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Mexican Petroleum

Filed: 29 Apr 15, 8:00pm
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 20-F

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

for the fiscal year ended December 31, 2014

Commission File Number 0-99

 

PETRÓLEOS MEXICANOS

(Exact name of registrant as specified in its charter)

 

Mexican Petroleum United Mexican States
(Translation of registrant’s name into English) (Jurisdiction of incorporation or organization)

 

Avenida Marina Nacional No. 329

Colonia Petróleos Mexicanos

11311 México D.F., México

(Address of principal executive offices)

Rolando Galindo Gálvez

(5255) 1944 9700

ri@pemex.com

Avenida Marina Nacional No. 329

Torre Ejecutiva Piso 38 Colonia Petróleos Mexicanos

11311 México D.F., México

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

rand address of company contact person)

 

Securities registered or to be registered pursuant to Section 12(b) of the Act.None

Securities registered or to be registered pursuant to Section 12(g) of the Act.None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

Title of Each Class

9.50% Global Guaranteed Bonds due 2027

9 14% Global Guaranteed Bonds due 2018

8.625% Bonds due 2022

5.75% Guaranteed Notes due 2018

9 14% Guaranteed Bonds due 2018

8.625% Guaranteed Bonds due 2023

9.50% Guaranteed Bonds due 2027

6.625% Guaranteed Bonds due 2035

6.625% Guaranteed Bonds due 2038

8.00% Guaranteed Notes due 2019

6.000% Notes due 2020

5.50% Notes due 2021

6.500% Bonds due 2041

4.875% Notes due 2022

5.50% Bonds due 2044

3.500% Notes due 2018

Floating Rate Notes due 2018

3.500% Notes due 2023

4.875% Notes due 2024

3.125% Notes due 2019

6.375% Bonds due 2045

 

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

Yes¨ 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¨ Nox

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yesx No¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

N/A

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer¨    Accelerated filer¨    Non-accelerated filerx

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 IASBx  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 Rule 12b-2 of the Exchange Act).

Yes¨ Nox

 

 

 


Table of Contents

TABLE OF CONTENTS

 

Item 1.

Identity of Directors, Senior Management and Advisers

 5  

Item 2.

Offer Statistics and Expected Timetable

 5  

Item 3.

Key Information

 5  

Item 4.

Information on the Company

 14  

Item 4A.

Unresolved Staff Comments

 130  

Item 5.

Operating and Financial Review and Prospects

 130  

Item 6.

Directors, Senior Management and Employees

 160  

Item 7.

Major Shareholders and Related Party Transactions

 190  

Item 8.

Financial Information

 191  

Item 9.

The Offer and Listing

 196  

Item 10.

Additional Information

 196  

Item 11.

Quantitative and Qualitative Disclosures About Market Risk

 204  

Item 12.

Description of Securities Other than Equity Securities

 212  

Item 13.

Defaults, Dividend Arrearages and Delinquencies

 213  

Item 14.

Material Modifications to the Rights of Security Holders and Use of Proceeds

 213  

Item 15.

Controls and Procedures

 213  

Item 16A.

Audit Committee Financial Expert

 214  

Item 16B.

Code of Ethics

 214  

Item 16C.

Principal Accountant Fees and Services

 214  

Item 16D.

Exemptions from the Listing Standards for Audit Committees

 215  

Item 16E.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

 216  

Item 16F.

Change in Registrant’s Certifying Accountant

 216  

Item 16G.

Corporate Governance

 216  

Item 16H.

Mine Safety Disclosure

 216  

Item 17.

Financial Statements

 217  

Item 18.

Financial Statements

 217  

Item 19.

Exhibits

 217  

 

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Petróleos Mexicanos and its four subsidiary entities,Pemex-Exploración y Producción (Pemex-Exploration and Production),Pemex-Refinación (Pemex-Refining),Pemex-Gas y Petroquímica Básica (Pemex-Gas and Basic Petrochemicals) andPemex-Petroquímica (Pemex-Petrochemicals, and together with Pemex-Exploration and Production, Pemex-Refining and Pemex-Gas and Basic Petrochemicals, collectively referred to as the existing subsidiary entities), comprise the state oil and gas company of the United Mexican States, which we refer to as Mexico. Petróleos Mexicanos is a productive state-owned company of the Federal Government of Mexico, which we refer to as the Mexican Government, and each of the subsidiary entities is a decentralized public entity of the Mexican Government. Each of Petróleos Mexicanos and the existing subsidiary entities is a legal entity empowered to own property and carry on business in its own name. In addition, a number of subsidiary companies that are defined in Note 1 and listed in Note 3(a) to our consolidated financial statements incorporated in Item 18 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. Petróleos Mexicanos, the subsidiary entities and the subsidiary companies are collectively referred to as “PEMEX” or “we.” As of the date of this report, we are in the process of reorganizing our corporate structure. See “Item 4—Information on the Company—History and Development—Energy Reform” for more details.

References herein to “U.S. $,” “$,” “U.S. dollars” or “dollars” are to United States dollars. References herein to “pesos” or “Ps.” are to the legal currency of Mexico. References herein to ���euros” 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 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 theComisión Nacional Bancaria y de Valores (National Banking and Securities Commission, or the CNBV) for purposes of filing with theBolsa Mexicana de Valores, S.A.B. de C.V. (Mexican Stock Exchange, or the BMV) and with the CNBV, and in accordance with the standards of the Public Company Accounting Oversight Board (United States), or PCAOB, for purposes of filings with the U.S. Securities and Exchange Commission, or 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) 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 Form 20-F, including all convenience translations of our consolidated financial statements included herein, at an exchange rate of Ps. 14.7180 = U.S. $1.00, which is the exchange rate that theSecretaría de Hacienda y Crédito Público (Ministry of Finance and Public Credit, or the SHCP) instructed us to use on December 31, 2014. 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.

 

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SPECIAL NOTE REGARDING MEXICAN ENERGY REFORM

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

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

PRESENTATION OF INFORMATION CONCERNING RESERVES

The proved hydrocarbon reserves included in this report for the year ended December 31, 2014 are those that we have the right to extract and sell based on 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—Energy Reform” for a description of the Round Zero process. The estimates of our proved reserves of crude oil and natural gas for the five years ended December 31, 2014 included in this report have been calculated according to the technical definitions required by the SEC. DeGolyer and MacNaughton, Netherland, Sewell International, S. de R.L. de C.V. (which we refer to as Netherland Sewell) and Ryder Scott Company, L.P. (which we refer to as Ryder Scott) conducted reserves audits of our estimates of our proved hydrocarbon reserves as of December 31, 2014 or January 1, 2015, 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 hydrocarbon reserves in this report is based on estimates, which are uncertain and subject to revisions,” “—We must make significant capital expenditures to maintain our current production levels, and to maintain, as well as increase, our proved hydrocarbon reserves. Reductions in our income, adjustments to our capital expenditures budget and inability to obtain financing may limit our ability to make capital investments” and “—The Mexican nation, not us, owns the hydrocarbon reserves in Mexico located in the subsoil of Mexico and our right to continue to extract these reserves is subject to the approval of the Ministry of Energy.”

FORWARD-LOOKING STATEMENTS

This Form 20-F contains words, such as “believe,” “expect,” “anticipate” and similar expressions that identify forward-looking statements, which reflect our views about future events and financial performance. We have made forward-looking statements that address, among other things, our:

 

  exploration and production activities, including drilling;

 

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  activities relating to import, export, refining, petrochemicals and transportation of petroleum, natural gas and oil products;

 

  projected and targeted capital expenditures and other costs, commitments and revenues; and

 

  liquidity and sources of funding.

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

 

  changes in international crude oil and natural gas prices;

 

  effects on us from competition, including on our ability to hire and retain skilled personnel;

 

  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 the reserves that we obtain successfully;

 

  uncertainties inherent in making estimates of oil and gas reserves, including recently discovered oil and gas reserves;

 

  technical difficulties;

 

  significant developments in the global economy;

 

  significant economic or political developments in Mexico, including developments relating to the implementation of the Secondary Legislation;

 

  developments affecting the energy sector; and

 

  changes in our legal regime or regulatory environment, including tax and environmental regulations.

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

 

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LOGO

 

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PART I

 

Item 1.Identity of Directors, Senior Management and Advisers

Not applicable.

 

Item 2.Offer Statistics and Expected Timetable

Not applicable.

 

Item 3.Key Information

SELECTED FINANCIAL DATA

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

 

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Selected Financial Data of PEMEX

 

 Year ended December 31,(1)(2) 
 2011 2012 2013 2014 2014(3) 
   (in millions of pesos, except ratios) (in millions of
U.S. dollars)
 

Statement of Comprehensive Income Data

Net sales

Ps. 1,558,454  Ps. 1,646,912  Ps. 1,608,205  Ps. 1,586,728  U.S. $ 107,809 

Operating income

 861,311   905,339   727,622   615,480   41,818  

Financing income

 4,198   2,532   8,736   3,014   205  

Financing cost

 (35,154 (46,011 (39,586 (51,559 (3,503

Derivative financial instruments (cost) income—Net

 (1,697 (6,258 1,311   (9,439 (641

Exchange (loss) gain—Net

 (60,143 44,846   (3,951 (76,999 (5,232

Net (loss) income for the period

 (106,942 2,600   (170,058 (265,543 (18,042

Statement of Financial Position Data (end of period)

Cash and cash equivalents

 114,977   119,235   80,746   117,989   8,017  

Total assets

 1,981,374   2,024,183   2,047,390   2,128,368   144,610  

Long-term debt

 672,657   672,618   750,563   997,384   67,766  

Total long-term liabilities

 1,624,752   2,059,445   1,973,446   2,561,930   174,068  

Total equity (deficit)

 103,177   (271,066 (185,247 (767,721 (52,162

Statement of Cash Flows

Depreciation and amortization

 127,380   140,538   148,492   143,075   9,721  

Acquisition of wells, pipelines, properties, plant and equipment(4)

 167,014   197,509   245,628   230,679   15,673  

Other Financial Data

Ratio of earnings to fixed charges(5)(6)

 —     1.01   —     —     —    

 

(1)We have not included selected consolidated financial data as of and for the year ended December 31, 2010, as we began presenting our financial statements in accordance with IFRS for the fiscal year ending December 31, 2012, with an official IFRS “adoption date” of January 1, 2012 and a “transition date” to IFRS of January 1, 2011. Based on such adoption and transition dates, we were not required to prepare financial statements in accordance with IFRS as of and for the year ended December 31, 2010 and therefore are unable to present selected financial data in accordance with IFRS for this period without unreasonable effort and expense.
(2)Includes Petróleos Mexicanos, the subsidiary entities and the subsidiary companies listed in Note 3(a) to our consolidated financial statements included herein.
(3)Translations into U.S. dollars of amounts in pesos have been made at the exchange rate established by the SHCP for accounting purposes of Ps. 14.7180 = U.S. $1.00 at December 31, 2014. Such translations should not be construed as a representation that the peso amounts have been or could be converted into U.S. dollar amounts at the foregoing or any other rate.
(4)Includes capitalized financing cost. See Note 10 to our consolidated financial statements included herein and “Item 5—Operating and Financial Review and Prospects—Liquidity and Capital Resources.”
(5)Earnings, for this purpose, consist of pre-tax income (loss) from continuing operations before income from equity investees, plus fixed charges, minus interest capitalized during the period, plus the amortization of capitalized interest during the period and plus dividends received on equity investments. Pre-tax income (loss) is calculated after the deduction of hydrocarbon duties, but before the deduction of the hydrocarbon income tax and other income taxes. Fixed charges for this purpose consist of the sum of interest expense plus interest capitalized during the period, plus amortization premiums related to indebtedness and plus the estimated interest within rental expense. Fixed charges do not take into account exchange gain or loss attributable to our indebtedness.
(6)Earnings for the years ended December 31, 2011, 2013 and 2014 were insufficient to cover fixed charges. The amount by which fixed charges exceeded earnings was Ps. 106,476 million, Ps. 165,217 million and Ps. 283,640 million for the years ended December 31, 2011, 2013 and 2014, respectively.
Source:PEMEX’s consolidated financial statements, prepared in accordance with IFRS, as it relates to the Selected Statements of Comprehensive Income, Statement of Financial Position and Statement of Cash Flows Data; and Petróleos Mexicanos, as it relates to Other Financial Data.

 

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EXCHANGE RATES

The following table sets forth, for the periods indicated, the high, low, average and period-end exchange rates for the purchase of U.S. dollars, expressed in 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 

2010

 13.194   12.156   12.635   12.383  

2011

 14.254   11.505   12.464   13.951  

2012

 14.365   12.625   13.140   12.964  

2013

 13.433   11.976   12.857   13.098  

2014

 14.794   12.846   13.370   14.750  

November 2014

 13.921   13.536   13.615   13.921  

December 2014

 14.794   13.936   14.520   14.750  

2015

January 2015

 15.005   14.564   14.700   15.005  

February 2015

 15.103   14.748   14.917   14.939  

March 2015

 15.582   14.933   15.237   15.245  

April 2015(2)

 15.428   14.803   15.177   15.383  

 

(1)Average of month-end rates, except for 2014 and 2015 monthly exchange rates.
(2)For the period from April 1, 2015 to April 24, 2015.

Source:Noon buying rate for cable transfers in New York reported by the Federal Reserve.

The noon buying rate for cable transfers in New York reported by the Federal Reserve on April 24, 2015 was Ps. 15.383 = 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 earn less revenue and, therefore, generate lower cash flows and earn less income before taxes and duties because our costs remain roughly constant. Conversely, when crude oil, petroleum product and natural gas prices are high, we earn more revenue and our income before taxes and duties increases. During the first eight months of 2014, the Mexican crude oil export price rose to more than U.S. $100.00 per barrel, and the weighted average price for the year was U.S. $86.00 per barrel. However, beginning in September 2014, crude oil prices experienced a sharp decline, and in December 2014, the weighted average Mexican crude oil export price fell to a low of U.S. $45.45 per barrel. This sharp decline of crude oil prices had a direct effect on our results of operations for the year ended December 31, 2014 and our financial condition as of December 31, 2014, 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. During the first month of 2015, the weighted average Mexican crude oil export price declined further to U.S. $37.36 per barrel. 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 hydrocarbon reserves in this report is based on estimates, which are uncertain and subject to revisions” below in this Item 3 and “Item 11—Quantitative and Qualitative Disclosures about Market Risk—Hydrocarbon Price Risk.”

 

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We are an integrated oil and gas company and are exposed to production, equipment and transportation risks, criminal acts and deliberate acts of terror.

We are subject to several risks that are common among oil and gas companies. These risks include production risks (fluctuations in production due to operational hazards, natural disasters or weather, accidents, etc.), equipment risks (relating to the adequacy and condition of our facilities and equipment) and transportation risks (relating to the condition and vulnerability of pipelines and other modes of transportation). More specifically, our business is subject to the risks of explosions in pipelines, refineries, plants, drilling wells and other facilities, oil spills, hurricanes in the Gulf of Mexico and other natural or geological disasters and accidents, fires and mechanical failures. Criminal attempts to divert our crude oil, natural gas or refined products from our pipeline network and facilities for illegal sale have resulted in explosions, property and environmental damage, injuries and loss of life.

Our facilities are also subject to the risk of sabotage, terrorism and cyber attacks. In July 2007, two of our pipelines were attacked. In September 2007, six different sites were attacked and 12 of our pipelines were affected. The occurrence of these incidents related to the production, processing and transportation of oil and oil products could result in personal injuries, loss of life, environmental damage from the subsequent containment, clean-up and repair expenses, equipment damage and damage to our facilities. A shutdown of the affected facilities could disrupt our production and increase our production costs. As of the date of this report, there have been no similar occurrences since 2007. Although we have established an information security program, which includes cybersecurity systems and procedures to protect our information technology, and have not yet suffered a cyber attack, if the integrity of our information technology were ever compromised due to a cyber attack, our business operations could be disrupted and our proprietary information could be lost or stolen.

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

We have a substantial amount of liabilities that could adversely affect our financial condition and results of operations.

We have a substantial amount of debt. As of December 31, 2014, our total indebtedness, including accrued interest, was approximately U.S. $77.7 billion, in nominal terms, which is a 20.8% increase as compared to our total indebtedness, including accrued interest, of approximately U.S. $64.3 billion at December 31, 2013. Our level of debt may increase further in the short or medium term and may have an adverse effect on our financial condition and results of operations. To service our debt, we have relied and may continue to rely on a combination of cash flows provided by operations, drawdowns under our available credit facilities and the incurrence of additional indebtedness.

Certain rating agencies have expressed concerns regarding the total amount of our debt, our increase in indebtedness over the last several years and our substantial unfunded reserve for retirement pensions and seniority premiums, which as of December 31, 2014 was equal to approximately U.S. $100.2 billion. Though the Secondary Legislation enables the Mexican Government to assume a portion of the pension liabilities of Petróleos Mexicanos and the subsidiary entities, the amount that this portion will represent is dependent on our ability to meet the conditions set forth in the applicable decree, and we cannot provide assurances that we will be able to meet these conditions within the specified time frame. Moreover, we cannot provide assurances that the Mexican Government’s potential assumption of any portion of our unfunded reserve in the future will eliminate the concerns of rating agencies.

Due to our heavy tax burden, we have resorted to debt financing to carry out our capital investment projects. Any lowering of our credit ratings may have adverse consequences on our ability to access the financial markets and/or our cost of financing. If we were unable to obtain financing on favorable terms, this could hamper our ability to obtain further financing as well as hamper investment in projects financed through debt. As a result, we may not be able to make the capital expenditures needed to maintain our current production levels and to maintain, as well as increase, proved hydrocarbon reserves, which may adversely affect our financial condition and results of operations. See “—Risk Factors Related to our Relationship with the Mexican Government—We must make significant capital expenditures to maintain our current production levels, and to maintain, as well as increase, our proved hydrocarbon reserves. Reductions in our income, adjustments to our capital expenditures budget and inability to obtain financing may limit our ability to make capital investments” below in this Item 3.

 

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We are subject to Mexican and international anti-corruption, anti-bribery and anti-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 international anti-corruption, anti-bribery and anti-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 cannot ensure that these compliance policies and processes will prevent intentional, reckless or negligent acts committed by our officers or employees.

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

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

A wide range of general and industry-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 for non-compliance. This regulatory burden increases our costs because it requires us to make significant capital expenditures and limits our ability to extract hydrocarbons, resulting in lower revenues. For an estimate of our accrued environmental liabilities, see “Item 4—Information on the Company—Environmental Regulation—Environmental Liabilities.” In addition, we have agreed with other companies to make investments to reduce our carbon dioxide emissions. See “Item 4—Information on the Company—Environmental Regulation—Global Climate Change and Carbon Dioxide Emissions Reduction.”

Risk Factors Related to Mexico

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

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

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

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

 

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

Economic conditions and government policies in Mexico and elsewhere may have a material impact on our operations.

A deterioration in Mexico’s economic condition, social instability, political unrest or other adverse social developments in Mexico could adversely affect our business and financial condition. These events could also lead to increased volatility in the financial markets, thereby affecting our ability to obtain new financing and service our debt. Additionally, the Mexican Government recently cut spending in response to a downward trend in international crude oil prices, and it may cut spending in the future. See “—Risk Factors Related to our Relationship with the Mexican Government—The Mexican Government controls us and it could limit our ability to satisfy our external debt obligations or could reorganize or transfer us or our assets” below in this Item 3. These cuts could adversely affect the Mexican economy and, consequently, our business, financial condition, operating results and prospects.

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

Changes in Mexico’s exchange control laws may hamper our ability to service our foreign currency debt.

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

Political conditions in Mexico could materially and adversely affect Mexican economic policy and, in turn, our operations.

Political events in Mexico may significantly affect Mexican economic policy and, consequently, our operations. On December 1, 2012, Mr. Enrique Peña Nieto, a member of thePartido Revolucionario Institucional(Institutional Revolutionary Party, or PRI), formally assumed office for a six-year term as the President of Mexico. As of the date of this report, no political party holds a simple majority in either house of the Mexican Congress. On June 7, 2015, federal elections will take place in Mexico to elect 500 federal deputies of the Mexican Congress.

 

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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 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 may have a negative impact on our financial condition and results of operations.

Risk Factors Related to our Relationship with the Mexican Government

The Mexican Government controls us and it could limit our ability to satisfy our external debt obligations or could reorganize or transfer us or our assets.

We are controlled by the Mexican Government and our annual budget, which is approved by theCámara de Diputados (Chamber of Deputies), can be adjusted by the Mexican Government, as described below. Pursuant to the Petróleos Mexicanos Law, Petróleos Mexicanos was transformed from a decentralized public entity to a productive state-owned company on October 7, 2014. The Petróleos Mexicanos Law establishes a special regime governing, among other things, our budget, debt levels and administrative liabilities, which took effect on December 2, 2014, with the exception of certain provisions. This special regime provides Petróleos Mexicanos with additional technical and managerial autonomy, as well as discretion with respect to certain elements of our budget. Notwithstanding this increased autonomy, the Mexican Government still controls us and has the power to adjust our financial balance goal, which represents our targeted net cash flow for the fiscal year based on our projected revenues and expenses, and the ceiling on our annual wage and salary expenditures. The Mexican Government’s authority to adjust our annual budget may compromise our ability to develop our reserves and to successfully compete with other oil and gas companies that enter the Mexican energy sector. See “Item 4—Information on the Company—History and Development—Capital Expenditures and Investments—Capital Expenditures Budget” for more information about our February 2015 budget adjustment and “—General Regulatory Framework” for more information about the Mexican Government’s authority with respect to our budget. In addition, the Mexican Government’s control over us could adversely affect our ability to make payments under any securities issued by Petróleos Mexicanos. Although Petróleos Mexicanos is wholly owned by the Mexican Government, our financing obligations do not constitute obligations of and are not guaranteed by the Mexican Government.

The Mexican Government’s agreements with international creditors may affect our external debt obligations. In certain past debt restructurings of the Mexican Government, Petróleos Mexicanos’ external indebtedness was treated on the same terms as the debt of the Mexican Government and other public sector entities, and it may be treated on similar terms in any future debt restructuring. In addition, Mexico has entered into agreements with official bilateral creditors to reschedule public sector external debt. Mexico has not requested restructuring of bonds or debt owed to multilateral agencies.

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

We make significant payments to the Mexican Government, which may limit our capacity to expand our investment program.

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

 

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

The Mexican Government has imposed price controls in the domestic market on our products.

The Mexican Government has from time to time imposed price controls on the sales of natural gas, liquefied petroleum gas (which we refer to as LPG), gasoline, diesel, gas oil intended for domestic use, fuel oil and other products. When these price controls have been implemented in the past, we have not been able to pass on all of the increases in the prices of our product purchases to our customers in the domestic market. 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 in Mexico located in the subsoil of 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 of Mexico.

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

Access to crude oil and natural gas reserves is essential to an oil and gas company’s sustained production and generation of income, and our ability to generate income would be materially and adversely affected if the Mexican Government were to restrict or prevent us from exploring or extracting any of the crude oil and natural gas reserves that it has assigned to us or if we are unable to compete effectively with other oil and gas companies in future bidding rounds for additional exploration and extraction 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, our proved hydrocarbon reserves. Reductions in our income, adjustments to our capital expenditures budget and inability to obtain financing may limit our ability to make capital investments” below in this Item 3.

Information on hydrocarbon reserves in this report is based on estimates, which are uncertain and subject to revisions.

The information on oil, gas and other reserves set forth in this report is based on estimates. Reserves valuation is a subjective process of estimating 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. See “—Risk Factors Related to Our Operations—Crude oil and natural gas prices are volatile and low crude oil and natural gas prices adversely affect our income and cash flows and the amount of hydrocarbon reserves that we have the right to extract and sell” above in this Item 3. Pemex-Exploration and Production revises annually its estimates of hydrocarbon reserves that it is entitled to extract and sell, which may result in material revisions to these estimates. Our ability to maintain our long-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 our long-term goals for growth in production.

 

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We must make significant capital expenditures to maintain our current production levels, and to maintain, as well as increase, our proved hydrocarbon reserves. Reductions in our income, adjustments to our capital expenditures budget and inability to obtain financing may limit our ability to make capital investments.

Because our ability to maintain, as well as increase, our oil production levels is highly dependent upon our ability to successfully develop existing hydrocarbon reserves and, in the long term, upon our ability to obtain the right to develop additional reserves, we continually invest capital to enhance our hydrocarbon recovery ratio and improve the reliability and productivity of our infrastructure.

Despite these investments, the replacement rate for proved hydrocarbon reserves decreased to 18.0% in 2014, representing a decline in proved hydrocarbon reserves. 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. Pemex-Exploration and Production’s crude oil production decreased by 0.2% from 2011 to 2012, by 1.0% from 2012 to 2013 and by 3.7% from 2013 to 2014, primarily as a result of the decline of production in the Cantarell, ATG, Delta del Grijalva, Crudo Ligero Marino and Ixtal-Manik projects.

Upon the completion of Round Zero in August 2014, the Ministry of Energy granted us the right to continue to explore and develop areas that together contain 95.9% of the estimated proved reserves that we requested. The development of the reserves that were assigned to us, particularly the reserves in the deep waters of the Gulf of Mexico and in shale oil and gas fields in the Burgos basin, will demand significant capital investments and will pose significant operational challenges. Our right to develop the reserves assigned to us through Round Zero is conditioned on our ability to develop such reserves in accordance with our development plans, which were based on our technical, financial and operational capabilities at the time. See “Item 4––History and Development––Energy Reform—Assignment of Exploration and Production Rights.” We cannot provide assurances that we will have or will be able to obtain, in the time frame that we expect, sufficient resources or the technical capacity necessary to explore and extract the reserves that the Mexican Government assigned to us as part of Round Zero, or that it may grant to us in the future. We may also lose the right to continue to extract these reserves if we fail to develop them in accordance with our development plans, which could adversely affect our operating results and financial condition. In addition, increased competition in the oil and gas sector in Mexico may increase the costs of obtaining additional acreage in bidding rounds for the rights to new reserves.

Our ability to make capital expenditures is limited by the substantial payments that we make to the Mexican Government, the ability of the Mexican Government to adjust our annual budget and cyclical decreases in our revenues primarily related to lower oil prices. The availability of financing may limit our ability to make capital investments that are necessary to maintain current production levels and increase our proved hydrocarbon reserves. For more information, see “Item 4—Information on the Company—History and Development—Capital Expenditures and Investments” and “—Energy Reform.”

Increased competition in the Mexican energy sector may have a negative impact on our results of operations and financial conditions.

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

 

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

We are public 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 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 2014 special edition ofExpansión magazine, and according to the November 24, 2014 issue ofPetroleum Intelligence Weekly, we were the eighth largest crude oil producer and the thirteenth largest oil and gas company in the world based on data from the year 2013.

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

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

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

 

  Pemex-Exploration and Production explores for and exploits crude oil and natural gas and transports, stores and markets these hydrocarbons;

 

  Pemex-Refining refines petroleum products and derivatives that may be used as basic industrial raw materials and stores, transports, distributes and markets these products and derivatives;

 

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  Pemex-Gas and Basic Petrochemicals processes natural gas, natural gas liquids, artificial gas and derivatives that may be used as basic industrial raw materials and stores, transports, distributes and markets these products and derivatives and produces, stores, transports, distributes and markets petrochemicals that were classified as “basic” (ethane, propane, butane, pentanes, hexane, heptane, carbon black feedstocks, natural gasoline and methane, when used as raw materials and intended for use in petrochemical industrial processes) prior to the enactment of the Hydrocarbons Law in August 2014; and

 

  Pemex-Petrochemicals engages in industrial petrochemical processes and stores, distributes and markets other petrochemicals.

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

 

  the Petróleos Mexicanos Law, which took effect, with the exception of certain provisions, on October 7, 2014—the day on which Petróleos Mexicanos was transformed into a productive state-owned company—and repeals the Petróleos Mexicanos Law that became effective as of November 29, 2008, which we refer to as the 2008 Petróleos Mexicanos Law; and

 

  the Hydrocarbons Law, which took effect on August 12, 2014 and repeals theLey Reglamentaria del Artículo 27 Constitucional en el Ramo del Petróleo (Regulatory Law to Article 27 of the Mexican Constitution Concerning Petroleum Affairs, which we refer to as the Regulatory Law).

Energy Reform

Energy Reform Decree

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

The key features of the Energy Reform Decree are:

 

  Ownership by Mexican Nation: Solid, liquid and gaseous hydrocarbons located in the subsoil of Mexico remain the property of the Mexican nation.

 

  Initial Assignments through Round Zero: The Ministry of Energy, with technical assistance from theComisión Nacional de Hidrocarburos (National Hydrocarbons Commission, or NHC) determined our initial allocation of rights to continue to carry out exploration and production activities in Mexico based on our technical, financial and operational capabilities to explore for and extract hydrocarbons in an efficient and competitive manner. On March 21, 2014, we submitted to the Ministry of Energy a request that we retain rights that we believed would allow us to maintain our production and provide sufficient exploration opportunities to increase our production in the future. On August 13, 2014, the Ministry of Energy published the results of Round Zero, through which we were assigned rights to 95.9% of the proved reserves that we requested. The Ministry of Energy may assign, on an exceptional basis, additional exploration and production areas to us or other productive state-owned companies created in the future in accordance with the terms set forth in the Hydrocarbons Law. See “—Assignment of Exploration and Production Rights” below in this Item 4.

 

  Booking of Reserves: Productive state-owned companies and other companies participating in the Mexican hydrocarbons industry will be allowed to report assignments or contracts and the corresponding expected benefits for accounting and financial purposes, with the understanding that any solid, liquid or gaseous hydrocarbons that are in the subsoil will remain the property of the Mexican nation.

 

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Secondary Legislation

On August 6, 2014, the Mexican Congress completed the process of approving the Secondary Legislation, which was signed into law by President Enrique Peña Nieto and published in the Official Gazette of the Federation on August 11, 2014. The Secondary Legislation includes nine new laws, of which the following are most relevant to our operations:

 

  Petróleos Mexicanos Law;

 

  Hydrocarbons Law;

 

  Hydrocarbons Revenue Law;

 

  Ley de los Órganos Reguladores Coordinados en Materia Energética (Coordinated Energy Regulatory Bodies Law);

 

  Ley de la Agencia Nacional de Seguridad Industrial y de Protección al Medio Ambiente del Sector Hidrocarburos (National Agency of Industrial Safety and Environmental Protection for the Hydrocarbons Sector Law); and

 

  Ley del Fondo Mexicano del Petróleo para la Estabilización y el Desarrollo (Mexican Petroleum Fund for Stabilization and Development Law).

The Secondary Legislation also includes amendments to several laws, including the following:

 

  Ley Federal de las Entidades Paraestatales (Federal Law of Public Sector Entities);

 

  Ley Federal de Presupuesto y Responsabilidad Hacendaria (Federal Law of Budget and Fiscal Accountability);

 

  Ley General de Deuda Pública (General Law of Public Debt);

 

  Ley Federal de Derechos (Federal Duties Law);

 

  Ley Orgánica de la Administración Pública Federal (Federal Public Administration Organic Law);

 

  Ley de Obras Públicas y Servicios Relacionados con las Mismas (Law of Public Works and Related Services); and

 

  Ley de Adquisiciones, Arrendamientos y Servicios del Sector Público (Law of Acquisitions, Leases and Services of the Public Sector).

On October 31, 2014, the regulations relating to the Secondary Legislation, including theReglamento de la Ley de Petróleos Mexicanos(Regulations to the Petróleos Mexicanos Law), were published in the Official Gazette of the Federation. Subsequent modifications to the Regulations to the Petróleos Mexicanos Law took effect on February 9, 2015.

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

 

  Transformation: Petróleos Mexicanos was transformed into a productive state-owned company on October 7, 2014—the day on which the 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.

