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Mexican Petroleum

Filed: 8 May 20, 6:14am
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM20-F

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

for the fiscal year ended December 31, 2019

Commission File Number0-99

PETRÓLEOS MEXICANOS

(Exact name of registrant as specified in its charter)

 

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

 

 

Avenida Marina Nacional No. 329

Colonia Verónica Anzures

11300 Ciudad de México, México

(Address of principal executive offices)

Lucero Angélica Medina González

(5255) 9126-2940

ri@pemex.com

Avenida Marina Nacional No. 329

Torre Ejecutiva, Piso 38 Colonia Verónica Anzures

11300 Ciudad de México, México

(Name, telephone,e-mail and/or facsimile number and address of company contact person)

 

 

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

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

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

Title of Each Class

 

6.000% Notes due 2020  3.500% Notes due 2020
5.50% Notes due 2021  6.375% Notes due 2021
5.375% Notes due 2022  4.875% Notes due 2022
8.625% Bonds due 2022  Floating Rate Notes due 2022
4.625% Notes due 2023  3.500% Notes due 2023
4.875% Notes due 2024  8.625% Guaranteed Bonds due 2023
4.500% Notes due 2026  4.250% Notes due 2025
9.50% Guaranteed Bonds due 2027  6.875% Notes due 2026
6.500% Notes due 2027  9.50% Global Guaranteed Bonds due 2027
6.500% Notes due 2029  5.350% Notes due 2028
6.625% Guaranteed Bonds due 2038  6.625% Guaranteed Bonds due 2035
5.50% Bonds due 2044  6.500% Bonds due 2041
5.625% Bonds due 2046  6.375% Bonds due 2045
6.350% Bonds due 2048  6.750% Bonds due 2047

 

 

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

  Yes      No

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.    

  Yes      No

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

  Yes      No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of RegulationS-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    

  Yes      No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer     Accelerated filer      Non-accelerated filer     Emerging growth company    

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

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

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

 

            U.S. GAAP   IFRS as issued by the IASB    Other              

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.    

  Item 17      Item 18

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act).    

  Yes      No

 

 

 


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EXPLANATORY NOTE

As previously reported by Petróleos Mexicanos in its current report on Form6-K as filed with the U.S. Securities and Exchange Commission on April 30, 2020, the filing of this annual report on Form20-F for the period ended December 31, 2019 was delayed due to circumstances related toCOVID-19. As a result of theCOVID-19 pandemic, PEMEX and the Mexican Government have adopted a range of measures intended to help mitigate the spread ofCOVID-19, such as theAcuerdo por el que se establecen acciones extraordinarias para atender la emergencia sanitaria generada por el virus SARS-CoV2 (Agreement establishing extraordinary actions to attend the health emergency caused by the SARS-CoV2 virus) adopted on March 31, 2020. These measures include, among others, restrictions on the movement and gathering of people, as well as restrictions and limitations on the ability of PEMEX’s workforce to access our facilities. Such measures, including the limited access to PEMEX’s facilities, hampered the ability of Petróleos Mexicanos to prepare and file this annual report on a timely basis. Petróleos Mexicanos is relying on the U.S. Securities and Exchange Commission Order Under Section 36 of the Securities Exchange Act of 1934 Granting Exemptions from Specified Provisions of the Exchange Act and Certain Rules Thereunder (SEC ReleaseNo. 34-88318) dated March 4, 2020, as amended, on March 25, 2020 (SEC ReleaseNo. 34-88465) to file this annual report on the date hereof.

 


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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

   19 

Item 4A.

  

Unresolved Staff Comments

   119 

Item 5.

  

Operating and Financial Review and Prospects

   119 

Item 6.

  

Directors, Senior Management and Employees

   156 

Item 7.

  

Major Shareholders and Related Party Transactions

   172 

Item 8.

  

Financial Information Consolidated Statements and Other Financial Information

   172 

Item 9.

  

The Offer and Listing

   175 

Item 10.

  

Additional Information

   175 

Item 11.

  

Quantitative and Qualitative Disclosures About Market Risk

   182 

Item 12.

  

Description of Securities Other than Equity Securities

   191 

Item 13.

  

Defaults, Dividend Arrearages and Delinquencies

   191 

Item 14.

  

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

   191 

Item 15.

  

Controls and Procedures

   191 

Item 16A.

  

Audit Committee Financial Expert

   195 

Item 16B.

  

Code of Ethics

   195 

Item 16C.

  

Principal Accountant Fees and Services

   196 

Item 16D.

  

Exemptions from the Listing Standards for Audit Committees

   196��

Item 16E.

  

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

   196 

Item 16F.

  

Change in Registrant’s Certifying Accountant

   196 

Item 16G.

  

Corporate Governance

   196 

Item 16H.

  

Mine Safety Disclosure

   196 

Item 17.

  

Financial Statements

   197 

Item 18.

  

Financial Statements

   197 

Item 19.

  

Exhibits

   197 

 

 

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Petróleos Mexicanos and its four subsidiary entities, which we refer to as the subsidiary entities,Pemex Exploración y Producción (Pemex Exploration and Production),Pemex Transformación Industrial (Pemex Industrial Transformation),Pemex Logística (Pemex Logistics) andPemex Fertilizantes (Pemex Fertilizers), comprise the state oil and gas company of the United Mexican States, which we refer to as Mexico. Petróleos Mexicanos is a productivestate-owned company of the Federal Government of Mexico, which we refer to as the Mexican Government, and each of the subsidiary entities is a productivestate-owned subsidiary of Mexico. Each of Petróleos Mexicanos and the subsidiary entities is a legal entity empowered to own property and carry on business in its own name. In addition, a number of subsidiary companies that are defined in Note 1 and listed in Note 5 to our consolidated financial statements incorporated in Item 18, which we refer to as our subsidiary companies, are incorporated into the consolidated financial statements; these subsidiary companies are also identified with their corresponding ownership percentages in “––Consolidated Structure of PEMEX” on page 4. Petróleos Mexicanos, the subsidiary entities and the subsidiary companies are collectively referred to as “PEMEX” or “we.” See “Item 4—Information on the Company—History and Development—Corporate Structure” for more details.

References herein to “U.S. $,” “$,” “U.S. dollars” or “dollars” are to United States dollars. References herein to “pesos” or “Ps.” are to the legal currency of Mexico. References herein to “euros” or “€” are to the legal currency of the European Economic and Monetary Union. References herein to “pounds sterling” or “£” are to the legal currency of the United Kingdom. References herein to “Swiss francs” 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” are to the legal currency of Australia. The term “billion” as used herein means one thousand million.

Our consolidated financial statements included in this annual report were prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board. We refer in this report to “International Financial Reporting Standards as issued by the International Accounting Standards Board” as IFRS. In addition, these financial statements were audited in accordance with the International Standards on Auditing, as required by theLey del Mercado de Valores (Securities Market Law) and theDisposiciones de carácter general aplicables a las emisoras de valores y a otros participantes del mercado de valores(General Provisions applicable to issuers of securities and other participants in the securities market) in each case, of Mexico, for purposes of filing with theComisiónNacional Bancaria y de Valores (National Banking and Securities Commission, or the CNBV) and theBolsa Mexicana de Valores, S.A.B. de C.V.(Mexican Stock Exchange), and in accordance with the standards of the Public Company Accounting Oversight Board (United States), or PCAOB, for purposes of filings with the U.S. Securities and Exchange Commission, or the SEC.

The regulations of the SEC do not require foreign private issuers that prepare their financial statements on the basis of IFRS to reconcile such financial statements to United States Generally Accepted Accounting Principles, which we refer to as U.S. GAAP. Accordingly, while we have in the past reconciled our consolidated financial statements prepared in accordance withNormas de Información Financiera Mexicanas(Mexican Financial Reporting Standards) to U.S. GAAP, those reconciliations are no longer presented in our filings with the SEC. We do, however, continue to provide the disclosure required under the U.S. Financial Accounting Standards Board Accounting Standards Codification (ASC) Topic 932 “Extractive Activities—Oil and Gas” (which we refer to as ASC Topic 932), as this is required regardless of the basis of accounting on which we prepare our financial statements.

We maintain our consolidated financial statements and accounting records in pesos. Unless otherwise indicated, we have translated all peso amounts to U.S. dollars in this Form20-F, including all convenience translations of our consolidated financial statements included herein, at an exchange rate of Ps. 18.8452 = U.S. $1.00, which is the exchange rate that the Secretaría de Hacienda y Crédito Público (Ministry of Finance and Public Credit) instructed us to use on December 31, 2019. 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.


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PRESENTATION OF INFORMATION CONCERNING RESERVES

The proved hydrocarbon reserves included in this report for the year ended December 31, 2019 are those that we have the right to extract and sell based on assignments granted to us by the Mexican Government.

The estimates of our proved reserves of crude oil and natural gas for the five years ended December 31, 2019 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 GLJ Petroleum Consultants Ltd. (which we refer to as GLJ) conducted reserves audits of our estimates of our proved hydrocarbon reserves as of December 31, 2019 or January 1, 2020, as applicable. All reserves estimates involve some degree of uncertainty. For a description of the risks relating to reserves and reserves estimates, see “Item 3—Key Information—Risk Factors—Risk Factors Related to our Relationship with the Mexican Government— Information on Mexico’s hydrocarbon reserves is based on estimates, which are uncertain and subject to revisions,” “—We must make significant capital expenditures to maintain our current production levels, and to maintain, as well as increase, the proved hydrocarbon reserves assigned to us by the Mexican Government. Reductions in our income, adjustments to our capital expenditures budget and our inability to obtain financing may limit our ability to make capital investments” and “—The Mexican nation, not us, owns the hydrocarbon reserves located in the subsoil in Mexico and our right to continue to extract these reserves is subject to the approval of theSecretaría de Energía (Ministry of Energy or SENER).”

