, As of December 31,
PMI Trading’s credit risk associated with DFI transactions is mitigated through the use of futures and standardized instruments that are cleared throughCME-Clearport.
In addition, as of December 31, 2018, PEMEX has acquired committed revolving credit lines in order to mitigate liquidity risk,
Finally, the investment strategies of PEMEX’s portfolios are structured by selecting time horizons that consider each currency’s cash flow requirements in order to preserve liquidity.
Certain PMI
The following tables show the cash flow maturities as well as the fair value of PEMEX’s debt and DFI portfolios as of December 31,
For debt obligations, these tables present principal cash flow and
For interest rate
Weighted average variable rates are based on implied forward rates obtained from the interbank market yield curve at the reporting date.
For natural gas DFIs, volumes are presented in millions of British thermal unit (MMBtu), and fixed average and strike prices are presented in U.S. dollars per MMBtu.
For crude oil, volumes are presented in millions of barrels, and fixed average and strike prices are presented in U.S. dollars per barrel. A DFI’s fair value includes CVA and is calculated based on market quotes obtained from market sources such as
For PMI Trading, the prices used in commercial transactions and DFIs are published by reputable sources that are widely used in international markets, such asCME-NYMEX, Platts and Argus, among others.
Fair value is calculated internally, either by discounting cash flows with the correspondingzero-coupon yield curve in the original
For all instruments, the tables are based on the contract terms in order to determine the future cash flows that are categorized by expected maturity dates.
This information is presented in thousands of pesos, except as noted. Quantitative Disclosure of Debt Cash Flow’s Maturities as of December 31,
Note: Numbers may not total due to rounding.
Source: PEMEX Quantitative Disclosure of Debt Cash Flow’s Maturities as of December 31,
Note: Numbers may not total due to rounding.
Source: PEMEX
Quantitative Disclosure of Cash Flow’s Maturities from Derivative Financial Instruments Held or Issued for Purposes Other than Trading as of December 31,
N.A. = not applicable. Numbers may not total due to rounding.
Source: PEMEX Quantitative Disclosure of Cash Flow’s Maturities from Derivative Financial Instruments Held or Issued for Purposes Other than Trading as of December 31,
N.A. = not applicable. Numbers may not total due to rounding.
PEMEX periodically evaluates its exposure to international hydrocarbon prices, interest rates and foreign currencies and uses derivative instruments as a mitigation mechanism when potential sources of market risk are identified. PEMEX monitors the fair value of its DFI portfolio on a periodic basis. The fair value represents the price at which one party would assume the rights and obligations of the other, and is calculated for DFIs through models commonly used in the international financial markets, based on inputs obtained from major market information systems and price providers. Therefore, PEMEX does not have an independent third party to value its DFIs. PEMEX calculates the fair value of its DFIs through the tools developed by its market information providers such as Bloomberg, and through valuation models implemented in software packages used to integrate all of PEMEX´s business areas and accounting, such as SAP (System Applications Products). PEMEX does not have policies to designate a calculation or valuation agent. PEMEX’s DFI portfolio is composed primarily of swaps, According to IFRS 13 “Fair Value Measurement”, the MtM value of DFIs must reflect the creditworthiness of the parties. Consequently, the fair value of a DFI takes into account the risk that either party may default on its obligation. Due to the above, PEMEX applies the credit value adjustment (“CVA”) method to calculate the fair value of its DFIs. Because PEMEX’s hedges are cash flow hedges, their effectiveness is preserved regardless of the variations in the underlying assets or reference variables, thus asset flows PEMEX’s assumptions and Embedded derivatives In accordance with established accounting policies, PEMEX has analyzed the different contracts As of December 31, 2018, PEMEX recognized a loss of Ps. 3,142,662 in the “Derivative financial instruments (cost) income, net” line item which resulted from changes in the fair value of the accounts receivable from the sale of hydrocarbons whose performance obligations have been met and whose determination of the final price is indexed to future prices of the hydrocarbons. Accounting treatment PEMEX enters into derivatives transactions with the sole purpose of hedging financial risks related to its operations, firm commitments, planned transactions and assets and liabilities recorded on its statement of financial position. Nonetheless, some of these transactions do not qualify for hedge accounting treatment because they do not meet the requirements of As of December 31, The following table shows the fair values and notional amounts of PEMEX’s
A DFI’s fair value includes
Fair value is calculated internally, either by discounting cash flows with the correspondingzero-coupon yield curve, in the original
The information is presented in thousands of pesos (except as noted).
Notes: Numbers may not total due to rounding.