 

  Special Regime: On December 2, 2014, upon its determination that the new Board of Directors of Petróleos Mexicanos was performing its duties and the mechanisms for our oversight, transparency and accountability had been implemented, the Ministry of Energy formally announced in the Official Gazette of the Federation that the special regime provided for in the Petróleos Mexicanos Law, which governs Petróleos Mexicanos’ activities relating to productive state-owned subsidiaries, affiliates, compensation, assets, administrative liabilities, budget, debt levels and the state dividend, had taken effect. As of the date of this report, the provisions relating to acquisitions, leases, services and public works have not yet become effective.

 

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

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

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

 

  Pemex Drilling and Services: This entity is expected to subsume certain assets of the existing Pemex-Exploration and Production and will perform drilling services.

 

  Pemex Logistics: This entity will provide land, maritime and pipeline transportation to us and other companies.

 

  Pemex Cogeneration and Services: This entity will aim to maximize energy use in our operations by utilizing the heat and steam generated in our industrial processes.

 

  Pemex Fertilizers: This entity is expected to subsume certain assets of Pemex-Petrochemicals and will integrate the ammonia production chain up to the point of sale of fertilizers.

 

  Pemex Ethylene: This entity will separate the ethylene business from Pemex-Petrochemicals in order to take advantage of the integration of the ethylene production chain.

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

 

  Third-Party Participation and Contractual Regime: Together, the Hydrocarbons Law and the Hydrocarbons Revenue Law establish a new legal framework for the exploration and extraction of hydrocarbons through assignments and contracts, as well as the new fiscal regime through which the Mexican Government will collect revenues from participants in the Mexican hydrocarbons industry. The Hydrocarbons Law empowers the Ministry of Energy to determine the appropriate contract model for each area that is subject to a competitive bidding process, while the SHCP is responsible for determining the economic and fiscal terms of each contract. The following arrangements comprise the new contractual regime established by the Secondary Legislation for upstream activities:

 

  licenses, pursuant to which a license holder is entitled to the hydrocarbons that are extracted from the subsoil;

 

  production-sharing contracts, pursuant to which 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 profit from the sale of the extracted hydrocarbons; and

 

  service contracts, pursuant to which a contractor would receive cash payments for services performed (service contracts, together with licenses, production-sharing contracts and profit-sharing contracts are known as the contracts for the exploration and extraction of hydrocarbons, collectively referred to as contracts for exploration and extraction).

 

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

For midstream and downstream activities, including oil refining and natural gas processing, the Hydrocarbons Law establishes a permit regime that is 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.

 

  Pipeline System: Effective August 29, 2014, CENAGAS, a decentralized public entity of the Mexican Government, was created to act as the independent administrator of theSistema de Transporte y Almacenamiento Nacional Integrado de Gas Natural (National System for the Integrated Transportation and Storage of Natural Gas, which we refer to as to the Integrated Natural Gas System), an interconnected system comprising the national gas pipeline system and storage facilities, as well as the compression, liquefaction, decompression, regasification and other related infrastructure owned by CENAGAS or other companies participating in the system. Pursuant to the Hydrocarbons Law, Pemex-Gas and Basic Petrochemicals is required to transfer to CENAGAS the assets and contracts necessary for CENAGAS to manage the Integrated Natural Gas System. The aggregate amount of assets and contracts to be transferred to CENAGAS were valued at approximately Ps. 34.0 billion as of December 31, 2014. As of the date of this report, no transfers have yet been made.

 

  Regulatory Oversight and Authority: The Federal Public Administration Organic Law, which was amended in connection with the Secondary Legislation, now grants the Ministry of Energy additional authority in connection with oil and gas activities conducted in Mexico. In addition, the Coordinated Energy Regulatory Bodies Law, which was enacted as part of the Secondary Legislation, establishes the technical and administrative authority of the NHC and the Energy Regulatory Commission over certain of our operations and the energy sector generally. The authority of these bodies is described further below.

 

  The Ministry of Energy, with the technical assistance of the NHC, has the authority to grant assignments to us or other productive state-owned companies created in the future, select the oil and gas areas that will be subject to public bidding, establish the technical guidelines for bidding processes, as well as for the contracts themselves, and issue permits for oil refining, natural gas processing and the import and export of crude oil, natural gas and petroleum products.

 

  The NHC is responsible for conducting the public bidding process and executing the corresponding contracts, as well as supervising oil and gas production activities. In addition, the SHCP is entrusted with establishing the economic terms for contracts assigned pursuant to the public bidding process.

 

  The Energy Regulatory Commission may grant and regulate permits for the storage, transportation and distribution through pipelines of oil, gas, petroleum products and petrochemicals, regulate third-party access to transportation pipelines, as well as to the storage of hydrocarbons and their derivatives; and regulate the first-hand sale of the aforementioned products.

 

  The NHC and the Energy Regulatory Commission have been vested with their own legal status and technical and administrative autonomy.

 

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  Safety and the Environment: TheAgencia Nacional de Seguridad Industrial y de Protección al Medio Ambiente del Sector Hidrocarburos (National Agency of Industrial Safety and Environmental Protection for the Hydrocarbons Sector) was created to regulate and supervise activities and facilities in the hydrocarbons industry related to industrial safety and environmental protection. This agency operates as an administrative body of theSecretaría de Medio Ambiente y Recursos Naturales (Ministry of the Environment and Natural Resources or SEMARNAT) with technical and administrative autonomy and, among other things, supervises the decommissioning and abandonment of facilities. Relatedly, all companies participating in the hydrocarbons sector will be subject to regulations issued by this agency, including safety standards and limits on greenhouse gas emissions. This agency began its activities on March 2, 2015.

 

  Mexican Oil Fund: Pursuant to the Mexican Petroleum Fund for Stabilization and Development Law, theFondo Mexicano del Petróleo para la Estabilización y el Desarrollo(Mexican Petroleum Fund for Stabilization and Development) was created as a federal public trust and began operating on January 1, 2015. The fund is entrusted with receiving, administering and distributing the income that the Mexican Government derives from exploration and extraction activities carried out under assignments or agreements, excluding any tax revenues generated as a result of these activities. This public trust will first use the income to make the payments required pursuant to the various assignments or agreements; it will then transfer part of the income to various funds that finance public expenses and will allocate the remaining funds to long-term savings, including investments in financial assets. TheBanco de México (the Mexican central bank) is the trustee of the fund, and the allocation of the fund’s assets is supervised by a technical committee composed of the Secretary of Energy, the Secretary of Finance and Public Credit, the Governor ofBanco de México and four independent members.

 

  Anticorruption: The Secondary Legislation, including the Hydrocarbons Law, includes provisions aimed at preventing and sanctioning corruption through the supervision and, if necessary, investigation and prosecution of entities, individuals and public officials participating in the Mexican energy sector.

 

  Pension Liabilities: As of December 31, 2014, our unfunded reserve for retirement pensions and seniority premiums was equal to approximately U.S. $100.2 billion. The Secondary Legislation enables the Mexican Government to assume a portion of this unfunded reserve as of August 12, 2014 (as recorded in our financial statements based on actuarial computations using the relevant information as of that date) if certain conditions, including those set forth below, are met by August 12, 2015:

 

  offering our new employees individualized defined contribution plans through theSistema de Ahorro para el Retiro (Retirement Saving System) in Mexico;

 

  gradually adjusting the parameters of our retirement plans, including an increase in the retirement age; and

 

  the audit of our pension liabilities by theAuditoría Superior de la Federación (Superior Audit Office of the Federation).

In order to meet these conditions, we must renegotiate the collective bargaining agreement between Petróleos Mexicanos and theSindicato de Trabajadores Petroleros de la República Mexicana (Petroleum Workers’ Union), modify theReglamento de Trabajo del Personal de Confianza de Petróleos Mexicanos y Organismos Subsidiarios(Employment Regulation for White Collar Employees of Petróleos Mexicanos and Subsidiary Entities) and implement an austerity program. The actual amount of our pension liabilities that this portion will represent has not yet been determined as of the date of this report.

Assignment of Exploration and Production Rights

The Ministry of Energy, with technical assistance from the NHC, evaluated our request to be assigned oil and gas exploration and extraction 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 pursuant to 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 us or other productive state-owned companies created in the future.

 

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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 extraction 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. The SHCP is responsible for establishing the fiscal terms of the contract for exploration and extraction to be migrated. If, in connection with the migration of an assignment, we decide to enter into a 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. Pursuant to the Hydrocarbons Law, 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.

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 extraction upon agreement by the contract parties to the technical terms determined by the Ministry of Energy (in accordance with our favorable opinion) and the fiscal terms determined by the SHCP. Upon approval by the contract parties, the existing Integrated E&P Contract or FPWC will be replaced by the new contract for exploration and extraction without the need for a bidding process. If the contract parties do not agree to the proposed technical and fiscal terms, the original Integrated E&P Contract or FPWC will remain valid and unmodified. During 2015, we plan to migrate each of the Integrated E&P Contracts corresponding to the (i) Santuario and Magallanes fields in the Southern region of Mexico, (ii) the Altamira, Pánuco, San Andrés, Tierra Blanca, Ébano, Nejo and Arenque fields in the Northern region of Mexico, (iii) the Soledad, Amatitlán, Humapa, Pitepec, Miquetla and Miahuapan fields in the Chicontepec basin and (iv) the Carrizo field in the Samaria business unit into a contract for exploration and extraction. Similarly, we expect to migrate each of the FPWCs corresponding to the Olmos, Pirineo, Misión Cuervito, Fronterizo and Monclova fields of the Burgos business unit in the Northern region into a contract for exploration and extraction. As of the date of this report, none of the Integrated E&P Contracts or FPWCs has yet been migrated. 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.

 

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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 Ministry of Energy will also conduct 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 the short term, we have identified ten opportunities for joint ventures with other companies. The selected areas were identified on the basis of their technical complexity, capital requirements and other strategic considerations. We hope that these strategic partnerships will help us increase production levels, accelerate field development, gain access to new technologies and best practices in the industry and reduce our capital commitments. The following table sets forth, by field type, the areas that we plan to explore and develop through strategic partnerships:

 

Type

Area

Mature onshore fields

Rodador

Ogarrio

Cárdenas–Mora

Samaria

Mature offshore fields

Bolontikú

Sinán

Ek

Heavy crude oil offshore fields

Ayatsil

Tekel

Utsil

Large natural gas deepwater fields

Kunah

Piklis

Área Perdido deepwater fields

Trión

Exploratus

Maximino

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 extraction 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—New Fiscal Regime” below in this Item 4.

 

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Capital Expenditures and Investments

The following table shows our capital expenditures, excluding maintenance, for each of the five years ended December 31, 2014, and the budget for these expenditures for 2015 and 2016. Capital expenditure amounts are derived from our budgetary records, which record these amounts 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.

Capital Expenditures

 

 Year ended December 31,(1) Budget
2015(2)
 Budget
2016
 
 2010 2011 2012 2013 2014 
 (in millions of pesos)(3) 

Pemex-Exploration and Production

Ps.194,838  Ps.177,059  Ps.193,801  Ps.212,556  Ps.222,069  Ps.182,633  Ps.190,933  

Pemex-Refining

 22,636   25,157   28,944   29,794   39,767   41,936   42,870  

Pemex-Gas and Basic Petrochemicals

 3,887   3,019   4,468   5,405   7,549   6,825   4,421  

Pemex-Petrochemicals

 2,462   2,426   2,892   4,003   4,765   3,976   4,637  

Petróleos Mexicanos

 206   717   943   1,707   3,006   1,842   1,740  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total capital expenditures

Ps. 224,029  Ps. 208,378  Ps. 231,048  Ps. 253,465  Ps. 277,156  Ps. 237,212  Ps. 244,601  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

 

Note: Numbers may not total due to rounding.

(1)Does not include capitalized interest for the years 2010, 2011, 2012, 2013, 2014, 2015 or 2016.
(2)Amended budget, as approved by the Board of Directors of Petróleos Mexicanos on February 13, 2015.
(3)Figures for 2010, 2011, 2012, 2013 and 2014 are stated in nominal pesos. Figures for 2015 and 2016 are stated in constant 2015 pesos.

Source: Petróleos Mexicanos.

 

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Total Capital Expenditures

The following table sets forth our total capital expenditures by project, excluding maintenance, for the five years ended December 31, 2014, as well as the budget for such expenditures for 2015.

Capital Expenditures

 

 Year ended December 31,(1)(2)   
 2010 2011 2012 2013 2014 Budget 2015(3) 
 (in millions of pesos)(4) 

Pemex-Exploration and Production

Ku-Maloob-Zaap

Ps.18,350  Ps.21,554  Ps.22,720  Ps.29,738  Ps.34,232  Ps.28,737  

Tsimin-Xux(5)

 —     —     —     13,312   19,638   14,946  

Aceite Terciario del Golfo

 28,262   21,919   20,864   20,049   18,943   4,620  

Cantarell(6)

 38,437   36,303   42,139   28,171   18,276   18,432  

Crudo Ligero Marino(5)(7)

 —     —     —     10,000   12,829   8,498  

Burgos

 29,704   19,564   17,324   10,316   11,695   6,830  

Chuc(8)

 2,619   3,730   7,870   9,897   10,618   11,637  

Antonio J. Bermúdez(6)(9)

 9,853   11,218   13,126   11,489   8,840   7,322  

Ogarrio-Sánchez Magallanes(9)

 —     —     —     6,693   7,020   5,148  

Lakach

 1,032   128   194   1,829   6,141   3,136  

Delta del Grijalva

 5,904   6,501   5,671   6,169   5,348   5,870  

Ek-Balam

 2,766   725   1,023   2,549   5,304   3,029  

Integral Yaxché

 3,963   1,986   2,485   3,858   4,695   6,595  

Veracruz Basin(5)

 —     —     —     3,703   4,262   2,962  

El Golpe-Puerto Ceiba

 847   1,274   2,691   3,708   4,148   3,758  

Cactus-Sitio Grande(5)(10)

 1,384   1,995   2,544   4,208   3,928   2,500  

Bellota-Chinchorro(11)

 5,518   4,912   3,101   3,607   3,739   5,474  

Ixtal-Manik(5)

 —     —     —     1,631   1,815   1,909  

Integral Poza Rica

 2,936   4,687   4,948   1,721   1,695   1,313  

Jujo-Tecominoacán(6)

 6,584   3,658   3,555   3,336   1,680   1,380  

Tamaulipas-Constituciones

 1,967   3,800   3,313   2,736   1,205   1,273  

Costero Terrestre(5)

 —     —     —     516   1,110   457  

Cuenca de Macuspana(5)

 —     —     —     614   874   852  

Ayín-Alux

 1,212   591   56   34   789   976  

Arenque(6)

 1,155   1,159   1,241   1,696   708   339  

Lankahuasa(5)

 —     —     —     37   33   86  

Strategic Gas Program(6)(5)

 27,944   27,790   29,870   1,394   —     —    

Och-Uech-Kax(7)

 1,160   1,084   964   80   —     —    

Carmito-Artesa(10)

 452   319   611   30   —     —    

Caan(8)

 1,112   658   1,093   27   —     —    

Cárdenas(11)

 1,062   226   4   —     —     —    

Other Exploratory Projects(6)(12)(13)

 —     —     4,208   28,070   31,403   31,500  

Other Development Projects

 —     —     —     —     21   58  

Administrative and Technical Support

 613   1,280   2,188   1,338   1,078   2,996  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

 194,838   177,059   193,801   212,556   222,069   182,633  

Pemex-Refining

Fuel Quality Investments

 3,313   6,571   6,558   2,801   7,814   11,418  

Residual Conversion from Salamanca Refinery

 64   78   155   909   1,310   1,743  

Reconfiguration of Miguel Hidalgo Refinery in Tula

 —     —     —     —     1,077   3,546  

New Refinery in Tula

 139   60   446   5,204   468   —    

Tuxpan Pipeline and Storage and Distribution Terminals

 823   770   597   255   275   152  

Minatitlán Refinery Reconfiguration

 4,633   2,850   5,366   —     —     —    

Others

 13,664   14,827   15,822   20,625   28,823   25,077  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

 22,636   25,157   28,944   29,794   39,767   41,936  

Pemex-Gas and Basic Petrochemicals

Adaptation of Fractionation Plants and Conversion of the Liquids Sweetener at Nuevo Pemex GPC

 —     —     8   53   880   533  

Refurbishment, Modification and Modernization of Nationwide Pumping and Compression Stations

 39   47   134   255   596   152  

 

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 Year ended December 31,(1)(2)   
 2010 2011 2012 2013 2014 Budget 2015(3) 

Preservation of Processing Capacity at Nuevo Pemex GPC

 280   228   268   237   504   201  

Conditioning of Facilities for Ethane Supply at Cactus GPC

 —     —     —     105   313   357  

Conservation and Modernization of the Storage Area at Coatzacoalcos Area GPC

 6   —     20   71   286   223  

Modernization of Areas of Transportation Products of GPCs

 —     —     —     155   252   646  

Integral Project of Electric Reliability at GPCs

 —     —     —     —     240   332  

Integral Maintenance of Pipeline Systems for Natural Gas and LPG Stage II

 —     —     —     —     209   254  

Modernization of Measuring, Control and Security Systems of GPCs

 —     —     284   273   187   577  

Integral Maintenance of Pipeline Systems for Ethane, Basic Petrochemicals and Secondary Petrochemicals

 —     —     —     13   176   192  

Cryogenic Plant at Poza Rica GPC

 1,767   1,103   801   498   132   —    

Modernization and Rehabilitation of Facilities of the Supply and Water Treatment System at Nuevo Pemex GPC

 10   —     29   47   117   379  

Rehabilitation of Fire Protection Network at GPCs

 162   125   156   545   82   —    

Modernization of Systems for Monitoring, Control and Supervision of Transportation by Pipeline

 —     24   79   36   49   —    

Conservation of Operational Reliability at Poza Rica GPC

 166   92   126   56   40   —    

Integral Maintenance of Cryogenic Plant No. 1 at Nuevo Pemex GPC

 —     —     —     —     30   42  

Integral Maintenance of Gas Sweetening Plants 1, 2, 3 and 12 at Cactus GPC

 —     —     —     —     30   71  

Refurbishment and Modernization of Natural Gas Turbocompressors of the Cryogenic Plants at Nuevo Pemex GPC

 —     —     —     —     27   223  

Operational Reliability of the Pipeline Division Assets

 —     —     —     —     12   61  

Refurbishment and Modernization of the Processing Systems and Equipment of La Venta GPC

 —     —     —     —     12   7  

Project of Rehabilitation and Integration of Burners Venting System at Ciudad Pemex GPC

 205   31   60   120   9   —    

Petrochemical Pipelines via Agave 2004

 2   —     —     —     —     —    

Infrastructure for Transportation of Petrochemical Products from Nuevo Pemex-Cactus to Coatzacoalcos

 2   —     —     —     —     —    

Integrity Management of the Risk-Based Pipeline in the Northern Zone

 —     —     —     —     —     161  

Technological Upgrade of Control Systems for Liquefied Gas Terminals

 —     —     —     —     —     140  

Modernization of Systems for Monitoring, Control and Supervision of Transportation by Pipeline Stage II

 —     —     —     —     —     89  

 

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 Year ended December 31,(1)(2)   
 2010 2011 2012 2013 2014 Budget 2015(3) 

Integral Modernization of Measuring Stations

 —     —     —     —     —     6  

Others

 1,248   1,369   2,845   3,490   3,363   2,178  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

 3,887   3,019   4,468   5,405   7,549   6,825  

Pemex-Petrochemicals

Modernization and Expansion of Production Capacity of Aromatics Train I at Cangrejera PC

 1,354   941   777   495   539   24  

Rehabilitation of Ammonia Plant IV and Integration and Auxiliary Services for Cosoleacaque PC

 —     —     —     40   480   786  

Modernization of Fire Protection Network at Cangrejera PC

 —     —     —     11   205   284  

Infrastructure for Maintenance and Industrial Services Areas

 —     —     —     24   173   251  

Conditioning Infrastructure for Storage Areas to Maintain Production at Cangrejera PC

 —     8   20   98   162   98  

Efficiency in Storage and Distribution I

 6   82   82   221   142   242  

Maintaining Production Capacity of Ethane Derivatives Chain II at Morelos PC

 224   78   125   163   136   84  

Modernization and Optimization of Infrastructure and Auxiliary Services I

 26   30   8   13   120   341  

Modernization and Expansion of Production Capacity of Ethane Derivatives Chain I at Morelos PC

 56   86   5   208   116   208  

Maintaining Production Capacity of Auxiliary Services II

 2   2   1   94   114   314  

Maintaining Production Capacity of Auxiliary Services III at Cangrejera PC

 42   17   7   50   113   93  

Rehabilitation of Facilities for Physical Security at Morelos PC

 6   1   73   51   98   46  

Maintaining Production Capacity of Ethane Derivatives Chain IV at Morelos PC

 4   78   206   288   89   38  

Maintaining Production Capacity of Ethane Derivatives Chain II at Cangrejera PC

 3   50   65   98   69   8  

Maintaining Production Capacity of Ethane Derivatives Chain III at Morelos PC

 —     14   2   49   52   52  

Maintaining Production Capacity of Ethylene Plant at Cangrejera PC

 —     —     20   375   49   14  

Safety and Environmental Protection Based on Observations and Regulations IV at Morelos PC

 16   14   1   19   28   101  

Modernization and Optimization of Auxiliary Services Infrastructure I at Morelos PC

 57   45   —     85   11   22  

Maintaining Production Capacity, Storage and Distribution of Ammonia at Cosoleacaque PC

 —     110   441   65   7   6  

Cogeneration Plant in Auxiliary Services at Morelos PC

 —     —     —     13   6   3  

Cogeneration Plant in Auxiliary Services at Cangrejera PC

 —     —     —     16   5   3  

Maintaining Production Capacity of Aromatics Train II at Cangrejera PC

 53   30   29   16   1   —    

Maintaining Production Capacity of Auxiliary Services Infrastructure I at Pajaritos PC

 7   41   125   64   —     —    

 

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 Year ended December 31,(1)(2)   
 2010 2011 2012 2013 2014 Budget 2015(3) 

Others

 606   799   905   1,447   2,050   958  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

 2,462   2,426   2,892   4,003   4,765   3,976  

Petróleos Mexicanos

Total

 206   717   943   1,707   3,006   1,842  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total capital expenditures

Ps. 224,029  Ps. 208,378  Ps. 231,048  Ps. 253,465  Ps. 277,156  Ps. 237,212  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

Notes:Numbers may not total due to rounding.
    GPC = Gas Processing Complex.
    PC = Petrochemical Complex.
(1)Amounts based on cash basis method of accounting.
(2)Does not include capitalized interest for the years 2010, 2011, 2012, 2013, 2014 or 2015.
(3)Amended budget, as approved by the Board of Directors of Petróleos Mexicanos on February 13, 2015.
(4)Figures for 2010, 2011, 2012, 2013 and 2014 are stated in nominal pesos. Figures for 2015 are stated in constant 2015 pesos.
(5)As of January 1, 2013, the Veracruz Basin, Lankahuasa, Costero Terrestre, Crudo Ligero Marino, Ixtal-Manik, Cuenca de Macuspana and Tsimin-Xux projects (projects formerly supported by the Strategic Gas Program project resources) were designated as separate projects and funds were allocated to them as stand-alone projects and the San Manuel project (a project formerly supported by the Strategic Gas Program project resources) was separated from the Strategic Gas Program and was merged into the Cactus-Sitio Grande project.
(6)As of January 1, 2013, the Antonio J. Bermúdez, Arenque, Cantarell, Jujo-Tecominoacán and Strategic Gas Program exploratory projects, which formerly constituted an exploratory component, were designated as separate projects and funds were allocated to them as stand-alone projects.
(7)As of January 1, 2013, the Och-Uech-Kax project was merged into the Crudo Ligero Marino project.
(8)As of January 1, 2013, the Caan project was merged into the Chuc project.
(9)As of January 1, 2013, the Ogarrio-Sánchez Magallanes project was separated from the Antonio J. Bermúdez project.
(10)As of January 1, 2013, the Carmito Artesa project was merged into the Cactus-Sitio Grande project.
(11)As of January 1, 2012, the Cárdenas project was merged into the Bellota-Chinchorro project.
(12)As of January 1, 2012, the Campeche Oriente exploratory project (a project formerly supported by Ku-Maloob-Zaap project resources) and the Comalcalco exploratory project (a project formerly supported by Bellota-Chinchorro project resources) were designated as separate projects and funds were allocated to them as stand-alone projects.
(13)As of January 1, 2013, the Alosa, Chalabil, Cuichapa, Han, Holok, Lebranche, Oyamel, Pakal, Área Perdido, Tlancanán and Uchukil exploratory projects were designated as separate projects and funds were allocated to them as stand-alone projects.

Source: Petróleos Mexicanos.

 

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Capital Expenditures Budget

The following table sets forth our approved capital expenditures budget for 2015 and estimates for the years 2016 through 2018. These figures are subject to change in accordance with our future investment plans and the provisions of subsequent budgetary approvals.

Approved Capital Expenditures Budget

 

 Year ended December 31,(1) 
 2015(2) 2016 2017 2018 
 (in millions of constant 2015 pesos) 

Pemex-Exploration and Production

Ku-Maloob-Zaap

Ps.28,737  Ps.21,009  Ps.24,409  Ps.18,217  

Cantarell

 18,432   17,256   25,678   26,709  

Tsimin-Xux(3)(4)

 14,946   8,802   9,446   14,889  

Chuc

 11,637   7,610   12,454   10,521  

Crudo Ligero Marino(3)(4)

 8,498   14,952   11,460   9,878  

Antonio J. Bermúdez(5)

 7,322   6,127   9,751   5,943  

Burgos

 6,830   6,298   5,866   5,375  

Integral Yaxché

 6,595   8,374   6,351   9,548  

Delta del Grijalva

 5,870   7,598   1,886   2,345  

Bellota Chinchorro

 5,474   4,471   4,162   4,607  

Ogarrio-Sánchez Magallanes(5)

 5,148   4,550   6,054   1,222  

Aceite Terciario del Golfo

 4,620   9,952   9,344   10,539  

El Golpe-Puerto Ceiba

 3,758   2,957   1,268   1,213  

Lakach

 3,136   8,006   3,707   —    

Ek-Balam

 3,029   6,370   6,142   4,565  

Veracruz Basin(3)(4)

 2,962   2,417   1,819   2,021  

Cactus-Sitio Grande(3)

 2,500   1,683   1,406   600  

Ixtal-Manik(3)(4)

 1,909   1,186   2,460   6,105  

Jujo-Tecominoacán

 1,380   2,513   1,931   1,734  

Integral Poza Rica

 1,313   2,055   1,746   1,355  

Tamaulipas-Constituciones

 1,273   2,490   1,759   1,636  

Ayín-Alux

 976   436   2,364   1,337  

Cuenca de Macuspana(3)(4)

 852   207   36   37  

Costero Terrestre(3)(4)

 457   698   440   96  

Arenque

 339   3,469   2,042   1,568  

Lankahuasa(3)(4)

 86   —     —     1,004  

Other Exploratory Projects(6)

 31,500   36,994   52,139   72,007  

Other Development Projects

 58   372   —     272  

Administrative and Technical Support

 2,996   2,082   1,933   1,199  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

 182,633   190,933   208,051   216,543  

Pemex-Refining

Fuel Quality Investments

 11,418   10,701   15,891   24,075  

Reconfiguration of Miguel Hidalgo Refinery in Tula

 3,546   993   1,117   629  

Residual Conversion from Salamanca Refinery

 1,743   135   185   493  

Tuxpan Pipeline and Storage and Distribution Terminals

 152   —     —     —    

Others

 25,077   31,040   25,907   13,047  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

 41,936   42,870   43,100   38,244  

Pemex-Gas and Basic Petrochemicals

Modernization of Areas of Transportation Products of GPCs

 646   233   652   141  

Modernization of Measuring, Control and Security Systems of GPCs

 577   430   —     —    

Adaptation of Fractionation Plants and Conversion of the Liquids Sweetener at Nuevo Pemex GPC

 533   50   4   288  

Modernization and Rehabilitation of Facilities of the Supply and Water Treatment System at Nuevo Pemex GPC

 379   231   —     —    

Conditioning of Facilities for Ethane Supply at Cactus GPC

 357   —     —     —    

Integral Project of Electric Reliability at GPCs

 332   208   —     —    

Integral Maintenance of Pipeline Systems for Natural Gas and LPG Stage II

 254   346   246   205  

Conservation and Modernization of the Storage Area at Coatzacoalcos Area GPC

 223   341   297   —    

Refurbishment and Modernization of Natural Gas Turbocompressors of the Cryogenic Plants at Nuevo Pemex GPC

 223   —     —     —    

Preservation of Processing Capacity at Nuevo Pemex GPC

 201   3   34   —    

Integral Maintenance of Pipeline Systems for Ethane, Basic Petrochemicals and Secondary Petrochemicals

 192   258   193   —    

Integrity Management of the Risk-Based Pipeline in the Northern Zone

 161   246   173   1  

Refurbishment, Modification and Modernization of Nationwide Pumping and Compression Stations

 152   —     —     —    

  Technological Upgrade of Control Systems for Liquefied Gas Terminals

 140   69   —     —    

 

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 Year ended December 31,(1) 
 2015(2) 2016 2017 2018 
 (in millions of constant 2015 pesos) 

Modernization of Systems for Monitoring, Control and Supervision of Transportation by Pipeline Stage II

 89   —     —     —    

Integral Maintenance of Gas Sweetening Plants 1, 2, 3 and 12 at Cactus GPC

 71   212   106   106  

Integral Maintenance of Cryogenic Plant No. 1 at Nuevo Pemex GPC

 42   5   2   34  

Operational Reliability of the Pipeline Division Assets

 61   —     —     —    

Refurbishment and Modernization of the Processing Systems and Equipment of La Venta GPC

 7   —     —     —    

Integral Modernization of Measuring Stations

 6   —     —     —    

Others

 2,178   1,789   1,638   1,234  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

 6,825   4,421   3,344   2,009  

Pemex-Petrochemicals

Rehabilitation of Ammonia Plant IV and Integration and Auxiliary Services for Cosoleacaque PC

 786   —     —     —    

Modernization and Optimization of Infrastructure and Auxiliary Services I

 341   —     —     161  

Maintaining Production Capacity of Auxiliary Services II

 314   —     57   103  

Modernization of Fire Protection Network at Cangrejera PC

 284   —     —     131  

Infrastructure for Maintenance and Industrial Services Areas

 251   —     —     —    

Efficiency in Storage and Distribution I

 242   —     —     —    

Modernization and Expansion of Production Capacity of Ethane Derivatives Chain I at Morelos PC

 208   2,015   537   —    

Safety and Environmental Protection Based on Observations and Regulations IV at Morelos PC

 101   —     54   62  

Conditioning Infrastructure for Storage Areas to Maintain Production at Cangrejera PC

 98   —     22   —    

Maintaining Production Capacity of Auxiliary Services III at Cangrejera PC

 93   —     145   207  

Maintaining Production Capacity of Ethane Derivatives Chain II at Morelos PC

 84   —     78   235  

Maintaining Production Capacity of Ethane Derivatives Chain III at Morelos PC

 52   —     —     —    

Refurbishing of Facilities for Physical Security at Morelos PC

 46   —     —     —    

Maintaining Production Capacity of Ethane Derivatives Chain IV at Morelos PC

 38   —     —     —    

Modernization and Expansion of Production Capacity of the Aromatics Train I at Cangrejera PC

 24   232   149   1,473  

Modernization and Optimization of Auxiliary Services Infrastructure I at Morelos PC

 22   —     —     —    

Maintaining Production Capacity of Ethylene Plant at Cangrejera PC

 14   —     —     —    

Maintaining Production Capacity of Ethane Derivatives Chain II at Cangrejera PC

 8   —     —     —    

Maintaining Production Capacity, Storage and Distribution of Ammonia at the Cosoleacaque PC

 6   —     —     —    

Cogeneration Plant in Auxiliary Services at Morelos PC

 3   —     —     —    

Cogeneration Plant in Auxiliary Services at Cangrejera PC

 3   —     —     —    

Others

 958   2,390   2,132   2,399  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

 3,976   4,637   3,176   4,771  

Petróleos Mexicanos

Total

 1,842   1,740   1,509   1,500  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Capital Expenditures Budget

 237,212   244,601   259,180   263,067  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

Notes:Numbers may not total due to rounding.
    GPC = Gas Processing Complex.
    PC = Petrochemical Complex.
(1)Amounts based on cash basis method of accounting.
(2)Amended budget, as approved by the Board of Directors of Petróleos Mexicanos on February 13, 2015.
(3)As of January 1, 2013, the Veracruz, Lankahuasa, Costero Terrestre, Crudo Ligero Marino, Ixtal-Manik, Cuenca de Macuspana and Tsimin-Xux projects (projects formerly supported by the Strategic Gas Program project resources) were designated as separate projects and funds were allocated to them as stand-alone projects and the San Manuel project (a project formerly supported by the Strategic Gas Program project resources) was separated from the Strategic Gas Program and was merged into the Cactus-Sitio Grande project.
(4)As of January 1, 2013, the Veracruz Basin, Lankahuasa, Costero Terrestre, Crudo Ligero Marino, Ixtal-Manik, Cuenca de Macuspana, Tsimin-Xux and San Manuel projects were separated from the Strategic Gas Program.
(5)As of January 1, 2013, the Ogarrio-Sánchez Magallanes project was designated as a separate project from the Antonio J. Bermúdez project.
(6)As of January 1, 2013, the Alosa, Chalabil, Cuichapa, Han, Holok, Lebranche, Oyamel, Pakal, Área Perdido, Tlancanán and Uchukil exploratory projects were designated as separate projects and funds were allocated to them as stand-alone projects.