FORWARD-LOOKING STATEMENTS

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

 

  

exploration and production activities, including drilling;

 

  

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

 

  

activities relating to our lines of business;

 

  

projected and targeted capital expenditures and other costs;

 

  

trends in international and Mexican crude oil and natural gas prices;

 

  

liquidity and sources of funding, including our ability to continue operating as a going concern;

 

  

farm-outs, joint ventures and strategic alliances with other companies; and

 

  

the monetization of certain of our assets.

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

 

  

general economic and business conditions, including changes in international and Mexican crude oil and natural gas prices, refining margins and prevailing exchange rates;

 

  

credit ratings and limitations on our access to sources of financing on competitive terms;

 

  

our ability to find, acquire or gain access to additional reserves and to develop, either on our own or with our strategic partners, the reserves that we obtain successfully;

 

  

the level of financial and other support we receive from the Mexican Government;

 

  

global or national health concerns, including the outbreak of pandemic or contagious disease, such as the ongoingCOVID-19, commonly known as coronavirus, pandemic;

 

  

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

 

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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 and the United States;

 

  

developments affecting the energy sector;

 

  

changes in, or failure to comply with, our legal regime or regulatory environment, including with respect to tax, environmental regulations, fraudulent activity, corruption and bribery;

 

  

receipt of governmental approvals, permits and licenses;

 

  

natural disasters, accidents, blockades and acts of sabotage or terrorism;

 

  

the cost and availability of adequate insurance coverage; and

 

  

the effectiveness of our risk management policies and procedures.

Accordingly, you should not place undue reliance on theseforward-looking statements. In any event, these statements speak only as of their dates, and we undertake no obligation to update or revise any of them, whether as a result of new information, future events or otherwise.

For a discussion of important factors that could cause actual results to differ materially from those contained in anyforward-looking statement, see “Item 3—Key Information—Risk Factors.”

 

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CONSOLIDATED STRUCTURE OF PEMEX

 

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 (loss), statement of financial position and cash flows data set forth below as of and for the five years ended December 31, 2019 have been derived from, and should be read in conjunction with, our consolidated financial statements as of December 31, 2018 and 2019 and for the years ended December 31, 2017, 2018 and 2019, which are included in Item 18 of this report. Our consolidated financial statements for each of the fiscal years ended December 31, 2015, 2016 and 2017 were audited by Castillo Miranda y Compañía, S.C. (which we refer to as BDO Mexico), an independent registered public accounting firm. Our consolidated financial statements for the fiscal year ended December 31, 2018 and 2019 were audited by KPMG Cárdenas Dosal, S.C. (which we refer to as KPMG Mexico), an independent registered public accounting firm. Certain amounts in the consolidated financial statements for the years ended December 31, 2015, 2016, 2017 and 2018 have been reclassified to conform the presentation of the amounts in the consolidated financial statements for the year ended December 31, 2019. These reclassifications are not significant to the consolidated financial statements and had no impact on our consolidated net income (loss). As of January 1, 2019, we adopted IFRS 16 “Leases,” without modifying financial information as of December 31, 2018 and 2017. See impacts from the adoption of IFRS 16 in Notes 4 and 17 to our consolidated financial statements included herein.

As detailed below, for the years ended December 31, 2017, 2018 and 2019, we recognized a net loss of Ps. 280.9 billion, Ps. 180.4 billion and Ps. 347.9 billion, respectively. In addition, we had negative equity as of December 31, 2018 and 2019 of Ps. 1,459.4 billion and Ps. 1,997.2 billion, respectively. This has led us to state in our consolidated financial statements that there exists significant doubt about our ability to continue as a going concern. However, we have concluded that we continue to operate as a going concern. Accordingly, we have prepared our consolidated financial statements on a going concern basis, which assumes that we can meet our payment obligations. For more information on the actions that we are taking to face these negative trends, see “Item 5—Operating and Financial Review and Prospects—Overview” and “Item 5 — Operating and Financial Review and Prospects —Liquidity and Capital Resources.”

 

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Selected Financial Data of PEMEX

 

   Year ended December 31,(1) 
   2015  2016  2017  2018  2019  2019(2) 
   (in millions of pesos, except ratios)  (in millions of
U.S. dollars)
 

Statement of Comprehensive Income (Loss) Data

       

Net sales

   Ps.1,161,760   Ps.1,074,093   Ps.1,397,030   Ps.1,681,119   Ps.1,401,971  U.S. $74,394 

Operating income

   (154,387  424,350   104,725   367,400   37,030   1,965 

Financing income

   14,991   13,749   16,166   31,557   24,484   1,299 

Financing cost

   (67,774  (98,844  (117,645  (120,727  (132,861  (7,050

Derivative financial instruments (cost) income—Net

   (21,450  (14,000  25,338   (22,259  (18,512  (982

Exchange (loss) gain—Net

   (154,766  (254,012  23,184   23,659   86,930   4,613 

Net (loss) for the period

   (712,567  (191,144  (280,851  (180,420  (347,911  (18,462

Statement of Financial Position Data (end of period)

       

Cash and cash equivalents

   109,369   163,532   97,852   81,912   60,622   3,217 

Total assets

   1,775,654   2,329,886   2,132,002   2,075,197   1,918,448   101,800 

Long-term debt

   1,300,873   1,807,004   1,880,666   1,890,490   1,738,250   92,238 

Totallong-term liabilities

   2,663,922   3,136,704   3,245,227   3,086,826   3,363,453   178,478 

Total equity (deficit)

   (1,331,676  (1,233,008  (1,502,352  (1,459,405  (1,997,208  (105,980

Statement of Cash Flows

       

Depreciation and amortization

   167,951   150,439   156,705   153,382   137,187   7,280 

Acquisition of wells, pipelines, properties, plant and equipment(3)

   253,514   151,408   91,859   (94,004  (109,654  (5,819

 

(1)

Includes Petróleos Mexicanos, the subsidiary entities and the subsidiary companies listed in Note 5 to our consolidated financial statements included herein.

(2)

Translations into U.S. dollars of amounts in pesos have been made at the exchange rate established by the Ministry of Finance and Public Credit for accounting purposes of Ps. 18.8452 = U.S. $1.00 at December 31, 2019. 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.

(3)

Includes capitalized financing cost. See Note 13 to our consolidated financial statements included herein and “Item 5—Operating and Financial Review and Prospects—Liquidity and Capital Resources.”

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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RISK FACTORS

Risk Factors Related to Our Operations

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

We have a substantial amount of debt, which we have incurred primarily to finance the capital expenditures needed to carry out our capital investment projects. Due to our heavy tax burden, our cash flow from operations in recent years has not been sufficient to fund our capital expenditures and other expenses and, accordingly, our debt has significantly increased and our working capital has decreased. Relatively low oil prices since 2014 and the rapid decline in early 2020, as well as declining production have also had a negative impact on our ability to generate positive cash flows, which, together with our continued heavy tax burden and increased competition from the private sector, has further strained our ability to fund our capital expenditures and other expenses from cash flow from operations. Therefore, in order to develop our hydrocarbon reserves and amortize scheduled debt maturities, we will need to obtain funds from a broad range of sources, in addition to implementing the efficiency andcost-cutting initiatives described in this annual report.

As of December 31, 2019, our total indebtedness, including accrued interest, was Ps. 1,983.2 billion (U.S. $105.2 billion), which represented a 4.8% decrease compared to our total indebtedness, including accrued interest, of Ps. 2,082.3 billion (U.S. $105.8 billion) as of December 31, 2018. As of December 31, 2019, 24.3% of our existing debt, or Ps. 481.0 billion (U.S. $25.5 billion), is scheduled to mature in the next three years, including Ps. 244.9 billion (U.S. $13.0 billion) scheduled to mature in 2020. As of December 31, 2019, we had a negative working capital of Ps. 211.7 billion (U.S. $10.6 billion). Our level of debt may increase further in the short or medium term as a result of new financing activities or depreciation of the peso as compared to the U.S. dollar, and may have an adverse effect on our financial condition, results of operations and liquidity position. To service our debt, we have relied and may continue to rely on a combination of cash flows provided by our operations, drawdowns under our available credit facilities and refinancing our existing indebtedness. See “Item 5—Operating and Financial Review and Prospects—Liquidity and Capital Resources—Overview—Changes to Our Business Plan.”

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

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

Our consolidated financial statements have been prepared under the assumption that we will continue as a going concern. However, there is material uncertainty that may cast significant doubt about our ability to continue operating as a going concern. Our consolidated financial statements do not include any adjustments that might result from the outcome of that uncertainty. If the actions we are taking to improve our financial condition, which are described in detail under “Item 5 — Operating and Financial Review and Prospects —Liquidity and Capital Resources — Overview—Changes to Our Business Plan,” are not successful, we may not be able to continue operating as a going concern.

Downgrades in our credit ratings could negatively impact our access to the financial markets and cost of financing.