The exchange rate for U.S. dollars as of December 31, For the years ended December 31, The following table presents the
The following tables presents the net gain (loss) recognized in income on PEMEX’s DFIs for the years ended December 31,
Until December 31, 2015,
As of December 31,
The following table show the amounts associated with PEMEX’s labor obligations:
The following tables contain detailed information regarding PEMEX’s retirement and post-employment benefits:
In the increase in the wage rate (from 4.77% to 5.02%), as well as the long-term inflation assumption (from 3.75% to 4.00%) also influenced the changes. In accordance with IFRS, the discount rate of labor liabilities has been estimated using as a reference the interest rates observed in Mexican Government bonds denominated in pesos (Cetes and M bonds). During 2018, the long-term interest rates of these bonds increased by an average of 100 basis points, as a consequence of the volatility registered in the Mexican financial markets towards the end of the year. The increase in these rates directly impacted the estimation of the discount rate of labor liabilities. Contributions from Pemex to the
The expected contribution to the
63,235,620 and the expected payments are Ps. 68,387,355. As of December 31,
The asset ceiling test was not applied because there was a deficit of labor liabilities at the beginning and end of the year. The effect of an increase or decrease of one percentage point in the The effect of an increase or decrease of one percentage point in the increase rate in medical services with respect to the cost and obligations related to medical services point is a 2.15% increase or a-1.69% decrease in defined benefit obligations, respectively. The effect of an increase or decrease of one percentage point in the The effect of an increase or decrease of one percentage point in the wage is a 1.25% and-1.10%, respectively in defined benefit obligations. The effects previously mentioned were determined using the projected unit credit method which was the same method used in the prior valuation. Assumptions regarding future mortality are based on EMSSA2009 to Unique Circular of theComisión Nacional de Seguros y Fianzas (National Commission of Insurance and Bonds) and include changes to the mortality rate PEMEX’s plan assets are held in the FOLAPE trust, which is managed by BBVA Bancomer, S. A. and a technical committee for the trust that is comprised of personnel from Petróleos Mexicanos and the trust. The following tables present additional fair value disclosure about plan assets and indicate their rank, in accordance with IFRS 13, as of December 31,
Cash and cash equivalents Debt instruments Total Cash and cash equivalents Held-for-sale financial assets Debt instruments Total
As of December 31,
In accordance with Other long-term benefits
The amounts recognized for
The expected long-term benefit payments amount to Ps.300,869.
The effect of an increase or decrease of one percentage point in the discount rate is a -14.80% increase or a 19.25% decrease, respectively, in defined benefit obligations. The effect of an increase or decrease of one percentage point in the increase rate in medical services with respect to the cost and obligations related to medical services is a 4.64% increase or a -3.32% decrease, respectively, in defined benefit obligations. The effect of an increase or decrease of one percentage point in the inflation is a 0.48% increase or a 1.73% decrease, respectively, in defined benefit obligations. The effect of an increase or decrease of one percentage point in the wage is a 4.26% increase or a 3.88% decrease, respectively in defined benefit obligations. The principal actuarial assumptions used in determining the defined benefit obligation for the plans are as follows:
In accordance with NOTE At December 31,
The following tables show the allowance account for plugging of wells, trials in progress and environmental costs:
Provision for plugging of wells PEMEX records a provision at present value for the future plugging cost of an oil production facility or pipeline at the time that it is built. The plugging provision represents the present value of plugging costs related to oil and gas properties. These provisions have been created based on internal estimates of PEMEX. PEMEX has made certain assumptions based on the current economic environment that PEMEX believes provide a reasonable basis on which to estimate the future liability. These estimates are reviewed regularly to take into account any material changes in the assumptions. However, actual plugging costs in the long run will depend on future market prices for the necessary plugging work, which reflect market conditions at the time the work is being performed. Moreover, the time of plugging depends on when the fields cease to have economically viable production rates, which, in turn, depends on the inherently uncertain future prices of oil and gas. NOTE The following items represent non-cash transactions and are presented for disclosure purposes:
NOTE TheLey de Ingresos sobre Hidrocarburos
Tax regime applicable to The
As of January 1, 2015, Pemex Exploration and Production is obligated to pay a Profit-sharing Duty. As of January 1, 2018 and 2017, the applicable rate of this duty was During During 2017, this duty totaled Ps. 372,902,629 from annual payments presented on March 31, 2018 paid as follows: Ps. 377,192,377, in monthly installment payments and a favorable balance amounting to Ps. 4,289,748, presented in accounts receivable, net line item in the statement of financial position. The accounting result differs from the tax result mainly due to differences in depreciation,non-deductible expenses and others. Such differences generate a deferred DUC. Total DUC and other as of December 31,
The principal factors generating the
The expected expense for DUC is different from that which would result from applying the 65% rate to the tax base, as a result of the items mentioned below:
On August 18, 2017, the Official Gazette of the Federation published a decree, granting tax benefits for extraction activities in
On November 30, 2017, theAcuerdo por el que se reforman y adicionan diversas disposiciones de las Reglas de carácter general para definir los métodos de ajuste del valor de los hidrocarburos de los derechos sobre hidrocarburos (Agreement by which various provisions of the general rules are reformed and added to define the methods of adjusting the value of hydrocarbons and hydrocarbon rights)was published in the Official Gazette of the Federation, resulting in new calibrations and adjustments of existing formulas of calculating the value of hydrocarbons and hydrocarbon rights. As a The compensation of Ps. 2,186,963 was also authorized for the recognition of the fair economic value of the investments affected as a result of the allocation process for assignments to carry out hydrocarbon exploration and extraction activities, in accordance with the provisions of Transitory Article 21 of the Federation Income Law of 2017.