Source: Petróleos Mexicanos.

 

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Since mid-2014, the international reference prices of crude oil have fluctuated significantly. During 2014, the Mexican crude oil export price rose to more than U.S. $100.00 per barrel and the weighted average price was U.S. $86.00 per barrel. Based on its estimate that the weighted average Mexican crude oil export price would be U.S. $79.00 per barrel, the Mexican Congress initially approved our Ps. 540.0 billion capital expenditures budget for 2015.

By the end of February 2015, the weighted average Mexican crude oil export price fell to approximately U.S. $49.00 per barrel, and in January 2015 it decreased to as low as U.S. $37.36 per barrel. Given this significant decrease in oil prices and adverse global economic conditions, the Mexican Government announced that it would cut public spending by approximately Ps. 124.3 billion in 2015. Accordingly, on February 13, 2015, the Board of Directors of Petróleos Mexicanos approved a Ps. 62.0 billion, or 11.5%, budget reduction in order to meet our financial balance goal. This budget adjustment is expected to result in delays of certain projects, however, we expect to maintain our medium- and long-term growth plans without the need to incur more indebtedness than the amount included in our approved financing program for 2015. The budget adjustment approved by the Board of Directors of Petróleos Mexicanos was based on the guiding principles of: minimizing the impact on our crude oil and gas production and our reserves replacement rate; maintaining our capacity to supply petroleum products in the domestic market; minimizing the impact on the safety and reliability of our facilities and our compliance with environmental regulations; and minimizing the potential impact on our future competitiveness in the domestic petroleum products market. In addition, pursuant to the Law of Petróleos Mexicanos, the Board of Directors approved the implementation of thePrograma de Austeridad y Uso Racional de Recursos(Austerity and Rational Use of Resources Program) with the aim of generating additional savings throughout the year.

In connection with the budget adjustment, we reached an agreement with the Petroleum Workers’ Union to implement acost-savings program that is expected to decrease operating costs associated with personnel services by Ps. 10.0 billion in 2015. This decrease represents 16.1% of our total budget adjustment for 2015.

Our revised budget for 2015 includes a total of Ps. 237.2 billion in constant 2015 pesos for capital expenditures. We expect to direct Ps. 182.6 billion (or 77.0% of our total capital expenditures) to exploration and production programs in 2015. This significant investment in exploration and production activities reflects our focus on maximizing the potential of hydrocarbon reserves as we begin operating under the new framework established by the Secondary Legislation. See “—Energy Reform” above in this Item 4.

In addition, we continuously review our capital expenditures portfolio in accordance with our current and future business plans and upcoming opportunities. For the years 2015 through 2018, we have estimated the amount of financial resources that third-party partners may contribute for certain projects, including through new associations that are now possible following the implementation of the Secondary Legislation. See “—Energy Reform” above in this Item 4 for more information about these new opportunities. The following table presents our consolidated capital expenditures budget for the corresponding years and the additional capital expenditures that we estimate third-party partners may contribute to our joint projects:

 

   Year ended December 31, 
   2015   2016   2017   2018 
   (in millions of constant 2015 pesos) 

PEMEX’s Consolidated Capital Expenditures Budget

   Ps. 237,212     Ps. 244,601     Ps. 259,180     Ps. 263,067  

Estimated Capital Expenditures Attributable to Third-Party Partners

   —       104,695     90,842     74,807  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Capital Expenditures

 Ps. 237,212   Ps. 349,296   Ps. 350,022   Ps. 337,874  

Our main objectives for upstream investment are to maximize our long-term economic value, and to increase and improve the quality of our oil and gas reserves, 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 2015 budget objectives include maintaining crude oil production at levels sufficient to satisfy domestic demand and have a surplus available for export and maintaining natural gas production levels in order to attempt to satisfy domestic demand and avoid increasing our dependence on natural gas imports.

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

For information on our investment in Repsol, see “—Business Overview—PEMEX Corporate Matters—Investment in Repsol” below in this Item 4.

BUSINESS OVERVIEW

Overview by Business Segment

Exploration and Production

Pemex-Exploration and Production’s primary objectives for 2015 include: (1) maintaining crude oil production at levels sufficient to satisfy domestic demand and have a surplus available for export; (2) maintaining natural gas production levels in order to attempt to satisfy domestic demand and avoid increasing our dependence on natural gas imports; (3) increasing the replacement rate of proved and total reserves; (4) maintaining discovery and development costs similar to those of our international competitors; and (5) improving performance in terms of industrial security and environmental protection, as well as continuing to build relationships with the communities in which we operate. Our upstream investment program seeks to meet these objectives by: maximizing the value of produced reserves; improving the quality of our product selection; and improving the reliability of our logistics and distribution services to achieve an optimal level of efficiency, while continuing to emphasize industrial safety and environmental compliance.

 

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Pemex-Exploration and Production explores for and produces crude oil and natural gas, primarily in the northeastern and southeastern regions of Mexico and offshore in the Gulf of Mexico. In nominal peso terms, our capital investment in exploration and production activities increased by 4.5% in 2014. As a result of our investments in previous years, our total hydrocarbon production reached a level of approximately 1,291 million barrels of oil equivalent in 2014. Despite these investments, Pemex-Exploration and Production’s crude oil production decreased by 3.7% from 2013 to 2014, averaging 2,428.8 thousand barrels per day in 2014, primarily as a result of the decline of the Cantarell, Aceite Terciario del Golfo (or ATG), Delta del Grijalva, Crudo Ligero Marino and Ixtal-Manik projects, which was partially offset by increased crude oil production in the Abkatún-Pol-Chuc and Litoral de Tabasco business units. Pemex-Exploration and Production’s natural gas production (excluding natural gas liquids) increased by 2.5% from 2013 to 2014, averaging 6,531.9 million cubic feet per day in 2014. This increase in natural gas production was primarily a result of higher volumes from the Ku-Maloob-Zaap and Tsimin Xux projects. Exploration drilling activity decreased by 36.8% from 2013 to 2014, from 38 exploratory wells completed in 2013 to 24 exploratory wells completed in 2014. Development drilling activity decreased by 34.9% from 2013 to 2014, from 785 development wells completed in 2013 to 511 development wells completed in 2014. In 2014, we completed the drilling of 535 wells in total. Our drilling activity in 2014 was focused on increasing the production of associated gas in the ATG and Ogarrio-Sánchez Magallanes projects and of heavy crude oil in the Cantarell and Ku-Maloob-Zaap projects.

Our well-drilling activities during 2014 led to significant onshore discoveries. The main discoveries included crude oil reserves located in the Southeastern and Veracruz basins, specifically in the Northern and Southern regions. Exploration activity in the Northern region also led to the discovery of additionalnon-associated gas reserves in the Burgos basin. Our current challenge with respect to these discoveries is their immediate development in order to increase current production levels.

Pemex-Exploration and Production’s production goals for 2015 include producing crude oil at a level of approximately 2,288.3 thousand barrels per day and maintaining natural gas production above 6,361.4 million cubic feet per day in order to satisfy domestic demand for natural gas. We aim to meet these production goals by managing the decline in field production through the application of primary, secondary and enhanced oil recovery processes, maintaining our infrastructure and equipment and developing extra-heavy crude oil fields.

Refining

Pemex-Refining converts crude oil into gasoline, jet fuel, diesel, fuel oil, asphalts and lubricants. It also distributes and markets most of these products throughout Mexico, where it experiences significant demand for its refined products. At the end of 2014, Pemex-Refining’s atmospheric distillation refining capacity reached 1,602 thousand barrels per day. In 2014, Pemex-Refining produced 1,206 thousand barrels per day of refined products as compared to 1,276 thousand barrels per day of refined products in 2013. The 5.5% decrease in refined products production was primarily due to a 5.5% decrease in the volume of crude oil supplied by producing fields, which, in turn, resulted from the 3.7% decrease in crude oil production in 2014.

Gas and Basic Petrochemicals

Pemex-Gas and Basic Petrochemicals processes wet natural gas in order to obtain dry natural gas, LPG and other natural gas liquids. Additionally, it transports, distributes and sells natural gas and LPG throughout Mexico and produces and sells several basic petrochemical feedstocks used by Pemex-Refining and Pemex-Petrochemicals. In 2014, Pemex-Gas and Basic Petrochemicals’ total sour natural gas processing capacity increased to 4,523 million cubic feet per day, as compared to 4,503 million cubic feet per day in 2013. Pemex-Gas and Basic Petrochemicals processed 4,343 million cubic feet of wet natural gas per day in 2014, a 1.4% decrease from the 4,404 million cubic feet per day of wet natural gas processed in 2013. It produced 364 thousand barrels per day of natural gas liquids in 2014, a 0.6% increase from the 362 thousand barrels per day of natural gas liquids production in 2013. It also produced 3,640 million cubic feet of dry gas (which is natural gas with a methane content of more than 90.5%) per day in 2014, 1.4% less than the 3,693 million cubic feet of dry gas per day produced in 2013.

 

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Petrochemicals

Pemex-Petrochemicals manufactures different petrochemical products, including: (1) methane derivatives, such as ammonia and methanol; (2) ethane derivatives, such as ethylene, polyethylene, vinyl chloride monomer, ethylene oxide and glycols; (3) aromatics and their derivatives, such as styrene, toluene, benzene and xylene; (4) the propylene chain and its derivatives, such as acrylonitrile and propylene; (5) the petroleum derivatives chain, such as octane base gasoline and heavy naphtha; and (6) other products such as oxygen, nitrogen and pentanes. As of September 12, 2013, the vinyl chloride and ethylene plants at the Pajaritos petrochemical complex were divested from Pemex-Petrochemicals to become part of Petroquímica Mexicana de Vinilo, S.A. de C.V. (which we refer to as PMV), a joint venture between Pemex-Petrochemicals and the Mexican chemical company Mexichem S.A.B. de C.V. (which we refer to as Mexichem). See “—Petrochemicals—Joint Venture with Mexichem” in this Item 4.

Pemex-Petrochemicals’ total annual production (excluding ethane and butane gases) decreased by 1.4% in 2014, from 7,339 thousand tons in 2013 to 7,238 thousand tons in 2014, primarily as a result of the divestment of the vinyl chloride and ethylene plants at the Pajaritos petrochemical complex from Pemex-Petrochemicals in September 2013.

International Trading

In 2014, our crude oil exports decreased by 3.9%, from 1,188.8 thousand barrels per day in 2013 to 1,142.3 thousand barrels per day in 2014. Natural gas imports increased by 5.3% in 2014, from 1,289.7 million cubic feet per day in 2013 to 1,357.8 million cubic feet per day in 2014. In 2014, the volume of exports of petrochemical products decreased by 63.5%, from 1,336.9 thousand metric tons in 2013 to 488.0 thousand metric tons in 2014, while imports of petrochemical products by increased by 15.6%, from 287.8 thousand metric tons in 2013 to 332.7 thousand metric tons in 2014. In 2014, exports of petroleum products by volume increased by 17.6%, from 164.5 thousand barrels per day in 2013 to 193.5 thousand barrels per day in 2014, while imports of petroleum products by volume also increased by 22.7%, from 516.2 thousand barrels per day in 2013 to 633.5 thousand barrels per day in 2014.

We are a major supplier of crude oil to the United States. P.M.I. Comercio Internacional, S.A. de C.V. (which we refer to as PMI), P.M.I. Trading, Ltd. and their affiliates (which, together with PMI, we collectively refer to as the PMI Group) make up our international trading arm, which provides us and a number of independent customers with international trading, distribution, risk management, insurance and transportation services. The PMI Group sells, buys and transports crude oil, refined products and petrochemicals in world markets. The PMI Group also provides us with related risk management, insurance, transportation and storage services. The PMI Group has offices in Mexico City, Houston, Amsterdam, Singapore and Madrid. Our trading volume of exports and imports totaled U.S. $68,642.0 million in 2014 and U.S. $75,511.6 million in 2013, including U.S. $35,855.4 million in crude oil exports in 2014 and U.S. $42,723.2 million in 2013.

 

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Infrastructure of PEMEX

 

LOGO

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 2014, we completed 12,725 exploration and development wells. During 2014, our average success rate for exploratory wells was 33.0% and our average success rate for development wells was 95.0%. From 2010 to 2014, we discovered 19 new crude oil fields and 28 new natural gas fields, bringing the total number of our crude oil and natural gas producing fields to 428 at the end of 2014.

Our 2014 exploration program was comprised of exploration in both onshore and offshore regions, including the deep waters of the Gulf of Mexico. These exploratory activities yielded 85.2 million barrels of oil equivalent of proved reserves in 2014. Two fields that contain non-associated gas were discovered. We continued our main seismic data acquisition activities, in particular, those related to three-dimensional seismic data. We acquired 6,150 square kilometers of three-dimensional seismic data in 2014, of which 5,036 square kilometers, or 81.9%, was in the deep waters of the Gulf of Mexico, and 3,258 square kilometers of two-dimensional seismic data. During 2014, we successfully delineated four fields in the Gulf of Mexico, which involves the drilling of several wells to determine the extent of the reserves found at each field. However, proved reserves have not yet been booked for these fields, as the necessary facilities for development are not yet in place.

 

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The following table summarizes our drilling activity for the five years ended December 31, 2014, all of which occurred in Mexican territory.

 

 Year ended December 31, 
 2010 2011 2012 2013 2014 

Wells initiated(1)

 994   1,000   1,290   705   474  

Exploratory wells initiated(1)

 40   32   36   40   20  

Development wells initiated(1)

 954   968   1,254   665   454  

Wells drilled(2)

 1,303   1,034   1,238   817   535  

Exploratory wells

 39   33   37   38   24  

Productive exploratory wells(3)

 23   16   21   23   8  

Dry exploratory wells

 16   17   16   15   16  

Success rate %

 59   48   57   61   33  

Development wells

 1,264   1,001   1,201   779   511  

Productive development wells

 1,200   955   1,159   747   484  

Dry development wells

 64   46   42   32   26  

Success rate %(4)

 95   95   97   96   95  

Producing wells (annual averages)

 7,476   8,315   9,439   9,836   9,558  

Marine region

 477   500   537   559   581  

Southern region

 1,067   1,136   1,230   1,340   1,420  

Northern region

 5,932   6,679   7,672   7,937   7,557  

Producing wells (at year end)(5)

 7,414   8,271   9,476   9,379   9,077  

Crude oil

 4,406   5,193   6,188   6,164   5,598  

Natural gas

 3,008   3,078   3,288   3,215   3,479  

Producing fields

 405   416   449   454   428  

Marine region

 34   36   38   42   45  

Southern region

 98   99   101   102   97  

Northern region

 273   281   310   310   286  

Drilling rigs

 130   128   136   139   136  

Kilometers drilled

 2,532   2,494   3,007   1,627   1,413  

Average depth by well (meters)

 2,605   2,418   2,429   2,710   2,738  

Discovered fields(6)

 5   8   9   10   2  

Crude oil

 2   4   2   5   —    

Natural gas

 3   4   7   5   2  

Crude oil and natural gas output by well (barrels of oil equivalent per day)

 508   448   392   371   370  

Total developed acreage (km2)(7)

 8,463   8,536   8,652   8,706   8,339  

Total undeveloped acreage (km2)(7)

 828   987   1,040   977   1,278  

 

Note: Numbers may not total due to rounding.

(1)“Wells initiated” refers to the number of wells the drilling of which commenced in a given year, regardless of when the well was or will be completed.
(2)“Wells drilled” refers to the number of wells the drilling of which was completed in a given year, regardless of when the drilling of the well commenced.
(3)Excludes non-commercial productive wells.
(4)Excludes injector wells.
(5)All productive wells, and all other wells referred to in this table, are “net,” because we do not grant others any fractional working interests in any wells that we own; we also have not acquired any fractional working interest in wells owned by others.
(6)Includes only fields with proved reserves.
(7)All acreage is net because we neither grant others fractional interests nor enter into other types of production sharing arrangements.

Source: Pemex-Exploration and Production.

Extensions and Discoveries

During 2014, we discovered new sources of crude oil and natural gas reserves in two fields, all of which were discovered onshore in the Northern region. These discoveries, along with revisions, resulted in increases in our proved reserves. During 2014, in the Northeastern Marine region, revisions and the completion of 25 wells led to an increase of 459.5 million barrels of oil equivalent of proved reserves. In the Southwestern Marine region, revisions and the development of the Homol, Kuil, Onel, Xanab and Xux fields through the drilling of 24 wells led to an increase of 383.7 million barrels of oil equivalent of proved reserves. In the Northern region’s Burgos, ATG, Poza Rica-Altamira and Veracruz business units, the drilling of 327 development wells, as well as the discovery of two fields, led to the addition of 117.0 million barrels of oil equivalent of proved reserves. In the Burgos basin, the drilling and completion of two exploratory wells led to the discovery of two shale gas fields. We plan to continue to drill additional wells in this basin in order to continue assessing the potential for shale oil and gas resources in this area. Finally, in the Southern region, the drilling of 135 development wells and revisions led to a decrease of 89.8 million barrels of oil equivalent of proved reserves as a result of water production issues at several fields.

 

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During 2013, Pemex-Exploration and Production launched a call for bids for Integrated E&P Contracts relating to fields in the ATG project. In July 2013, we entered into Integrated E&P Contracts with three companies for the development of the Humapa, Miquetla and Soledad blocks in the ATG project. In connection with the awarding of these contracts, four field laboratories in the ATG project were dismantled, resulting in a decrease in the number of completed wells in 2013, as compared to 2012. The Coyotes Laboratory, the last remaining field laboratory in the project, ended operations on August 31, 2014 and was subsequently dismantled on February 16, 2015. As of the date of this report, the ATG business unit is carrying out operations and maintenance activities in the Coyotes field. For more information, see “—Integrated Exploration and Production Contracts” below in this Item 4.

During 2014, we entered into Integrated E&P Contracts for the development of the Pitepec, Amatitlán and Miahuapán blocks in the ATG project in order to develop and exploit their hydrocarbon reserves. As of the date of this report, the Integrated E&P Contracts relating to these blocks, in addition to the Humapa, Miquetla and Soledad blocks in the ATG project, are in the process of being migrated into contracts for exploration and extraction pursuant to the Hydrocarbons Law. For more information about this migration process, see “—History and Development—Energy Reform—Assignment of Exploration and Production Rights” above in this Item 4.

Reserves

Under the Mexican Constitution, all oil and other hydrocarbon reserves located in the subsoil of Mexico are owned by the Mexican nation and not by us. As of December 31, 2014, Pemex-Exploration and Production had been assigned rights through Round Zero corresponding to areas that together contain 95.1% of Mexico’s total proved reserves. Pemex-Exploration and Production has the right to extract, but not own, these reserves, and to sell the resulting production. Of our total proved reserves, 398 million barrels of oil equivalent have been temporarily assigned to us for a two-year period. For more information about the proved reserves assigned to us through Round Zero, see “—History and Development—Energy Reform—Assignment of Exploration and Production Rights” above in this Item 4. As of the date of this report, the exploration and development activities of Petróleos Mexicanos and the subsidiary entities are limited to reserves located in Mexico.

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

Proved reserves estimates as of December 31, 2014 were prepared by Pemex-Exploration and Production and were reviewed by the Independent Engineering Firms (as defined below), which audit Pemex-Exploration and Production’s estimates of our hydrocarbon reserves. In addition, pursuant to theReglamento de la Ley de Hidrocarburos (Regulations to the Hydrocarbons Law), the NHC reviewed and approved the proved reserves reports estimates as of December 31, 2014 provided by Pemex-Exploration and Production on March 10, 2015. These reserves estimates were then registered and published by the Ministry of Energy on March 18, 2015.

Pemex-Exploration and Production estimates 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, dated February 19, 2007 and other SPE publications, including the SPE’s publication entitledPetroleum Resources Management System, as well as other technical sources, includingEstimation and Classification of Reserves of Crude Oil, Natural Gas, and Condensate, by Chapman Cronquist, andDetermination of Oil and Gas Reserves, Petroleum Society Monograph Number 1, published by the Canadian Institute of Mining and Metallurgy & Petroleum. The choice of method or combination of methods employed in the analysis of each reservoir is determined by:

 

  experience in the area;

 

  stage of development;

 

  quality and completeness of basic data; and

 

  production and pressure histories.

 

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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 2014, we did not record any material increase in our proved hydrocarbons reserves as a result of the use of new technologies.

In order to ensure the reliability of our reserves estimation efforts, we have undertaken the internal certification of our estimates of reserves since 1996. We have established certain internal controls in connection with the preparation of our proved reserves estimates. Initially, teams of geoscientists fromPemex-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 Reservas (Office of Resources and Reserves), the central hydrocarbon reserves management body of Pemex-Exploration and Production, review and certify such valuations and the booking of the related reserves. This internal certification process is undertaken in accordance with internal guidelines for estimating and classifying proved reserves, which are based on the SEC’s rules and definitions. The Hydrocarbons Reserves and Resources Management Office, which additionally oversees and conducts an internal audit of the process described above, consists entirely of professionals with geological, geophysical, petrophysical and reservoir engineering backgrounds. The engineers who participate in our reserves estimation process are experienced in: reservoir numerical simulation; well drilling and completion; pressure, volume and temperature (PVT) analysis; NODALTM(an analytical tool used in forecasting the performance of the various elements comprising the production system) analysis; and design strategies in petroleum field development. Furthermore, all of our personnel have been certified by theSecretaría de Educación Pública(Ministry of Public Education), most have earned master’s degrees in areas of study such as petroleum engineering, geology and geophysical engineering and they possess an average of over ten years of professional experience.

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 auditedPemex-Exploration and Production’s estimates of proved reserves as of December 31, 2014: Netherland Sewell; DeGolyer and MacNaughton; and Ryder Scott (we refer to these firms together as the Independent Engineering Firms). The reserves estimates reviewed by the Independent Engineering Firms totaled 97.8% of our estimated proved reserves. The remaining 2.2% of our estimated proved reserves consisted of reserves located in certain areas in which third parties provide drilling services to Pemex-Exploration and Production. Under such agreements, the corresponding third party is responsible for assessing the volume of reserves. Netherland Sewell audited the reserves in the Northeastern Marine region and Southern region, DeGolyer and MacNaughton audited the reserves in the Southwestern Marine region and Ryder Scott audited the reserves in the Northern region. The audits conducted by the Independent Engineering Firms consisted primarily of: (1) analysis of historical static and dynamic reservoir data provided by Pemex-Exploration and Production; (2) construction or updating of the Independent Engineering Firms’ own static and dynamic reservoir characterization models of Mexican oil fields; (3) economic analysis of selected fields; and (4) review ofPemex-Exploration and Production’s production forecasts and reserves estimates.

Since reserves estimates are, by definition, only estimates, they cannot be reviewed for the purpose of verifying exactness. Instead, the Independent Engineering Firms conducted a detailed review of Pemex-Exploration and Production’s 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 Pemex-Exploration and Production 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 Rule 4-10(a) of Regulation S-X of the SEC, as amended (which we refer to asRule 4-10(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.

 

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Our total proved developed and undeveloped reserves of crude oil, condensates and liquefiable hydrocarbons recoverable from field processing plants decreased by 7.1% in 2014, from 11,079 million barrels at December 31, 2013 to 10,292 million barrels at December 31, 2014. Our proved developed reserves of crude oil, condensates and liquefiable hydrocarbons recoverable from processing plants decreased by 3.0% in 2014, from 7,360 million barrels at December 31, 2013 to 7,141 million barrels at December 31, 2014. These decreases were principally due to the fact that we were assigned less than 100% of Mexico’s total proved reserves in connection with Round Zero, as well as a decrease in field development activities, as 265 fewer wells were completed in 2014 than in 2013. The amount of crude oil, condensate and liquefiable hydrocarbon reserves added in 2014 was insufficient to offset the level of production in 2014, which amounted to 1,001 million barrels of crude oil, condensates and liquefiable hydrocarbons.

Our total proved developed and undeveloped dry gas reserves decreased by 11.5% in 2014, from 12,273 billion cubic feet at December 31, 2013 to 10,859 billion cubic feet at December 31, 2014. Our proved developed dry gas reserves decreased by 9.7% in 2014, from 7,461 billion cubic feet at December 31, 2013 to 6,740 billion cubic feet at December 31, 2014. These decreases were principally due to the fact that we were assigned less than 100% of Mexico’s total proved reserves in connection with Round Zero, as well as a decrease in field development activities. The amount of dry gas reserves added in 2014 was insufficient to offset the level of production in 2014, which amounted to 1,511 billion cubic feet of dry gas. Our proved undeveloped dry gas reserves decreased by 14.4% in 2014, from 4,811 billion cubic feet at December��31, 2013 to 4,119 billion cubic feet at December 31, 2014.

During 2014, 986.9 million barrels of oil equivalent were reclassified from proved undeveloped, probable and possible reserves to proved developed reserves, at a cost of Ps. 188,951 million. Field development activities, including well drilling and completion, contributed most significantly to the reclassification of proved undeveloped, probable and possible reserves to proved developed reserves, accounting for 891.1 million barrels of oil equivalent, or 90.3%, of the total amount of reclassified reserves in 2014. The only fields containing material volumes of the proved reserves that have remained undeveloped for five years or more are the Ayatsil and Ayín fields, which are both located offshore. These fields remain undeveloped due to delays in construction related to certain unique field characteristics. In particular, the design of the development plan for the Ayatsil field, the larger of the two, has required additional time due to the complexity of this project, which is expected to be Pemex-Exploration and Production’s first offshore project producing extra-heavy crude oil. As of the date of this report, three drilling platforms have been installed at the Ayatsil field and drilling activity is expected to begin in the near future. We also expect to continue developing the Ayín field during 2015.

The following three tables of crude oil and dry gas reserves set forth our estimates of our proved reserves determined in accordance with Rule 4-10(a).

Summary of Oil and Gas(1) Proved Reserves as of December 31, 2014

Based on Average Fiscal Year Prices

 

 Crude Oil and Condensates(2) Dry Gas(3) 
 (in millions of barrels) (in billions of cubic feet) 

Proved developed and undeveloped reserves

Proved developed reserves

 7,141   6,740  

Proved undeveloped reserves

 3,151   4,119  
  

 

 

   

 

 

 

Total proved reserves

 10,292   10,859  
  

 

 

   

 

 

 

 

Note: Numbers may not total due to rounding.

(1)We do not currently produce synthetic oil or synthetic gas, or other natural resources from which synthetic oil or synthetic gas can be produced.
(2)Crude oil and condensate reserves include the fraction of liquefiable hydrocarbons recoverable in natural gas processing plants located at fields.
(3)Reserve volumes reported in this table are volumes of dry gas, although natural gas production reported in other tables refers to sour wet gas. There is a shrinkage in volume when natural gas liquids and impurities are extracted to obtain dry gas. Therefore, reported natural gas volumes are greater than dry gas volumes.

Source: Pemex-Exploration and Production.

 

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Crude Oil and Condensate Reserves

(including natural gas liquids)(1)

 

 2010 2011 2012 2013 2014 
Proved developed and undeveloped reserves(in millions of barrels) 

At January 1

 11,691   11,394   11,362   11,424   11,079  

Revisions(2)

 515   824   1,012   630   95  

Extensions and discoveries

 246   194   103   62   119  

Production

 (1,059 (1,050 (1,053 (1,037 (1,001
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

At December 31

 11,394   11,362   11,424   11,079   10,292  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Proved developed reserves at December 31

 7,793   7,618   7,790   7,360   7,141  

Proved undeveloped reserves at December 31

 3,601   3,744   3,634   3,719   3,151  

 

Note: Numbers may not total due to rounding.

(1)Crude oil and condensate reserves include the fraction of liquefiable hydrocarbons recoverable in natural gas processing plants located at fields.
(2)Revisions include positive and negative changes due to new data from well drilling, and revisions made when actual reservoir performance differs from expected performance.

Source: Pemex-Exploration and Production.

Dry Gas Reserves

 

 2010 2011 2012 2013 2014 
Proved developed and undeveloped reserves(in billions of cubic feet) 

At January 1

 11,966   12,494   12,734   12,713   12,273  

Revisions(1)

 1,449   1,592   1,377   1,010   4  

Extensions and discoveries

 770   249   162   89   93  

Production(2)

 (1,691 (1,601 (1,560 (1,539 (1,511
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

At December 31

 12,494   12,734   12,713   12,273   10,859  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Proved developed reserves at December 31

 7,941   7,958   7,951   7,461   6,740  

Proved undeveloped reserves at December 31

 4,553   4,776   4,762   4,811   4,119  

 

Note: Numbers may not total due to rounding.

(1)Revisions include positive and negative changes due to new data from well drilling, and revisions made when actual reservoir performance differs from expected performance.
(2)Production refers here to dry gas, although natural gas production reported in other tables refers to sour wet gas. There is a shrinkage in volume when natural gas liquids and impurities are extracted to obtain dry gas. Therefore, reported natural gas volumes are greater than dry gas volumes.

Source: Pemex-Exploration and Production.

 

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The following table sets forth, as of December 31, 2014, the volumes of proved developed and undeveloped reserves, the number of producing wells and the number of proved undeveloped locations for the fields that contained 94.0% of our proved reserves.