We rely on access to the financial markets to fund our operations and finance the capital expenditures needed to carry out our capital investment projects. Accordingly, credit ratings are important to our business and financial condition, as credit ratings affect the cost and other terms upon which we are able to obtain funding. Certain rating agencies have expressed concerns regarding: (1) our heavy tax burden; (2) the total amount of our debt and the ratio of our debt to our proven reserves; (3) the significant increase in our indebtedness over the last several years; (4) our negative free cash flow; (5) the natural decline of certain of our oil fields and lower quality of crude oil; (6) our substantial unfunded reserve for retirement pensions and seniority premiums, which was equal to Ps. 1,456.8 billion (U.S. $77.3 billion) as of December 31, 2019; (7) the persistence of our operating expenses notwithstanding declines in oil prices; (8) our rising per barrel lifting costs; (9) the possibility that our budget for capital expenditures will be insufficient to maintain and exploit reserves, particularly given our high investment needs to maintain production and replenish reserves; (10) the possibility that the Mexican Government will not be able to continue providing the support it has provided in recent years; and (11) the involvement of the Mexican Government in our strategy, financing and management. In particular, in light of the recent downturn seen in the oil and gas industry beginning in the first quarter of 2020, certain ratings agencies have expressed concern that we lack flexibility to navigate the downturn and to finance our capital investment needs in the face of low cash flow generation and adverse financing conditions.

 

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Ratings address our creditworthiness and the likelihood of timely payment of our long-term debt securities. Ratings are not a recommendation to purchase, hold or sell securities and may be changed, suspended or withdrawn at any time. Our current ratings and the rating outlooks depend, in part, on economic conditions and other factors that affect credit risk and are outside our control, as well as assessments of the creditworthiness of Mexico. Certain ratings agencies have recently downgraded Mexico’s credit ratings and their assessment of Mexico’s creditworthiness has and may further affect our credit ratings.

We currently have a “split rating,” with anon-investment grade credit rating from two rating agencies but investment grade credit ratings from other rating agencies. For information regarding our current credit ratings, please see “Item 5—Liquidity and Capital Resources—Overview.” While these downgrades do not constitute a default or event of default under our debt instruments, they have increased our cost of financing. Any further lowering of our credit ratings may have material adverse consequences on our ability to access the financial markets and the terms on which we may obtain financing, including our cost of financing. In turn, this could significantly harm our ability to meet our existing obligations, financial condition and results of operations. In addition, in connection with the entry into new financings or amendments to existing financing arrangements, our financial and operational flexibility may be reduced as a result of more restrictive covenants, requirements for security and other terms that may be imposed on split rated entities. Our split rating and any further credit rating downgrades could also negatively impact the prices of our debt securities and reduce our potential pool of investors and funding sources, among other consequences. There can be no assurance that we will be able to maintain or improve our current credit ratings or outlook.

Crude oil and natural gas prices are volatile and low crude oil and natural gas prices adversely affect our income and cash flows and the amount of hydrocarbon reserves that we have the right to extract and sell.

International crude oil and natural gas prices are subject to global supply and demand and fluctuate due to many factors beyond our control. These factors include competition within the oil and natural gas industry, the prices and availability of alternative sources of energy, international economic trends, exchange rate fluctuations, expectations of inflation, domestic and foreign laws and government regulations, political and other events in major oil and natural gas producing and consuming nations and actions taken by Organization of the Petroleum Exporting Countries (OPEC) members and other oil exporting countries, trading activity in oil and natural gas and transactions in derivative financial instruments (which we refer to as DFIs) related to oil and gas.

When international crude oil, petroleum product and/or natural gas prices are low, we generally earn less revenue and, therefore, generate lower cash flows and earn less income before taxes and duties because our costs remain roughly constant. Conversely, when crude oil, petroleum product and natural gas prices are high, we earn more revenue and our income before taxes and duties increases. Crude oil export prices, which had generally traded above U.S. $75.00 per barrel since October 2009 and traded above U.S. $100.00 per barrel as of July 30, 2014, began to fall in August 2014. The weighted average Mexican crude oil export price fell further in subsequent years, reaching U.S. $18.90 per barrel on January 20, 2016. In subsequent years, while prices have remained significantly below 2014 levels, average crude oil export prices stabilized, with the Mexican crude oil export price averaging of U.S. $62.29 per barrel in 2018 and U.S. $55.60 per barrel in 2019.

However, beginning in early March of 2020, the market experienced a precipitous decline in oil prices. This decline occurred in response to a substantial decline in demand for oil due to the economic impacts of the pandemic caused by the highly transmissible and pathogenic coronavirus known asCOVID-19, which caused an oversupply and in turn insufficient global storage capacity. The Mexican crude oil export price averaged U.S. $40.91 per barrel for the three month period ended March 31, 2020 and reached an unprecedented low of negative U.S. $7.33 per barrel on April 28, 2020 Prices continue to display significant volatility both in reaction to theCOVID-19 pandemic and actions taken by other oil producing countries.

 

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On April 12, 2020, OPEC and othernon-OPEC oil exporting countries, including, among others, Mexico and Russia, reached an agreement to reduce world crude oil supply. Pursuant to this agreement, these countries, which are known as OPEC+, agreed to reduce their overall crude oil production by 9.7 million barrels per day from May 1, 2020 through June 30, 2020, by 7.7 million barrels per day from July 1, 2020 through December 31, 2020 and by 5.8 million barrels per day from January 1, 2021 through April 30, 2022. In particular, Mexico has agreed to reduce its crude oil production by 100,000 barrels per day for a period of two months beginning on May 1, 2020.

Any further or future production cuts or decline in international crude oil and natural gas prices will likely have a negative impact on our results of operations and financial condition. In addition, significant fluctuations may affect estimates of the amount of Mexico’s hydrocarbon reserves that we have the right to extract and sell, which could affect our future production levels. See “—Risk Factors Related to our Relationship with the Mexican Government—Information on Mexico’s hydrocarbon reserves is based on estimates, which are uncertain and subject to revisions” below and “Item 11—Quantitative and Qualitative Disclosures About Market Risk—Changes in Exposure to Main Risks—Market Risk—Hydrocarbon Price Risk.”

The outbreak ofCOVID-19 has had and may continue to have an adverse effect on our business, results of operations and financial condition.

Since December 2019, a novel strain of coronavirus (2019-nCov, referred to asCOVID-19) has spread throughout the world. On March 11, 2020,COVID-19 was categorized as a pandemic by the World Health Organization. TheCOVID-19 pandemic has resulted in numerous deaths and the imposition of local, municipal and national governmental“shelter-in-place” and other quarantine measures, border closures and other travel restrictions, causing unprecedented commercial disruption in a number of jurisdictions, including Mexico. Many countries around the world, including Mexico, are suffering significant economic and social crises as a result of the ongoingCOVID-19 pandemic and measures taken to contain or mitigate it, which have had dramatic adverse consequences on demand, operations, supply chains and financial markets, as well as contributed to significant oil price volatility. While the nature and scope of the consequences to date are difficult to evaluate precisely, and their future course is impossible to predict with confidence, these events may continue for a sustained period of time.

As of the date of this annual report, the Mexican Government has adopted certain measures intended to help mitigate the spread ofCOVID-19 in Mexico, including the suspension of allnon-essential activities. However, we cannot predict the range of future policies that may be enacted by the Mexican Government, or any other government, or the impact these policies will have on our business and operations. Our business operation is generally considered a strategic area as defined in Articles 27 and 28 of theConstitución Política de los Estados Unidos Mexicanos (Political Constitution of the United Mexican States or the Mexican Constitution). Certain of our operations therefore remain active as of the date of this annual report – however, in accordance with our business continuity plan, we have limited our workforce’s access to our facilities, implemented alternating shifts and allowed a portion of our workforce to work remotely. In addition, we have implemented sanitizing measures to disinfect our facilities and the use of thermal cameras and other special equipment to monitor infection risks. Despite these precautions, theCOVID-19 pandemic, or any future pandemic or epidemic, has and may further impact the places where we operate or our workforce. In turn, this could significantly disrupt our operations and cause health restrictions to our workforce and, therefore, impact the operation of our facilities, including our platforms, refineries and terminals, among others. These conditions could adversely affect our business, results of operations and financial condition.

In addition to the operational impacts of theCOVID-19 pandemic, international prices for oil, oil products and natural gas are volatile and strongly influenced by conditions and expectations of world supply and demand. TheCOVID-19 pandemic has significantly decreased and is likely to continue to decrease worldwide oil demand in 2020, has led to significantly decreased oil prices and, consequently, has significantly adversely affected our business, results of operations and financial condition. See “—Risk Factors Related to Our Operations—Crude oil and natural gas prices are volatile and low crude oil and natural gas prices adversely affect our income and cash flows and the amount of hydrocarbon reserves that we have the right to extract and sell” above, “Item 5—Overview” and Note 28 to our consolidated financial statements for further information about the impact on us ofCOVID-19 pandemic.

If the impact of theCOVID-19 pandemic continues for an extended period of time, it could adversely affect our ability to operate our business in the manner and on the timelines previously planned. Further, it could have accounting consequences, such as decreases in our revenues and the value of our inventories, foreign exchange losses, impairments of fixed assets, and affect our ability to operate effective internal control over financial reporting.

 

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The extent to whichCOVID-19 or other health pandemics or epidemics may continue to impact Mexico, the Mexican economy and the global economy and, in turn, our business, results of operations and financial condition is highly uncertain and will depend on numerous evolving factors that we cannot predict, including, but not limited to:

 

  

the duration, scope, and severity of theCOVID-19 pandemic;

 

  

ongoing reduced oil demand and oil price volatility;

 

  

the impact of travel bans, work-from-home policies, orshelter-in-place orders;

 

  

staffing shortages;

 

  

general economic, financial, and industry conditions, particularly conditions relating to liquidity, financial performance, which may be amplified by the effects ofCOVID-19; and

 

  

the long-term effects ofCOVID-19 on the national and global economy, including on consumer confidence and spending, financial markets and the availability of credit for us, our suppliers and our customers.