This duty is to be calculated using a rate based on a During
The Mexican Government is entitled to collect a monthly payment of
During
The Hydrocarbons Revenue Law also establishes the following duties applicable to PEMEX in connection with assignments granted to it by the Mexican Government:
During the exploration phase of
Royalty payments to the Mexican Government are determined based on the “contractual value” of the relevant hydrocarbons, which is based on a variety of factors, including the type of underlying hydrocarbons (e.g., crude oil, associated natural gas,non-associated natural gas or condensates), the volume of production and the market price. Royalties are payable in connection with
Production-sharing contracts and profit-sharing contracts require a payment equivalent to a specified percentage of operating profits. In the case of production-sharing contracts, this payment
Upon execution of a
Contracts for exploration and extraction
The Subsidiary Entities are subject to the Income Tax Law and the Value Added Tax Law. Pemex Industrial Transformation is also subject to the Special Tax on Production and Services (IEPS Tax). 2018 indirect taxes are as listed below:
IEPS Tax on the sale of automotive fuels: This is a tax imposed on domestic sales of automotive fuels, including gasoline and diesel, which Pemex Industrial Transformation collects on behalf of the Mexican Government. The applicable quotas for 2018 were: 4.59 pesos per liter of Magna gasoline; 3.88 pesos per liter of Premium gasoline and 5.04 pesos per liter of diesel. This fee is updated annually according to inflation and adjusted monthly by the tax authorities. IEPS Tax to benefit Mexican states and municipalities: This tax is a quota on domestic sales of automotive fuels, including gasoline and diesel, which Pemex Industrial Transformation collects on behalf of the Mexican Government. The applicable quotas for 2018 were 40.52 cents per liter of Magna gasoline, 49.44 cents per liter of premium gasoline and 33.63 cents per liter of diesel. This rate is updated annually with inflation. The funds raised by this quota are allocated to the states and municipalities as provided in the Tax Coordination Law. IEPS Tax on Fossil Fuels: This tax is a quota on the internal sales of fossil fuels, which Pemex Industrial Transformation collects on behalf of the Mexican Government. The applicable quotas for 2018 were 6.93 cents per liter for propane, 8.98 cents per liter for butane, 12.17 cents per liter for jet and other fuel, 14.54 cents per liter for turbosine and other kerosene, 14.76 cents per liter for diesel, 15.76 cents per liter for fuel oil and Ps. 18.29 per ton for petroleum coke. This rate is updated annually according to inflation.
For VAT purposes, final monthly payments are determined based on PEMEX’s cash flow, in accordance with the provisions of the Value Added Tax Law, applicable to payers of this tax. The general rate to be applied is 16%. Certain activities with incentives will have the rate of 0%. The VAT is caused by the sales of goods, rendering of services, granting of the temporary use of goods in the national territory and by the importation of goods and services to the national territory. VAT taxpayers transfer VAT to their customers and are entitled to credit the VAT paid to their suppliers and on their imports. The net balance between VAT transferred to customers and paid to suppliers and on imports results each month in the VAT to be paid to the tax authorities or in an amount in favor of the taxpayer. The taxpayer has the right to credit VAT in favor against VAT payable in future months, to request a refund or to offset it against other payable federal taxes. Taxes on Income are described below:
As of January 1, 2015, Petróleos Mexicanos, Subsidiary Entities and the subsidiary companies residing in Mexico for tax purposes are subject to the Income Tax Law. This tax is calculated by applying a rate of 30% to the tax result. Tax result is the excess of total revenues over the allowed deductions and tax losses from previous years. Accounting income differs from taxable income primarily due to the effects of inflation and differences between depreciation and othernon-deductible expenses. For the years ended December 31, 2018, 2017 and 2016, Petroleos Mexicanos and its Subsidiary Companies incurred the following income tax expense (benefit):
As of December 31, 2018 and 2017, the deferred income tax asset net of Pemex Industrial Transformation and Pemex Exploration and Production has not been recognized because it is estimated that not enough taxable income will be generated in future periods.
The principal factors generating the deferred income tax are the following:
Expense attributable to the profit (loss) from continuing operations before income taxes was different from that which would result from applying the 30% rate to profit, as a result of the items listed below:
As of December 31, 2018 and 2017, the net accumulated effect of actuarial gains and losses on deferred tax was Ps. 8,734,628 and Ps. 17,688,032, respectively. In addition, as of December 31, 2018 and 2017, the deferred tax effect of actuarial gains and losses is presented in comprehensive (loss) income in the amounts of Ps. (8,953,404) and Ps. (800,824), respectively. NOTE 24. EQUITY (DEFICIT)
On December 24, 2015, the Mexican Government, through the SHCP, On April 21, 2016, the On August 3, 2016, the Mexican Government issued Ps. 184,230,586 in exchange for the Ps. 50,000,000non-negotiable promissory note issued to
promissory note
As of December 31, 2018 and 2017 there were no Mexican Government
Under Mexican law, each of the Subsidiary Companies is required to allocate a certain percentage of its net income to a legal reserve fund until the fund reaches an amount equal to a certain percentage of each Subsidiary Company’s capital stock. As of December 31, 2018 and 2017, there were no changes to the legal reserve.