 

 Reserves     

Field

Proved(1) Developed(1) Undeveloped(1) Number of
Producing
Wells
 Number of
Undeveloped
Locations(2)
 
 (in millions of barrels of oil equivalent)     

Ku-Maloob-Zaap

 3,112.4   2,677.6   434.8   179   25  

Akal

 1,564.9   1,564.9   0.0   141   0  

C. Antonio J. Bermúdez(3)

 1,242.9   500.6   742.3   309   143  

Aceite Terciario del Golfo(4)

 797.9   263.7   534.2   2,414   5,641  

Jujo-Tecominoacán

 582.9   395.3   187.6   39   21  

Tsimin

 395.2   230.4   164.8   14   9  

Ayatsil

 316.2   0.0   316.2   0   10  

Xanab

 200.7   99.3   101.5   5   8  

Xux

 186.4   83.3   103.1   5   12  

Sihil

 140.5   134.9   5.6   27   0  

Ixtal

 140.2   114.2   25.9   9   8  

Onel

 135.8   82.2   53.6   4   5  

Kuil

 125.8   95.5   30.3   8   5  

Homol

 113.8   82.4   31.5   8   4  

Ek

 113.0   49.2   63.8   14   5  

Balam

 102.5   71.8   30.7   10   1  

Santuario

 101.3   23.5   77.8   29   31  

Lakach

 93.8   0.0   93.8   0   4  

Kambesah

 82.6   82.6   0.0   4   0  

Terra

 73.8   30.5   43.4   7   10  

Sinán

 73.7   51.4   22.3   12   4  

Sen

 72.4   31.1   41.3   14   5  

May

 72.1   46.6   25.5   13   3  

Costero

 71.4   66.5   4.8   14   1  

Cárdenas

 64.8   50.0   14.7   10   4  

Arenque

 63.3   25.1   38.2   14   10  

Tizón

 61.7   43.1   18.6   10   3  

Tekel

 60.3   0.0   60.3   0   4  

Pareto

 60.1   23.1   37.0   6   7  

Yaxché

 59.2   25.3   34.0   9   8  

Ixtoc

 57.7   57.7   0.0   10   0  

Abkatún

 54.3   54.3   0.0   13   0  

Tamaulipas-Constituciones

 50.1   24.1   25.9   312   132  

Bellota

 49.2   30.0   19.1   7   5  

Bolontikú

 49.1   26.8   22.3   6   4  

Ogarrio

 48.9   44.4   4.4   117   13  

Giraldas

 47.9   47.9   0.0   12   0  

Chuc

 47.9   44.7   3.2   16   1  

Eltreinta

 46.6   7.3   39.3   2   24  

Ébano Pánuco Cacalilao

 46.6   24.1   22.5   435   321  

Taratunich

 46.2   46.2   0.0   8   0  

Edén-Jolote

 44.2   19.6   24.6   7   9  

Mora

 44.2   35.6   8.6   6   2  

Puerto Ceiba

 42.0   29.0   13.0   17   19  

Kab

 41.6   12.6   28.9   5   7  

Ayín

 41.1   0.0   41.1   0   5  

Gasífero

 38.6   23.1   15.5   23   12  

Cuervito

 38.4   18.3   20.2   95   62  

Madrefil

 37.5   18.6   18.9   2   1  

Cuitláhuac

 28.7   13.7   15.0   181   56  

Nejo

 27.0   25.3   1.8   321   13  

San Ramón

 26.9   24.4   2.5   55   9  

Utsil

 26.8   0.0   26.8   0   1  

Lum

 26.0   17.7   8.3   1   5  

Chinchorro

 25.8   16.8   9.0   4   4  

Caparroso-Pijije-Escuintle

 25.4   17.7   7.6   13   2  

Poza Rica

 24.6   21.8   2.8   193   15  

Cactus

 24.3   7.5   16.9   18   0  

Chuhuk

 24.2   11.2   13.0   2   4  

Teotleco

 23.7   16.8   6.8   9   2  

Cauchy

 23.7   20.0   3.7   33   0  

Kax

 21.7   21.7   0.0   2   0  

Chiapas-Copanó

 21.4   21.4   0.0   12   0  

Bricol

 21.4   14.9   6.5   6   1  

Yagual

 21.4   11.7   9.7   4   4  

Rabasa

 21.4   19.5   1.9   31   3  

Uech

 21.2   21.2   0.0   2   0  

Caan

 20.6   20.6   0.0   12   0  

Tupilco

 20.4   19.0   1.4   28   4  

Ribereño

 20.1   0.0   20.1   0   2  

Etkal

 20.0   5.4   14.5   1   3  

Arcabuz-Culebra

 18.8   12.4   6.4   596   47  
  

 

 

  

 

 

  

 

 

  

 

 

   

 

 

 

Total

 11,689.2   7,869.1   3,819.8   5,945.0   6,783.0  
  

 

 

  

 

 

  

 

 

  

 

 

   

 

 

 

Our proved reserves

 12,380.2   8,437.5   3,942.7  

Percentage

 94 93 97

 

Note: Numbers may not total due to rounding.

(1)Proved reserves, developed reserves and undeveloped reserves are expressed in millions of barrels of oil equivalent. To convert dry gas to barrels of oil equivalent, a factor of 5.201 thousand cubic feet of dry gas per barrel of oil equivalent is used.
(2)Undeveloped Locations refers to the number of geographic sites or locations where a well will be drilled to produce undeveloped proved reserves.
(3)Includes the Cunduacán, Iride, Oxiacaque, Platanal and Samaria fields.
(4)Includes extraction assignments and temporary assignments.

Source: Pemex-Exploration and Production.

 

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Pemex-Exploration and Production’s 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. In 2014, the RRR was 18.0%, which was 49.8 percentage points lower than the 2013 RRR of 67.8%. The fact that the RRR was less than 100% in 2014 represents a decline in proved reserves during this period. This significant decrease in the RRR in 2014 as compared to 2013 primarily reflects the one-time impact of Round Zero, through which we were assigned 95.9% of the proved reserves that we had the right to extract and sell in 2013. This decrease also resulted from a reduction in field development activities, as only 511 wells were completed in 2014, which represents a 34.1% decrease as compared to 2013. If we were to include in the calculation of the RRR in 2014 the 637.2 million barrels of oil equivalent of proved reserves that were not assigned to us as part of Round Zero, the RRR for this period would have totaled 67.4%, or 0.4 percentage points lower than the 2013 RRR.

Our goal is to increase the RRR during 2015, in part by increasing proved reserves over the coming years. We aim to accomplish this primarily through the development of the Ku-Maloob-Zaap, Crudo Ligero Marino and ATG projects, as well as through the performance of delineation activities. We have developed these objectives based on reserves estimates, which are subject to the uncertainty and risks associated with hydrocarbon exploration and production activities. Additionally, future decisions regarding authorized exploration and exploitation investment levels may lead to related changes.

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, 2014, this ratio was equal to 9.6 years for proved reserves, which represents a decrease of 4.9% as compared to the 2013 reserves production ratio of 10.1 years for proved reserves. For more information, see Note 25 to our consolidated financial statements included herein.

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 15% or more of our proved reserves.

Unit Sales Prices and Production Costs(1)

 

 Ku-Maloob-
Zaap
 Akal Other Fields All Fields 
 (in U.S. dollars) 

Year ended December 31, 2014

Average sales prices

Crude oil, per barrel

U.S. $80.58  U.S. $90.67  U.S. $95.14  U.S. $90.37  

Natural gas, per thousand cubic feet

U.S. $6.96  U.S. $5.36  U.S. $5.74  U.S. $5.71  

Average production costs, per barrel of oil equivalent

U.S. $5.05  U.S. $10.79  U.S. $9.16  U.S. $8.22  

Year ended December 31, 2013

Average sales prices

Crude oil, per barrel

U.S. $92.50  U.S. $98.72  U.S. $104.62  U.S. $99.92  

Natural gas, per thousand cubic feet

U.S. $5.03  U.S. $4.95  U.S. $5.00  U.S. $4.93  

Average production costs, per barrel of oil equivalent

U.S. $4.88  U.S. $11.01  U.S. $10.79  U.S. $7.91  

Year ended December 31, 2012

Average sales prices

Crude oil, per barrel

U.S. $95.53  U.S. $100.96  U.S. $106.55  U.S. $102.36  

Natural gas, per thousand cubic feet

U.S. $4.18  U.S. $4.11  U.S. $4.18  U.S. $4.03  

Average production costs, per barrel of oil equivalent

U.S. $4.86  U.S. $9.11  U.S. $6.88  U.S. $6.84  

 

(1)Average of sales prices as of the last day of each month of the year.

Source: Pemex-Exploration and Production.

In 2014, our average production cost was U.S. $8.22 per barrel of oil equivalent, and represented an increase of 3.9%, as compared to our average production cost of U.S. $7.91 per barrel in 2013. This increase resulted primarily from a 21.0% net increase in the costs associated with the maintenance of wells and related equipment and facilities and other costs, including fees for general services, and a 3.2% decrease in total hydrocarbons production in 2014 as compared to 2013, from 1,333 million barrels of oil equivalent in 2013 to 1,291 million barrels of oil equivalent in 2014.

 

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Pemex-Exploration and Production calculates and discloses 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 hydrocarbons (in barrels of oil equivalent) for the relevant period.

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 and non-capitalized maintenance costs, and other costs, such as fees for general services, a labor fund for active personnel, corporate services and indirect overhead. However, it excludes non-cash expenses such as amortization of capitalized well expenses, the depreciation of fixed assets, expenses associated with the distribution and handling of hydrocarbons and other expenses that are related to exploration and drilling activities.

Crude Oil and Natural Gas Production

In 2014, we produced an average of 2,428.8 thousand barrels per day of crude oil, 3.7% less than our average production in 2013 of 2,522.1 thousand barrels per day of crude oil. The decrease in 2014 resulted primarily from the decrease of production in the Cantarell, ATG, Delta del Grijalva, Crudo Ligero Marino and Ixtal-Manik projects. Accordingly, our average production of heavy crude oil decreased by 99.6 thousand barrels per day, or 7.3% less than the average daily production in 2013, primarily due to the natural decline in production at the fields of Cantarell business unit and an increase in the fractional water flow of its wells. This decrease was partially offset by a 0.5% increase in our average light and extra-light crude oil production in 2014, as compared to 2013, which resulted primarily from increases in production at the Onel and Chuhuk fields of the Abkatún-Pol Chuc business unit, at the Tsimín and Xanab fields of the Litoral de Tabasco business unit, at the Kambesah field of the Cantarell business unit and at the Gasífero and Bedel fields of the Veracruz business unit. Together, these fields increased production of light crude oil by approximately 140 thousand barrels per day during 2014.

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.

Pemex-Exploration and Production primarily produces four types of crude oil:

 

  Altamira, a heavy crude oil;

 

  Maya, a heavy crude oil;

 

  Isthmus, a light crude oil; and

 

  Olmeca, an extra-light crude oil.

Most of Pemex-Exploration and Production’s production consists of Isthmus and Maya crude oil. In 2014, 52% of Pemex-Exploration and Production’s total production of crude oil consisted of heavy crude oil and 48% consisted of light and extra-light crude oil. The Marine regions yield mostly heavy crude oil (62.7% of these regions’ production in 2014), although significant volumes of light crude oil are also produced there (37.3% of these regions’ production in 2014). The Southern region yields mainly light and extra-light crude oil (together, 92.3% of this region’s production in 2014), and the Northern region yields both light and extra-light crude oil (43.7% of this region’s production in 2014) and heavy crude oil (56.3% of this region’s production in 2014).

The most productive crude oil and natural gas fields in the Gulf of Mexico are located in the Ku-Maloob-Zaap and Cantarell business units in the Northeastern Marine region, and in the Kuil, Ixtal, Homol, Chuc, Tsimin and Xanab fields in the Southwestern Marine region. In particular, the Ku-Maloob-Zaap business unit was the most important crude oil producer in 2014, producing an average of 856.7 thousand barrels of crude oil per day in 2014, or 35.3% of our total crude oil production for the year, and 571 million cubic feet per day of natural gas, or 8.7% of our total natural gas production for the year. Our second most important business unit, the Cantarell business unit, produced an average of 374.9 thousand barrels of crude oil per day in 2014, or 15.4% of our total crude oil production for the year, and an average of 1,120.9 million cubic feet per day of natural gas, or 17.2% of our total natural gas production for the year.

 

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The following table sets forth our annual crude oil production rates by type of oil for the five years ended December 31, 2014.

Crude Oil Production

 

   2014
vs. 2013
 
 2010 2011 2012 2013 2014 
 (in thousands of barrels per day) (%) 

Marine regions

Heavy crude oil

 1,380.5   1,322.8   1,280.2   1,258.3   1,160.1   (7.8

Light crude oil(1)

 561.2   580.5   614.5   638.1   691.3   8.3  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total

 1,941.6   1,903.3   1,894.6   1,896.4   1,851.4   (2.4

Southern region

Heavy crude oil

 16.8   16.7   18.5   26.5   35.0   32.1  

Light crude oil(1)

 515.1   513.9   489.6   454.3   417.4   (8.1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total

 531.9   530.6   508.2   480.8   452.4   (5.9

Northern region

Heavy crude oil

 66.7   77.6   86.3   80.2   70.4   (12.2

Light crude oil(1)(2)

 36.8   41.2   58.8   64.7   54.6   (15.6
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total

 103.6   118.8   145.1   144.9   125.0   (13.7

Total heavy crude oil

 1,464.0   1,417.1   1,385.0   1,365.1   1,265.5   (7.3

Total light crude oil(1)

 1,113.0   1,135.5   1,162.9   1,157.1   1,163.3   0.5  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total crude oil

 2,577.0   2,552.6   2,547.9   2,522.1   2,428.8   (3.7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

Note: Numbers may not total due to rounding.

(1)Includes extra-light crude oil.
(2)Since 2010, includes extra-light crude oil from the Nejo field in the Burgos business unit.

Source:Pemex-Exploration and Production.

 

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The following table sets forth our annual crude oil production by region and business unit for the five years ended December 31, 2014.

Crude Oil Production

 

   2014 
 2010 2011 2012 2013 2014 vs. 2013 
 (in thousands of barrels per day) (%) 

Marine regions

Ku-Maloob-Zaap

 839.2   842.1   855.1   863.8   856.7   (0.8

Cantarell

 558.0   500.7   454.1   439.8   374.9   (14.8

Litoral de Tabasco

 248.1   284.4   319.2   299.2   320.4   7.1  

Abkatún-Pol-Chuc

 296.3   276.2   266.3   293.6   299.3   1.9  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total

 1,941.6   1,903.3   1,894.6   1,896.4   1,851.4   (2.4

Southern region

Samaria-Luna

 217.5   222.7   205.1   172.5   161.4   (6.4

Bellota-Jujo

 160.2   143.4   130.3   134.3   124.8   (7.1

Cinco Presidentes

 71.7   83.5   96.0   93.1   89.1   (4.3

Macuspana-Muspac(1)

 82.4   81.1   76.8   80.9   77.0   (4.8
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total

 531.9   530.6   508.2   480.8   452.4   (5.9

Northern region

Aceite Terciario del Golfo

 41.0   52.8   68.6   66.2   48.8   (26.3

Poza Rica-Altamira

 56.5   60.2   67.8   61.5   59.8   (2.8

Burgos(2)

 1.2   2.5   4.8   8.0   5.0   (37.5

Veracruz

 4.9   3.2   4.0   9.3   11.4   22.6  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total

 103.6   118.8   145.1   144.9   125.0   (13.7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total crude oil

 2,577.0   2,552.6   2,547.9   2,522.1   2,428.8   (3.7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

Note: Numbers may not total due to rounding.

(1)As of 2012, the Macuspana and Muspac business units were merged into the Macuspana-Muspac business unit.
(2)As of February 2010, the Burgos business unit includes the hydrocarbons production from the Nejo field.

Source: Pemex-Exploration and Production.

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 2014, the average crude oil production from the 42 fields located in these regions was 1,851.4 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 2014, the average crude oil production from the 99 fields located in this region was 452.4 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 2014, the average crude oil and natural gas production in the Northern region totaled 125.0 thousand barrels of crude oil per day and 1,928.6 million cubic feet of natural gas per day, respectively, from the 307 oil and gas fields in this region.

 

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The following table sets forth our annual natural gas production by region and business unit for the five years ended December 31, 2014.

Natural Gas Production

 

   2014 
 2010 2011 2012 2013 2014 vs. 2013 
 (in millions of cubic feet per day) (%) 

Marine regions

Cantarell

 1,251.9   1,074.7   1,004.2   1,007.1   1,120.9   11.3  

Litoral de Tabasco

 577.6   649.3   735.6   747.6   842.6   12.7  

Abkatún-Pol-Chuc

 594.2   559.0   523.6   579.4   553.4   (4.5

Ku-Maloob-Zaap

 331.8   330.9   329.7   405.1   571.0   41.0  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total

 2,755.4   2,613.9   2,593.1   2,739.2   3,087.9   12.7  

Southern region

Samaria-Luna

 773.9   715.7   695.9   606.3   583.1   (3.8

Macuspana-Muspac(1)

 580.0   571.5   542.9   515.1   490.5   (4.8

Bellota-Jujo

 305.9   288.2   297.4   319.7   288.9   (9.6

Cinco Presidentes

 104.9   116.9   116.3   129.4   152.8   18.1  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total

 1,764.7   1,692.3   1,652.4   1,570.5   1,515.4   (3.5

Northern region

Burgos(2)

 1,478.4   1,344.1   1,269.3   1,286.6   1,221.0   (5.1

Veracruz

 818.9   716.7   601.2   494.5   455.3   (7.9

Aceite Terciario del

Golfo

 85.3   111.9   148.8   167.0   149.5   (10.5

Poza Rica-Altamira

 117.3   115.2   120.0   112.4   102.8   (8.5
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total

 2,499.9   2,287.8   2,139.3   2,060.6   1,928.6   (6.4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total natural gas

 7,020.0   6,594.1   6,384.9   6,370.3   6,531.9   2.5  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

Note: Numbers may not total due to rounding.

(1)As of 2012, the Macuspana and Muspac business units were merged into the Macuspana-Muspac business unit.
(2)As of February 2010, the Burgos business unit includes the hydrocarbons production from the Nejo field.

Source: Pemex-Exploration and Production.

In 2014, the Marine regions produced 3,087.9 million cubic feet per day of natural gas, or 47.3% of our total natural gas production, an increase of 12.7% as compared to the regions’ 2013 production of 2,739.2 million cubic feet per day. In 2014, the Southern region produced 1,515.4 million cubic feet per day of natural gas, or 23.2% of our total natural gas production, a decrease of 3.5% as compared to the region’s 2013 production of 1,570.5 million cubic feet per day. In 2014, the Northern region produced 1,928.6 million cubic feet per day of natural gas, or 29.5% of our total natural gas production, a decrease of 6.4% as compared to the region’s 2013 production of 2,060.6 million cubic feet per day.

Pemex-Exploration and Production’s average natural gas production increased by 2.5% in 2014, from 6,370.3 million cubic feet per day in 2013 to 6,531.9 million cubic feet per day in 2014. Natural gas production associated with crude oil production accounted for 73.8% of total natural gas production in 2014, with the remainder of natural gas production consisting of extraction from fields holding natural gas reserves. As of December 31, 2014, 186 of our 448 gas producing fields, or 41.5%, produce non-associated gas. These non-associated gas fields accounted for 26.2% of all natural gas production in 2014.

Investments in Exploration and Production

In nominal peso terms, Pemex-Exploration and Production’s capital expenditures for exploration and production were Ps. 222,069 million in 2014, as compared to Ps. 212,556 million in 2013, representing a 4.5% increase in nominal terms. Of our total capital expenditures, Ps. 34,232 million was directed to theKu-Maloob-Zaap fields, Ps. 19,638 million was directed to the Tsimin-Xux project, Ps. 18,943 million was directed to the ATG project, Ps. 18,276 million was directed to the Cantarell fields, Ps. 12,829 million was directed to the Crudo Ligero Marino project, Ps. 11,695 million was used for development of the Burgos natural gas fields (including Ps. 3,208 million of investments made through the Financed Public Works Contracts Program, see “—Business Overview—Exploration and Production—Financed Public Works Contracts” in this Item 4), Ps. 10,618 million was directed to the Chuc project, Ps. 8,840 million was directed to the Antonio J. Bermúdez fields, Ps. 7,020 million was directed to the Ogarrio-Sánchez Magallanes project and Ps. 5,348 million was directed to the Delta del Grijalva fields. During 2014, expenditures for these ten projects amounted to 66.4% of all our capital expenditures for exploration and production. The remaining 33.6% amounted to Ps. 74,630 million in nominal terms, which was directed to the 16 remaining projects, as well as to other exploratory projects and administrative and technical support.

 

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2015 Exploration and Production Capital Expenditures Budget. For 2015, Pemex-Exploration and Production has a total capital expenditures budget of Ps. 182,633 million, as compared to Ps. 222,069 million of capital expenditures made in 2014, representing a decrease of 17.8%. The 2015 budget includes all of the 26 ongoing strategic exploration and production projects, Ps. 31,500 million in other exploratory projects and Ps. 58 million in other development projects. Approximately Ps. 150,543 million, or 82.4% of our 2015 capital expenditures budget, is to be allocated to projects relating to field development and pipelines. Approximately Ps. 32,090 million, or 17.6% of the total budget, will be allocated to exploration activities.

The 2015 exploration and production budget includes Ps. 28,737 million for investments in the Ku-Maloob-Zaap project, Ps. 18,432 million for the Cantarell project, Ps. 14,946 million for the Tsimin-Xux project, Ps. 11,637 million for the Chuc project, Ps. 8,498 million for the Crudo Ligero Marino project, Ps. 7,322 million for the Antonio J. Bermúdez project, Ps. 6,830 million for the Burgos project, Ps. 6,595 million for the Integral Yaxché project, Ps. 5,870 million for the Delta del Grijalva project, Ps. 5,474 million for the Bellota Chinchorro project, Ps. 5,148 million for the Ogarrio-Sánchez Magallanes project and Ps. 63,144 million for the remaining projects, as well as for other exploratory and development projects and administrative and technical support.

Exploration and Production Investment Trends. In 2014, we invested Ps. 35,082 million in nominal terms, or 15.8% of the total capital expenditures of Pemex-Exploration and Production, in exploration activities, which represents a 9.0% increase from the Ps. 32,179 million invested in exploration activities in 2013. In 2014, we invested Ps. 186,986 million in nominal terms, or 84.2% of the total capital expenditures for Pemex-Exploration and Production, in development activities, which represents a 3.7% increase from the Ps. 180,377 million invested in development activities in 2013.

In 2015, we have budgeted Ps. 32,090 million, or 17.6% of total capital expenditures, for exploration activities ofPemex-Exploration and Production, which represents an 8.5% decrease in nominal terms from the amount invested in exploration activities in 2014. For development activities in 2015, we have budgeted Ps. 150,543 million, or 82.4% of total capital expenditures, which represents a 19.5% decrease in nominal terms from the amount that Pemex-Exploration and Production invested in development activities in 2014. In 2016, we expect to invest Ps. 36,994 million, or 19.4%, of total capital expenditures of Pemex-Exploration and Production, in exploration activities, which represents a 15.3% increase in nominal terms from the amount budgeted for 2015. In 2017, we expect to invest Ps. 52,139 million, or 25.1% of total capital expenditures of Pemex-Exploration and Production, in exploration activities, which represents a 40.9% increase in nominal terms from the amount projected for 2016. In 2018, we expect to invest Ps. 72,007 million, or 33.3% of total capital expenditures of Pemex-Exploration and Production, in exploration activities, which represents a 38.1% increase in nominal terms from the amount projected for 2017.

Our projected exploration and development capital expenditures correspond to the areas assigned to us through Round Zero, which represent the areas in which we were exploring, operating or had an interest in developing based on our operational capabilities as of August 2014. The Ministry of Energy granted us the right to explore and develop these areas with the aim of maintaining our production levels in the short term, while providing us with sufficient exploration opportunities to increase our production in the future. Given that a significant number of exploration areas were reserved by the Mexican Government for future competitive bidding rounds, we intend to carry out our strategy of increasing production and improving our RRR over time by entering into strategic joint ventures with other oil and gas companies. Through these joint ventures, we hope to gain access to new technology and international best practices, while sharing the costs associated with security, occupational health and environmental protection and minimizing our operational risks. Over time, the allocation of our capital expenditures budget may change according to the results of subsequent bidding rounds in which we participate.

The capital expenditures of Pemex-Exploration and Production have constituted 83.9% or more of our total capital expenditures in each of the last five years. In 2015, Pemex-Exploration and Production’s budgeted capital expenditures constitute 77.0% of our total.

 

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The following table sets forth our capital expenditures related to exploration and development during the five years ended December 31, 2014.

Exploration and Development Capital Expenditures for 2010-2014

 

 Year ended December 31,(1) 
 2010 2011 2012 2013 2014 
 (in millions of nominal pesos) 

Exploration

Ps.29,474  Ps.31,133  Ps.33,161  Ps.32,179  Ps.35,082  

Development

 165,364   145,926   160,640   180,377   186,986  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

Ps. 194,838  Ps. 177,059  Ps. 193,801  Ps. 212,556  Ps. 222,069  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

Note: Numbers may not total due to rounding.

(1)Amounts based on cash basis method of accounting.

Source: Pemex-Exploration and Production.

The following table sets forth our estimated capital expenditures budget for exploration and development for 2015 through 2018.

Estimated Exploration and Development Capital Expenditures for 2015-2018

 

 Year ended December 31,(1) 
 2015(2) 2016 2017 2018 
 (in millions of constant 2015 pesos) 

Exploration(3)

Ps.32,090  Ps.36,994  Ps.52,139  Ps.72,007  

Development(3)

 150,543   153,939   155,912   144,536  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

Ps. 182,633  Ps. 190,933  Ps. 208,051  Ps. 216,543  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

Note: Numbers may not total due to rounding.

(1)Amounts based on cash basis method of accounting.
(2)Revised budget, as approved by the Board of Directors of Petróleos Mexicanos on February 13, 2015.
(3)Estimated budgets for 2016 through 2018 are based on the operating fields and exploration areas assigned to us through Round Zero, in accordance with the same criteria used in connection with the approval by the Board of Directors of Petróleos Mexicanos of the revised budget on February 13, 2015.

Source: Pemex-Exploration and Production.

Investments and Production by Project

We conduct exploration, production and development activities in fields throughout Mexico. Our main projects are Ku-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.

Ku-Maloob-Zaap Project. The Ku-Maloob-Zaap project was our most important producer of heavy crude oil and plays an important part in the production of the Maya crude oil mix. It is the most important project in Mexico in terms of total proved hydrocarbon reserves and crude oil production. It is composed of the Ayatsil, Bacab, Lum, Ku, Maloob, Tekel, Utsil and Zaap fields, and extends over an area of 305.7 square kilometers. As of December 31, 2014, there was a total of 229 wells completed, 185 of which were producing. The project produced an average of 856.7 thousand barrels of crude oil per day, 35.3% of our total production, and 571 million cubic feet of natural gas per day in 2014. As of December 31, 2014, cumulative production was 4.5 billion barrels of crude oil and 2.2 trillion cubic feet of natural gas. As of December 31, 2014, proved hydrocarbon reserves totaled 3.3 billion barrels of crude oil and 1.4 trillion cubic feet of natural gas. Total proved reserves were 3.6 billion barrels of oil equivalent, of which 2.7 billion barrels were developed.

In nominal peso terms, Pemex-Exploration and Production’s capital expenditures for this project were Ps. 22,720 million in 2012, Ps. 29,738 million in 2013 and Ps. 34,232 million in 2014. For 2015, we anticipate that capital expenditures will be Ps. 28,737 million and that total accumulated capital expenditures for this project will reach approximately U.S. $22.3 billion. In 2014, Pemex-Exploration and Production paid approximately U.S. $35.6 million to acquire approximately 106.8 billion cubic feet of nitrogen for the pressure maintenance project in the fifth module of the Cantarell nitrogen cryogenic plant, which began operations in November 2006. In 2015, we expect to spend approximately U.S. $41.3 million to acquire approximately 108.6 billion cubic feet of nitrogen for injection into theKu-Maloob-Zaap fields.

Tsimin-Xux Project. This project consists of the Tsimin and Xux fields, which include volatile oil and gas condensate reservoirs in the shallow waters of the Gulf of Mexico. The Tsimin field is located 62 kilometers from the Dos Bocas Marine Terminal in Paraíso, Tabasco, while the Xux field is located on the continental shelf of the Gulf of Mexico, approximately ten kilometers off the coast of Tabasco. During 2014, five new wells were completed at the Tsimin field and five new wells were completed at the Xux field. During 2014, average daily production at the Tsimin-Xux project totaled 85.1 thousand barrels of crude oil and 337.1 million cubic feet of natural gas. The development plan for this project estimates that average daily production will reach 141 thousand barrels of crude oil and 661 million cubic feet of natural gas. During 2014, the sales prices of the light and extra-light crude oil produced at this field averaged more than U.S. $93 per barrel, making this one of our most important projects in terms of revenue generation.

 

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As of December 31, 2014, cumulative production totaled 43.1 billion barrels of crude oil and 176.4 trillion cubic feet of natural gas. Proved hydrocarbon reserves totaled 275.3 million barrels of crude oil and 1.5 trillion cubic feet of natural gas. Total proved reserves were 581.6 million barrels of oil equivalent, of which 313.7 million barrels were developed.

In nominal peso terms, Pemex-Exploration and Production’s capital expenditures for the Tsimin-Xux project were Ps. 19,638 million in 2014. In 2015, we expect capital expenditures for this project to total Ps. 14,946 million.

Aceite Terciario del Golfo Project (formerly Paleocanal de Chicontepec). The ATG project is located in the Northern region and covers an area of 4,243 square kilometers. This project comprises 29 fields, which are divided among eight sectors. As of December 31, 2014, there was a total of 4,506 wells completed, of which 2,414 were producing. The project produced an average of 48.8 thousand barrels of crude oil per day in 2014 as compared to 66.2 thousand barrels of crude oil per day in 2013, which represents a 26.3% decrease, and 149.5 million cubic feet of natural gas per day in 2014 as compared to 167.0 million cubic feet of natural gas per day in 2013, which represents a 10.5% decrease. The decrease in crude oil production was primarily due to the decline in pressure in certain reservoirs, whereas the increase in natural gas production was primarily due to the use of unconventional wells and artificial lift systems. As of December 31, 2014, cumulative production was 271.9 million barrels of crude oil and 539.8 billion cubic feet of natural gas. As of December 31, 2014, proved reserves totaled 599.3 million barrels of crude oil and 946.8 billion cubic feet of natural gas. Total proved hydrocarbon reserves were 797.9 million barrels of oil equivalent, of which 263.7 million barrels of oil equivalent were developed. During 2014, field development activities at the project included the drilling of 42 wells, and the completion of 50 wells. All 50 completed wells were classified as producing, reflecting a success factor of 100%. As of December 31, 2014, 72% of the total producing wells were operating with artificial lift systems, such as beam pumps and gas lifts, while the remaining 28% were “flowing wells” that are classified accordingly because they did not require any means of artificial lift.

In nominal peso terms, Pemex-Exploration and Production’s capital expenditures for the ATG project were Ps. 20,864 million in 2012, Ps. 20,049 million in 2013 and Ps. 18,943 million in 2014. For 2015, we anticipate that capital expenditures for this project will be Ps. 4,620 million and that total accumulated investments in this project will be approximately U.S. $13.1 billion.

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, 2014, there was a total of 555 wells drilled in the Cantarell project, 202 of which were producing. During 2014, the Cantarell business unit, of which the Cantarell project is part, was the second most important producer of crude oil in Mexico, averaging 374.9 thousand barrels per day of crude oil. This was 14.8% less than 2013 production, which was 439.8 thousand barrels per day, as a result of the decline of crude oil reserves remaining in these fields. Natural gas production from the Cantarell business unit during 2014 averaged 1,120.9 million cubic feet per day. This was 11.3% more than the 2013 average natural gas production, which was 1,007.1 million cubic feet per day, due to the higher gas-to-oil ratio of the producing wells located close to the secondary gas-cap of the Cantarell reservoir.

As of December 31, 2014, cumulative production of the Cantarell project was 14.1 billion barrels of crude oil and 8.4 trillion cubic feet of natural gas. As of December 31, 2014, proved hydrocarbon reserves of the Cantarell project totaled 1.7 billion barrels of crude oil and 1.1 trillion cubic feet of natural gas. As of December 31, 2014, total proved reserves were 1.9 billion barrels of oil equivalent, all of which were developed.

The Akal field, which is the most important field in the Cantarell project, averaged 177.0 thousand barrels per day of crude oil production during 2014. This was 12.9% less than the average production in 2013, which was 203.3 thousand barrels per day.

In nominal peso terms, Pemex-Exploration and Production’s capital expenditures for the Cantarell project totaled Ps. 42,139 million in 2012, Ps. 28,171 million in 2013 and Ps. 18,276 million in 2014. For 2015, we have budgeted Ps. 18,432 million for capital expenditures for the Cantarell project. By the end of 2015, we expect our capital expenditures to total approximately U.S. $41.1 billion for this project.