We are an integrated oil and gas company and are exposed to production, equipment and transportation risks, criminal acts, blockades to our facilities,cyber-attacks, failure in our information technology system and deliberate acts of terror that could adversely affect our business, results of operations and financial condition.

We are subject to several risks that are common among oil and gas companies. These risks include production risks (fluctuations in production due to operational hazards, natural disasters or weather, accidents, etc.), equipment risks (relating to the adequacy and condition of our facilities and equipment) and transportation risks (relating to the condition and vulnerability of pipelines and other modes of transportation). More specifically, our business is subject to the risks of explosions in pipelines, refineries, plants, drilling wells and other facilities, oil spills, hurricanes in the Gulf of Mexico and other natural or geological disasters and accidents, fires and mechanical failures.

Our operations are also subject to the risk of criminal acts to divert our crude oil, natural gas or refined products from our pipeline network, including the theft, and tampering with the quality, of our products. We have experienced an increase in the illegal trade in the fuels that we produce and in the illegal “tapping” of our pipelines, which has resulted in explosions, property and environmental damage, injuries and loss of life, as well as loss of revenue from the stolen product.

In 2019, we discovered 10,316 illegal pipeline taps. We are also subject to the risk that some of our employees may, or may be perceived to, be participating in the illicit market in fuels. In addition, our facilities are subject to the risk of sabotage, terrorism and blockades. For example, in early 2017 we experienced widespread demonstrations, including blockades, as a result of the Mexican Government’s increase in fuel prices during 2017, which prevented us from accessing certain of our supply terminals and caused gasoline shortages at several retail service stations in Mexico. The occurrence of incidents such as these related to the production, processing and transportation of oil and gas 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, which in turn could adversely affect our business, results of operations and financial condition.

Our operations are supported by our information technology systems and therefore, cybersecurity plays a key role in protecting our operations. Cyber-threats and cyber-attacks are becoming increasingly sophisticated, coordinated and costly, and could be targeted at our operations or information systems. Accordingly, we have established an information security policy in order to help us to prevent, detect and correct vulnerabilities. On November 10, 2019, we detected a ransomware cyber-attack that targeted certain computer software applications. The cyber-attack did not affect the operational continuity of our business. Following the cyber-attack and in accordance with our protocols, we implemented remedial measures intended to contain the extent of the attack and preserve the integrity of our proprietary information. We have also undertaken an investigation to identify the source and nature of the cyber-attack and identify the full extent of its impact.

Although we have established an information security program that helps us to prevent, detect and correct vulnerabilities, if the integrity of our information technology system were to be compromised due to anothercyber-attack, or due to the negligence or misconduct of our employees, our business operations could be disrupted or even paralyzed and our proprietary information could be lost or stolen. As a result of these risks, we could face, among other things, regulatory action, legal liability, damage to our reputation, a significant reduction in revenues, an increase in costs, a shutdown of operations, or loss of our investments in areas affected by suchcyber-attacks, which in turn could have a material adverse effect on our reputation, results of operations and financial condition.

 

 

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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 significant incidents will not occur in the future, that insurance will adequately cover the entire scope or extent of our losses or that we will not be held responsible for such incidents. The occurrence of a significant incident or unforeseen liability for which we are not fully insured or for which insurance recovery is significantly delayed could have a material adverse effect on our results of operations and financial condition. See “Item 4—Information on the Company—Business Overview—PEMEX Corporate Matters—Insurance.”

A continued decline in our proved hydrocarbon reserves and production could adversely affect our operating results and financial condition.

Some of our existing oil and gas producing fields are mature and, as a result, our reserves and production may decline as reserves are depleted. In prior years the replacement rate for our proved hydrocarbon reserves has been insufficient to prevent a decline in our proved reserves. However, during 2019, our total proved reserves increased by 171.7 million barrels of crude oil equivalent, or 2.4%, after accounting for discoveries, extensions, revisions, and delimitations, from 7,010.3 million barrels of crude oil equivalent as of December 31, 2018 to 7,182.0 million barrels of crude oil equivalent as of December 31, 2019. See “Item 4—Information on the Company—Business Overview––Exploration and Production—Reserves” for more information about the factors leading to this increase. Ourreserve-replacement ratio, or RRR, in 2019 was 120.1%, as compared to our RRR of 34.7% in 2018. Nevertheless, our crude oil production continued to decrease by 9.5% in 2017, by 6.4% in 2018 and by 7.6% in 2019, primarily as a result of the decline of the Cantarell,Yaxché-Xanab, Crudo Ligero Marino, ElGolpe-Puerto Ceiba,Bellota-Chinchorro, Antonio J. Bermúdez,Cactus-Sitio Grande,Ixtal-Manik, Chuc, Costero Terreste andTsimín-Xux projects. There can be no assurance that we will be able to stop or reverse the decline in our proved reserves and production, which could have an adverse effect on our business, results of operations and financial condition.

Developments in the oil and gas industry and other factors may result in substantialwrite-downs of the carrying amount of certain of our assets, which could adversely affect our operating results and financial condition.

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

Changes in the economic, regulatory, business or political environment in Mexico or other markets where we operate, such as the liberalization of fuel prices or a significant decline in international crude oil and gas prices, among other factors, may result in the recognition of impairment charges in certain of our assets. Due to the decline in oil prices, we have performed impairment tests of ournon-financial assets (other than inventories and deferred taxes) at the end of each quarter. As of December 31, 2017 and 2018, we recognized a net reversal of impairment of Ps. 151,444.6 million and an impairment charge of Ps. (21,419.0) million, respectively. As of December 31, 2019, we recognized an impairment in the amount of Ps. (97,082.2) million. See Note 13 to our consolidated financial statements for further information about the impairment of certain of our assets. Future developments in the economic environment, in the oil and gas industry and other factors could result in further substantial impairment charges, adversely affecting our operating results and financial condition.

Increased competition in the energy sector could adversely affect our business and financial performance.

TheMexican Constitution and theLey de Hidrocarburos (Hydrocarbons Law) allow other oil and gas companies, in addition to us, to carry out certain activities related to the energy sector in Mexico, including exploration and production activities, and the import and sale of gasoline. As a result, we face competition for the right to explore and develop new oil and gas reserves in Mexico. We also face competition in connection with certain refining, transportation and processing activities. Increased competition could make it difficult for us to hire and retain skilled personnel. While we have not yet experienced significant adverse effects from increased competition, there can be no assurances that we will not experience such adverse effects in the future. If we are unable to compete successfully with other oil and gas companies in the energy sector in Mexico, our results of operations and financial condition may be adversely affected.

 

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We participate in strategic alliances, joint ventures and other joint arrangements. These arrangements may not perform as expected, which could harm our reputation and have an adverse effect on our business, results of operations and financial condition.

We have entered into and may in the future enter into strategic alliances, joint ventures and other joint arrangements. These arrangements are intended to reduce risks in exploration and production, refining, transportation and processing activities. Our partners in such arrangements may, as a result of financial or other difficulties, be unable or unwilling to fulfill their financial or other obligations under our agreements, threatening the viability of the relevant project. In addition, our partners may have inconsistent or opposing economic or business interests and take action contrary to our policies or objectives, which could be to our overall detriment. If our strategic alliances, joint ventures and other joint arrangements do not perform as expected, our reputation may be harmed and our business, financial condition and results of operations could be adversely affected.

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

We are subject to Mexican and internationalanti-corruption,anti-bribery andanti-money laundering laws. See “Item 4—Information on the Company—General Regulatory Framework.” Although we maintain a corporate compliance program that includes policies and procedures intended to monitor our compliance with these laws, including the review of our internal control over financial reporting, we are subject to the risk that our management, employees, contractors or any person doing business with us may engage in fraudulent activity, corruption or bribery, circumvent or override our internal controls and procedures or misappropriate or manipulate our assets for their personal benefit or of third parties to our detriment. This risk is heightened by the fact that we have a large number of complex, valuable contracts with local and foreign third parties. Although we have systems in place for identifying, monitoring and mitigating these risks, our systems may not be effective and we cannot ensure that these compliance policies and procedures will prevent intentional, reckless or negligent acts committed by our management, employees, contractors or any person doing business with us. Any failure—real or perceived—by our management, employees, contractors or any person doing business with us to comply with applicable governance or regulatory obligations could harm our reputation, limit our ability to obtain financing and otherwise have a material adverse effect on our business, financial condition and results of operations.

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

Our management has identified material weaknesses in our internal control over financial reporting in each of the four years ended December 31, 2018. Although our management has concluded that our internal control over financial reporting was effective as of December 31, 2019, if we fail to establish and maintain effective internal control over financial reporting in the future, the accuracy and timeliness of our financial reporting may be adversely affected, which may have a material adverse result on our results of operation and financial condition.

Our management identified material weaknesses in our internal control over financial reporting in connection with the preparation of our consolidated financial statements as of and for each of the years ended December 31, 2015, 2016, 2017 and 2018. In light of the identified material weaknesses, our management concluded that our internal control over financial reporting was not effective at December 31 of each of those years. We disclosed the circumstances giving rise to these material weaknesses—which were generally different from one year to the next—in our annual reports on Form20-F for the years 2015, 2016, 2017 and 2018, respectively. As of the date of this annual report, we believe that each of these material weaknesses has been remediated.