PEMEX has recorded negative earnings in the past several years. However, theLey de Concursos Mercantiles
The consolidated financial statements have been prepared on a going concern basis, which assumes that PEMEX can meet its payment obligations Facts and conditions PEMEX has recognized continuous net losses during 2018, 2017 and 2016 of Ps. 180,419,837 Ps. 280,850,619 and Ps. 191,144,342, respectively. Additionally, PEMEX had a negative equity of Ps. 1,459,405,432 and Ps. 1,502,352,385 as of December 31, 2018 and 2017, respectively, mainly due to continuous net losses; and a negative working capital of Ps. 54,666,333 and Ps. 25,600,895, as of December 31, 2018 and 2017, respectively. PEMEX also has important debt, contracted mainly to finance investments needed to carry out its operations. Due to its heavy fiscal burden resulting from the payment of hydrocarbon extraction duties and other taxes, the cash flow derived from PEMEX’s operations in recent years has not been sufficient to fund its operating and investment costs and other expenses, so that its indebtedness has increased significantly, and its working capital has decreased in part as a result of the drop in oil prices that began at the end of 2014 and the subsequent oil price fluctuation. Additionally, at the beginning of 2019, some rating agencies downgraded PEMEX’s credit rating, which could have an impact on the cost and terms of PEMEX’s new debt, as well as contract renegotiations during 2019. All these matters show the existence of substantial doubt about PEMEX’s ability to continue as a going concern. PEMEX has budget autonomy, and is subject to the financial balance, which represents the difference between its income and its total budgeted expenditures, including the financial cost of its debt, which, is proposed by the SHCP and approved by the Mexican Congress in the Federal Budget for 2019. The Federal Budget for 2019 estimates that PEMEX’s budgeted expenditures of Ps. 589,736,649 will exceed budgeted revenues of Ps. 524,291,649 by Ps. 65,445,000. The Federal Budget for 2019 also authorized PEMEX a net indebtedness up to Ps. 112,800,000 to cover its negative financial balance, which is considered as public debt by the Mexican Government. On February 26, 2019, the Board of Directors of Petróleos Mexicanos authorized the Annual Operational and Financial Work Program (POFAT), which detailed the operational variables in the drilling, extraction and industrial transformation segments, as well as its projection of financial results based on the budget for Petróleos Mexicanos and its productive state-owned subsidiaries, through the Federal Annual Budget for Fiscal Year 2019. The credit profile of Petróleos Mexicanos and its Subsidiary Productive Companies was authorized on the same date. PEMEX, in collaboration with the Mexican Government intends to meet its working capital needs and debt payment obligations by implementing a new business strategy focused on the financial strengthening of PEMEX through internal measures such as cost control austerity policies, debt reduction, crude oil hedges and the fight against fuel theft, as well as external measures, through thePrograma de Fortalecimientode Petróleos Mexicanos (Strengthening Program for Petroleos Mexicanos or the “Strengthening Program), through which the Mexican Government is expected to support PEMEX through capitalizations, a stable price policy, fiscal support, prepayment of promissory notes to PEMEX previously issued by the Mexican Government and additional support in the fight against fuel theft. On February 15, 2019, theMexican Government announced, as part of its Strengthening Program for Petróleos Mexicanos, a support program to help improve PEMEX´s financial position and increase PEMEX’s production and, in turn, its profitability. This first stage includes contributions to PEMEX, which will be obtained, among others, as follows: Ps. 25,000,000 through a capitalization already contemplated in the capital expenditures budget for 2019, which will be received in five payments during 2019, and of which a total of Ps. 15,000,000 has been received as of the date of the issuance of these consolidated financial statements (see Note 30); an advance of payment of promissory notes during 2019 in the amount of Ps. 34,887,250, related to pensions and retirement plans of Petróleos Mexicanos and its productive state-owned subsidiaries, for which Ps. 28,063,511 have been received as of the date of these consolidated financial statements (see Note 30); and a gradual reduction of the tax burden starting in 2019 and up to 2024 through assignment and migration contracts and a subsequent increase in the limit for deduction and reimbursments of costs, expenses and investments related to extraction and exploration projects. Petróleos Mexicanos and its Subsidiary Entities are not subject to the Ley de Concursos Mercantiles (the Bankruptcy Law) and none of PEMEX’s existing financing agreements include any clause that could lead to the demand for immediate payment of debt due to having negative equity or as a result of non-compliance with financial ratios.
Effective July 1, 2005, PEMEX entered into an option agreement with BNP Private Bank & Trust Cayman Limited; the option was not excercised and was terminated on July 20, 2015. On July 1, 2015, PEMEX also entered into a new option agreement with SML Trustees Limited to acquire 100% of the shares of Pemex Finance, Ltd, which allows PEMEX to have control over Pemex Finance Ltd. because of the potential voting rights. As of the date of these consolidated financial statements the option agreement has Until November 30, 2018, the financial results of Pemex Finance, Ltd. On December 17, 2018, PEMEX exercised its option to purchase all shares of Pemex Finance Ltd., and as of December 31, 2018, this company is no longer presented as a“non-controlling interest”. Similarly, because PEMEX does not currently own all of the shares of PMI CIM, As of December 31, NOTE
NOTE 26. OTHER REVENUES AND
NOTE
Directors and employees of
the fourth degree, or civil relatives, or for third parties with which they have professional, labor or business relations, or for partners or partnerships where the public officials or the persons referred above are or have been members Related parties include individuals and companies that do not form part of PEMEX, but that could take advantage of being in a privileged position as a result of their relation with PEMEX. Also included are situations in which PEMEX could take advantage of a special relationship in order to benefit its financial position or results of operations.
For the years ended December 31, The compensation paid or accrued during
As an employee benefit, PEMEX offers salary advances to all of its eligible Petroleum Workers’ Union andnon-union workers, including executive officers, pursuant to the programs set forth in the collective bargaining agreement and in theReglamento de Trabajo del Personal de Confianza de Petróleos Mexicanos y NOTE
Estimated future payments under this contract for upcoming fiscal years are as follows:
As of December 31,
NOTE In the ordinary course of business, PEMEX is named in a number of lawsuits of various types. PEMEX evaluates the merit of each claim and assesses the likely outcome. PEMEX has not recorded provisions related to ongoing legal proceedings due to the fact that an unfavorable resolution is not expected in such proceedings, with the exception of the proceeding described in further detail in this Note. PEMEX is involved in various civil, tax, criminal, administrative, labor and commercial lawsuits and arbitration proceedings. The results of these proceedings are uncertain as of the date of these consolidated financial statements. As of December 31, 2018, and December 31, 2017, PEMEX had accrued a reserve of Ps. 6,483,078, and Ps. 7,812,689, respectively, for these contingent liabilities.