 

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On October 10, 1997, we awarded a build-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 approximately Ps. 10,131 million. Pursuant to the terms of the agreement, Pemex-Exploration and Production has the right to acquire the nitrogen plant in the case of a default by the consortium. Pemex-Exploration and Production has the obligation to acquire the nitrogen plant if it defaults under the contract. Under the terms of the contract, Pemex-Exploration and Production has committed to purchasing 1.2 billion cubic feet per day of nitrogen from the consortium until April 2016.

During 2014, Pemex-Exploration and Production paid approximately U.S. $65.6 million under this contract for an approximate total volume of 419.2 billion cubic feet of nitrogen, which was injected into the Cantarell fields. In 2015, Pemex-Exploration and Production expects to pay approximately U.S. $65.7 million under this contract for an approximate total volume of 427.5 billion cubic feet of nitrogen to be injected into the fields.

Crudo Ligero Marino Project. In 2013, the SHCP approved the designation of the Crudo Ligero Marino project as a stand-alone project, thereby separating it from the Strategic Gas Program of which it formed part from 2001 through 2012. In 2013, the Och-Uech-Kax project was integrated into this project. The main objectives for the Crudo Ligero Marino project during the years 2015 to 2037 are to continue constructing six marine structures, in addition to the marine structure completed during 2014, implement secondary recovery techniques at the May and Bolontiku fields and carry out optimization and maintenance activities at its facilities. As of December 31, 2014, a total of 90 wells had been completed at this project, of which 50 were producing. During 2014, average daily production totaled 132.1 thousand barrels of crude oil and 441.0 million cubic feet of natural gas. As of December 31, 2014, cumulative production was 0.8 billion barrels of crude oil and 2.2 trillion cubic feet of natural gas. Proved hydrocarbon reserves totaled 181.6 million barrels of crude oil and 0.6 trillion cubic feet of natural gas. Total proved reserves were 296.7 million barrels of oil equivalent, of which 194.9 million barrels were developed.

In nominal peso terms, Pemex-Exploration and Production’s capital expenditures for the Crudo Ligero Marino project totaled Ps. 12,829 million in 2014. For 2015, we anticipate our capital expenditures to total Ps. 8,498 million.

Burgos Project. The Burgos project is the largest producer of non-associated gas in Mexico. In 1997, Pemex-Exploration and Production initiated a development program for the Burgos natural gas fields. The purpose of the Burgos project is to enable us to meet increasing domestic demand for natural gas. The fields in Burgos accounted for 18.7% of our total natural gas production in 2014. The project is located in northeastern Mexico.

During 2014, the Burgos project produced an average of 1,221 billion cubic feet per day of natural gas. As of December 31, 2014, the drilling of 7,932 wells had been completed, 3,183 of which were producing. The most important fields are the Nejo, Arcabuz-Culebra, Cuitláhuac, Cuervito, Topo, Santa Anita and Palmito fields, which together produced 47.4% of the total production of the Burgos project in 2014.

 

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Main Fields of the Burgos Project

(as of December 31, 2014)

 

 Arcabuz-
Culebra
 Cuitláhuac Cuervito Topo Santa
Anita
 Nejo Palmito 

Total acreage (square kilometers)

 385   238   50   43   54   202   65  

Developed acreage

 367   211   34   34   44   195   61  

Undeveloped acreage

 18   27   16   9   10   7   4  

Wells completed

 962   437   135   75   78   391   134  

Producing wells

 596   181   95   36   66   321   89  

2014 production of natural gas (million cubic feet per day)

 123.9   84.7   46.6   36.8   38.9   212.4   35.0  

Cumulative production of natural gas (billion cubic feet)

 1,959.9   736.2   172.5   134.5   230.4   346.6   98.2  

Proved reserves of natural gas (billion cubic feet)

 99.9   153.7   139.8   111.3   37.2   61.6   35.9  

Proved developed reserves

 65.1   73.1   66.6   104.2   29.3   37.6   22.3  

Proved undeveloped reserves

 34.7   80.6   73.2   7.1   7.9   24.1   13.6  

From 2010 to 2014, exploration activities and the reclassification of reserves increased estimated proved reserves in Burgos by 526.5 million barrels of oil equivalent. Production during this period totaled 598.8 million barrels of oil equivalent. During 2014, proved reserves decreased by 84.8 million barrels of oil equivalent, from 345.8 million barrels of oil equivalent in 2013 to 261.0 million barrels of oil equivalent in 2014, primarily due to the amount of proved reserves in the Burgos project that were assigned to us in connection with Round Zero.

In nominal peso terms, Pemex-Exploration and Production’s capital expenditures (including capital expenditures made pursuant to FPWCs) for the Burgos project were Ps. 17,324 million in 2012, Ps. 10,316 million in 2013 and Ps. 11,695 million in 2014. For 2015, we anticipate that our capital expenditures for this project will amount to Ps. 6,830 million and that our total accumulated capital expenditures will reach approximately U.S. $20.0 billion.

Chuc Project. The Chuc project is the third largest producer of light crude oil in the Southwestern Marine region, and includes the operation and maintenance of the Pol-A facility and water injection complexes. In 2013, the SHCP approved the integration of the Caan project into the Chuc project. This project covers an area of 213 square kilometers and has been exploited by Pemex-Exploration and Production since 1981. 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 the 20- and 100-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. In January 2007, the Pol and Batab projects were merged into the Chuc project. As of December 31, 2014, 108 wells had been completed, of which 84 were producing. During 2014, average production totaled 241.2 thousand barrels per day of crude oil and 417.9 million cubic feet per day of natural gas. As of December 31, 2014, cumulative production totaled 5.6 billion barrels of crude oil and 6.4 trillion cubic feet of natural gas. As of December 31, 2014, proved hydrocarbon reserves totaled 470.5 million barrels of oil and 842.3 billion cubic feet of natural gas, or 625.2 million barrels of oil equivalent. As of December 31, 2014, total proved developed reserves were 479.1 million barrels of oil equivalent.

In nominal peso terms, Pemex-Exploration and Production’s capital expenditures for the Chuc project were Ps. 7,870 million in 2012, Ps. 9,897 million in 2013 and Ps. 10,618 million in 2014. In 2015, we expect our capital expenditures to be Ps. 11,637 million and anticipate that our total accumulated capital expenditures for this project will reach approximately U.S. $5.1 billion.

Antonio J. Bermúdez Project. In 2002, we began investing in the Antonio J. Bermúdez project, the main investment project in the Southern region and the fifth largest in Mexico. This 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, 2014, a total of 819 wells had been completed, of which 309 were producing. During 2014, the project produced an average of 72.8 thousand barrels per day of crude oil and 220.7 million cubic feet per day of natural gas. As of December 31, 2014, cumulative production was 2.9 billion barrels of crude oil and 4.5 trillion cubic feet of natural gas. As of December 31, 2014, proved hydrocarbon reserves in this field totaled 0.7 billion barrels of crude oil and 1.9 trillion cubic feet of natural gas. As of December 31, 2014, total proved reserves were 1.2 billion barrels of oil equivalent, of which 0.5 billion were developed.

 

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In nominal peso terms, Pemex-Exploration and Production’s capital expenditures for the Antonio J. Bermúdez project were Ps. 13,126 million in 2012, Ps. 11,489 million in 2013 and Ps. 8,840 million in 2014. For 2015, we anticipate that our capital expenditures for this project will be Ps. 7,322 million and that our total accumulated investments in the project will reach approximately U.S. $9.0 billion. In March 2005, we entered into a contract with Praxair México, S. de R.L. de C.V. to build, own and operate a nitrogen cryogenic plant, which was completed in June 2008. After completing testing in July 2008, we began injecting 190 million cubic feet per day of nitrogen into the project. In 2014, we paid approximately Ps. 60.1 million to acquire nitrogen from this plant, which we used to inject approximately 190.6 million cubic feet per day during 2014 for pressure maintenance in connection with the project. Between 2015 and 2022, we plan to continue to inject the same volume of nitrogen.

Ogarrio-Sánchez Magallanes Project. The Ogarrio-Sánchez Magallanes project is composed of 20 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. The Ogarrio-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 hydrocarbon 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, 2014, the Ogarrio-Sánchez Magallanes project had 621 producing wells and 54 new wells had been completed during 2014. Average daily production totaled 89.1 thousand barrels of crude oil and 152.8 million cubic feet of natural gas during 2014. As of December 31, 2014, cumulative production was 1.9 billion barrels of crude oil and 2.4 trillion cubic feet of natural gas. Proved hydrocarbon reserves totaled 184.0 million barrels of crude oil and 253.4 billion cubic feet of natural gas. Total proved reserves were 232.0 million barrels of oil equivalent, of which 193.8 million barrels were developed. In nominal peso terms, our capital expenditures for the Ogarrio-Sánchez Magallanes project were Ps. 7,020 million in 2014. For 2015, we anticipate that our capital expenditures will total Ps. 5,148 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 and has been exploited by Pemex-Exploration and Production since 1982. As of December 31, 2014, there was a total of 180 wells drilled, of which 53 were producing. During 2014, the project produced an average of 88.6 thousand barrels per day of crude oil and 362.5 million cubic feet per day of natural gas. The most important fields are Terra, Tizón, Sen and Caparroso-Pijije-Escuintle.

 

  Terra. This field covers an area of 13.7 square kilometers. As of December 31, 2014, a total of seven wells had been completed, all of which were producing. During 2014, the field produced an average of 28.5 thousand barrels per day of crude oil and 96.0 million cubic feet per day of natural gas. As of December 31, 2014, cumulative production was 27.9 million barrels of crude oil and 91.9 billion cubic feet of natural gas. Proved hydrocarbon reserves totaled 41.6 million barrels of crude oil and 131.6 billion cubic feet of natural gas. As of December 31, 2014, total proved reserves were 73.8 million barrels of oil equivalent, 30.5 million of which were developed.

 

  Sen. This field covers an area of 45.1 square kilometers. As of December 31, 2014, a total of 48 wells had been completed, 14 of which were producing. During 2014, the field produced an average of 13.5 thousand barrels per day of crude oil and 36.8 million cubic feet per day of natural gas. As of December 31, 2014, cumulative production was 308.4 million barrels of crude oil and 841.2 billion cubic feet of natural gas. Proved hydrocarbon reserves totaled 43.5 million barrels of crude oil and 118.0 billion cubic feet of natural gas. As of December 31, 2014, total proved reserves were 72.4 million barrels of oil equivalent, 31.1 million of which were developed.

 

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  Caparroso-Pijije-Escuintle. This field covers an area of 28.2 square kilometers. As of December 31, 2014, a total of 52 wells had been completed, 13 of which were producing. During 2014, the field produced an average of 12.7 thousand barrels per day of crude oil and 39.6 million cubic feet per day of natural gas. As of December 31, 2014, cumulative production was 221.5 million barrels of crude oil and 622.5 billion cubic feet of natural gas. Proved hydrocarbon reserves totaled 13.8 million barrels of crude oil and 47.5 billion cubic feet of natural gas. As of December 31, 2014, total proved reserves were 25.4 million barrels of oil equivalent, 17.7 million of which were developed.

 

  Tizón. This field covers an area of 17.8 square kilometers. As of December 31, 2014, a total of 14 wells had been completed, ten of which were producing. During 2014, the field produced an average of 26.8 thousand barrels per day of crude oil and 157.1 million cubic feet per day of natural gas. As of December 31, 2014, cumulative production was 56.1 million barrels of crude oil and 321.5 billion cubic feet of natural gas. Proved hydrocarbon reserves totaled 25.0 million barrels of crude oil and 150.0 billion cubic feet of natural gas. As of December 31, 2014, total proved reserves were 61.7 million barrels of oil equivalent, 43.1 million of which were developed.

As of December 31, 2014, cumulative production in the Delta del Grijalva project was 0.8 billion barrels of crude oil and 2.7 trillion cubic feet of natural gas. Proved hydrocarbon reserves as of December 31, 2014 totaled 138.2 million barrels of crude oil and 502.2 billion cubic feet of natural gas. As of December 31, 2014, total proved reserves were 261.1 million barrels of oil equivalent, 139.7 million of which were developed.

In nominal peso terms, Pemex-Exploration and Production’s capital expenditures for the Delta del Grijalva project were Ps. 5,671 million in 2012, Ps. 6,169 million in 2013 and Ps. 5,348 million in 2014. In 2015, we expect our capital expenditures to be Ps. 5,870 million, bringing our total capital expenditures for the project to approximately U.S. $3.7 billion.

Crude Oil Sales

During 2014, domestic consumption of crude oil amounted to approximately 1,161.1 thousand barrels per day, which represented 47.8% of our total crude oil production. Through PMI’s activities, we sold the remainder of our crude oil production abroad. Maya crude oil accounted for 78.0% of exported crude oil volume sold by PMI in 2014. See “—Business Overview—International Trading” in this Item 4.

The following table sets forth crude oil distribution for the past five years.

Crude Oil Distribution

 

 At December 31, 2014 
 2010 2011 2012 2013 2014 vs. 2013 
 (in thousands of barrels per day) (%) 

Production

 2,577.0   2,552.6   2,547.9   2,522.1   2,428.8   (3.7

Distribution

Refineries

 1,190.7   1,172.3   1,211.0   1,229.1   1,161.1   (5.5

Export terminals

 1,358.0   1,342.9   1,268.3   1,190.4   1,148.6   (3.5
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total

 2,548.7   2,515.2   2,479.3   2,419.5   2,309.7   (4.5
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Statistical differences in stock measurements(1)

 28.3   37.4   68.6   102.6   119.1   16.1  

 

Note: Numbers may not total due to rounding.

(1)Includes measurement inconsistencies, shrinkage and leakage, naphthas and condensates added to crude oil.

Source: Pemex-Exploration and Production.

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 August 2014, we identified increases in the difference between the volumes of crude oil production and distribution. Based on an analysis conducted in coordination with the NHC, we implemented various corrective measures to improve our measurement methodology and management system, including continuously monitoring our wells, calibrating our measurement equipment and installing additional crude oil dehydration systems. To this end, sediment tanks have also been installed at marine terminals in order to accelerate water evaporation and crude oil stabilization in accordance with industry standards. In addition, crude oil barrels undergo a stabilization process in preparation for export, which involves certification by us, the buyer and a third party to verify that the contents meet international standards and contain no more than 0.5% water.

 

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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 2014, gas flaring represented 3.8% of total natural gas production, as compared to 1.9% in 2013, primarily due to the rapid advancement of oil and gas contact at the Ku-Maloob Zaap project, the need for new wells at producing fields and the development of an artificial lift system. We continue to implement programs to reduce gas flaring and improve gas extraction efficiency, including strategies to optimize the exploitation of wells with high associated gas content at the Cantarell project.

Pipelines

The crude oil and natural gas pipeline network owned by Pemex-Exploration and Production connects crude oil and natural gas producing centers with refineries and petrochemical plants. At the end of 2014, this pipeline network consisted of approximately 41,753 kilometers of pipelines, of which 1,057 kilometers were located in the Northeast Marine region, 1,014 kilometers were located in the Southeast Marine region, 8,634 kilometers were located in the Southern region, 25,879 kilometers were located in the Northern region and 5,169 kilometers are distribution and commercial pipelines. For a description of products transported by the pipeline network, see “—Business Overview—Transportation and Distribution” in this Item 4.

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 is to provide a contractual framework that promotes efficient execution of public works in order to increase Mexico’s hydrocarbons production. The FPWC are public works contracts based on unit prices that aggregate a number of different services into a single contract. Under the FPWC framework, Pemex-Exploration and Production retains the rights and title to all hydrocarbons produced and works performed under each FPWC.

The following table summarizes Pemex-Exploration and Production’s existing FPWCs as of December 31, 2014.

 

Block

Contractor

Contract Amount
(in millions of
U.S. dollars)
 

Cuervito

PTD Servicios Múltiples, S. de R.L. de C.V.

U.S. $ 260.1  

Misión

Servicios Múltiples de Burgos, S.A. de C.V.

 1,529.2  

Fronterizo

PTD Servicios Múltiples, S. de R.L. de C.V.

 265.0  

Olmos

Lewis Energy México, S. de R.L. de C.V.

 343.6  

Pirineo

Monclova Pirineos Gas, S.A. de C.V.

 645.3  

Monclova

GPA Energy, S.A. de C.V.

 1,070.0  
  

 

 

 

Total

U.S. $4,113.2  
  

 

 

 

 

Source: Pemex-Exploration and Production.

On January 8, 2014, the contract corresponding to the Reynosa-Monterrey block expired and Pemex-Exploration and Production became solely responsible for the activities carried out in connection with this block.

Among other FPWC works during 2014, 28 wells were drilled in the Burgos project under the FPWC program, which represents approximately 14.0% of all wells drilled in Burgos. Also in 2014, 26 wells were completed, consisting of 24 development wells and two exploratory wells. All of these completed wells were productive. The works carried out in 2014 represented an investment of approximately U.S. $146 million. By the end of 2014, natural gas production in the existing FPWC blocks reached 212 million cubic feet per day, which represents approximately 17.0% of all natural gas production from Burgos during 2014.

 

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On December 19, 2014, pursuant to the Regulations to the Hydrocarbons Law, Pemex-Exploration and Production, together with its counterparties, requested that the Ministry of Energy migrate the existing FPWCs governing the Misión and Olmos blocks into new contracts for exploration and extraction. In accordance with the Regulations to the Hydrocarbons Law, the Ministry of Energy is expected to propose the technical terms of the new contracts during the second quarter of 2015. If Pemex-Exploration and Production and the contractors agree to the proposed terms, they will enter into new contracts for exploration and extraction, which will replace the existing Misión and Olmos FPWCs, as well as corresponding joint operating agreements.

We expect to submit similar requests to migrate the remaining FPWCs to contracts for exploration and extraction during 2015. See “—History and Development—Energy Reform—Assignment of Exploration and Production Rights” above in this Item 4.

Integrated Exploration and Production Contracts

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 is to increase our execution and production capabilities. The hydrocarbons reserves located in and extracted from the areas to which we have a legal right, will continue to be owned exclusively by the Mexican Government. Under this program, payments to the contractors will be made on a per-barrel basis, plus recovery costs, provided that the payments may not exceed our cash flow from the particular block.

In August 2011, Pemex-Exploration and Production awarded its first round of Integrated E&P Contracts, relating to the Santuario, Carrizo and Magallanes fields in the Southern region in Mexico. In July and August of 2012, Pemex-Exploration and Production awarded its second round of Integrated E&P Contracts relating to Mexico’s Northern region, including four onshore blocks (Altamira, Pánuco, San Andrés and Tierra Blanca) and one offshore block (Arenque), to Petrofac, Schlumberger, Cheiron (Pico Petroleum) and Monclova Pirineos Gas/Alfacid del Norte.

On December 14, 2012, Pemex-Exploration and Production signed an Integrated E&P Contract with Grupo Diavaz, S.A. de C.V. to develop the Ébano block.

On March 1, 2013, the contract governing the Nejo block, which was previously an FPWC, was modified to adopt a structure similar to that of our Integrated E&P Contracts.

On July 11, 2013, Pemex-Exploration and Production awarded Integrated E&P Contracts for the Humapa, Miquetla and Soledad blocks to Halliburton de México S. de R.L. de C.V., Operadora de Campos DWF (part of Grupo Diavaz, S.A. de C.V.) and Petrolite de México (part of Baker Hughes Inc.), respectively. On June 2014, Pemex-Exploration and Production awarded the Integrated E&P Contract for the Pitepec block to Constructora y Perforadora Latina, S.A. de C.V. In July 2014, the Integrated E&P Contracts governing the Miahuapan and Amatitlán blocks were awarded to a consortium formed by Vitol Energy México, S. A. de C.V. and GPA Energy, S.A. de C.V.

During 2014, contractors have expended approximately U.S. $698 million in connection with Integrated E&P Contracts. By the end of 2014, production in the existing Integrated E&P blocks reached 54.6 thousand barrels per day of crude oil and 240 million cubic feet per day of natural gas, for a total of 102.6 thousand barrels of oil equivalent per day.

On December 19, 2014, pursuant to the Regulations to the Hydrocarbons Law, Pemex-Exploration and Production and its counterparties requested that the Ministry of Energy migrate the Integrated E&P Contracts governing the Santuario, Magallanes, Altamira, Arenque, Ébano, Miquetla and Pánuco blocks into new contracts for exploration and extraction. The Ministry of Energy is expected to propose the technical terms of the new contracts during the second quarter of 2015, while the fiscal terms will be proposed by the SHCP. If Pemex-Exploration and Production and the contractors agree to the proposed terms, they will enter into the new contracts for exploration and extraction, which will replace the existing Integrated E&P Contracts for the Santuario, Magallanes, Altamira, Arenque, Ébano, Miquetla and Pánuco blocks.

We expect to submit similar requests to migrate the remaining Integrated E&P Contracts to new contracts for exploration and extraction during 2015. See “—History and Development—Energy Reform—Assignment of Exploration and Production Rights” above in this Item 4.

 

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Collaboration and Other Agreements

Pemex-Exploration and Production has entered into non-commercial scientific and technology agreements with the following parties, which as of the date of this report remain in effect:

 

  Shell Exploration Company (West) B.V. and Repsol Exploración México, S.A. de C.V. during 2010;

 

  Petrobank Energy and Resources, Ltd., Seabird Exploration Americas, Inc. and Total Cooperation Technique Mexique, S.A.S. during 2011;

 

  BP Exploration Operating Co. Ltd. during 2012;

 

  Statoil Mexico A.S., ExxonMobil Ventures Mexico Ltd., Japan Oil, Gas and Metals National Corporation, Chevron Deepwater Mexico Inc., BG North America LLC, Itera Group LLC, Ecopetrol S.A. (memorandum of understanding and cooperation signed in conjunction with Pemex-Refining and Pemex-Gas and Basic Petrochemicals), Aerojet Rocketdyne, Inc. and Oil Company Lukoil during 2013; and

 

  RT Global Resources, LLC, Noble Energy Global Ventures Ltd., Bridas Corporation, Hunt Oil Company, McCombs Family Partners Ltd., BP Exploration Operating Co. Ltd., Evercore Energy Group, Pluspetrol, GALP (memorandum of understanding signed in conjunction with Pemex-Gas and Basic Petrochemicals and Petróleos Mexicanos), BHP Billiton, Diavaz Dep, S.A.P.I. de C.V., Mitsui & Co., Ltd., Total Cooperation Technique Mexique, S.A.S. (memorandum of understanding signed in conjunction with Pemex-Refining and Petróleos Mexicanos) and Japan Oil, Gas and Metals National Corporation (memorandum of understanding signed in conjunction with Pemex-Gas and Basic Petrochemicals and Petróleos Mexicanos) during 2014.

Through these agreements, we seek to increase our technical and scientific knowledge in areas including deepwater subsalt exploration and drilling; enhanced oil recovery processes, such as air injection; and reservoir characterization of complex structures. These broad agreements of technological and scientific collaboration are strictly non-commercial,i.e., there is no transfer of resources among the parties.

Refining

Refining Processes and Capacity

Pemex-Refining’s production processes include the following:

 

  Atmospheric distillation. This process heats crude oil in a tube furnace at atmospheric pressure to distill refined products. The primary products produced are gasoline, kerosene, jet fuel, diesel, atmospheric gas oil and atmospheric residual crude oil.

 

  Vacuum distillation. This process heats crude oil or other feedstock in a vacuum distillation column, which is operated at low pressures. The objective of this process is to maximize production of heavy vacuum gas oil, which is produced by boiling crude oil.

 

  Cracking. This process uses either heat and pressure or a catalytic agent to increase gasoline yields from crude oil.

 

  Visbreaking. This is a thermal cracking process, which uses a horizontal-tube heater fired to a high temperature. Visbreaking reduces flasher bottom viscosity and produces some heavy gas oil.

 

  Reforming processes. These processes use heat and catalysts to transform smaller or unstable hydrocarbon molecules into larger, more useful refining or blending products. For example,Pemex-Refining uses reforming processes to convert low octane gasoline into higher octane stocks that are suitable for blending into finished gasoline and to convert naphthas into more volatile, higher octane products.

 

  Hydrotreatment or residual hydrocracking. This process uses a catalyst and hydrogen at high temperature and pressure to remove sulfur, nitrogen and some aromatic compounds. Hydrotreatment also processes some lighter liquid product off-take.

 

  Alkylation and isomerization. This polymerization process unites olefins and isoparaffins. Butylenes and isobutanes are combined with sulfuric acid or hydrofluoric acid to rearrange straight-chain hydrocarbon molecules into branched-chain products. Pentanes and hexanes, which are difficult to reform, are isomerized through the use of aluminum chloride and other precious-metal catalysts. Normal butane may be isomerized to provide a portion of the isobutane feed needed for the alkylation process. The process produces a high octane, low sensitivity blending agent for gasoline.

 

  Coking. This process is a severe method of thermal cracking used to upgrade heavy residuals into lighter products or distillates. Coking produces straight-run gasoline (coker naphtha) and various middle-distillate fractions used as catalytic feedstock, thus generating a concentrated solid material called coke of petroleum.

 

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These production processes together constitute Pemex-Refining’s production capacity as set forth in the table below.

Refining Capacity by Production Process

 

 At December 31, 
 2010 2011 2012 2013 2014 
 (in thousands of barrels per day) 

Production Process

Atmospheric distillation

 1,540.0   1,690.0   1,690.0   1,690.0   1,602.0  

Vacuum distillation

 754.0   832.0   832.0   832.0   767.5  

Cracking

 380.5   422.5   422.5   422.5   422.5  

Visbreaking

 91.0   91.0   91.0   91.0   91.0  

Reforming

 279.3   279.3   279.3   279.3   279.3  

Hydrotreatment

 1,010.1   1,067.5   1,067.5   1,067.5   1,067.5  

Alkylation and isomerization

 128.5   141.9   155.3   155.3   154.3  

Coking

 100.0   155.8   155.8   155.8   155.8  

 

Source: Base de Datos Institucional (Pemex Institutional Database, or Pemex BDI).

As of December 31, 2014, Pemex-Refining 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 2014, our refineries processed 1,155 thousand barrels per day of crude oil (181 thousand barrels per day at Cadereyta, 111 thousand barrels per day at Madero, 167 thousand barrels per day at Minatitlán, 171 thousand barrels per day at Salamanca, 270 thousand barrels per day at Salina Cruz and 255 thousand barrels per day at Tula), which in total consisted of 658 thousand barrels per day of Olmeca and Isthmus crude oil and 497 thousand barrels per day of Maya crude oil.

Since 1993, through our subsidiary company, P.M.I. Norteamérica, S.A. de C.V., 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, P.M.I. Norteamérica, S.A. de C.V. 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

Pemex-Refining produces 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. Pemex-Refining produced 1,206 thousand barrels per day of refined products (including dry gas by-products of the refining process) in 2014, a decrease of 5.5% from 2013 levels. This decrease in refined products production was mainly due to a 5.5% decrease in the volume of crude oil supplied by producing fields, which, in turn, resulted from the 3.7% decrease in crude oil production in 2014.

 

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The following table sets forth, by category, Pemex-Refining’s production of petroleum products from 2010 through 2014.

Pemex-Refining Production

 

 Year ended December 31, 2014
vs. 2013
 
 2010 2011 2012 2013 2014 
 (in thousands of barrels per day) (%) 

Refinery Crude Oil Runs

 1,184.1   1,166.6   1,199.3   1,224.1   1,155.1   (5.6

Refined Products

Liquefied petroleum gas

 25.5   21.4   25.2   25.2   26.4   4.8  

Gasoline

Pemex Magna

 341.2   324.2   336.8   360.5   290.9   (19.3

Ultra-Low Sulfur Magna

 67.3   61.7   61.5   56.7   99.1   74.8  

Pemex Premium(1)

 12.5   13.7   19.7   19.8   30.8   55.6  

Base

 3.0   0.7   0.0   0.2   0.8   300.0  

Others

 0.1   0.0   0.0   0.0   0.0   —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total

 424.2   400.3   418.1   437.3   421.6   (3.6

Kerosene (Jet fuel)

 51.9   56.3   56.6   60.8   53.4   (12.2

Diesel

Pemex Diesel(2)

 221.0   193.6   225.9   217.7   186.9   (14.1

Ultra-Low Sulfur Diesel

 67.7   80.1   72.6   92.1   97.8   6.2  

Others

 0.8   0.1   1.0   3.7   1.9   (48.6
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total

 289.5   273.8   299.6   313.4   286.6   (8.6

Fuel oil

 322.3   307.5   273.4   268.8   259.2   (3.6

Other refined products

Asphalts

 24.9   26.1   23.1   18.7   23.9   27.8  

Lubricants

 4.3   3.7   3.9   4.4   3.7   (15.9

Paraffins

 0.8   0.7   0.8   0.7   0.6   (14.3

Still gas

 54.2   62.6   67.8   70.7   63.9   (9.6

Other refined products(3)

 31.7   37.9   57.3   75.7   66.7   (11.9
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total

 115.8   131.0   152.9   170.2   158.8   (6.7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total refined products

 1,229.1   1,190.2   1,225.9   1,275.8   1,206.1   (5.5
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

Note: Numbers may not total due to rounding.

(1)Pemex Premium is an ultra-low sulfur gasoline with 0.003% sulfur content.
(2)Pemex Diesel is sold in the northern border market with 0.0015% sulfur content.
(3)Includes principally coke, along with other products such as aeroflex 1-2, furfural extract and light cyclic oil.

Source: Pemex BDI.

Fuel oil, automotive gasoline and diesels represent the bulk of Pemex-Refining’s production. In 2014, fuel oil represented 21.5%, gasoline represented 35.0% and diesel fuel represented 23.8% of total petroleum products production. Jet fuel represented 4.4% and LPG represented 2.2% of total production of petroleum products in 2014. The remainder, 13.1%, of Pemex-Refining’s production consisted of a variety of other refined products.

As a result of our strategy of investing in technology to improve the quality of our fuels, all of our automotive gasoline production now consists of unleaded gasoline. In addition, we have introduced new environmentally sound products such as ultra-low sulfur gasoline (or ULSG) and ultra-low sulfur diesel (or ULSD). We also promote LPG as an environmentally sound substitute fuel for gasoline in motor vehicles.

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.

 

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For the five years ended December 31, 2014, the value of Pemex-Refining’s domestic sales of refined products and petrochemicals was as follows:

Value of Domestic Sales of Pemex-Refining(1)

 

 Year ended December 31, 2014 
 2010 2011 2012 2013 2014 vs. 2013 
 (in millions of pesos)(2) (%) 

Refined Products

Gasoline

Pemex Magna

Ps. 270,121.9  Ps.300,936.8  Ps.326,187.2  Ps.340,750.7  Ps. 347,952.4   2.1  

Pemex Premium

 24,987.2   27,520.1   42,486.0   63,723.1   80,058.9   25.6  

Aviation fuels

 247.1   353.4   396.2   370.8   358.1   (3.4

Others

 74.4   59.9   95.6   43.4   29.5   (32.0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total

 295,430.7   328,870.2   369,165.1   404,887.9   428.398.8   5.8  

Kerosene

Jet fuel

 22,935.3   31,560.2   36,336.5   35,417.9   36,449.3   2.9  

Other kerosenes

 179.0   215.9   224.0   275.4   432.5   57.0  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total

 23,114.3   31,776.1   36,560.5   35,693.3   36,881.8   3.3  

Diesel

Pemex Diesel

 125,556.4   142,559.8   163,113.6   178,929.4   194,545.6   8.7  

Others

 18,453.2   23,681.4   30,609.0   32,542.0   31,156.7   (4.3
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total

 144,009.6   166,241.2   193,722.6   211,471.4   225,702.4   6.7  

Fuel oil

Total

 56,766.7   80,265.5   99,839.9   78,001.8   46,838.3   (40.0

Other refined products

Asphalts

 8,814.1   10,539.1   11,165.0   7,865.4   10,788.0   37.2  

Lubricants

 2,429.8   3,153.8   3,097.7   2,991.2   2,618.9   (12.4

Paraffins

 297.5   304.2   377.1   339.4   319.2   (6.0

Coke

 106.4   104.5   346.3   473.4   763.3   61.2  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total

Ps.11,647.7  Ps.14,101.6  Ps.14,986.1  Ps.11,669.4  Ps.14,489.4   24.2  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total Refined Products

Ps.530,969.0  Ps. 621,254.5  Ps. 714,274.2  Ps. 741,723.8  Ps.752,310.8   1.4  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Petrochemicals(3)

Ps.4,089.7  Ps.4,424.3  Ps.6,544.9  Ps.6,957.7  Ps.7,669.1   10.2  

 

Note: Numbers may not total due to rounding.