We cannot be certain that additional material weaknesses will not develop or be discovered in the future. If other material weaknesses exist, we may be unable to report our results of operations for future periods accurately and in a timely manner and make our required filings with government authorities, including the SEC. There is also a risk that there could be accounting errors in our financial reporting, and we cannot be certain that in the future additional material weaknesses will not exist or otherwise be discovered. Any of these occurrences could adversely affect our results of operation and financial condition.

 

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Our compliance with environmental regulations in Mexico, including in connection with efforts to address climate change, could result in material adverse effects on our results of operations.

A wide range of general andindustry-specific Mexican federal and state environmental laws and regulations apply to our operations; these laws and regulations are often difficult and costly to comply with and carry substantial penalties fornon-compliance. This regulatory burden increases our costs because it requires us to make significant capital expenditures and limits our ability to extract hydrocarbons, resulting in lower revenues. For an estimate of our accrued environmental liabilities, see “Item 4—Information on the Company—Environmental Regulation—Environmental Liabilities.” Growing international concern over greenhouse gas emissions and climate change could result in new laws and regulations that could adversely affect our results of operations and financial condition. International agreements, including the Paris Agreement approved by the Mexican Government, contemplate coordinated efforts to combat climate change. We may become subject to market changes, including carbon taxes, efficiency standards,cap-and-trade and emission allowances and credits. These measures could increase our operating and maintenance costs, increase the price of our hydrocarbon products and possibly shift consumer demand tolower-carbon sources. See “Item 4 — Environmental Regulation —Climate Change” for more information on the Mexican Government’s current legal and regulatory framework for combatting climate change.

Discontinuation, reform or replacement of the London Interbank Offered Rate (or LIBOR) or other benchmark interest rates, or uncertainty related to the potential for any of the foregoing, may impact our business.

As of December 31, 2019, we had Ps. 151.6 billion (U.S. $8.0 billion) of variable rate indebtedness linked to LIBOR or other benchmark rates. In July 2017, the U.K. Financial Conduct Authority, which regulates LIBOR, announced its intention to phase out the use of LIBOR by the end of 2021. In addition, other regulators have suggested reforming or replacing other benchmark rates. As there is not yet definitive information regarding thephase-out of LIBOR, we cannot currently predict the effect of the discontinuation, reform or replacement of LIBOR. However, the phase out of LIBOR and the discontinuation, reform or replacement of other benchmark rates may have an unpredictable impact on, or cause disruption to, the broader financial markets or borrowing costs to borrowers. These developments may in turn increase the cost of our variable rate indebtedness or otherwise have an adverse effect on our results of operations and financial condition.

Risk Factors Related to Mexico

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

A deterioration in Mexico’s economic condition, social instability, political unrest or other adverse social developments in Mexico could adversely affect our business and financial condition. Those events could also lead to increased volatility in the foreign exchange and financial markets, thereby affecting our ability to obtain new financing and service our debt. Additionally, the Mexican Government in November 2015, February 2016 and September 2016 announced budget cuts in response to declines in international crude oil prices, and, while the Mexican Government did not reduce our budget in 2017 and announced a budget increase in each of December of 2018 and 2019, it may reduce our budget in the future. See “—Risk Factors Related to our Relationship with the Mexican Government—The Mexican Government controls us and it could limit our ability to satisfy our external debt obligations or could reorganize or transfer us or our assets” below. Any new budget cuts could adversely affect the Mexican economy and, consequently, our business, financial condition, operating results and prospects.

In addition, many countries around the world, including Mexico, are suffering significant economic and social crises as a result of the ongoingCOVID-19 pandemic as well as oil price volatility, and these events may continue for a sustained period of time. In addition to these economic effects, if theCOVID-19 pandemic, or any future pandemic or epidemic, were to impact the places where we operate or our workforce, it could significantly disrupt our operations. If the impact of theCOVID-19 pandemic continues for an extended period of time, it could adversely affect our ability to operate our business in the manner and on the timelines previously planned. The extent to whichCOVID-19 or other health pandemics or epidemics may impact Mexico and the Mexican economy and, in turn, our results of operations will depend on future developments, which are highly uncertain and cannot be predicted.

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 deterioration in international financial or economic conditions, such as a slowdown in growth or recessionary conditions in Mexico’s trading partners, including the United States, or the emergence of a new financial crisis, could have adverse effects on the Mexican economy, our financial condition and our ability to service our debt.

 

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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.

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

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

Economic and political developments in Mexico and the United States may adversely affect Mexican economic policy and, in turn, PEMEX’s operations.

Political events in Mexico may significantly affect Mexican economic policy and, consequently, our operations. Presidential and federal congressional elections in Mexico were held on July 1, 2018. Mr. Andrés Manuel López Obrador, a member of theMovimiento Regeneración Nacional (National Regeneration Movement, or MORENA), was elected President of Mexico and took office on December 1, 2018, replacing Mr. Enrique Peña Nieto, a member of thePartido Revolucionario Institucional(Institutional Revolutionary Party, or PRI). The current President’s term will expire on September 30, 2024. The elected members of the Mexican Congress took office on September 1, 2018. As of the date of this annual report, the MORENA party holds an absolute majority in theCámara de Diputados (Chamber of Deputies).

The current administration and the Mexican Congress have the power to revise the legal framework that governs us, and the current administration and the Mexican Congress are discussing a number of reforms that could affect economic conditions or the oil and gas industry in Mexico. Until any reform has been adopted and implemented, we cannot predict how these policies could impact our results of operation and financial position. We cannot provide any assurances that political developments in Mexico will not have an adverse effect on the Mexican economy or oil and gas industry and, in turn, our business, results of operations and financial condition, including our ability to repay our debt.

Economic conditions in Mexico are highly correlated with economic conditions in the United States due to the physical proximity and the high degree of economic activity between the two countries generally, including the trade facilitated by the North American Free Trade Agreement, or NAFTA. As a result, political developments in the United States, including changes in the administration and governmental policies, can also have an impact on the exchange rate between the U.S. dollar and the Mexican peso, economic conditions in Mexico and the global capital markets.

Since 2003, exports of petrochemical products from Mexico to the United States have enjoyed azero-tariff rate under NAFTA and, subject to limited exceptions, exports of crude oil and petroleum products have also been free or exempt from tariffs. During 2019, our export sales to the United States amounted to Ps. 372.1 billion, representing 26.5% of total sales and 63.5% of export sales for the year. On November 30, 2018, the presidents of Mexico, the United States and Canada signed the UnitedStates-Mexico-Canada Agreement, or the USMCA. As of the date of this annual report, the legislatures of the three countries have ratified the USMCA. Therefore, pending notification by all three countries that all internal procedures have been completed and a three month waiting period, the USMCA is expected to effectively replace NAFTA. While the USMCA provides that exports of petrochemical products from Mexico to the United States will continue to enjoy azero-tariff rate, any shift in the trade relationships between Mexico and the United States and Canada as a result of the implementation of the USMCA could require us to renegotiate our contracts or lose business, resulting in a material adverse impact on our business and results of operations.

In addition, because the Mexican economy is heavily influenced by the U.S. economy, policies that may be adopted by the U.S. government may adversely affect economic conditions in Mexico. These developments could in turn have an adverse effect on our financial condition, results of operations and ability to repay our debt.

 

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Risk Factors Related to our Relationship with the Mexican Government

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

We are controlled by the Mexican Government and our annual budget may be adjusted by the Mexican Government in certain respects. Pursuant to the Petróleos Mexicanos Law, Petróleos Mexicanos was transformed from a decentralized public entity to a productivestate-owned company on October 7, 2014. The Petróleos Mexicanos Law establishes a special regime governing, among other things, our budget, debt levels, administrative liabilities, acquisitions, leases, services and public works. This special regime provides Petróleos Mexicanos with additional technical and managerial autonomy and, subject to certain restrictions, with additional autonomy with respect to our budget. Notwithstanding this increased autonomy, the Mexican Government still controls us and has the power to adjust our financial balance goal, which represents our targeted net cash flow for the fiscal year based on our projected revenues and expenses, and our annual wage and salary expenditures, subject to the approval of the Chamber of Deputies.

The adjustments to our annual budget mentioned above may compromise our ability to develop the reserves assigned to us by the Mexican Government and to successfully compete with other oil and gas companies that may enter the Mexican energy sector. See “Item 4—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 we are wholly owned by the Mexican Government, our financing obligations do not constitute obligations of and are not guaranteed by the Mexican Government. See “—Risk Factors Related to the Relationship with the Mexican Government—Our financing obligations are not guaranteed by the Mexican Government” below.

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 otherpublic-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 reschedulepublic-sector external debt. Mexico has not requested restructuring of bonds or debt owed to multilateral agencies.

The Mexican Government has the power, if the Mexican Constitution and federal law were amended, to reorganize our corporate structure, including a transfer of all or a portion of our assets to an entity not controlled, directly or indirectly, by the Mexican Government. See “—Risk Factors Related to Mexico” above.

Our financing obligations are not guaranteed by the Mexican Government.

Although Petróleos Mexicanos is wholly owned by the Mexican Government, our financing obligations do not constitute obligations of and are not guaranteed by the Mexican Government. As a result, the Mexican Government would have no legal obligation to make principal or interest payments on our debt if we were unable to satisfy our financial obligations.