On
On June 11, 2015, the Segunda Sala Regional del Noreste (“Second Regional Northeast Court”) notified Pemex Industrial Transformation of an administrative claim (file no.2383/15-06-02-4) filed by Severo Granados Mendoza, Luciano Machorro Olvera and Hilario Martínez Cerda, as President, Secretary and Treasurer of the Ejido Tepehuaje, seeking Ps. 2,094,232 in damages due to a hydrocarbon spill on their land. Pemex Industrial Transformation filed a response to this On July 8, 2011, Pemex Exploration and Production was summoned in connection with an administrative claim (no. 4334/1111026) filed by Compañía Petrolera La Norma, S.A., against the Chief Executive Officer of Petróleos Mexicanos and the Chief Executive Officer of Pemex-Exploration and Production before the Segunda Sala RegionalHidalgo-México (“Hidalgo-Mexico Second Regional Court”) of the Tax Administrative Federal Court in Tlalnepantla, Estado de México. The plaintiff is On December 12, 2017, Pemex Exploration and Production was summoned in connection with an arbitration claim (no. 23217/JPA) filed by SUBSEA 7 de México, S. de R. L. de C.V. (“SUBSEA 7”) seeking U.S.$153,000 related to additional expenses in connection with a pipelines construction contracts (No. 420832856 and 420833820). On January 5, 2018 Pemex Exploration and Production filed a response to this claim. The appointment of the chairperson of the arbitration trial is still pending. On September 14, 2018, the defendant received the claim briefs including documentation and related evidence and the amount sought under this claim was increased to U.S.$ 310,484. On January 4, 2019 a response was filed by the defendant. As of the date of these financial statements a final resolution is still pending. On August 1, 2017, Pemex Exploration and Production was summoned in connection with an administrative claim (no.11590/17-17-06-2) filed by Proyectos y Cimentaciones Industriales, S.A. de C.V. before the Sixth Regional Metropolitan Court seeking Ps. 800,000 and U.S.$ 12.82 and to have the settlement certificate dated March 22, 2017 related to services agreement declared null and void. On September 25, 2017 Pemex Exploration and Production filed a response to this claim. On September 4, 2018, the parties filed their pleadings. The claim was submitted to the Superior Court. As of the date of these financial statements, a final judgment is still pending. In March 2018, Pemex Drilling and Services was summoned before the International Centre for Dispute Resolution of the American Arbitration Association in connection with an arbitration claim (No.01-18-0001-1499) filed by Loadmaster Universal Rigs, Inc., Loadmaster Drilling Technologies, LLC, Ulterra Drilling Technologies Mexico, S.A. de C.V. and Kennedy Fabricating, LLC seeking U.S. $139,870 in connection with the construction and acquisition of modular drilling equipment. On June 6, 2018, the plaintiffs responded to the counterclaim filed by Pemex Drilling and Services. On September 28, 2018, Pemex Drilling and Services filed a motion rejecting the arbitration jurisdiction. On December 19, 2018, the parties exchanged documentation. As of the date of these financial statements, the appointment of the chairperson of the arbitration court is still pending. Once the arbitration court is formed, the schedule for the proceeding will be determined. The results of these proceedings are uncertain until their final resolutions are issued by the appropriate authorities. PEMEX has recorded liabilities for loss contingencies when it is probable that a liability has been incurred and the amount thereof can be reasonably estimated. When a reasonable estimation could not be made, qualitative disclosure was provided in the notes to these consolidated financial statements. PEMEX does not disclose amounts accrued for each individual claim because such disclosure could adversely affect PEMEX’s legal strategy, as well as the outcome of the related litigation. Pursuant to an ordinary session held by the Board of Directors on August 23, 2013, Petróleos Mexicanos established policies for the granting of mutual guarantees, loans or any type of credit in favor of the Subsidiary Entities and Subsidiary Companies; in accordance with these policies, the Corporate Finance Department issues an opinion with its risk analysis, financial valuation, budget sufficiency, accounting treatment and conclusions. Additionally, Pemex Logistics has granted the following corporate guarantees in connection with the exploration and extraction contracts entered into Pemex Exploration and Production, as required by the NHC: Exploration and extraction of hydrocarbons under the deep-water license modality, Trión field (TenderCNH-A1-TRION / 2016), of US $ 4,000,000. Exploration and extraction of the contract area 3 Cinturón plegado perdido (Tender CNHR01- L04 / 2015), of US $ 3,333,000. Extraction of hydrocarbons under shared production contract of theEk-Balam fields, of U.S. $5,000,000. Extraction of hydrocarbons in contractual area Santuario and El Golpe 3 field, of U.S. $320,000. Exploration and extraction of hydrocarbons under shared production contract, contractual area 2 Tampico-Misantla, of U.S. $ 1,750,000. Exploration and extraction of hydrocarbons under shared production contract, contractual area 8 Cuencas del Sureste, of U.S. $ 1,250,000. Exploration and extraction of hydrocarbons shared production contract, assignmentAE-0398-Mission of U.S. $ 255,000. Extraction of hydrocarbons under license agreement, Ogarrio field of U.S. $ 250,000. Extraction of hydrocarbons under license agreement, Cárdenas and Mora fields, of U.S. $250,000. Exploration and extraction of hydrocarbons under the deep-water license modality, contractual area 2 Perdido, of U.S.$ 2,500,000. Exploration and extraction of hydrocarbons under the deep-water license modality, contractual area 5 Perdido, of U.S.$ 5,000,000. Exploration and extraction of hydrocarbons under the deep-water license modality, contractual area 18 Cordilleras Mexicanas, of U.S.$ 5,000,000. Exploration and extraction of hydrocarbons under shared production contract contractual area 22 Cuenca Salina, of U.S. $ 1,375,000. Contractual area 16 Tampico-Misantla, Veracruz, of U.S.