(1)Excludes IEPS tax and value added tax. See “—Taxes, Duties and Other Payments to the Mexican Government” in this Item 4.
(2)Figures are stated in nominal pesos. See “Item 3—Key Information—Selected Financial Data.”
(3)Petrochemical products produced at refineries operated by Pemex-Refining.

Source:Pemex BDI.

The largest consumers of fuels in Mexico are theComisión Federal de Electricidad (Federal Electricity Commission) and our subsidiary entities. The Federal Electricity Commission consumed approximately 91.0% of our fuel oil production during 2014, pursuant to a fuel oil supply contract entered into in November 1995 and amended effective January 1, 2005. Pursuant to this amendment, the minimum amount of fuel oil that we agreed to supply to the Federal Electricity Commission during 2014 was 78,400 barrels per day, in accordance with the supply capacity of Pemex-Refining and the requirements of the Federal Electricity Commission under its official program of substitution of fuel oil with natural gas. The price per cubic meter of the fuel oil supplied to the Federal Electricity Commission is based on the three-month average spot price per cubic meter of Fuel Oil No. 6 (3% sulfur) at Houston, Texas, as quoted in Platt’s U.S. Marketscan and adjusted for quality and transportation cost differentials. In addition, the price of the fuel oil is discounted by a commercial margin on each cubic meter of fuel oil. In 2014, this volume discount amounted to approximately 0.5% of our total fuel oil sales to the Federal Electricity Commission. The contract can be terminated by either party upon six months’ notice. The total amount paid to us by the Federal Electricity Commission under this contract in 2014 was Ps. 42,846 million, which represented 5.7% of our total revenues from domestic sales of refined products.

In 2014, our domestic sales of refined products increased by Ps. 10,587.0 million, or 1.4% in value, as compared to 2013 levels. This increase was primarily due to a 5.8% increase in domestic sales of gasoline and a 6.7% increase in domestic sales of diesel. This increase was partially offset by a 40.0% decrease in the sales of fuel oil, a 0.7% decrease in the volume of domestic distillates sales and lower international prices of refined products in 2014.

 

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The volume of Pemex-Refining’s domestic sales of refined products for the five-year period ended December 31, 2014 was distributed as follows:

Volume of Domestic Sales of Pemex-Refining

 

 Year ended December 31, 2014 
 2010 2011 2012 2013 2014 vs. 2013 
 (in thousands of barrels per day, except where otherwise indicated) (%) 

Refined Products

Gasoline

Pemex Magna

 743.7   738.6   715.3   667.6   639.1   (4.3

Pemex Premium

 57.8   60.5   87.7   119.2   137.1   15.0  

Aviation fuels

 0.5   0.5   0.5   0.5   0.4   (20.0

Others

 0.2   0.1   0.2   0.1   0.0   (100.0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total

 802.2   799.7   803.7   787.3   776.7   (1.3

Kerosenes

Jet fuel

 55.8   56.1   59.3   62.2   66.5   6.9  

Other kerosenes

 0.6   0.6   0.6   0.7   0.9   28.6  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total

 56.4   56.8   59.9   62.9   67.5   7.3  

Diesel

Pemex Diesel

 325.1   330.6   339.4   333.2   336.4   1.0  

Others

 46.0   52.9   61.1   58.5   53.0   (9.4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total

 371.1   383.6   400.5   391.7   389.4   (0.6

Fuel oil

Total

 184.9   200.6   214.4   189.3   121.7   (35.7

Other refined products

Asphalts

 23.6   24.6   22.3   17.3   21.7   25.4  

Lubricants

 4.7   4.2   4.1   4.7   4.0   (14.9

Paraffins

 0.8   0.8   0.8   0.7   0.6   (14.3

Coke

 30.0   31.0   49.8   47.8   46.0   (3.8
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total

 59.1   60.6   77.1   70.6   72.3   2.6  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total refined products

 1,473.6   1,501.2   1,555.5   1,501.8   1,427.6   (4.9
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Petrochemicals(1)

 325.0   292.0   656.3   743.4   708.7   (4.7

 

Note: Numbers may not total due to rounding.

(1)In thousands of metric tons. These are petrochemical by-products of the refining process produced and sold by Pemex-Refining.

Source:Pemex BDI.

The volume of our domestic gasoline sales decreased by 1.3% in 2014, from 787.3 thousand barrels per day in 2013 to 776.7 thousand barrels per day in 2014. The volume of our domestic diesel sales decreased by 0.6%, from 391.7 thousand barrels per day in 2013 to 389.4 thousand barrels per day in 2014. The volume of our domestic sales of fuel oil decreased by 35.7%, from 189.3 thousand barrels per day in 2013 to 121.7 thousand barrels per day in 2014, primarily due to a decrease in the Federal Electricity Commission’s demand for fuel oil based on its substitution of fuel oil with natural gas.

Since 1998, at the retail level, we have offered standard and premium grades of unleaded gasoline throughout Mexico. Since October 2006, all Pemex Premium gasoline has had an ultra-low sulfur content of 0.003%. Since January 2007, diesel sold at the northern border of Mexico has had a sulfur content of 0.0015%. Our efforts to build and enhance our brands have also progressed during the past seven years. All of Mexico’s independent gasoline service stations now participate in our franchise program, which provides financial assistance to upgrade equipment and facilities, as well as technical assistance in the development of marketing and customer service programs. At the end of 2014, there were 10,830 retail service stations franchised or owned by Pemex-Refining, of which 10,783 were privately owned and operated as franchises and 47 were owned by Pemex-Refining. This total number of retail service stations represented an increase of 4.0% from the 10,416 service stations as of December 31, 2013. For more information regarding the impact of the Secondary Legislation on retail sales, see “—History and Development—Energy Reform” above in this Item 4.

Pricing Decrees

From February 6, 2010 to December 9, 2011, the Mexican Government established periodic increases on the price of gasoline, which ranged from four to eight Mexican cents per liter per month. From December 10, 2011 to January 4, 2013, the increases ranged from five to nine Mexican cents per liter per month. From January 5 to December 31, 2013, the increases continued in increments of eleven Mexican cents per liter per month. On January 1, 2014, pursuant to theImpuesto a los Combustibles Fósiles (IEPS Tax on Fossil Fuels) approved under theLey del Impuesto Especial sobre Producción y Servicios (Special Tax on Production and Services Law, or the IEPS Law), unleaded gasoline became subject to a one-time price increase of ten Mexican cents per liter. See “—Information on the Company—Taxes, Duties and Other Payments to the Mexican Government” in this Item 4. From January 1 to December 31, 2014, periodic increases ranged from nine to eleven Mexican cents per liter per month. For the period from January 1 to December 31, 2015, the Mexican Government has eliminated these periodic price increases in favor of a one-time price increase of 26 Mexican cents per liter of magna gasoline and 27 Mexican cents per liter of premium gasoline. For more information, see “Item 5—Operating and Financial Review and Prospects—IEPS Tax, Hydrocarbon Duties and Other Taxes.”

 

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From December 26, 2009 to December 9, 2011, the Mexican Government established periodic increases on the price of diesel in increments of eight Mexican cents per liter per month. From December 10, 2011 to January 4, 2013, these periodic price increases continued in increments of nine Mexican cents per liter per month. From January 5 to December 31, 2013 the increases continued in increments of eleven Mexican cents per liter per month. On January 1, 2014, pursuant to the IEPS Tax on Fossil Fuels, diesel became subject to a one-time price increase of thirteen Mexican cents per liter. From January 1 to December 31, 2014, periodic increases continued at a rate of eleven Mexican cents per liter per month. For the period January 1 to December 31, 2015, the Mexican Government has eliminated these periodic price increases in favor of a one-time price increase of 26 Mexican cents per liter.

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 a one-time price increase of 10.857 Mexican cents per liter.

Since December 2008, the price at which we sell fuel oil to the Federal Electricity Commission 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.

On January 1, 2015, pursuant to the IEPS Tax on Fossil Fuels, periodic prices increases in fuel oil of 14.00 Mexican cents per liter per month became effective.

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 imposed price controls in the domestic market on our products.”

Investments

Over the past several years, Pemex-Refining has focused its investment program on enhancing the quality of the gasoline and diesel it produces to meet new environmental standards in Mexico, improving its ability to process heavy crude oils in order to optimize the crude oil blend in its refineries and increasing the production of unleaded gasoline and diesel to supply growing demand at low cost, as opposed to increasing its overall crude oil processing capacity. This focus is primarily the result of the abundance of heavy crude oils in Mexico. In addition, due to the reduced availability of heavy crude oil in export markets, the lower cost of raw materials in Mexico leads to higher profit margins on the heavy crude oil we do export. In the medium term, Pemex-Refining will continue to import unleaded gasoline to satisfy domestic demand. During 2014, Pemex-Refining imported approximately 370 thousand barrels per day of unleaded gasoline, which represented approximately 47.7% of total domestic demand for unleaded gasoline in that year. In 2014, Pemex-Refining invested Ps. 39,767 million in capital expenditures, 33.5% more than its Ps. 29,794 million of capital expenditures in 2013. Of this total investment, Pemex-Refining allocated Ps. 7,814 million to fuel quality investments, Ps. 1,310 million to the residual conversion from the Salamanca refinery, Ps. 1,077 million to the reconfiguration of the Miguel Hidalgo refinery in Tula, Ps. 468 million to a new refinery in Tula, Ps. 275 million to the Tuxpan pipeline and corresponding storage and distribution terminals and Ps. 28,823 million to investments related to other projects. The following sections provide a description of each of these projects.

Clean Fuels Project.This project is being developed in our six refineries, with a first phase involving the installation of eight ULSG post-treatment units, the capacities of which are set forth below by refinery. The first phase of this project is being carried out at each of the following sets of our refineries: set 1, Tula and Salamanca (which are 86.3% and 86.6% complete, respectively), with construction expected to be completed by the third quarter of 2015; set 2, Cadereyta and Madero (which are 100% and 96.8% complete, respectively), with the commencement of operations at Cadereyta in December 2013 and two units expected to begin operating at Madero in April 2015; and set 3, Minatitlán and Salina Cruz (which are 95.2% and 88.9% complete, respectively), with construction expected to be completed by the fourth quarter of 2015.

 

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 Cadereyta Madero Minatitlán Salamanca Salina Cruz Tula 

ULSG units (tbpd)

 1 (42 2 (20 1 (25 1 (25 2 (25 1 (30

 

Note: tbpd = thousand barrels per day.

Source: Pemex-Refining.

The second phase of the Clean Fuels Project involves the construction of five new ULSD facilities and the reconfiguration of 17 existing units. This portion of the project will be carried out in two stages: (i) a Cadereyta diesel stage and (ii) a diesel stage for the five remaining refineries. The Front End Engineering Design (or FEED) phase for the Cadereyta diesel stage was completed in 2010 and an independent expert delivered his final due diligence report in February 2012. Construction began in March 2013 and is expected to be completed by the fourth quarter of 2017. As of the date of this report, construction is 56% complete. The FEED phase for the facilities associated with the diesel stage at the five remaining refineries was completed in December 2013, and construction is expected to begin in October 2015 and end in February 2018. Until construction is completed, we plan to import ultra-low sulfur fuels in order to meet domestic demand.

The Open Book Cost Estimation (OBCE) methodology will be used in connection with the implementation of the diesel stage at the refineries other than Cadereyta and will be divided into two stages: (i) the development of detailed engineering plans and the placement of purchase orders for equipment requiring significant delivery time, which began in September 2014 and is expected to be completed by September 2015; and (ii) the execution of detailed engineering, procurement and construction, which is expected to begin in October 2015 and to be completed in February 2018.

The following table sets forth, by refinery, the number of new as well as reconfigured units under the Clean Fuels Project diesel phase.

Clean Fuels Project New and Reconfigured Units

 

 Refineries 

Processing plants

Cadereyta Madero Minatitlán Salamanca Salina Cruz Tula Total 

New gasoline post-treatment units

 1   2   1   1   2   1   8  

New diesel units

 1   2   1   1   —     —     5  

Reconfigured diesel units

 3   1   1   3   4   5   17  

 

Source: Pemex-Refining.

Reconfiguration of the Miguel Hidalgo Refinery in Tula

On August 12, 2009, we announced the construction of a new refinery in Tula on land that was donated by the state government of Hidalgo. The new refinery was planned to have a processing capacity of 250 thousand barrels per day of 100% Maya crude oil, which, combined with the processing of 76 thousand barrels per day of vacuum residue generated at the Miguel Hidalgo refinery, would produce 163 thousand barrels per day of gasoline and 117 thousand barrels per day of diesel. However, in June 2013, announced a change in the scope of the new refinery project, pursuant to which the existing Miguel Hidalgo refinery in Tula would be reconfigured to allow for the processing of vacuum residue on site. In September 2013, ICA Fluor Daniel, S. de R.L. de C.V. was awarded a U.S. $94.8 million contract to carry out studies and to provide engineering services for the first phase of the reconfiguration project.

Upon completion of our pre-investment studies relating to the new refinery in Tula, we determined that it would be most cost effective to forgo construction of a new refinery and instead direct our investments to the reconfiguration of the existing Miguel Hidalgo refinery. Accordingly, on December 3, 2014, we announced the commencement of renovations to upgrade the refinery as part of theAprovechamiento de Residuales en la Refinería de Tula Hidalgo (Residue Use at the Tula Hidalgo Refinery, which we were to as the Tula refinery reconfiguration project). The reconfigured refinery will process vacuum residue in order to convert it into high-value fuels and is expected to produce approximately 173 thousand barrels per day of gasoline and 104 thousand barrels per day of diesel. The gasoline and diesel distillates produced at the refinery will meet ultra-low sulfur content specifications and no fuel oil will be produced. The refinery is also expected to have a crude oil processing capacity of 340 thousand barrels per day, of which 35% will be Maya crude oil and 65% will be Isthmus crude oil.

 

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The Tula refinery reconfiguration project will utilize the engineering plans that were originally developed for the new refinery in Tula. Prior to our change in strategy, Ps. 410 million was spent on pre-investment studies and Ps. 468 million was spent on site preparation for the new refinery during 2014. These expenditures were made in connection with contracts that were entered into prior to 2014, and no additional contracts related to the new refinery have since been awarded.

The status of these contracts is as follows:

 

Contractor(s) & Facilities

Contract Date

Contract
Amount
(in millions of
U.S. dollars)
 

Startup Date

Expected
Date of
Completion

Instituto Mexicano del Petróleo

 

For the processing design package, as well as technical assistance and the licensing of refinery technologies, for a naphtha hydrotreater plant with a processing capacity of 44 thousand barrels per day.

January 2013 U.S. $   7.2  January 2013July 2015

Instituto Mexicano del Petróleo

 

For the processing design package, as well as technical assistance and the licensing of refinery technologies, for a diesel hydrotreater plant with a processing capacity of 61 thousand barrels per day.

January 2013 U.S. $   7.0  January 2013July 2015

Federal Electricity Commission

 

For the inspection and approval of the relocation of the 400 kV Tula-Querétaro and Tula-Poza Rica electric transmission lines to the security zone associated with the terrain where the new refinery would have been developed, as well as support in the evaluation of related bids.

February 2013 U.S. $   0.2  February 2013July 2015

Construcciones e Instalaciones del Noreste, S.A. de C.V. and Isolux de México, S.A. de C.V.

 

For the relocation of two high tension electric transmission lines that run across the land on which the refinery would have been developed.

April 2013 U.S. $ 12.1  May 2013July 2015

Technip USA, Inc.

 

For the processing design package, as well as technical assistance and the licensing of refinery technologies, for a hydrogen plant with a processing capacity of 80 thousand million square feet per day.

May 2013 U.S. $   1.4  May 2013July 2015

Emerson Process Management, S.A. de C.V.

 

For engineering services for the supply of the comprehensive control and safety systems.

July 2013 U.S. $   2.0  July 2013July 2015

As of the date of this report, we are in the process of formalizing an agreement with Technip USA, Inc. that would allow us to use the licensing of refinery technologies for the Tula refinery reconfiguration project. In addition, the engineering services developed by Emerson Process Management, S.A. de C.V. will be used for the construction of a delayed coker unit in connection with the Tula refinery reconfiguration project.

The Tula refinery reconfiguration project, which is scheduled to be completed in 2018, is expected to require a total investment of U.S. $4,617 million and generate an internal rate of return of 18.06%. During 2014, we invested a total of Ps. 2,529 million in this project, of which Ps. 249 million was allocated to pre-investment studies, Ps. 1,452 million to site preparations and Ps. 828 million to the construction of a delayed coker unit.

 

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During 2014, the following contracts were awarded in connection with the Tula refinery reconfiguration project:

 

Contractor, Facilities & Status

Contract Date

Contract
Amount
(in millions of
U.S. dollars)
 

Startup Date

Completion Date

KBC Advanced Technologies, Inc.

 

To update the Petro-SIM model for the Tula refinery reconfiguration project.

January 2014U.S. $0.4  January 2014June 2014

Pathfinder Project Consultants México, S. de R.L. de C.V.

 

For the evaluation of recruitment strategy and the implementation of the project to increase refining capacity in connection with the Tula refinery reconfiguration project.

January 2014U.S. $0.4  January 2014June 2014

Construtora Norberto Odebrecht, S.A.

 

For site preparation and shaping platforms for the Tula refinery reconfiguration project.

February 2014U.S. $107.2  February 2014September 2015 (estimated)

Jacobs Consultancy, Inc.

 

For an opinion evaluating the economic, environmental and technical feasibility of the Tula refinery reconfiguration project.

August 2014U.S. $0.4  August 2014December 2015 (estimated)

ICA Fluor, S. de R.L. de C.V.

 

For the implementation of phase II of the project to increase refining capacity in connection with the Tula refinery reconfiguration project, complementary engineering, equipment procurement and the construction of a delayed coker unit.

October 2014U.S. $1,345.7  October 2014April 2018 (estimated)

Compañía Mexicana de Exploraciones, S.A. de C.V.

 

For technical assistance to Pemex-Refining during 2014 and 2015.

November 2014U.S. $2.6  November 2014December 2015 (estimated)

In connection with the Tula refinery reconfiguration project, the FEED phase of the delayed coking plant was completed and its construction began on October 13, 2014. As of the date of this report, the FEED phase for the remainder of the project is under development and is expected to be completed by September 2015.

Reconfiguration of the Salamanca Refinery. The reconfiguration of the “Ingeniero Antonio M. Amor” refinery in Salamanca, Guanajuato focuses on the conversion of residuals into high-value distillates (without a need for increased crude oil processing), as well as a new lubricants train to produce group II lubricants. As part of the reconfiguration, Pemex-Refining will construct new plants and refurnish existing plants. This project also involves the construction of a perimeter wall surrounding the refinery with two security entrances, the relocation of the Federal Electricity Commission’s electric transmission lines, site improvements, as well as the construction of a delayed coker unit, a catalytic cracking unit, a hydrogen plant, a coker naphtha hydrotreater, a gas oil hydrotreater, a new lubricants train, a naphtha reformer, a sulfur recovery unit, an amine regeneration unit and a sour water treatment facility. In addition, this project involves the construction of storage tanks, effluent treatment plants (at which industrial wastewater is treated for reuse) and infrastructure (including roads and street lights) in the areas surrounding the refinery, as well as services, electric power supply, high burner areas and facilities support. Other units, including certain distillation vacuum units (including the AA, AS and AI units) will undergo renovations designed to efficiently transport residuals to the coker plant for processing and to maximize the conversion of residuals into distillates. Finally, the project includes the integration of pipelines, pumping equipment and electrical substations from existing facilities.

 

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In connection with a public bidding process conducted in accordance with OBCE methodology, on November 24, 2014, we awarded a contract for phase I of the Salamanca refinery reconfiguration project. This contract became effective in November 2014 and will remain in force until November 2015. Phase I of this project consists of the development of the detailed engineering plan and cost estimations. In accordance with our new contracting procedures established by the Secondary Legislation, early procurement of all critical equipment for this project is expected to begin in April 2015. Construction of the plants at the Salamanca refinery is expected to begin during the last quarter of 2015. Work related to the site preparations began in March 2014 and is scheduled to be completed in September 2015. The Federal Electricity Commission’s electric transmission towers and lines were relocated in March 2014 and construction of the perimeter wall and security entrances was completed in May 2014. The reconfiguration of the Salamanca refinery is scheduled to be completed in December 2018.

Tuxpan Pipeline. This 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. 4,495 million, which includes the construction of a pipeline measuring 18 inches in diameter and 109 kilometers in length, five storage tanks located at the Tuxpan Maritime Terminal with a capacity of 100,000 barrels each and a research study to determine the best option for the discharge of refined products from tankers and pipelines to these storage tanks. ARB Arendal, S. de R.L. de C.V. began construction of the pipeline in June 2009. The pipeline was completed in October 2012 and began operating in November 2012. A consortium formed by Tradeco Infraestructura, Tradeco Industrial, ITECSA and Grupo OLRAM was awarded a contract for the construction of the storage tanks, which began in October 2009. As of the date of this report, three of the project’s five tanks are in operation (two of which began operating in 2013 and the other began operating in 2014), while the remaining two remain under construction and are expected to be completed during the second half of 2015. In a study delivered in April 2010, the Federal Electricity Commission concluded that we do not need to invest in additional discharge systems, due to our having a sufficient amount of monobuoys already in operation.

2015 Refining Investment Budget. For 2015, Pemex-Refining has budgeted Ps. 41,936 million of capital expenditures. Pemex-Refining will invest 38.0% of this amount on rehabilitation projects, 32.7% on environmental and industrial safety projects, 12.3% to expand and upgrade refineries and related installations, 8.0% on the Tula refinery reconfiguration project and 9.1% on other projects and acquisitions.

Gas and Basic Petrochemicals

Natural Gas and Condensates

Pemex-Exploration and Production’s average natural gas production increased by 2.5% in 2014, from 6,370 million cubic feet per day in 2013 to 6,532 million cubic feet per day in 2014, while the average wet natural gas processed by Pemex-Gas and Basic Petrochemicals decreased by 1.4%, from 4,404 million cubic feet per day in 2013 to 4,343 million cubic feet per day in 2014.

All wet natural gas production is directed to Pemex-Gas and Basic Petrochemicals’ gas processing facilities. At the end of 2014, Pemex-Gas and Basic Petrochemicals owned nine facilities.

The following facilities are located in the Southern region:

 

  Nuevo Pemex. This facility contains 13 plants that together in 2014 produced 876 million cubic feet per day of dry gas, 18 thousand barrels per day of ethane, 42 thousand barrels per day of liquefied gas, 17 thousand barrels per day of naphtha and 118 thousand tons of sulfur.

 

  Cactus. This facility contains 22 plants that together in 2014 produced 829 million cubic feet per day of dry gas, 14 thousand barrels per day of ethane, 25 thousand barrels per day of liquefied gas, 13 thousand barrels per day of naphtha and 271 thousand tons of sulfur.

 

  Ciudad Pemex. This facility contains eight plants that together in 2014 produced 738 million cubic feet per day of dry gas and 205 thousand tons of sulfur.

 

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  La Venta. This facility contains one plant that produced 144 million cubic feet of dry gas per day in 2014.

 

  Matapionche. This facility contains five plants that together in 2014 produced 21 million cubic feet per day of dry gas, one thousand barrels per day of liquefied gas, 0.3 thousand barrels per day of naphtha and four thousand tons of sulfur.

 

  The facilities located in Morelos, Cangrejera and Pajaritos form the Coatzacoalcos area gas processing complex (which we refer to as a GPC):

 

  Morelos. This facility contains one plant that in 2014 produced 33 thousand barrels per day of ethane, 37 thousand barrels per day of liquefied gas and 11 thousand barrels per day of naphtha.

 

  Cangrejera. This facility contains two plants that together in 2014 produced 35 thousand barrels per day of ethane, 47 thousand barrels per day of liquefied gas and 13 thousand barrels per day of naphtha.

 

  Pajaritos. This facility contains one plant that produced 10 thousand barrels per day of ethane in 2014.

The following facilities are located in the Northern region:

 

  Burgos. This facility contains nine plants that together in 2014 produced 832 million cubic feet per day of dry gas, 18 thousand barrels per day of liquefied gas and 21 thousand barrels per day of naphtha.

 

  Poza Rica. This facility contains five plants that together in 2014 produced 173 million cubic feet per day of dry gas, six thousand barrels per day of liquefied gas, two thousand barrels per day of naphtha and two thousand tons of sulfur.

 

  Arenque. This facility contains three plants that together in 2014 produced 27 million cubic feet per day of dry gas, one thousand barrels per day of a blend of ethane and natural gas liquids and three thousand tons of sulfur.

 

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The following tables set forth Pemex-Gas and Basic Petrochemicals’ total natural gas processing and production, as well as processing capacity, for the five years ended December 31, 2014.

Natural Gas and Condensates Processing and Production(1)

 

 Year ended December 31, 2014
vs. 2013
 
 2010 2011 2012 2013 2014 
 (in millions of cubic feet per day,
except where otherwise indicated)
 (%) 

Processing

Wet gas

 4,472   4,527   4,382   4,404   4,343   (1.4

Sour gas

 3,422   3,445   3,395   3,330   3,356   0.8  

Sweet gas(2)

 1,050   1,082   987   1,074   986   (8.2

Condensates(3)

 53   57   46   46   49   6.5  

Gas to natural gas liquids extraction

 4,458   4,483   4,346   4,381   4,303   (1.8

Wet gas

 4,304   4,347   4,206   4,234   4,172   (1.5

Reprocessing streams(4)

 154   136   140   147   131   (10.9

Production

Dry gas(5)

 3,618   3,692   3,628   3,693   3,640   (1.4

Natural gas liquids(6)(7)

 383   389   365   362   364   0.6  

Liquefied petroleum gas(6)

 184   185   176   178   176   (1.1

Ethane(6)

 119   121   115   109   110   0.9  

Naphtha(6)(8)

 79   82   72   73   77   5.5  

Sulfur(9)

 670   636   592   620   603   (2.7

 

Note: Numbers may not total due to rounding.

(1)Excludes operations of Pemex-Exploration and Production. Pemex-Exploration and Production produced a total of 6,532 million cubic feet of natural gas per day in 2014.
(2)Includes sweet vapor from condensates.
(3)Includes internal streams.
(4)Reprocessing of pipeline dry gas at the Pajaritos cryogenic plant.
(5)Does not include ethane reinjected into the natural gas stream.
(6)In thousands of barrels per day.
(7)Includes stabilized condensates, reprocessing streams from the Cangrejera petrochemical complex and other streams for fractionating.
(8)Includes pentanes.
(9)In thousands of tons.

Source:Pemex BDI.

Processing Capacity

 

 Year ended December 31, 
 2010 2011 2012 2013 2014 
 

(in millions of cubic feet per day,

except where otherwise indicated)

 

Sweetening plants

Sour condensates(1)

 144   144   144   144   144  

Sour natural gas(2)

 4,503   4,503   4,503   4,503   4,523  

Natural gas liquids recovery plants

Cryogenics(3)

 5,792   5,712   5,912   5,912   5,912  

Absorption(4)

 —     —     —     —     —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

 5,792   5,712   5,912   5,912   5,912  

Natural gas liquids fractionating(1)(5)

 569   569   569   569   569  

Processing of hydrosulfuric acid

 219   219   219   219   219  

 

(1)In thousands of barrels per day.
(2)In 2014, following a review of the sour natural gas processing capacity of the Poza Rica Complex reflecting an increase in capacity from 230 to 250 million cubic feet per day, the total installed sour natural gas processing capacity of Pemex-Gas and Basic Petrochemicals increased from 4,503 to 4,523 million cubic feet per day.
(3)Since December 2011, the cryogenic plant at Cangrejera has been out of service. In October 2011, the capacity of the Nuevo Pemex complex cryogenic plant at the Nuevo Pemex complex was reduced from 1,550 to 1,500 million cubic feet per day. In November 2012, cryogenic plant No. 2 began operations at the Poza Rica GPC, with a capacity of 200 million cubic feet per day.
(4)On August 31, 2009, the absorption plant at the Reynosa complex was shut down.
(5)The liquids fractionating plant at the Reynosa complex has been out of service since August 31, 2009.

Source:Pemex BDI.

 

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Domestic consumption of dry gas totaled 5,727 million cubic feet per day in 2014, a 0.1% decrease from the 2013 domestic consumption of 5,733.5 million cubic feet per day. The subsidiary entities consumed approximately 39.7% of the total domestic dry gas consumed in 2014, while the industrial-distributor sector consumed 21.1%, the electrical sector consumed 31.5%, the electrical autogeneration sector consumed 2.6% and the trading sector consumed 5.1%.

We import dry 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 States. In addition, in August 2013, we announced a natural gas supply strategy developed in partnership with the Mexican Government to address the domestic natural gas shortages. Under this strategy, we will increase our liquefied natural gas imports in the short term. See “—Business Overview—Gas and Basic Petrochemicals—Natural Gas Supply Strategy” in this Item 4. In 2014, we imported 1,357.8 million cubic feet per day of natural gas, an increase of 5.3% from the 1,289.7 million cubic feet per day imported in 2013, due to lower availability of sour wet natural gas and dry gas from Pemex-Exploration and Production’s fields. The total amount of natural gas imported per day in 2014 included 107.4 million cubic feet of liquefied natural gas imported through Manzanillo.

Pemex-Gas and Basic Petrochemicals processes sour and sweet condensates from Pemex-Exploration and Production in order to obtain stabilized natural gas liquids and also recovers 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, increased by 0.6% from 362 thousand barrels per day in 2013 to 364 thousand barrels per day in 2014.

Pemex-Gas and Basic Petrochemicals processes sour condensates, which have a higher sulfur content, to produce stabilized sweet condensates. The volume of sour condensates we processed from Pemex-Exploration and Production and internal streams of Pemex-Gas and Basic Petrochemicals totaled 33.1 thousand barrels per day in 2014, a 5.7% decrease from the 35.1 thousand barrels per day processed in 2013. Pemex-Gas and Basic Petrochemicals also processes sweet condensates at its Burgos facilities to produce light and heavy natural gasoline.

In November 2012, a new cryogenic plant, which has a processing capacity of 200 million cubic feet per day of sweet wet gas, began operating at Poza Rica GPC. This plant was constructed as part of a Pemex-Gas and Basic Petrochemicals project that included, among other installations, two liquid gas storage tanks that each have a capacity of 20 thousand barrels.

Upon its enactment in August 2014, the Hydrocarbons Law eliminated the restrictions relating to the petrochemical products that were previously classified as “basic.” Accordingly, as of the date of this report, petrochemicals obtained as raw materials and intended for use in petrochemical industrial processes may be produced by Petróleos Mexicanos, any productive state-owned company or public sector entity of the Federal Government or any private sector company in accordance with the terms of the Hydrocarbons Law and the applicable regulatory framework.

Natural Gas Supply Strategy

On August 13, 2013, we and the Mexican Government presented a strategy to address domestic natural gas shortages in the short, medium and long term. In the short term, we have increased our liquefied natural gas imports. From the second half of 2013 through the end of 2014, Pemex-Gas and Basic Petrochemicals imported 19 liquefied natural gas vessels in order to meet the domestic natural gas demand. We also switched from using natural gas to using fuel oil at our facilities. In the medium-term, we plan to construct additional pipelines and compression stations. In December 2014, the first phase of the Los Ramones pipeline project, which consists of a pipeline from Agua Dulce, Texas to Los Ramones, Nuevo León, began operating. See “—Los Ramones Gas Pipeline” below in this Item 4. Finally, we expect to increase oil and shale gas reserves in order to satisfy domestic demand for natural gas in the long term.