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

We are required to make significant payments to the Mexican Government, including in the form of taxes and duties, which may limit our ability to make capital investments. For the year ended December 31, 2019, our total taxes and duties were Ps. 412.0 billion, or 29.4% of our sales revenues in the form of taxes and duties, which constituted a substantial portion of the Mexican Government’s revenues.

In addition, we are generally required, subject to the conditions set forth in the Petróleos Mexicanos Law, to pay a state dividend to the Mexican Government. We were not required to pay a state dividend in 2016, 2017, 2018 and 2019, and we will not be required to pay a state dividend in 2020. See “Item 8—Financial Information—Dividends” for more information. Although the Mexican Government has on occasion indicated a willingness to reduce its reliance on payments made by us and recent changes to the fiscal regime applicable to us are designed in part to reduce such reliance by the Mexican Government, we cannot provide assurances that we will not be required to continue to pay a large proportion of our sales revenue to the Mexican Government. See “Item 4—Information on the Company—Taxes, Duties and Other Payments to the Mexican Government—Fiscal Regime.” In addition, the Mexican Government may change the applicable rules in the future.

 

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The Mexican Government has entered into agreements with other nations to limit production.

Although Mexico is not a member of OPEC, from time to time it enters into agreements with OPEC andnon-OPEC countries to reduce global crude oil supply. Most recently, on April 12, 2020, Mexico entered into an agreement with OPEC+ pursuant to which it has agreed to reduce its crude oil production by 100,000 barrels per day for a period of two months beginning on May 1, 2020. We do not control the Mexican Government’s international affairs and the Mexican Government could enter into further agreements with OPEC, OPEC+ or other countries to reduce our crude oil production or exports in the future. A reduction in our oil production or exports may have an adverse effect on our business, results of operations and financial condition. For more information, see “Item 4—Trade Regulation, Export Agreements and Production Agreements.”

The Mexican nation, not us, owns the hydrocarbon reserves located in Mexico and our right to continue to extract these reserves is subject to the approval of the SENER.

The Mexican Constitution provides that the Mexican nation, not us, owns all petroleum and other hydrocarbon reserves located in the subsoil in Mexico. Article 27 of the Mexican Constitution provides that the Mexican Government will carry out exploration and production activities through agreements with third parties and through assignments to and agreements with us. We and other oil and gas companies are allowed to explore and extract the petroleum and other hydrocarbon reserves located in Mexico, subject to assignment of rights by the SENER 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 production rights in Mexico. For more information, see “—We must make significant capital expenditures to maintain our current production levels, and to maintain, as well as increase, the proved hydrocarbon reserves assigned to us by the Mexican Government. Reductions in our income, adjustments to our capital expenditures budget and our inability to obtain financing may limit our ability to make capital investments” below.

Information on Mexico’s hydrocarbon reserves is based on estimates, which are uncertain and subject to revisions.

The information on oil, gas and other reserves set forth in this annual report is based on estimates. Reserves valuation is a subjective process of estimating underground accumulations of crude oil and natural gas that cannot be measured in an exact manner; the accuracy of any reserves estimate depends on the quality and reliability of available data, engineering and geological interpretation and subjective judgment. Additionally, estimates may be revised based on subsequent results of drilling, testing and production. These estimates are also subject to certain adjustments based on changes in variables, including crude oil prices. Therefore, proved reserves estimates may differ materially from the ultimately recoverable quantities of crude oil and natural gas. Downward revisions in our reserve estimates could lead to lower future production, which could have an adverse effect on our results of operations and financial condition. See “—Risk Factors Related to Our Operations—Crude oil and natural gas prices are volatile and low crude oil and natural gas prices adversely affect our income and cash flows and the amount of hydrocarbon reserves that we have the right to extract and sell” above. We revise annually our estimates of hydrocarbon reserves that we are entitled to extract and sell, which may result in material revisions to these estimates. Our ability to maintain ourlong-term growth objectives for oil production depends on our ability to successfully develop our reserves, and failure to do so could prevent us from achieving ourlong-term goals for growth in production.

TheComisión Nacional de Hidrocarburos (National Hydrocarbon Commission, or CNH) has the authority to review and approve our estimated hydrocarbon reserves estimates and may require us to make adjustments to these estimates. A request to adjust these reserves estimates could result in our inability to prepare our consolidated financial statements in a timely manner. This could adversely impact our ability to access financial markets, obtain contracts, assignments, permits and other government authorizations necessary to participate in the crude oil and natural gas industry, which, in turn, could have an adverse effect on our business, results of operations and financial condition.

 

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

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

The development of the reserves that were assigned to us by the Mexican Government will demand significant capital investments and will pose significant operational challenges. Our right to develop the reserves assigned to us 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. 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, or that it may grant to us in the future. In the past, we have reduced our capital expenditures in response to declining oil prices, and unless we are able to increase our capital expenditures, we may not be able to develop the reserves assigned to us in accordance with our development plans. We would lose the right to continue to extract these reserves if we fail to develop them in accordance with our development plans, which could adversely affect our operating results and financial condition. In addition, increased competition in the oil and gas sector in Mexico may increase the costs of obtaining additional acreage in potential future bidding rounds for the rights to new reserves.

Our ability to make capital expenditures is limited by the substantial taxes and duties that we pay to the Mexican Government, the ability of the Mexican Government to adjust certain aspects of our annual budget, cyclical decreases in our revenues primarily related to lower oil prices and any constraints on our liquidity. The availability of financing may limit our ability to make capital investments that are necessary to maintain current production levels and decrease the proved hydrocarbon reserves that we are entitled to extract. For more information on the liquidity constraints we are exposed to, see “—We have a substantial amount of indebtedness and other liabilities and are exposed to liquidity constraints, which could make it difficult for us to obtain financing on favorable terms and could adversely affect our financial condition, results of operations and ability to repay our debt and, ultimately, our ability to operate as a going concern” above.

In addition, we have entered into and continue to enter into, strategic alliances, joint ventures and other joint arrangements with third parties in order to develop our reserves. If we were unable to find partners for such joint arrangements, or if our partners were to significantly default on their obligations to us, we may be unable to maintain production levels or extract from our reserves. Moreover, we cannot assure you that these strategic alliances, joint ventures and other joint arrangements will be successful or reduce our capital commitments. For more information, see “—Risk Factors Related to Pemex’s Operations—We participate in strategic alliances, joint ventures and other joint arrangements. These types of arrangements may not perform as expected, which could harm our reputation and have an adverse effect on our business, results of operations and financial condition” above and “Item 4—Information on the Company—History and Development—Capital Expenditures.”

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

The Mexican Government has from time to time imposed price controls on the sales of natural gas, liquefied petroleum gas, gasoline, diesel, gas oil intended for domestic use, fuel oil and other products. As a result of these price controls, we have not been able to pass on all of the increases in the prices of our product purchases to our customers in the domestic market when the peso depreciates in relation to the U.S. dollar. A depreciation of the peso increases our cost of imported oil and gas products, without a corresponding increase in our revenues unless we are able to increase the price at which we sell products in Mexico.

In accordance with theLey de Ingresos de la Federación para el Ejercicio Fiscal de 2017 (2017 Federal Revenue Law), during 2017 the Mexican Government gradually removed price controls on gasoline and diesel as part of the liberalization of fuel prices in Mexico. As of the date of this annual report, sales prices of gasoline and diesel have been fully liberalized and are determined by the free market. For more information, see “Item 4—Information on the Company—Business Overview—Industrial Transformation.” However, we do not control the Mexican Government’s domestic policies and the Mexican Government could impose additional price controls on the domestic market in the future. The imposition of such price controls would adversely affect our results of operations. For more information, see “Item 4—Information on the Company—Business Overview—Refining—Pricing Decrees” and “Item 4—Information on the Company—Business Overview—Gas and Aromatics—Pricing Decrees.”

 

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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 arepublic-sector entities of the Mexican Government. Accordingly, you may not be able to obtain a judgment in a U.S. court against us unless the U.S. court determines that we are not entitled to sovereign immunity with respect to that action. Under certain circumstances, Mexican law may limit your ability to enforce judgments against us in the courts of Mexico. We also do not know whether Mexican courts would enforce judgments of U.S. courts based on the civil liability provisions of the U.S. federal securities laws. Therefore, even if you were able to obtain a U.S. judgment against us, you might not be able to obtain a judgment in Mexico that is based on that U.S. judgment. Moreover, you may not be able to enforce a judgment against our property in the United States except under the limited circumstances specified in the Foreign Sovereign Immunities Act of 1976, as amended. Finally, if you were to bring an action in Mexico seeking to enforce our obligations under any securities issued by Petróleos Mexicanos, satisfaction of those obligations may be made in pesos, pursuant to the laws of Mexico.

Our directors and officers, as well as some of the experts named in this annual report, reside outside the United States. Substantially all of our assets and those of most of our directors, officers and experts are located outside the United States. As a result, investors may not be able to effect service of process on our directors or officers or those experts within the United States.

 

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Item 4.

Information on the Company

HISTORY AND DEVELOPMENT

We are the largest company in Mexico according to the June 2019 edition ofExpansiónmagazine, and according to the November 22, 2019 issue ofPetroleum Intelligence Weekly,we were the tenthlargest crude oil producer and the twentieth largestoil and gas company in the world based on data from the year 2018.

Our executive offices are located at Avenida Marina Nacional No. 329, Colonia Verónica Anzures, 11300, Alcandía Miguel Hildalgo, Ciudad de México, México. Our telephone number is(52-55) 9126-8700.