$ 1,000,000. Contractual area 17 Tampico-Misantla, Veracruz, of U.S.$ 1,000,000. Contractual area 18 Tampico-Misantla, Veracruz, of U.S.$ 2,000,000. Contractual area 29 Cuencas del Sureste, of U.S.$ 2,500,000. Contractual area 32 Cuencas del Sureste, of U.S.$ 1,250,000. Contractual area 33 Cuencas del Sureste, of U.S.$ 1,250,000. Contractual area 35 Cuencas del Sureste, of U.S.$ 1,250,000. Contractual area Ébano, of U.S.$ 225,000. Contractual areaAE-0388-M-Miquetla (for conventional andnon-conventionalon-shore license en zonas) of U.S.$ 245,000. Contractual areaAE-0392-M-Pánuco (shared-production) by U.S.$ 225,000. Certain other Subsidiary Entities have also granted guarantees and other contingencies. Total guarantees granted to Pemex Exploration and Production amounted to U.S.$ 41,228,000, equivalent to Ps. 811,486,601 as of December 31, 2018. PEMEX considers the probability it needs to make a disbursement of cash, for the garantees granted and in effect as of December 31, 2018 remote. NOTE At the beginning of 2019, some rating agencies downgraded PEMEX’s credit rating, which could have an impact on the cost and terms of PEMEX’s new debt, as well as contract renegotiations during 2019. Between January 1 to April 17, 2019, PMI HHS obtained U.S. $4,275,000 and repaid U.S. $4,933,000 in financing from its revolving credit lines. As of January 1, 2019, the outstanding amount was U.S. $ 700,000. As of April 17, 2019, the outstanding amount under these revolving credit lines was U.S. $ 42,000. As of April As of April As of April
On January As of April 22, 2019, PEMEX received the payments as follows:
On April 2, 2019, PEMEX received payment of promissory note No. 3, with maturity on The Board of Directors of Petróleos Mexicanos, at its meeting held on March 26, 2019, approved, among others, the following resolutions: Instructed Petróleos Mexicanos, Pemex Exploration and Production and Pemex Industrial Transformation management to present to the Board of Directors of Petróleos Mexicanos for its authorization, proposals for the merger of Pemex Drilling and Services into Pemex Exploration and Production and of Pemex Ethylene into Pemex Industrial Transformation.
Presented, for authorization of the Board of Directors of Petróleos Mexicanos, modifications to the creation resolutions of Pemex
Authorized the modifications to the basic organic structures of Petróleos Mexicanos, On February 6, 2019, the Sala Regional del Golfo Norte (North Gulf Regional Court) of Federal Court of Justice for Tax and Administrative Matters summoned Pemex Drilling and Services in connection with a claim(752/17-18-01-7) filed by Micro Smart System of Mexico, S. de R.L. de C.V., challenging a settlement statement dated March 14, 2017 related to a works contract number 424049831 dated December 9, 2009, seeking the payment of: U.S.$ 240,448 for work performed and U.S.$284 for work estimates. On February 22, 2019, Pemex Services filed a motion against the resolution that admitted this claim. On March
19, 2019. On March 28, NOTE 31. NEW STANDARS RECENTLY ISSUED
The new standards will be effective for periods beginning in 2019.
In January 2016, the IASB published a new accounting standard IFRS 16 “Leases” (“IFRS 16), which replaces IAS 17, “Leases and Guide interpretations.” PEMEX PEMEX is still determining the effects of the adoption, as well as the design and evaluation of controls; and The new accounting policies are subject to change until PEMEX presents its PEMEX considers the significant impacts due to adoption are the following: The recognition of newright-of-use assets and lease liabilities on the balance sheet for its operating leases; Providing significant new disclosures about its leasing activities. IFRS 16 introduces a single,on-balance sheet lease accounting model for lessees. A lessee recognizes aright-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. There are recognition exemptions for short-term leases and leases oflow-value assets. Lessor accounting remains similar to the current standard – i.e. lessors continue to classify leases as finance or operating leases. IFRS 16 replaces existing leases guidance, including IAS 17 Leases (IAS 17), IFRIC 4 Determining whether an Arrangement contains a Lease (IFRIC 4),SIC-15 Operating Leases – Incentives(SIC-15) andSIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease (SIC 27). i. Leases in
Previously, PEMEX recognized operating lease expense on a straight-line basis over the Based on the information currently available, PEMEX estimates that it will recognize additional lease liabilities as of January 1, 2019 corresponding to theright-of-use of assets based on the present value of the remaining minimum rental payments under the current leasing standards for existing operating leases. PEMEX does not expect the adoption of IFRS 16 will impact its ability to comply with rights contained in loans because there are no covenants derived from these type of operations. ii. Transition PEMEX will apply IFRS 16 initially on January 1, 2019, using the modified retrospective approach. Therefore, the cumulative effect of adopting IFRS 16 will be recognized as an adjustment to the opening balance of retained earnings at January 1, 2019, with no restatement of comparative information. PEMEX will apply the option of recognizing theright-of-use asset of each lease to an amount equal to its liability, without considering other elements within the asset measurement byright-of-use, such as direct initial costs and payments made before or after at the beginning of the lease. PEMEX will apply the practical expedient to adopt the definition of lease at the time of transition. This means that it will apply IFRS 16 to all contracts entered into before January 1, 2019 and identified as leases in accordance with IAS 17 and IFRIC 4. PEMEX will apply the short-term lease recognition exemption for all leases with a remaining lease term at the date of initial application of 12 months or less. PEMEX also currently expects to elect the practical expedient to not separate lease andnon-lease components for leases where thenon-lease component is not significant.