 

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Over the five years ended December 31, 2014, the value of Pemex-Gas and Basic Petrochemicals’ domestic sales was distributed as follows:

Value of Domestic Sales of Pemex-Gas and Basic Petrochemicals(1)

 

 Year ended December 31, 2014
vs. 2013
 
 2010 2011 2012 2013 2014 
 (in millions of pesos)(2) (%) 

Natural gas

Ps.67,141.3  Ps.64,466.3  Ps.50,233.0  Ps.68,128.7  Ps.78,666.4   15.5  

Liquefied petroleum gas

 53,385.9   57,981.0   64,966.5   71,728.9   78,258.9   9.1  

Petrochemicals

Hexane

 278.5   408.2   4.8   44.3   313.9   608.6  

Ethane(3)

 —     —     —     32.3   283.6   778.0  

Solvent agents

 56.0   29.2   85.7   28.0   33.5   19.6  

Sulfur

 662.8   1,354.7   1,167.2   659.6   795.9   20.7  

Carbon black(4)

 1,808.9   2,368.2   1,115.7   —     —     —    

Pentanes

 144.4   232.0   46.9   165.8   197.2   18.9  

Heptane

 60.6   105.7   8.6   62.7   39.1   (37.6

Butane

 188.7   240.7   264.9   259.1   277.5   7.1  

Propane

 74.2   93.5   69.6   70.3   92.4   31.4  

Heavy naphtha

 —     —     —     4.4   15.7   256.8  

Light naphtha

 —     —     —     —     2.8   —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total Petrochemicals

 3,274.2   4,832.2   2,763.4   1,326.5   2,051.6   54.7  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total

Ps. 123,801.4  Ps. 127,279.6  Ps. 117,962.8  Ps. 141,184.1  Ps. 158,976.9   12.6  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

Note: Numbers may not total due to rounding.

(1)Excludes value added tax.
(2)Figures are stated in nominal pesos.
(3)Ethane sales to PMV began in October 2013. See “—Business Overview—Petrochemicals—Joint Venture with Mexichem” in this Item 4.
(4)Since May 2012, carbon black is sold by Pemex-Refining.

Source:Pemex BDI.

The volume of Pemex-Gas and Basic Petrochemicals’ domestic sales for the five-year period ended December 31, 2014 was distributed as follows:

Volume of Domestic Sales of Pemex-Gas and Basic Petrochemicals

 

 Year ended December 31, 2014
vs. 2013
 
 2010 2011 2012 2013 2014 
 (in thousands of barrels per day, except where otherwise indicated) (%) 

Natural gas(1)

 3,254.9   3,382.7   3,387.7   3,463.5   3,451.2   (0.4

Liquefied petroleum gas(2)

 287.9   284.8   285.5   282.8   280.9   (0.7

Petrochemicals(3)

Hexane

 23.0   29.3   0.3   2.9   24.7   751.7  

Ethane(4)

 —     —     —     16.7   119.1   613.2  

Solvent agents

 5.7   2.7   7.2   2.1   2.2   4.8  

Sulfur

 582.1   647.8   649.1   520.7   655.3   25.8  

Carbon black(5)

 419.1   429.6   167.1   —     —     —    

Pentanes

 15.0   19.1   3.9   14.6   18.3   25.3  

Heptane

 4.9   7.1   0.5   3.9   3.0   (23.1

Butane

 19.7   20.6   23.0   26.4   29.2   10.6  

Propane

 8.6   8.7   8.2   9.3   9.7   4.3  

Heavy naphtha

 —     —     —     0.4   1.5   275.0  

Light naphtha

 —     —     —     —     0.3   —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total petrochemicals

 1,078.1   1,164.9   859.2   597.0   863.2   44.6  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

Note: Numbers may not total due to rounding.

(1)In millions of cubic feet per day.
(2)In thousands of barrels per day.
(3)In thousands of tons.
(4)Ethane sales to PMV began in October 2013. See “—Business Overview—Petrochemicals—Joint Venture with Mexichem” in this Item 4.
(5)Since May 2012, carbon black is sold by Pemex-Refining.

Source:Pemex BDI.

 

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In 2014, the value of the domestic sales of Pemex-Gas and Basic Petrochemicals increased by 12.6%, as compared to 2013, to Ps. 158,976.9 million, primarily as a result of a 15.5% increase in domestic sales of natural gas and a 9.1% increase in domestic sales of LPG, each due to price increases. Total sales of petrochemicals made by Pemex-Gas and Basic Petrochemicals increased by 54.7% in 2014, primarily due to increased sales of sulfur.

Subsidiaries of Pemex-Gas and Basic Petrochemicals

Pemex-Gas and Basic Petrochemicals conducts certain management, real estate and distribution activities through its subsidiaries and through certain joint ventures. The following table lists Pemex-Gas and Basic Petrochemicals’ subsidiaries, their principal operating activities and Pemex-Gas and Basic Petrochemicals’ ownership interest as of December 31, 2014.

Subsidiaries of Pemex-Gas and Basic Petrochemicals(1)

 

Subsidiary

Principal Activity

Ownership
Interest (%)
 

Mex Gas Internacional, S.L.(2)

Holding company

 100.00  

Pasco International, Ltd.

Holding company

 100.00  

Pasco Terminals, Inc.(3)

Storage and distribution of liquid sulfur

 100.00  

Pan American Sulphur, Ltd.(4)

Storage and handling of petroleum, petrochemical and chemical products through the loading/unloading of vessels and delivering/receiving of products by pipeline or truck

 100.00  

Terrenos para Industrias, S.A.

Real estate holding company

 100.00  

 

(1)As of December 31, 2014.
(2)Mex Gas Internacional, S.L. is the only subsidiary of Pemex-Gas and Basic Petrochemicals that is a consolidated subsidiary company. See Note 3(a) to our consolidated financial statements included herein.
(3)Pasco Terminals, Inc. is a wholly owned subsidiary company of Pasco International, Ltd.
(4)On July 4, 2014, the certificate of dissolution of Pan American Sulphur, Ltd. was issued; as a result, it was no longer a subsidiary of Petróleos Mexicanos as of December 31, 2014.

Source: Pemex-Gas and Basic Petrochemicals.

The following table lists Pemex-Gas and Basic Petrochemicals’ joint ventures, their principal operating activities and Pemex-Gas and Basic Petrochemicals’ ownership interest as of December 31, 2014.

Joint Ventures of Pemex-Gas and Basic Petrochemicals(1)

 

Subsidiary

Principal Activity

Ownership
Interest (%)
 

Gasoductos de Chihuahua, S. de R.L. de C.V.

Gas transportation

 50.00  

CH4 Energía, S.A. de C.V.

Gas trading

 50.00  

 

(1)As of December 31, 2014.

Source: Pemex-Gas and Basic Petrochemicals.

Pipelines

Private Sector Participation in Natural Gas Distribution. Prior to the enactment of the Hydrocarbons Law, the Regulatory Law provided that private and “social sector” companies could, with governmental authorization, store, distribute and transport natural gas, and may construct, own and operate natural gas pipelines, facilities and equipment.

Since 1997, the Regulatory Law has required us to provide the private sector with open access to our transportation system for distribution, ending our prior exclusive rights over the distribution lines. We continue to market natural gas and may develop natural gas storage systems.

In 1996, the Energy Regulatory Commission approved the Gradual Access Program for 1996 to 1997, which required that we open access to our natural gas distribution system to the private sector and prohibited vertical integration between transportation and distribution. As a result, Pemex-Gas and Basic Petrochemicals’ distribution assets located within the following official distribution zones were privatized: Chihuahua, Toluca, Saltillo, Nuevo Laredo, Río Pánuco, Northern Tamaulipas, Distrito Federal, Valle de Cuautitlán-Texcoco-Hidalgo, Hermosillo, Monterrey, Mexicali, El Bajío, Cananea, Querétaro, La Laguna, Bajío Norte, Puebla, Tlaxcala, Guadalajara, Piedras Negras and Ciudad Juárez. Most recently, Pemex-Gas and Basic Petrochemicals’ distribution assets located within Altamira and Morelos were privatized in 2012 and the distribution assets located within Veracruz were privatized in 2013.

 

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In addition, with respect to first-hand sales of natural gas, Pemex-Gas and Basic Petrochemicals submitted to the Energy Regulatory Commission its proposal for a new payment system in 2013, which would provide customers with the option to reserve transportation capacity of natural gas and make payments based on the volume consumed. This new payment system is designed to allow customers to better estimate their consumption of natural gas, as well as enhance our ability to manage costs and capacity related to the transportation of natural gas. Pemex-Gas and Basic Petrochemicals is prepared to begin operating under this new system once the Energy Regulatory Commission approves it and issues final regulations to govern natural gas sales under the system. This new system is expected to be implemented in 2016.

The Hydrocarbons Law, which repealed the Regulatory Law, provides for the participation of other companies in the entire natural gas value chain. The law additionally establishes a permit regime that governs all midstream and downstream activities in Mexico. See “—History and Development—Energy Reform” above in this Item 4. In January 2015, the Energy Regulatory Commission granted Pemex-Gas and Basic Petrochemicals a distribution permit corresponding to the northwestern region of Mexico, including Cajeme and Navojoa in the state of Sonora and Ahome, Choix, El Fuerte, Guasave and Salvador Alvarado in the state of Sinaloa.

Pursuant to the Hydrocarbons Law, on August 28, 2014, CENAGAS was created as a decentralized public entity of the Mexican Government to act as the independent administrator of the Integrated Natural Gas System. This system interconnects the infrastructure for the storage and transportation of natural gas across the nation, with the aim of expanding coverage, strengthening security measures and improving the continuity, quality and efficiency in transportation service. As an integrated system of transportation systems owned by CENAGAS or other participating companies, the Integrated Natural Gas System functions as a primary transportation service supplier in Mexico with standardized fares. Within this system, theSistema Nacional de Gasoductos (National Gas Pipelines System) acts as the commercial administrator for the total available capacity of the Integrated Natural Gas System. In order for a transportation system to become part of the Integrated Natural Gas System, its transport capacity must enhance the Integrated Natural Gas System’s flow capacity and improve the overall transportation service provided to users. See “—History and Development—Energy Reform” above in this Item 4 for more information.

Los Ramones Gas Pipeline

The Los Ramones pipeline project, which is being implemented in two phases, is part of a strategy to supply central Mexico with natural gas imported from the United States. Phase one of the project is further subdivided into two stages. The first stage of phase one, which consisted of the construction of a pipeline running from Agua Dulce, Texas to Los Ramones, Nuevo León that is 48 inches in diameter, 116.4 kilometers in length and has a transport capacity of 1.0 billion cubic feet per day, began operating after its completion on December 1, 2014. The second stage of phase one, which consists of the construction of two compression stations, is expected to increase the transport capacity of the pipeline to 2.1 billion cubic feet per day. As of the date of this report, construction of the compression stations has begun and they are scheduled to begin increasing the transport capacity of the pipeline by December 2015. Bonatti S.p.A., an Italian oil and gas contractor, is responsible for the completion of phase one of this project. The total investment for the construction of the pipeline during the first stage of phase one and the two compression stations during the second stage of phase one of this project is approximately U.S. $587 million.

Phase two of this project, which consists of the construction of a pipeline running from Los Ramones, Nuevo León to Apaseo el Alto, Guanajuato, is further subdivided into two stages: Ramones Norte and Ramones Sur. TAG Pipelines, S. de R.L. de C.V. (an indirect subsidiary of Pemex-Gas and Basic Petrochemicals, which we refer to as TAG Pipelines) is developing the project through partnerships for each of these stages.

On September 11, 2014, we announced the commencement of phase two of the Los Ramones pipeline project, which consists of the construction of a pipeline that is expected to have a capacity of 1.4 billion cubic feet per day of natural gas. The phase two natural gas pipeline will measure approximately 42 inches in diameter and approximately 743 kilometers in length, and will run from northern to central Mexico through the states of Nuevo León, Tamaulipas, San Luis Potosí, Querétaro and Guanajuato. Phase two of the project is expected to require a total investment of approximately U.S. $2,161 million and to begin operating in 2016. The northern portion of the pipeline, Ramones Norte, will measure approximately 452 kilometers in length and will run from Los Ramones, Nuevo León to San Luis Potosí, San Luis Potosí. Ramones Norte is expected to require an estimated U.S. $1,287 million investment. The southern portion of the pipeline, Ramones Sur, will measure approximately 291 kilometers in length and will run from San Luis Potosí, San Luis Potosí to Apaseo el Alto, Guanajuato. Ramones Sur is expected to require an estimated U.S. $873 million investment.

 

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On March 26, 2015, we announced an agreement among PMI, the U.S.-based global asset manager BlackRock Inc. (which we refer to as BlackRock) and the private equity firm First Reserve Corp. (which we refer to as First Reserve), pursuant to which BlackRock and First Reserve are to acquire a joint interest in phase two of the Los Ramones pipeline project worth approximately U.S. $900 million. Through their investment, BlackRock and First Reserve will become beneficiaries of a 25-year transportation services agreement. This joint interest will hold approximately 45% of the equity interest in the phase two natural gas pipeline.

Pursuant to the permit regime established by the Hydrocarbons Law, TAG Pipelines Norte, S. de R.L. de C.V. (an indirect subsidiary of Pemex-Gas and Basic Petrochemicals, which we refer to as TAG Norte) and TAG Pipelines Sur, S. de R.L. de C.V. (a special purpose vehicle created by P.M.I. Holdings, B.V., TAG Pipelines and México Power and Gas Ventures, B.V., which we refer to as TAG Sur) obtained a construction permit from the Energy Regulatory Commission and final approval from theComisión Federal de Competencia Económica(Federal Antitrust Commission, or COFECE) before beginning construction.

As of the date of this report, the following actions have been taken with respect to the Ramones Norte portion of the pipeline project:

 

  Energy Regulatory Commission Permit: In June 2014, the Energy Regulatory Commission issued Resolution RES-238-2014, which granted TAG Pipelines transportation permit number G/335/TRA/2014.

 

  COFECE Approval: On July 18, 2014, TAG Pipelines requested COFECE’s approval of the transportation permit granted by the Energy Regulatory Commission. In October 2014, COFECE approved TAG Pipelines’ transportation permit number G/355/TRA/2014.

 

  Energy Regulatory Commission Approval: On December 4, 2014, the Energy Regulatory Commission issued Resolution RES-586-2014, which approved the modification of transportation permit number G/335/TRA/2014 and authorized TAG Pipelines to transfer its transportation permit to TAG Norte. On December 18, 2014, the Energy Regulatory Commission approved the incorporation of TAG Norte’s transportation system into the Integrated Natural Gas System. For more information about the Integrated Natural Gas System, see “—History and Development—Energy Reform” above in this Item 4.

 

  Project Financing: After PMI, TAG Pipelines and Ductos Energéticos del Norte, S. de R.L. de C.V. (a subsidiary of Gasoductos de Chihuahua, S. de R.L. de C.V.) entered into a business partnership agreement and created TAG Pipelines Norte as a special purpose vehicle for the Ramones Norte project, Banco Santander was designated as the financial agent responsible for obtaining the financial resources for the project. On December 23, 2014, TAG Norte received the first cash disbursement under the financing agreements.

 

  Rights of Way: As of December 31, 2014, 97.8% of the rights of way necessary for this project had been acquired and all in-route building consents had been obtained.

As of the date of this report, the following actions have been taken with respect to the Ramones Sur portion of the pipeline project:

 

  Energy Regulatory Commission Permit: In July 2014, the Energy Regulatory Commission published resolution RES-351-2014, which granted TAG Sur transportation permit number G/340/TRA/2014.

 

  COFECE Approval: On April 4, 2014, COFECE approved TAG Sur’s transportation permit number G/340/TRA/2014.

 

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  Energy Regulatory Commission Approval: On December 18, 2014, the Energy Regulatory Commission issued Resolution RES-623-2014, which approved the incorporation of TAG Sur’s transportation system into the Integrated Natural Gas System.

 

  Project Financing: After PMI, TAG Pipelines and Mexico Power and Gas Ventures B.V. entered into a business partnership agreement and created TAG Pipelines Sur as a special purpose vehicle for the Ramones Sur project, an international consortium of lenders and Mexico’s development banks entered into financing agreements on December 11, 2014, thereby securing financing for this project. On December 26, 2014 TAG Sur received the first cash disbursement under the financing agreements.

 

  Rights of Way: As of December 31, 2014, at least 55% of the rights of way necessary for this project had either been filed in the relevant public or agrarian registry or filed with the relevant court in accordance with the Hydrocarbons Law. In addition, 95.8% of the required in-route building consents had been obtained.

Liquefied Natural Gas Export Terminal

On November 5, 2014, we announced plans to develop a liquefied natural gas liquefaction facility near Salina Cruz in the state of Oaxaca in order to export liquefied natural gas to Asia and Oceania. The facility would be connected by pipeline to our natural gas fields located in the southern Gulf of Mexico. Construction of the facility, which is expected to be carried out in cooperation with other companies, would require a total investment of approximately U.S. $6.0 billion. As of the date of this report, we continue conducting feasibility studies to evaluate possible sites for the facility and the technological requirements of the project.

Pricing Decrees

As of the date of this report, natural gas prices for domestic sale are calculated in accordance with directives issued by the Energy Regulatory Commission on July 20, 2009 and the related Resolutions of December 20, 2010, March 3, 2011, December 20, 2012, January 17, 2013, March 21, 2013 and December 3, 2013, when the Energy Regulatory Commission approved and issued a temporary methodology for determining the maximum prices of natural gas of first-hand sales. This methodology is valid until the Energy Regulatory Commission emits a new Directive for the pricing of natural gas first hand sales. These prices aim to reflect natural gas opportunity costs and competitive conditions in international markets and at the point of sale.

Since 2003, price control mechanisms for LPG have been implemented through governmental decrees. On December 28, 2007, the Mexican Government issued a decree establishing the maximum LPG price for first-hand and end-user sales. The decree became effective in January 2008, and established a monthly price increase from January 2008 to May 2008 of Ps. 0.0317 per kilogram over the weighted average end-user price of LPG after taxes. From June 2008 to December 2008, the amount of these price increases varied from month to month.

On December 29, 2008, the Mexican Government issued a decree establishing a national weighted average end-user price of LPG before taxes of Ps. 8.92 per kilogram, effective January 2009. Subsequently, on January 9, 2009, the Mexican Government issued a decree modifying the national weighted average end-user price of LPG before taxes to Ps. 8.03 per kilogram, representing a discount of almost 10%. This decree also suspended the periodic increases in the retail price of LPG, beginning on January 12, 2009 and effective through December 31, 2009.

 

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In January 2010, the Mexican Government issued a decree establishing the maximum weighted average end-user price of LPG before taxes of Ps. 8.08 per kilogram. Subsequently, as of February 2010, the Mexican Government established monthly maximum price increases in cents per kilogram before taxes, as follows:

 

                             Period                            

Mexican Cents per Kilogram 

February 2010 to July 2011

 5  

August to November 2011

 7  

December 2011

 8  

January 2012 to October 2013

 7  

November to December 2013

 9  

January to December 2014

 9

January 2015

 23

 

*On January 1, 2014 and 2015, pursuant to the IEPS Tax on Fossil Fuels, a price increase of 12 and 13 Mexican cents per kilogram, respectively, went into effect in addition to the monthly price increase of nine Mexican cents per kilogram in 2014 and ten Mexican cents per kilogram in 2015; this resulted in a total increase of 23 Mexican cents per kilogram in 2015. The ten Mexican cent per kilogram increase in January 2015 was a one-time increase for the year, and no further monthly increases were established for the remainder of 2015.

Beginning in August 2014, the methodology for calculating end-user price was modified from weighted average prices to simple average prices.

On January 1, 2015, the Mexican Government issued a decree establishing a one-time 1.9% increase of the maximum price of LPG. No additional monthly increases are expected for 2015. Accordingly, the national weighted average end-user price of LPG before taxes is expected to remain U.S. $12.49 per kilogram, before taxes, in 2015. See “—History and Development—Energy Reform” above in this Item 4 for more information regarding the impact of the Secondary Legislation on the retail sale prices.

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 imposed price controls in the domestic market on our products.”

Natural Gas Hedging Operations

Pemex-Gas and Basic Petrochemicals offers, as a value-added service, various hedging contracts to its 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.”

Investments

In nominal peso terms, Pemex-Gas and Basic Petrochemicals invested Ps. 7,549 million in 2014, compared to Ps. 5,405 million invested in 2013, in projects primarily related to natural gas and condensates processing, as well as for the transportation and storage of other products. In 2015, the Mexican Government approved investments for Ps. 6,825 million for Pemex-Gas and Basic Petrochemicals, including Ps. 1,147.4 million for the conditioning of the infrastructure used to supply ethane to the Etileno XXI project. The remaining Ps. 5,677.6 million will be used to ensure the safe and reliable operation of its facilities.

Electric Energy Cogeneration Program

Since the enactment of the 2008 Petróleos Mexicanos Law, we have been authorized to co-generate electric energy and enter into agreements with the Federal Electricity Commission to sell our excess production to this entity. As part of ourPrograma de Cogeneración de Energía Eléctrica (Electric Energy Cogeneration Program), on August 28, 2008, we launched an international tender for the construction of our first large-scale energy cogeneration plant at the Nuevo Pemex GPC in the state of Tabasco. This plant began operating on April 1, 2013. Power generated by this plant is supplied to the Nuevo Pemex GPC and certain of our other facilities.

The Electric Energy Cogeneration Program is a two-stage program. In the short term, the program is intended to permit us to reduce our reliance on energy supplied by the Federal Electricity Commission. Over the medium and long term, we expect that these large-scale cogeneration projects will allow us to replace inefficient equipment at the end of its useful life and to sell excess electricity production to the Federal Electricity Commission. At the end of 2014, cogeneration projects were being developed at the Cactus GPC and the Miguel Hidalgo and Cadereyta refineries, which together will generate approximately 1,660 megawatts and 2,467 tons per hour of steam.

 

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Collaboration Agreements

On March 15, 2012, Pemex-Gas and Basic Petrochemicals and the state of Zacatecas signed a collaboration agreement to develop a pipeline to deliver natural gas to that state. On October 26, 2012, Pemex-Gas and Basic Petrochemicals, Compañía Cervecera de Zacatecas, S.A. de C.V. (part of Grupo Modelo S.A.B. de C.V.) and Gas Natural Industrial, S.A. de C.V. signed an agreement to develop this pipeline. During the first stage of this project, the pipeline is expected to have a transportation capacity of 20 million cubic feet per day of natural gas. Following the construction of a new compression station during the second stage, the pipeline’s transportation capacity is expected to increase to 40 million cubic feet per day. In December 2013, the Energy Regulatory Commission authorized Transportadora de Gas Natural de Zacatecas, S.A. de C.V., the company created by Gas Natural Industrial, S.A. de C.V. to carry out this project, to transport natural gas. The pipeline, which measures 12 inches in diameter and 172 kilometers in length, began operating in August 2014 and supplying natural gas to Grupo Modelo S.A.B. de C.V. following the completion of the first stage of this project. In 2015, the pipeline is expected to begin transporting natural gas to other industrial clients.

On April 19, 2012, Pemex-Gas and Basic Petrochemicals and the state of San Luis Potosi signed a collaboration agreement to define and develop an infrastructure development plan relating to the supply of natural gas. Since 2013, this agreement has enabled us to obtain rights of way in the state, thereby facilitating the second phase of the Los Ramones pipeline project. See “Los Ramones Gas Pipeline” above in this Item 4.

Ethane Supply Contract

On February 19, 2010, Pemex-Gas and Basic Petrochemicals 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 will produce ethylene and polyethylene. The Etileno XXI project is being developed and will be owned and operated by Braskem-IDESA, a Brazilian-Mexican consortium. In order to meet its obligations under this contract, Pemex-Gas and Basic Petrochemicals made adjustments to the infrastructure of its processing plants in the Ciudad Pemex, Nuevo Pemex and Cactus GPCs. Additional ethane will be transported from the GPCs 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 its supply obligation, Pemex-Gas and Basic Petrochemicals is subject to the payment of liquidated damages. In the event of termination as a consequence of Pemex-Gas and Basic Petrochemicals’ material default under the ethane supply contract, Pemex-Gas and Basic Petrochemicals 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, 2014, renovations of Pemex-Gas and Basic Petrochemicals’ processing plants in the Ciudad Pemex, Nuevo Pemex and Cactus GPCs were 87.5% complete and 72.5% of the necessary financing had been obtained. The renovations are expected to be completed during the third quarter of 2015. In addition, as of December 31, 2014, construction of the pipeline to transport ethane from the GPCs located in Tabasco, in southeastern Mexico, to Coatzacoalcos, Veracruz was 83.0% complete and 85.2% of the necessary financing had been obtained. The pipeline will begin operating in three phases: (1) Segment I (Cangrejera petrochemical complex) began operating in January 2015; (2) Segment II (Nuevo Pemex-Cactus-Coatzacoalcos) began operating in February 2015 and (3) Segment III (Ciudad Pemex-Nuevo Pemex) is expected to begin operating in June 2015.

Petrochemicals

Capacity

At the end of 2014, Pemex-Petrochemicals owned seven petrochemical complexes, four of which are in operation, for the production of petrochemical products (primarily those classified as “non-basic” prior to the enactment of the Hydrocarbons Law). Pemex-Petrochemicals had a total installed capacity of 9,132 thousand tons of petrochemical products per year in 2014.

 

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The total production capacity of Pemex-Petrochemicals’ operating plants for the last five years was distributed among its facilities as set forth below.

Pemex-Petrochemicals’ Total Capacity

 

 Year ended December 31, 

Petrochemical Facility

2010 2011 2012 2013(1) 2014 
 (in thousands of tons) 

Cosoleacaque

 2,150   2,150   2,150   3,225   3,225  

Cangrejera

 4,438   4,328   4,328   3,964   3,465  

Morelos

 2,261   2,286   2,286   2,263   2,260  

Pajaritos(2)

 1,758   1,180   1,180   547   —    

Escolín(3)

 55   55   55   —     —    

Camargo(4)

 —     —     —     —     —    

Independencia

 222   222   222   187   183  

Tula(3)

 55   55   55   —     —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

 10,939   10,276   10,276   10,186   9,132  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

Note: Numbers may not total due to rounding.

(1)As of 2013, Pemex-Petrochemicals’ capacity does not include subproducts for our own consumption.
(2)As of September 12, 2013, the vinyl chloride and ethylene plants at the Pajaritos petrochemical complex were divested from Pemex-Petrochemicals to become part of PMV.
(3)As of 2013, the Escolín and Tula petrochemical complexes’ capacities are no longer included because these complexes have been out of operation for approximately three years.
(4)As of the date of this report, the plant in Camargo is undergoing renovations.

Source:Pemex Petrochemicals.

Production

Pemex-Petrochemicals manufactures various petrochemical products, including:

 

  methane derivatives, such as ammonia and methanol;

 

  ethane derivatives, such as ethylene, polyethylene, ethylene oxide and glycols;

 

  aromatics and their derivatives, such as high octane hydrocarbon, styrene, benzene, toluene and xylenes;

 

  propylene chain and its derivatives, such as acrylonitrile and propylene;

 

  other products, such as oxygen, nitrogen, hexane, heptane, pyrolysis liquids, specialty petrochemical products; and

 

  petroleum derivatives chain, such as octane base gasoline, amorphous gasoline, naphtha gas and heavy naphtha.

The total annual production of Pemex-Petrochemicals in 2014 was 11,319 thousand tons. Our combined total annual petrochemical production (including production by other subsidiaries entities) decreased by 1.4% in 2014, from 11,478 thousand tons in 2013 to 11,319 thousand tons in 2014. Of this amount, Pemex-Petrochemicals produced 7,238 thousand tons, representing a 1.4% decrease from Pemex-Petrochemicals’ production of 7,339 thousand tons of petrochemical products in 2013. The remainder of these petrochemical products was produced byPemex-Refining and Pemex-Gas and Basic Petrochemicals. The decrease in petrochemical production was primarily due to the September 2013 divestment of the vinyl chloride and ethylene plants at the Pajaritos petrochemical complex in connection with the PMV joint venture. See “—Joint Venture with Mexichem” below in this Item 4. As a result of this divestment, the total annual production of Pemex-Petrochemicals in 2014 does not include the production of these plants at the Pajaritos petrochemical complex.

For information on Pemex-Gas and Basic Petrochemicals’ petrochemical production, see “—Gas and Basic Petrochemicals” above.

 

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The following table summarizes the annual production associated with the principal petrochemical activities of Pemex-Petrochemicals for the five years ended December 31, 2014.

Pemex-Petrochemicals Production

 

 Year ended December 31, 2014
vs. 2013
 
 2010 2011 2012 2013 2014 
 (in thousands of tons per year) (%) 

Liquids

Hexanes

 51   45   5   22   37   68.2  

Heptanes

 20   19   3   8   5   (37.5
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total

 71   64   8   30   42   40.0  

Other inputs

Oxygen

 460   447   418   434   441   1.6  

Nitrogen

 167   165   164   172   176   2.3  

Hydrogen

 159   128   20   61   87   42.6  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total

 786   740   602   667   704   5.5  

Petrochemicals

Methane derivatives

 2,282   2,306   2,473   2,460   2,362   (4.0

Ethane derivatives

 2,831   2,750   2,775   2,473   2,089   (15.5

Aromatics and derivatives

 1,042   923   166   799   1,017   27.3  

Propylene and derivatives

 84   62   49   52   65   25.0  

Petroleum derivatives

 610   451   26   321   225   (29.9

Others

 1,093   744   115   443   734   65.7  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total

 7,943   7,237   5,604   6,549   6,492   (0.9

Other products(1)

Hydrochloric acid

 109   98   108   63   —     (100.0

Muriatic acid

 34   16   45   30   —     (100.0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total

 144   114   153   93   —     (100.0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total(2)

 8,943   8,155   6,367   7,339   7,238   (1.4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

Note: Numbers may not total due to rounding.

(1)As of September 2013, these products are no longer included due to their divestment from Pemex-Petrochemicals to become part of PMV. See “—Joint Venture with Mexichem” below in this Item 4.
(2)Figures include petrochemical products used as raw materials to produce other petrochemicals.

Source: Pemex BDI.

Investments

Pemex-Petrochemicals invested Ps. 4,765 million on capital expenditures in 2014, which was allocated among the following ongoing projects as follows: Ps. 539 million for the modernization and expansion of the production capacity of the aromatics train (first phase) at the Cangrejera petrochemical complex, which involves the use of new technology in the conversion of naphthas to aromatics, such as the use of a continuous catalytic regeneration reactor; Ps. 480 million has been allocated for the rehabilitation of the ammonia plant IV and integration and auxiliary services for the Cosoleacaque petrochemical complex; Ps. 205 million for the modernization of the fire protection network at the Cangrejera petrochemical complex; Ps. 173 million for the infrastructure for maintenance and industrial services areas; Ps. 162 million for the conditioning of the infrastructure for storage areas to maintain production at the Cangrejera petrochemical complex; Ps. 142 million to improve the efficiency in storage and distribution I; Ps. 136 million for maintaining the production capacity of the ethane derivatives chain II at the Morelos petrochemical complex; Ps. 120 million for the modernization and optimization of infrastructure and auxiliary services I at the Pajaritos petrochemical complex; Ps. 116 million for the expansion and modernization of the ethane derivatives chain I at the Morelos petrochemical complex in order to increase, over time, production of ethylene oxide from 225 thousand tons per year to 360 thousand tons per year; Ps. 114 million for maintaining the production capacity of auxiliary services II; Ps. 113 million for maintaining the production capacity of auxiliary services III at the Cangrejera petrochemical complex; Ps. 98 million for refurbishing facilities at the Morelos petrochemical complex in order to improve security; Ps. 89 million for maintaining the production capacity of the ethane derivatives chain IV at the Morelos petrochemical complex; Ps. 69 million for maintaining the production capacity of the ethane derivatives chain II at the Cangrejera petrochemical complex; Ps. 52 million for maintaining the production capacity of the ethane derivatives chain III at the Morelos petrochemical complex; Ps. 49 million for maintaining the production capacity of the ethylene plant at the Cangrejera petrochemical complex; Ps. 28 million for safety and environmental protection at the Morelos petrochemical complex; Ps. 11 million for the modernization and optimization of auxiliary services infrastructure I at the Morelos petrochemical complex; Ps. 7 million for maintaining the production capacity, storage and distribution of ammonia and the refurbishing of auxiliary services equipment at the ammonia plant V at the Cosoleacaque petrochemical complex; Ps. 6 million for a cogeneration plant in the auxiliary services at the Morelos petrochemical complex; Ps. 5 million for a cogeneration plant in the auxiliary services at the Cangrejera petrochemical complex; Ps. 1 million for maintaining the production capacity of the aromatics train II at the Cangrejera petrochemical complex; and Ps. 2,050 million for other sustainability, safety, modernization, optimization and infrastructure projects.