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

Legal Regime

On December 21, 2013, amendments to Articles 25, 27 and 28 of the Mexican Constitution took effect, including transitional articles setting forth the general framework and timeline for implementing legislation relating to the energy sector.

On August 11, 2014, this implementing legislation was published in the Official Gazette of the Federation. The implementing legislation includes nine new laws, of which the following are most relevant to our operations:

 

  

The Petróleos Mexicanos Law, which took effect, with the exception of certain provisions, on October 7, 2014;

 

  

Hydrocarbons Law, which took effect on August 12, 2014; and

 

  

Ley de Ingresos sobre Hidrocarburos (Hydrocarbons Revenue Law).

Together, the Hydrocarbons Law and the Hydrocarbons Revenue Law establish the legal framework for the exploration and production of oil and gas through assignments and contracts, as well as the fiscal regime through which the Mexican Government collects revenues from participants in the Mexican oil and gas industry. The Hydrocarbons Law empowers the SENER to determine the appropriate contract model for each area that is subject to a competitive bidding process, while the Ministry of Finance and Public Credit is responsible for determining the economic and fiscal terms of each contract. See “—Taxes, Duties and Other Payments to the Mexican Government—Fiscal Regime” below in this Item 4. The following arrangements comprise the contractual regime established by the current legal framework for upstream activities:

 

  

licenses, pursuant to which a license holder is entitled to the oil and gas 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 oil and gas;

 

  

service contracts, pursuant to which a contractor would receive cash payments for services performed; and

 

  

service contracts, together with licenses,production-sharing contracts andprofit-sharing contracts are known as the contracts for the exploration and production of oil and gas, collectively referred to as contracts for exploration and production.

For midstream and downstream activities, including oil refining and natural gas processing, the Hydrocarbons Law establishes a permit regime that is granted by the SENER and theComisión Reguladora de Energía (Energy Regulatory Commission, or CRE), as applicable. The Hydrocarbons Law also sets forth the process by which entities may apply for these permits. The CRE has issued permits for the retail sale of gasoline and diesel fuel since 2016.

 

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Under the Petróleos Mexicanos Law, Petróleos Mexicanos is a productivestate-owned company, wholly owned by the Mexican Government, and has the corporate purpose of generating economic value and increasing the income of the Mexican nation while adhering to principles of equity, as well as social and environmental responsibility.

On December 2, 2014, the special regime provided for in the Petróleos Mexicanos Law, which governs Petróleos Mexicanos’ activities relating to productivestate-owned subsidiaries, affiliates, compensation, assets, administrative liabilities, budget, debt levels and the state dividend, took effect. On June 10, 2015, theDisposiciones Generales de Contratación para Petróleos Mexicanos y Sus Empresas Productivas Subsidiarias (General Provisions for Contracting for Petróleos Mexicanos and its ProductiveState-Owned Subsidiaries) were published in the Official Gazette of the Federation, and on June 11, 2015, the special regime for acquisitions, leases, services and public works became effective.

Corporate Structure

The principal lines of business of the productivestate-owned subsidiaries are as follows:

 

  

Pemex Exploration and Production, formed on June 1, 2015 as a successor toPemex-Exploración y Producción(Pemex-Exploration and Production), explores for, extracts, transports, stores and markets crude oil and natural gas, as well as performs drilling and well repair services.

 

  

Pemex Fertilizers, formed on August 1, 2015, produces, distributes and commercializes ammonia, fertilizers and its derivatives, as well as provides related services;

 

  

Pemex Logistics, formed on October 1, 2015, provides transportation, storage and related services for crude oil, petroleum products and petrochemicals to us and other companies, through pipelines and maritime and terrestrial means, and provides guard and management services;

 

  

Pemex Industrial Transformation, formed on November 1, 2015 as a successor ofPemex-Refinación(Pemex-Refining),Pemex-Gas y Petroquímica Básica(Pemex-Gas and Basic Petrochemicals) andPemex-Petroquímica(Pemex-Petrochemicals), refines petroleum products and derivatives; processes natural gas, natural gas liquids, artificial gas and derivatives; engages in industrial petrochemical processes; generates, supplies and trades electric and thermal energy; and commercializes, distributes and trades in methane, ethane and propylene.

Each of these productivestate-owned subsidiaries is a legal entity empowered to own property and carry on business in its own name and has technical and operational autonomy, subject to the central coordination and strategic direction of Petróleos Mexicanos.

Prior to July 27, 2018,Pemex Cogeneración y Servicios (Pemex Cogeneration and Services) operated as an additional productive state-owned subsidiary. On July 13, 2018, the Board of Directors of Petróleos Mexicanos issued theDeclaratoria de Liquidación y Extinción de Pemex Cogeneración y Servicios (Declaration of Liquidation and Extinction of Pemex Cogeneration and Services), which was published in the Official Gazette of the Federation and became effective on July 27, 2018. As of July 27, 2018, all of the assets, liabilities, rights and obligations of Pemex Cogeneration and Services were automatically assumed by, and transferred to, Pemex Industrial Transformation, and Pemex Industrial Transformation became, as a matter of Mexican law, the successor to Pemex Cogeneration and Services. Pemex Cogeneration and Services was in turn dissolved effective as of July 27, 2018.

Prior to July 1, 2019,Pemex Perforación y Servicios (Pemex Drilling and Services) andPemex Etileno (Pemex Ethylene) operated as additional productive state-owned subsidiaries. On July 25, 2019, the Board of Directors of Petróleos Mexicanos issued the Declaratoria de Extinción de Pemex Perforación y Servicios (Declaration of Extinction of Pemex Drilling and Services) and the Declaratoria de Extinción de Pemex Etileno (Declaration of Extinction of Pemex Ethylene), both of which were published in the Official Gazette of the Federation on July 30, 2019 and became effective on July 1, 2019. As of July 1, 2019, all of the assets, liabilities, rights and obligations of Pemex Drilling and Services were assumed by, and transferred to, Pemex Exploration and Production, and Pemex Exploration and Production became, as a matter of Mexican law, the successor to Pemex Drilling and Services. As of July 1, 2019, all of the assets, liabilities, rights and obligations of Pemex Ethylene were assumed by, and transferred to, Pemex Industrial Transformation, and Pemex Industrial Transformation became, as a matter of Mexican law, the successor to Pemex Ethylene. Pemex Drilling and Services and Pemex Ethylene were in turn dissolved effective as of July 1, 2019.

 

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Capital Expenditures

The following table shows our capital expenditures, excludingnon-capitalizable maintenance, for each of the three years ended December 31, 2019, as well as the budget for these expenditures for 2020. Capital expenditure amounts are derived from our budgetary records, which are prepared on a cash basis. Accordingly, these capital expenditure amounts do not correspond to capital expenditure amounts included in our consolidated financial statements prepared in accordance with IFRS. The following table presents our capital expenditures made or expected to be made by each productivestate-owned subsidiary.

Capital Expenditures and Budget by Subsidiary

 

   Year ended December 31,  Budget
2020(1)
 
   2017   2018   2019 
   (in millions of pesos)(2) 

Pemex Exploration and Production

   Ps.   85,491    Ps. 71,107    Ps.   98,763   Ps. 175,743 

Pemex Industrial Transformation

   18,576    17,026    8,953(5)   16,952 

Pemex Logistics

   4,917    5,042    2,118   3,135 

Pemex Drilling and Services(3)

   1,550    1,388    738   n.a. 

Pemex Ethylene(4)

   618    975    164   n.a. 

Pemex Fertilizers

   264    331    203   1,069 

Petróleos Mexicanos

   1,609    893    189   332 
  

 

 

   

 

 

   

 

 

  

 

 

 

Total capital expenditures

   Ps. 113,025    Ps. 96,762    Ps. 111,127   Ps. 197,232 

 

Note:

Numbers may not total due to rounding.

n.a.

Not applicable.

(1)

Original budget published in the Official Gazette of the Federation on December 11, 2019.

(2)

Figures are stated in nominal pesos.

(3)

Prior to July 1, 2019, Pemex Drilling and Services operated as an additional productive state-owned subsidiary. As of July 1, 2019, Pemex Drilling and Services was merged into Pemex Exploration and Production.

(4)

Prior to July 1, 2019, Pemex Ethylene operated as an additional productive state-owned subsidiary. As of July 1, 2019, Pemex Ethylene was merged into Pemex Industrial Transformation.

(5)

Figures reflect a decrease caused by a budget adjustment authorized by the Board of Directors of Petróleos Mexicanos in accordance with resolutionCA-050/2019 in special meeting 942. This budget adjustment reclassified the capital expenditures of the new Dos Bocas refinery from investment in property, plant and equipment to financial investment.

Source: Petróleos Mexicanos.

 

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The following table shows our capital expenditures, excludingnon-capitalizable maintenance, by segment for the years ended December 31, 2018 and 2019 and the budget for these expenditures in 2020.

Capital Expenditures by Segment

 

   Year ended December 31,  Budget
2020(1)
 
   2018   2019 
   (millions of pesos)(2) 

Exploration and Production

   Ps. 71,107    Ps.   98,763   Ps. 175,743 

Industrial Transformation

     

Refining

   14,119    8,409(5)   12,500 

Gas and Aromatics

   2,907    489   2,000 

Ethylene (3)

   n.a.    55   2,452 
  

 

 

   

 

 

  

 

 

 

Total

   17,026    8,953   16,952 

Logistics

   5,042    2,118   3,135 

Drilling and Services(4)

   1,388    738   n.a. 

Ethylene(3)

   975    164   n.a. 