In June 2017, the IASB published a new accounting interpretation to be applied to the determination of taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates, when there is uncertainty over income tax treatments under IAS 12. In order to make these tax assessments, an entity must consider whether it is probable that the relevant taxing authority will accept each tax treatment, or group of tax treatments, that the entity has used or plans to use in its next income tax filing: If the entity concludes that it is probable that a particular tax treatment will be accepted by the relevant taxing authority, that entity must determine taxable profit (tax loss), tax bases, unused tax losses, unused tax credits or tax rates consistently with the tax treatment included in its income tax filings. If the entity concludes that it is not probable that a particular tax treatment is accepted by the relevant taxing authority, the entity must use the most likely amount or the expected value of the tax treatment when determining taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates. That calculation should be based on which method provides better predictions of the resolution of the uncertainty. IFRIC 23 is effective for annual reporting periods beginning on or after January 1, 2019. Earlier application is permitted. PEMEX does not anticipate being impacted by IFRIC 23 because all tax positions are discussed and agreed with SHCP prior to releasing quarterly or annual financial statements.
In December 2017, the IASB published “the Annual Improvements to the IFRS of the 2015-2017 Cycle” through which it clarifies the following IFRS: IFRS 3 Business Combinations and IFRS 11 Joint ventures IFRS 3 Business Combinations clarifies how an entity should recognize an increase of its interest in a joint operation: When a party to a joint arrangement obtains control of a business that was a part of that joint arrangement, and where that party had assumed a portion of the rights to the assets and obligations to the liabilities of that business prior to the acquisition date, the acquisition will be considered a business combination that is achieved in stages. The acquiring entity must therefore apply the requirements for a business combination achieved in stages, including by measuring its previously held interest in the joint arrangement. When a party participates in, but does not share in the control of a joint operation, and subsequently takes joint control of that joint operation, this will constitute the acquisition of a business and previously held interest in the joint operation are not measured. IAS 12 Income Tax All income tax consequence of dividends (including payments on financial instruments classified as equity) are recognized consistently with the transactions that generated the distributable profits (i.e., in profit or loss, OCI or equity IAS 23 Borrowing Costs With respect to To the extent that an entity borrows funds generally and uses them for the purpose of obtaining a qualifying asset, that entity shall determine the amount of However, an entity shall exclude from this calculation borrowing cost applicable to borrowing made specifically for the purpose of obtaining a qualifying asset until substantially all the activities necessary to prepare that asset for its intended used or sale are complete. The amount of borrowing costs that an entity capitalizes during a period shall not exceed the amount of borrowing costs it incurred during that period. The amendments are effective for annual periods beginning on or after January 1, 2019. PEMEX is in the The new standards will be effective for periods beginning in 2020.
In October 2018, the IASB issued amendments to the definition of a business in IFRS 3. The amendments are intended to assist entities to determine whether a transaction should be accounted for as a business combination or as an The amendments:
The amendments to IFRS 3 must be applied to transactions that are either a business combination or asset acquisition for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after January 1, 2020. Consequently, entities do not have to revisit such transactions that occurred on prior periods. Earlier application is permitted and must be disclosed.
The IASB observed that the inappropriate application of “materiality” is one of the factors that affects disclosures to financial statements, causing entities to disclose irrelevant information, omit or obscure important information, reducing the usefulness of financial statements. Therefore, in New definition of material The new definition states that “information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general-purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity.” The amendments clarify that materiality will depend on the nature or magnitude of information. An entity will need to assess whether the information, either individually or in combination with other information, is material in the context of the financial statements. A misstatement of information is material if it could reasonably be expected to influence decisions made by the primary users. The amendments clarify that, in assessing whether an information could reasonably be expected to influence decisions of the primary users, an entity must consider the characteristics of those users as well as its own circumstances. Obscuring information The information is obscured if it is communicated in a way that would have a similar effect as omitting or misstating the information. The following are examples of circumstances that may result in material information being obscured: Material information may be obscured if information regarding a material item, transaction or other event is scattered throughout the financial statements or disclosed using language that is vague or unclear. Material information can also be obscured if dissimilar items, transactions or other events are inappropriately aggregated, or conversely, if similar items are inappropriately disaggregated. In addition, the understandability of the financial statements is reduced if material information is hidden because of immaterial information. Primary users of the financial statements The current definition refers to ‘users’ but does not specify their characteristics, which can be interpreted to imply that an entity is required to consider all possible users of the financial statements when deciding what information to disclose. Consequently, the IASB decided to refer to primary users in the new definition to help respond to concerns that the term users may be interpreted too widely. The amendments explain that many existing and potential investors, lenders and other creditors cannot require reporting entities to provide them with information directly and, as such, they rely on general purpose financial statements for much of the financial information they need. Therefore, these groups are the primary users to whom general purpose financial statements are directed. Effective date and transition The amendments to IAS 1 and IAS 8 are required to be applied for annual periods beginning on or after January 1, 2020. The amendments must be applied prospectively and earlier application is permitted. NOTE The following consolidating information presents: (i) condensed These condensed The Pemex Project Funding Master Trust (the “Master Trust”), which was a trust formed for the purpose of financing PEMEX’s projects, was dissolved effective December 20, 2011 and is no longer consolidated in the financial statements of PEMEX as of December 31, 2011 and thereafter.