 

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Pemex-Petrochemicals’ 2015 budget includes Ps. 3,976 million in capital expenditures, of which Ps. 786 million has been allocated for the rehabilitation of the ammonia plant IV and integration and auxiliary services for the Cosoleacaque petrochemical complex; Ps. 341 million for the modernization and optimization of infrastructure and auxiliary services I at the Pajaritos petrochemical complex; Ps. 314 million for maintaining the production capacity of auxiliary services II; Ps. 284 million for the modernization of the fire protection network at the Cangrejera petrochemical complex; Ps. 251 million for the infrastructure for maintenance and industrial services areas; Ps. 242 million to improve the efficiency in storage and distribution I; Ps. 208 million for the expansion and modernization of the production capacity of the ethane derivatives chain I at the Morelos petrochemical complex in order to increase, over time, production of ethylene oxide from 225 thousand tons per year to 360 thousand tons per year; Ps. 101 million for safety and environmental protection at the Morelos petrochemical complex; Ps. 98 million for the conditioning of the infrastructure for storage areas to maintain production at the Cangrejera petrochemical complex; Ps. 93 million for maintaining the production capacity of auxiliary services III at the Cangrejera petrochemical complex; Ps. 84 million for maintaining the production capacity of the ethane derivatives chain II at the Morelos petrochemical complex; Ps. 52 million for maintaining the production capacity of the ethane derivatives chain III at the Morelos petrochemical complex; Ps. 46 million for refurbishing facilities at the Morelos petrochemical complex in order to improve security; Ps. 38 million for maintaining the production capacity of the ethane derivatives chain IV at the Morelos petrochemical complex; Ps. 24 million for the modernization and expansion of the production capacity of the aromatics train (first phase) at the Cangrejera petrochemical complex, which involves the use of new technology in the conversion of naphthas to aromatics, such as the use of a continuous catalytic regeneration reactor; Ps. 22 million for the modernization and optimization of auxiliary services infrastructure I at the Morelos petrochemical complex; Ps. 14 million for maintaining the production capacity of the ethylene plant at the Cangrejera petrochemical complex; Ps. 8 million for maintaining the production capacity of the ethane derivatives chain II at the Cangrejera petrochemical complex; Ps. 6 million for maintaining production capacity, storage and distribution of ammonia at the Cosoleacaque petrochemical complex; Ps. 3 million for a cogeneration plant in the auxiliary services at the Morelos petrochemical complex; Ps. 3 million for a cogeneration plant in the auxiliary services at the Cangrejera petrochemical complex; and Ps. 958 million for other sustainability, safety, modernization, optimization and infrastructure projects.

Domestic Sales

In 2014, the value of the domestic sales of Pemex-Petrochemicals increased by 6.7%, from Ps. 26,525.3 million in 2013 to Ps. 28,293.6 million in 2014. This increase was primarily due to: a 13% and 10% increase in the price of polyethylene and ethylene oxide, respectively, in 2014 as compared to 2013; an increase in the volume of sales of styrene, high density polyethylene and low density polyethylene, methanol and aromina; and higher volumes and prices of acrylonitrile.

 

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Over the five years ended December 31, 2014, the value of Pemex-Petrochemicals’ domestic sales was distributed as set forth in the table below.

Value of Domestic Sales of Pemex-Petrochemicals(1)

 

 Year ended December 31, 2014
vs. 2013
 
 2010 2011 2012 2013 2014 
 (in millions of pesos)(2) (%) 

Petrochemical Product

Ethane and derivatives

Ps. 15,814.8  Ps. 16,539.6  Ps. 16,945.1  Ps. 15,566.0  Ps. 16,208.4   4.1  

Aromatics and derivatives

 2,718.8   4,387.0   2,979.4   3,641.4   4,427.5   21.6  

Methane and derivatives

 4,454.9   5,956.0   6,562.6   6,059.9   5,964.0   (1.6

Propylene and derivatives

 1,384.4   1,467.1   1,134.8   1,212.1   1,602.6   32.2  

Others(3)

 365.6   503.9   139.1   45.9   91.4   99.1  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total

Ps.24,738.4  Ps.28,853.7  Ps.27,761.0  Ps.26,525.3  Ps.28,293.8   6.7  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

Note: Numbers may not total due to rounding.

(1)Excludes value added tax.
(2)Figures are stated in nominal pesos.
(3)Includes naphtha gas.

Source:Pemex BDI.

Joint Venture with Mexichem

In September 2013, Pemex-Petrochemicals entered into a joint venture with Mexichem through an investment in PMV, a Mexican entity incorporated by Mexichem in 2011. In connection with this joint venture, we increased our investment in PPQ Cadena Productiva, S.L. by Ps. 2,993.5 million, which allowed this subsidiary company to acquire a 44.09% interest in PMV, and the ethylene and vinyl chloride monomer plants and related infrastructure at the Pajaritos petrochemical complex were divested from Pemex-Petrochemicals and contributed to PMV. This contribution, together with Mexichem’s contribution of its chlorine-caustic soda plant, allowed for the integration of the caustic soda-salt-chlorine-ethylene-vinyl chloride monomer production chain, which has streamlined operations and is expected to reduce manufacturing costs. Plants associated with this project began operating on September 12, 2013. The ethylene and vinyl chloride monomer plants are operated by employees of Pemex-Petrochemicals who are compensated by PMV, while the chlorine-caustic soda plant is directly operated by employees of PMV. In October 2013, Pemex-Gas and Basic Petrochemicals began supplying ethane to PMV pursuant to a long-term supply contract approved by the Energy Regulatory Commission.

Fertilizer Production

On January 16, 2014, our subsidiary company P.M.I. Norteamérica, S.A. de C.V. signed an agreement through one of its subsidiaries to purchase the existing assets of Agro Nitrogenados, S.A. de C.V., a subsidiary of Minera del Norte, S.A. de C.V., including a closed fertilizer production facility located in Pajaritos, Veracruz, Mexico, for the purchase price of U.S. $275 million. P.M.I. Norteamérica, S.A. de C.V. expects to renovate and, through a subsidiary, subsequently operate the production facility, which is expected to begin production in 2015 and to have an annual production capacity of up to 990,000 tons of urea.

On December 9, 2014, we announced several initiatives as part of our strategy to increase fertilizer production, including the integration of the gas-ammonia-fertilizer chain and the renovation of an ammonia plant located in Camargo, Chihuahua, which had been inactive since 2002. This renovation project is expected to cost U.S. $35.0 million and to produce approximately 132 million tons of ammonia per year once it becomes operational in the first half of 2016. The reorganization plan approved by the Board of Directors of Petróleos Mexicanos on November 18, 2014 also provides for the creation of the new subsidiary entity, Pemex Fertilizers. See “—Information on the Company—History and Development—Energy Reform” for more information.

International Trading

The PMI Group

The PMI Group conducts international commercial activities for our crude oil, refined and petrochemical products, except for natural gas, which is marketed directly by Pemex-Gas and Basic Petrochemicals. The PMI Group’s main objectives are to assist in maximizing our profitability and optimizing our operations through the use of international trade, facilitating our link with the international markets and pursuing new business opportunities in marketing our products. The PMI Group manages the international sales of our crude oil and petroleum products and acquires in the international markets those petroleum products that we import to satisfy domestic demand. Sales of crude oil are carried out through PMI. Sales and purchases of petroleum products in the international markets are carried out through P.M.I. Trading, Ltd., which also performs third-party trading, transportation and risk management activities.

 

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Exports and Imports

PMI purchases crude oil from Pemex-Exploration and Production and then sells it to PMI’s customers. PMI sold an average of 1,142.3 thousand barrels of crude oil per day in 2014, which represented 47.0% of our total crude oil production.

The following tables set forth the composition and average prices of our crude oil exports for the periods indicated.

 

 Year ended December 31, 
 2010 2011 2012 2013 2014 
 (tbpd) (%) (tbpd) (%) (tbpd) (%) (tbpd) (%) (tbpd) (%) 

Crude oil exports (by volume)

Olmeca (API gravity of 38°-39°)

 212   16   203   15   194   15   99   8   91   8  

Isthmus (API gravity of 32°-33°)

 75   6   99   7   99   8   103   9   134   12  

Maya (API gravity of 21°-22°)(1)

 1,065   78   1,022   76   944   75   968   81   890   78  

Altamira (API gravity of15.0°-16.5°)

 9   1   14   1   19   2   20   2   27   2  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  1,361   100    1,338   100    1,256   100    1,189   100    1,142   100  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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 American Petroleum Institute (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.

 

(1)Includes 3,000 barrels per day of Talam crude oil in 2014.

Source: PMI operating statistics as of January 20, 2015.

 

 

Year ended December 31,

 
 

2010

 

2011

 

2012

 

2013

 

2014

 
  (U.S. dollars per barrel) 

Crude Oil Prices

Olmeca

U.S.$ 79.58  U.S.$ 109.83  U.S.$ 109.38  U.S.$ 107.92  U.S.$ 93.83  

Isthmus

 78.63   106.22   107.25   104.76   93.53  

Maya

 70.65   98.97   99.98   96.91   84.36  

Altamira

 68.80   96.60   96.29   94.35   81.35  

Weighted average realized price

U.S.$  72.46  U.S.$ 101.13  U.S.$ 101.82  U.S.$ 98.46  U.S.$  86.00  

 

Source: PMI operating statistics as of January 20, 2015.

Geographic Distribution of Export Sales

In 2014, 69.4% of PMI’s sales of our crude oil exports were to customers located in the United States, which represents a 3.8% decrease as compared to 2013. The decrease in our crude oil exports to the United States can be attributed primarily to a decrease in the availability of crude oil for export due to the decreased production of crude oil.

As of December 31, 2014, PMI had 36 customers in 14 countries. Among these countries, the largest proportion of our exports has consistently been to customers in the United States, Spain, India, Canada and China. Since 2009, the percentage of our crude oil export sales to the United States and Canada compared to our total crude oil export sales has declined, while the proportion of crude oil export sales to countries in Europe and Asia, particularly Spain and India, has increased. In 2013, 72.1% of our crude oil exports were to customers located in the United States, which represents a 4.1% decrease as compared to 2012. The decrease in our crude oil exports to the United States can be attributed mainly to the steady increase of domestic production of light and extra-light crude oil in the United States, primarily as a result of shale discoveries and advances in technology that have made extraction of oil from shale rock commercially viable. In response to the increased availability of light crude oil in the U.S. Gulf of Mexico and other developing trends in international demand for imported crude oil, we have expanded the scope of its geographic distribution and renewed our strategy to diversify and strengthen the presence of Mexican crude oil in the international market. In January 2014, PMI began exporting Olmeca crude oil to European countries other than Spain. As part of our initiative to increase export sales of crude oil to East Asia, PMI also began exporting Isthmus and Maya crude oil to South Korea in January 2015.

 

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The following table sets forth our crude oil export sales by country for the five years ended December 31, 2014.

Crude Oil Exports by Country

 

 Percentage of Exports 
 2010 2011 2012 2013 2014 

United States

 83.8 81.8 76.2 72.1 69.4

Spain

 8.9   8.3   13.2   14.4   14.2  

India

 1.7   2.8   6.0   8.2   7.0  

Canada

 1.8   1.5   1.8   1.9   1.8  

China

 1.9   2.7   0.8   1.6   1.2  

Others

 2.0   2.8   2.0   1.8   6.3  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total

 100.0 100.0 100.0 100.0 100.0
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

 

Note: Numbers may not total due to rounding.

Source: PMI operating statistics as of January 20, 2015.

The following table sets forth the geographic distribution of PMI’s sales of crude oil exports for the five years ended December 31, 2014. The table also presents the distribution of exports among PMI’s crude oil types for those years.

Composition and Geographic Distribution of Crude Oil Export Sales

 

 Year ended December 31, 
 2010 2011 2012 2013 2014 
 (tbpd) (%) (tbpd) (%) (tbpd) (%) (tbpd) (%) (tbpd) (%) 

PMI Crude Oil Export Sales to:

United States and Canada

 1,163   86   1,116   83   980   78   879   74   813   74  

Europe

 132   10   131   10   176   14   184   15   292   15  

Far East

 49   4   74   6   85   7   111   9   15   9  

Central and South America

 15   1   18   1   14   1   15   1   23   1  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

 1,359   100   1,338   100   1,256   100   1,189   100   1,142   100  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Olmeca (API gravity of 38°-39°)

United States and Canada

 200   15   192   14   184   15   90   8   35   3  

Others

 12   1   11   1   9   1   8   1   56   5  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

 212   16   203   15   194   15   99   8   91   8  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Isthmus (API gravity of 32°-33°)

United States and Canada

 53   4   80   6   58   5   62   5   89   8  

Others

 22   2   20   1   41   3   41   3   45   4  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

 75   6   100   7   99   8   103   9   134   12  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Maya (API gravity of 21°-22°)

United States and Canada

 903   66   830   62   719   57   707   60   662   58  

Others(1)

 162   12   192   14   224   18   260   22   228   20  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

 1,065   78   1,022   76   944   75   968   81   890   78  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Altamira (API gravity of15.0°-16.5°)

United States and Canada

 9   1   14   1   18   1   20   2   27   2  

Others

 —     —     —     —     1   1   —     —     —     —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

 9   1   14   1   19   2   20   2   27   2  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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.

 

(1)Includes 3,000 barrels per day of Talam crude oil in 2014.

Source: PMI operating statistics as of January 20, 2015.

 

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PMI sells a significant percentage of its crude oil under evergreen contracts, which can be terminated by either party pursuant to a three month phase-out clause. In addition, PMI enters into agreements with various international customers, including those located in the United States, Europe, India, China and Japan. PMI’s crude oil exports are sold on aFree On Board(FOB) basis.

In total, we exported 1.14 million barrels of crude oil per day in 2014. In 2015, we expect to export approximately 1.10 million barrels of crude oil per day.

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, 2014.

Volume of Exports and Imports

 

 Year ended December 31, 2014
vs. 2013
 
 2010 2011 2012 2013 2014 
 (in thousands of barrels per day, except as noted) (%) 

Exports

Crude Oil:

Olmeca

 211.7   202.9   193.7   98.6   91.2   (7.5

Isthmus

 74.9   99.3   99.4   102.7   133.7   30.2  

Altamira

 8.6   14.0   18.8   19.9   27.2   36.7  

Maya(1)

 1,065.3 �� 1,021.6   943.7   967.6   890.1   (8.0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total crude oil

 1,360.5   1,337.8   1,255.5   1,188.8   1,142.3   (3.9
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Natural gas(2)

 19.3   1.3   0.9   3.1   4.1   32.3  

Petroleum products

 194.5   175.9   152.6   164.5   193.5   17.6  

Petrochemical products(3)(4)

 697.6   442.9   1,344.7   1,336.9   488.0   (63.5

Imports

Natural gas:

Natural gas(2)

 535.8   790.8   1,089.3   1,175.4   1,250.4   6.4  

Liquefied natural gas(2)(5)

 —     —     —     114.3   107.4   (6.0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total natural gas

 535.8   790.8   1,089.3   1,289.7   1,357.8   5.3  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Petroleum products

 627.9   631.9   570.9   516.2   633.5   22.7  

Petrochemical products(3)(6)

 394.9   224.9   445.1   287.8   332.7   15.6  

 

Note: Numbers subject to adjustment because crude oil exports may be adjusted to reflect the percentage of water in each shipment.

(1)Includes 3,000 barrels per day of Talam crude oil in 2014.
(2)Numbers expressed in millions of cubic feet per day.
(3)Thousands of metric tons.
(4)Includes propylene.
(5)In 2013, we began importing liquefied natural gas through Manzanillo.
(6)Includes isobutane, butane and N-butane.

Source: PMI operating statistics as of January 20, 2015, and Pemex-Gas and Basic Petrochemicals.

Crude oil exports decreased by 3.9% in 2014, from 1,188.8 thousand barrels per day in 2013 to 1,142.3 thousand barrels per day in 2014, primarily due to a 3.7% decrease in crude oil production.

Natural gas imports increased by 5.3% in 2014, from 1,289.7 million cubic feet per day in 2013 to 1,357.8 million cubic feet per day in 2014, which includes imports of liquefied natural gas through Manzanillo. The lower availability of wet gas and natural gas from Pemex-Exploration and Production’s fields made it necessary to increase natural gas imports. We exported 4.1 million cubic feet of natural gas per day in 2014, an increase of 32.3% as compared to natural gas exports in 2013 of 3.1 million cubic feet per day, primarily as a result of an increase in the temporary surplus of natural gas that was originally designated for domestic consumption and subsequently used for export.

In 2014, exports of petroleum products increased by 17.6%, from 164.5 thousand barrels per day in 2013 to 193.5 thousand barrels per day in 2014, due to increased sales of fuel oil. Imports of petroleum products increased by 22.7% in 2014, from 516.2 thousand barrels per day in 2013 to 633.5 thousand barrels per day in 2014, primarily due to increased domestic demand for gasoline and diesel. As of January 2007, clean fuels specifications for gasoline and diesel for transportation were established in Mexico. Since that time, imports of ULSD and ultra-low sulfur premium gasoline have been required to meet domestic demand.

In July 2014, we submitted a proposal to the Bureau of Industry and Security of the U.S. Department of Commerce to establish a crude oil exchange through which we would import up to 75,000 barrels per day of light crude oil and/or condensates from the United States in exchange for an equal amount of Maya crude oil. The imported light crude oil and condensates are to be mixed with our own crude oil in order to improve gasoline and diesel production at our domestic refineries. As of the date of this report, the U.S. Department of Commerce’s approval of this proposal is pending.

 

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P.M.I. Trading, Ltd. sells refined and petrochemical products on anFOB,Delivered Ex-ship andCost and Freight basis and buys refined and petrochemical products on anFOB,Cost and Freight andDeliveredEx-ship orDelivery at Frontier basis.

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, 2014.

Value of Exports and Imports(1)

 

 Year ended December 31, 2014
vs. 2013
 
 2010 2011 2012 2013 2014 
 (in millions of U.S. dollars) (%) 

Exports

Olmeca

U.S.$6,149.2  U.S.$8,133.0  U.S.$7,753.7  U.S.$3,883.9  U.S.$3,124.3   (19.6

Isthmus

 2,148.9   3,849.1   3,904.4   3,928.1   4,563.3   16.2  

Altamira

 216.3   492.7   661.6   683.7   807.4   18.1  

Maya(2)

 27,471.1   36,904.9   34,466.5   34,227.4   27,360.4   (20.1
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Total crude oil(3)

U.S.$35,985.4  U.S.$49,379.6  U.S.$46,786.2  U.S.$42,723.2  U.S.$35,855.4   (16.1

Natural gas

 31.9   1.6   0.6   2.8   4.8   71.4  

Petroleum products

 5,133.3   6,277.5   5,538.0   5,817.2   5,868.6   0.9  

Petrochemical products

 272.1   298.6   362.9   234.0   166.9   (28.7
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Total natural gas and products

U.S.$5,437.3  U.S.$6,577.7  U.S.$5,901.5  U.S.$6,054.0  U.S.$6,040.3   (0.2
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Total exports

U.S.$41,422.7  U.S.$55,957.3  U.S.$52,687.7  U.S.$48,777.2  U.S.$41,895.7   (14.1
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Imports

Natural gas

U.S.$939.2  U.S.$1,272.2  U.S.$1,216.2  U.S.$1,728.7  U.S.$2,197.3   27.1  

Liquefied natural gas(4)

 —     —     —     766.6   621.9   (18.9
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Total natural gas

U.S.$939.2  U.S.$1,272.2  U.S.$1,216.2  U.S.$2,495.3  U.S.$2,819.3   13.0  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Petroleum products

 20,317.3   28,019.1   27,272.4   23,916.8   23,553.7   (1.5

Petrochemical products

 302.5   277.5   526.9   322.3   373.3   15.8  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Total imports

U.S.$21,559.0  U.S.$29,568.9  U.S.$29,015.4  U.S.$26,734.4  U.S.$26,746.3   0.0  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Net exports

U.S.$19,863.7  U.S.$26,388.5  U.S.$23,672.3  U.S.$22,042.8  U.S.$15,149.4   (31.3
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

Note: Numbers may not total due to rounding.

(1)Does not include crude oil, refined products and petrochemicals purchased by P.M.I. Trading, Ltd. or P.M.I. Norteamérica, S.A. de C.V. from third parties outside of Mexico and resold in the international markets. The figures expressed in this table differ from the amounts contained under the line item “Net Sales” in our financial statements because of differences in methodology associated with the calculation of the exchange rates and other minor adjustments.
(2)Includes Talam crude oil in 2014.
(3)Crude oil exports are subject to adjustment to reflect the percentage of water in each shipment.
(4)In 2013, we began importing liquefied natural gas through Manzanillo.

Source: PMI operating statistics as of January 20, 2015, which are based on information in bills of lading, and Pemex-Gas and Basic Petrochemicals.

Imports of natural gas increased in value by 13.0% during 2014, primarily as a result of increased domestic demand for natural gas and higher natural gas prices.

 

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The following table describes the composition of our exports and imports of selected refined products in 2012, 2013 and 2014.

Exports and Imports of Selected Petroleum Products

 

 Year ended December 31, 
 2012 2013 2014 
 (tbpd) (%) (tbpd) (%) (tbpd) (%) 

Exports

Gasoline(1)

 76.8   50.3   71.8   43.6   67.6   34.7  

Liquefied petroleum gas(2)

 0.1   0.1   0.2   0.1   1.3   0.7  

Jet fuel

 0.0   0.0   1.2   0.7   0.0   0.0  

Fuel oil

 73.2   48.0   82.9   50.3   123.6   63.4  

Others

 2.5   1.6   8.6   5.2   2.4   1.2  
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

   

 

 

 

Total

 152.6   100.0 164.7   100.0 194.9   100.0
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

   

 

 

 

Imports

Gasoline(3)

 390.7   59.7   370.4   62.2   389.7   61.5  

Fuel oil

 41.4   6.3   34.1   5.7   13.0   2.1  

Liquefied petroleum gas(2)

 85.6   13.1   79.5   13.3   85.0   13.4  

Diesel

 133.4   20.4   108.0   18.1   132.8   21.0  

Others

 3.7   0.6   3.7   0.6   13.0   2.1  
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

   

 

 

 

Total

 654.8   100.0 595.7   100.0 633.5   100.0
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

   

 

 

 

 

Notes:Numbers may not total due to rounding.
 tbpd = thousand barrels per day.
(1)Includes gasoline and blendstock.
(2)Includes butanes.
(3)Includes methyl tert-butyl ether (MTBE), naphtha and pentanes.

Source: PMI operating statistics as of January 20, 2015, based on INCOTERMS (International Commercial Terms).

Exports of petroleum products increased in value by 0.9% in 2014, primarily due to increased sales of fuel oil. In 2014, imports of petroleum products decreased in value, by 1.5%, and increased in volume, by 22.7%. These decreases were primarily due to decreased domestic demand for regular gasoline, which resulted from the national refining system’s increased production of this type of gasoline as compared to previous years. Our net imports of petroleum products for 2014 totaled U.S. $17,685.1 million, which represents a 2.3% decrease from our net imports of petroleum products of U.S. $18,099.6 million in 2013.

For the three years ended December 31, 2014, our exports and imports of selected petrochemicals were as follows:

Exports and Imports of Selected Petrochemicals

 

 Year ended December 31, 
 2012 2013 2014 
 (tmt) (%) (tmt) (%) (tmt) (%) 

Exports

Sulfur

 401.0   29.8   473.7   35.4   335.6   68.8  

Ammonia

 105.8   7.9   39.0   2.9   —     —    

Ethylene

 50.9   3.8   6.1   0.5   15.6   3.2  

Polyethylenes

 42.7   3.2   29.8   2.2   23.9   4.9  

Others

 744.3   55.4   788.4   59.0   112.9   23.1  
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

   

 

 

 

Total

 1,344.7   100.0 1,336.9   100.0 488.0   100.0
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

   

 

 

 

Imports

Isobutane-butane-hexane-1

 228.2   51.3   199.7   69.4   228.7   68.7  

Methanol

 45.6   10.2   35.1   12.2   50.1   15.1  

Xylenes

 66.0   14.8   18.0   6.3   3.0   0.9  

Toluene

 61.5   13.8   8.4   2.9   10.5   3.2  

Propylene

 6.9   1.6   —     —     —     —    

Others

 36.8   8.3   26.6   9.3   40.4   12.1  
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

   

 

 

 

Total

 445.1   100.0 287.8   100.0 332.7   100.0
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

   

 

 

 

 

Notes:Numbers may not total due to rounding.

tmt = thousand metric tons.

Exports include propylene. Imports include isobutane, butane and N-butane.

Source: PMI operating statistics as of January 20, 2015, based on INCOTERMS.

 

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In 2014, our exports of petrochemical products decreased by 63.5%, from 1,336.9 thousand metric tons in 2013 to 488.0 thousand metric tons in 2014. Our imports of petrochemical products increased by 15.6%, from 287.8 thousand metric tons in 2013 to 332.7 thousand metric tons in 2014. Petrochemical exports decreased in 2014, mainly due to lower sales of ammonia, sulfur and polyethylenes. Imports of petrochemical products increased in 2014, primarily due to higher demand for catalysts, methanol, butene-1, hexane-1 and toluene, among others.

Supply Commitments

We sell crude oil through a variety of contracts, some of which specify the delivery of a fixed and determinable quantity of crude oil. As of the date of this report, we are party to the following long-term crude oil supply agreements:

 

  An agreement executed on May 1, 1999, among PMI, Pecten Trading Company, which is a trading subsidiary of Shell Oil Company, and P.M.I. Norteamérica, S.A. de C.V., to supply the Deer Park refinery joint venture with a total of approximately 200 thousand barrels per day of Maya crude oil. Effective May 2008, this agreement was amended to reduce the supply to approximately 170 thousand barrels per day of Maya crude oil from May 2008 to March 2023 (when the agreement expires). In addition, PMI has agreed to supply additional volume depending on the availability of Maya crude oil. The additional volume is revised every two years. Accordingly, PMI provided an additional 30 thousand barrels per day of Maya crude oil from January 1, 2012 through December 31, 2013, increasing the total volume supplied during this period to 200 thousand barrels per day. For the period from January 2014 through December 31, 2015, the total volume to be supplied has been reduced to 170 thousand barrels per day.

 

  An agreement executed on May 1, 2012, with Chevron Products Company, a division of Chevron U.S.A. Inc., to supply its refinery in Pascagoula, Mississippi with approximately 95 thousand barrels per day of Maya crude oil for a period of three years. On May 1, 2015, this agreement will be extended for three additional years, however, our supply commitment will decrease to approximately 51 thousand barrels per day of Maya crude oil.

 

  An agreement executed on January 1, 2014, with Valero Marketing and Supply Company, a subsidiary of Valero Energy Corp., to supply its refineries in the United States with approximately 80 thousand barrels per day of Maya crude oil for a period of four years, with an option to extend this agreement subject to the express agreement of both parties.

 

  An agreement executed in January 2013 and extended on October 20, 2014 with Unipec America, Inc., acting on behalf of Unipec Asia Co., Ltd., a branch of China International United Petroleum & Chemicals Co. Ltd., which is a subsidiary of SINOPEC, to export crude oil to China. Under this agreement, we will export 500 thousand barrels of crude oil each month until July 2016, for an aggregate amount of 22 million barrels of crude oil exports. This agreement is limited to the specific purpose of establishing the terms for our crude oil exports to China.

 

  The remainder of our supply agreements were entered into with five different customers and require that we deliver a total of approximately 63 thousand barrels per day of crude oil during the next one to two years.

We expect to fulfill the majority of these supply commitments with both proved developed and proved undeveloped reserves.

 

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Hedging Operations

P.M.I. Trading, Ltd. engages in hedging operations to cover its price exposure in the trading of petroleum products. The internal policies and procedures of P.M.I. Trading, Ltd. establish: (1) that DFIs are used exclusively to mitigate the volatility of hydrocarbon prices; (2) limits on the maximum amount of capital at risk and on the daily and accumulated annual losses for each business unit; and (3) the segregation of risk-taking and risk measurement. Capital at risk is calculated on a daily basis in order to compare the actual figures with the aforementioned limit. P.M.I. Trading, Ltd. has a risk management subcommittee that reviews risk and hedging operations and meets on a quarterly basis. See “Item 11—Quantitative and Qualitative Disclosures about Market Risk—Hydrocarbon Price Risk.”

Transportation and Distribution

During 2014, we transported approximately 4,819 million cubic feet per day of natural gas, 289 thousand barrels per day of LPG and 3,330 thousand barrels per day of crude oil and petroleum products to be processed in our refining system and to satisfy domestic demand for petroleum products, as compared to 4,831 million cubic feet per day of natural gas, 287 thousand barrels per day of LPG and 3,500 thousand barrels per day of crude oil and petroleum products transported in 2013. Of the total amount we transported in 2014, we carried 83% through pipelines, 7% by vessels and the remaining 10% by train tank cars as well as tank trucks.

Our pipelines connect crude oil and natural gas producing centers with refineries and petrochemical plants, and our refineries and petrochemical plants with Mexico’s major cities. At the end of 2014, our pipeline network measured approximately 70,951 kilometers in length. Of these pipelines, 50,679 kilometers are currently operational and 3,815 kilometers are temporarily out of operation. Pipelines temporarily out of operation are classified as being in “stand-by” status, which occurs when there is a decline in production in a field where the pipeline is located or when transportation service is irregular, making operation of the pipeline unprofitable. Once production is restored in such field, we change the status of the pipelines back to “operational.” As of the date of this report, 970 kilometers of the 3,815 kilometers of pipelines temporarily out of operation are being analyzed to determine whether they may be used in the future and if so, how they may be used. In addition, 50 kilometers are currently under construction and 15,437 kilometers are permanently out of operation, the majority of which are production pipelines for which we have developed disposal programs.

Approximately 7,198 kilometers of the pipelines currently in operation transport crude oil, 8,886 kilometers transport petroleum products and petrochemicals, 11,162 kilometers transport natural gas, 1,728 kilometers transport LPG, 1,350 kilometers transport basic and secondary petrochemicals, 18,869 kilometers are production lines (including discharge lines) and 1,486 kilometers correspond to other services, including oil and gas pipelines. Ownership of the pipelines is distributed among the subsidiary entities according to the products they transport.

Petróleos Mexicanos has been working to implement a pipeline integrity management plan, which is based on the guidelines of API Standard RP 1160, “Managing System Integrity for Hazardous Liquid Pipelines,” the American Society of Mechanical Engineers B31.8S, “Managing System Integrity of Gas Pipelines” and theNorma Oficial de México (Official Mexican Standard)NOM-027-SESH-2010, “Integrity Management of Hydrocarbons Collection and Transportation Pipelines” (which we refer to asNOM-027).

The pipeline integrity management plan consists of the following stages:

 

  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 and evaluation of pipeline integrity;

 

  maintenance and risk-mitigation planning; and

 

  ongoing monitoring during all stages.

We have made considerable progress in satisfying the requirements of NOM-027, which became effective in June 2010, concerning risk assessment and the evaluation of pipeline integrity. Specifically, as of December 31, 2014, w