The following table sets forth, as of December 31, Table 1: Registered Debt Securities originally issued by the Master Trust and Assumed by Petróleos Mexicanos
The following table sets forth, as of December 31, Table 2: Registered Debt Securities originally issued by Petróleos Mexicanos
Petróleos Mexicanos is the only PEMEX entity that had debt securities registered with the SEC outstanding as of December 31,
SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION STATEMENT OF FINANCIAL POSITION As of December 31,
SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION STATEMENT OF FINANCIAL POSITION As of December 31,
SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION STATEMENT OF COMPREHENSIVE INCOME For the year ended December 31,
SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION STATEMENT OF COMPREHENSIVE INCOME For the year ended December 31,
SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION STATEMENT OF COMPREHENSIVE INCOME For the year ended December 31,
SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
For the year ended December 31,
SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
For the year ended December 31,
SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION STATEMENT OF CASH FLOWS For the year ended December 31, 2016
NOTE Under the This note provides supplementary information on the oil and gas exploration, development and production activities of Pemex Exploration and Production in compliance with the U.S. Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 93210-5 “Extractive Activities—Oil and Gas” (“ASC Topic 932”) and Accounting Standards Update2010-03 (see Note As of the date of these consolidated financial statements, all exploration and production activities of Pemex Exploration and Production are conducted in Mexico. The supplemental data presented herein reflect information for all of Pemex Exploration and Production’s oil and gas producing activities.
There are no property acquisition costs because PEMEX exploits oil reserves owned by the Mexican nation. Exploration costs include costs Development costs include
The following table summarizes average sales prices in U.S. dollars for each of the years ended December 31 (excluding production taxes):
Under the 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,
2018 have not been approved by the NHC. Pemex Exploration and Production Classification of Reserves of Crude Oil, Natural Gas, and Condensate, by Chapman Cronquist, and Determination 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:
Experience in the
Stage of
Quality and completeness of basic
Production and pressure Reserves data set forth herein During In order to ensure the reliability of PEMEX’s reserves estimation efforts, it has undertaken the internal certification of its estimates of reserves since 1996. PEMEX has established certain internal controls in connection with the preparation of its proved reserves estimates. Initially, teams of geoscientists from Pemex Exploration and Production’s exploration and exploitation 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 Reserves Certification), 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
In addition to this internal review process, Pemex Exploration and Production’s final reserves estimates are audited by independent engineering firms. Three independent engineering firms audited Pemex Exploration and Production’s estimates of proved reserves as of December 31, Netherland Sewell audited the reserves in the Cantarell,Ku-Maloob-Zaap, Cinco Presidentes and Macuspana-Muspac business units, DeGolyer audited the reserves in the Aceite Terciario de Golfo, Poza Rica-Altamira,Abkatún-Pol-Chuc and Litoral de Tabasco business units 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 Pemex Exploration and Production’s reserves estimates so that they could express an opinion as to whether, in the aggregate, the reserves estimates that All questions, including any suggested modifications to proved reserves estimates, that arose during the Independent Engineering Firms’ review process were resolved by Pemex Exploration and Production to the satisfaction of the Independent Engineering Firms. The Independent Engineering Firms have concluded that PEMEX’s total proved developed and undeveloped reserves of crude oil, condensates and liquefiable hydrocarbons recoverable from field processing plants decreased by PEMEX’s
2018. During The following three tables of crude oil and dry gas reserves set forth PEMEX’s estimates of its proved reserves determined in accordance with Rule4-10(a). Summary of
Note: Numbers may not total due to rounding.
Source: Pemex Exploration and Production. Crude (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. Pemex Exploration and Production’s reserve-replacement ratio, or RRR, for a given period is calculated by dividing the sum of proved reserves PEMEX’s reserves production ratio, which is presented in terms of years, is calculated by dividing the estimated remaining reserves at the end of the relevant year by the total production of hydrocarbons for that year. As of December 31,
The standardized measure tables presented below relate to proved oil and gas reserves excluding proved reserves scheduled to be produced after the year Estimated future cash inflows from production are computed by applying average prices of oil and gas Future tax expenses are computed by applying the appropriateyear-end statutory tax rates with consideration of the tax rates of the new fiscal regime for Pemex Exploration and Production already legislated for The estimated future payment of taxes was calculated based on fiscal regime applicable by decree to Pemex Exploration and Production effective January 1, 2015 and by the The standardized measure provided below represents a comparative benchmark value rather than an estimate of expected future cash flows or fair market value of PEMEX’s production rights. There are numerous uncertainties inherent in estimating quantities of proved reserves and in projecting future rates of production and timing of development expenditures, including many factors beyond the control of the producer. Accordingly, reserve estimates may be materially different from the quantities of crude oil and natural gas that are ultimately recovered.
Standardized measure of discounted future net cash flows as of December 31
Note: Table amounts may not total due to rounding.
To comply with ASC Topic 932, the following table presents the aggregate standardized measure changes for each of the last three years and significant sources of variance: Changes in standardized measure of discounted future net cash flows
Note: Table amounts may not total due to rounding. In computing the amounts under each factor of change, the effects of variances in prices and costs are computed before the effects of changes in quantities. Consequently, changes in reserves are calculated at December 31 prices and costs. The change in computed taxes includes taxes effectively incurred during the year and the change in future tax expense.
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450,000,000 of