Fertilizers

   331    203   1,069 

Corporate and other Subsidiaries

   893    189   332 
  

 

 

   

 

 

  

 

 

 

Total Capital Expenditures

   Ps. 96,762    Ps. 111,127   Ps. 197,232 

 

Note:

Numbers may not total due to rounding.

n.a.:

Not applicable.

(1)

Original budget published in the Official Gazette of the Federation on December 11, 2019.

(2)

Figures are stated in nominal pesos.

(3)

Prior to July 1, 2019, Pemex Ethylene operated as an additional productive state-owned subsidiary. As of July 1, 2019, Pemex Ethylene was merged into Pemex Industrial Transformation.

(4)

Prior to July 1, 2019, Pemex Drilling and Services operated as an additional productive state-owned subsidiary. As of July 1, 2019, Pemex Drilling and Services was merged into Pemex Exploration and Production.

(5)

Figures reflect a decrease caused by a budget adjustment authorized by the Board of Directors of Petróleos Mexicanos in accordance with resolutionCA-050/2019 in special meeting 942. This budget adjustment reclassified the capital expenditures of the new Dos Bocas refinery from investment in property, plant and equipment to financial investment.

Source: Petróleos Mexicanos.

 

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Capital Expenditures Budget

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

The weighted average Mexican crude oil export price for 2019 was U.S. $55.63 per barrel. Based on its estimate that the weighted average Mexican crude oil export price would be U.S. $49.00 per barrel, the Mexican Congress approved a 2020 budget of Ps. 523.4 billion, including operational expenses and a financial balance goal (which we define as sales after deducting costs and expenses, capital expenditures, taxes and duties, and cost of debt) of Ps. 62.6 billion. With this budget, our management expects that we will be able to maintain ourmedium- andlong-term growth plans without the need to incur more indebtedness than the amount included in our approved financing program for 2020 of Ps. 35.0 billion. The budget was based on the guiding principles of: stabilizing our crude oil and gas production levels in the medium and long-term; maintaining the industrial safety and reliability of our facilities; taking advantage of our ongoing contracts with third parties; and meeting our labor and financial obligations.

Our budget for 2020 includes a total of Ps. 332.6 billion for capital expenditures, including 94.1 billion fornon-capitalizable maintenance and 41.3 billion for the construction of our new Dos Bocas refinery, led by PTI Infraestructura de Desarrollo, S.A. de C.V.). Our net capital expenditures budget is Ps. 197.2 billion. We expect to direct Ps. 175.7 billion (or 89.1%) to exploration and production programs in 2020. This investment in exploration and production activities reflects our focus on maximizing the potential of our hydrocarbon reserves and our most productive projects. In addition, in 2020 we expect to direct Ps. 17.0 billion (or 8.6%) to our industrial transformation segment. We continuously review our capital expenditures portfolio in accordance with our current and future business plans.

Our main objectives for upstream investment are to maximize ourlong-term economic value, and to increase and improve the quality of the oil and gas reserves assigned to us, enhance Pemex Exploration and Production’s reserves recovery ratio, improve the reliability of its production and transportation infrastructure for crude oil and natural gas operations and continue to emphasize industrial safety and compliance with environmental regulations. Our 2020 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.

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

Given the recent and ongoing impact of theCOVID-19 pandemic on our business and the global economy, our management expects to propose amendments to our 2020 budget to our Board of Directors. These amendments are expected to reflect the anticipated impact on our cash flows of the following developments: decreases in the prices and production of crude oil and derivatives, additional support from the Mexican Government in the form of contributions and tax benefits and changes to the U.S. dollar-peso exchange rate. The amendments are expected to represent an approximately Ps. 5.0 billion reduction in operating expenses and a Ps. 40.5 billion reduction in production capital expenditures (includingnon-capitalizable maintenance expenses). Once the Board of Directors approves the amendment budget, it will be required to be submitted to the Ministry of Finance and Public Credit for approval as part of its authority over our financial balance goal for the fiscal year. However, the budget information included in this report does not reflect any potential amendments as these remain subject to final approval by our Board of Directors as of the date of this report. For more information regarding the impact of theCOVID-19 pandemic to our budget, See “Item 5—Overview”.

BUSINESS OVERVIEW

Overview by Business Segment

Exploration and Production

Our exploration and production segment operates through the productivestate-owned subsidiary Pemex Exploration and Production and explores for and produces crude oil and natural gas, primarily in the northeastern and southeastern regions of Mexico and offshore in the Gulf of Mexico. In nominal peso terms, our capital expenditures in exploration and production activities increased by 38.9% in 2019. As a result of these investments, our total hydrocarbon production reached a level of approximately 884.0 million barrels of oil equivalent in 2019. Despite these investments, our crude oil production decreased by 7.6% from 2018 to 2019, averaging 1,684 thousand barrels per day in 2019, primarily as a result of the decline of the Cantarell, Yaxché-Xanab, Crudo Ligero Marino, El Golpe-Puerto Ceiba, Bellota-Chinchorro, Antonio J. Bermúdez, Cactus-Sitio Grande, Ixtal-Manik, Chuc, Costero Terrestre,Tsimín-Xux projects, which was partially offset by development of the Integral Tekel project’s Ayatsil field and by repairs, improvements and diversification of artificial systems at our onshore fields that helped maintain production levels.

 

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Our natural gas production (excluding natural gas liquids) increased 0.3% from 2018 to 2019, averaging 4,816 million cubic feet per day in 2019. This increase in natural gas production resulted primarily from the increased volumes in the Burgos, Crudo Ligero Marino, Ixtal-Manik, Integral Veracruz Basin, Cactus-Sitio Grande, Integral Macuspana Basin and Ogarrio Sánchez Magallanes projects. Exploration drilling activity increased by 21.1% from 2018 to 2019, from 19 exploratory wells completed in 2018 to 23 exploratory wells completed in 2019. Development drilling activity increased by 38.5% from 2018 to 2019, from 143 development wells completed in 2018 to 198 development wells completed in 2019. In 2019, we completed the drilling of 221 wells in total. In 2019, our exploration drilling activity was focused on the shallow waters of the Gulf of Mexico and onshore regions and the development drilling activity was focused on increasing the production of crude oil and associated gas in theAyatsil-Tekel, Crudo Ligero Marino, El Golpe-Puerto Ceiba,Ku-Maloob-Zaap, Yaxché-Xanab, Antonio J. Bermúdez, Aceite Terciario del Golfo andOgarrio-Sánchez Magallanes projects.

In advance of 2019, we planned to invest in 20 new developments: 16 in shallow water and four onshore fields. During 2019, we incorporated the Onel and Yaxché shallow water fields into our development plan, bringing our total investment in new developments to 22 fields, 18 in shallow water and four onshore fields. As of December 31, 2019, we had begun production in five of these 22 fields. These five fields had an average production of 6.4 thousand barrels per day of crude oil and 42.2 million cubic feet per day of naturalgas in 2019.

Our primary objectives for 2020 include: (i) strengthening our financial condition; (ii) ensuring our sustainability by accelerating the incorporation of hydrocarbon reserves; and (iii) adapting and modernizing our production infrastructure. We aim to meet these objectives through the following strategies: (1) accelerating the incorporation of hydrocarbon reserves by prioritizing our exploration activities onshore, in conventional shallow waters and in adjacent blocks; (2) accelerating secondary and enhanced recovery processes to increase the recovery factor for hydrocarbon reserves in our mature fields; (3) expediting the development of newly discovered fields; (4) prioritizing and developing activities that improve the reclassification of possible and probable reserves into proved reserves; (5) increasing our production ofnon-associated gas and (6) enhancing our operations efficiency and optimizing our exploration and production costs.

Entering 2020, our production goals for 2020 include producing crude oil at a level of approximately 1,866.5 thousand barrels per day and maintaining natural gas production above 5,331.9 million cubic feet per day. However, as a result of the OPEC+ production agreement entered into by Mexico on April 12, 2020, we are revising our crude oil production goals for 2020 taking into account the amendments in progress to our annual budget. For more information regarding this OPEC+ production agreement, see “Item 4—Trade Regulation, Export Agreements and Production Agreements.” We aim to meet these production goals through exploration and development activities, increasing inventory reserves through new discoveries and reclassifications and managing the decline in field production by focusing our exploration and production activities in areas where we have greater experience and higher historical success rates, such as secondary and tertiary recovery systems. In addition, we intend tore-allocate resources away fromdeep-water projects, which tend to be expensive andlong-term activities, and towardsshallow-water and onshore projects, which have the potential fornear-term results. We plan to continue the development of 22 new fields in 2020, 18 of which are in shallow waters and four of which are onshore. We expect that these 22 fields will be able to produce an aggregate of up to 144.6 thousand barrels per day of crude oil during 2020. Despite these production reductions as a result of the current circumstances of the market and the global economic conditions, we continue to prepare our infrastructure for an increase in our crude oil and gas production once the market conditions are favorable.

Drilling and Services

Prior to July 1, 2019, Pemex Drilling and Services operated as an additional productive state-owned subsidiary. As of July 1, 2019, as a result of corporate reorganization, Pemex Drilling and Services was merged into Pemex Exploration and Production. Therefore, our drilling and services segment operated through the productive state-owned subsidiary Pemex Drilling and Services until July 1, 2019 and through the productive state-owned subsidiary Pemex Exploration and Production as a line of business after July 1, 2019. Prior to July 1, 2019, Pemex Drilling and Services mainly provided services to Pemex Exploration and Production.

In 2019, our drilling and services business provided drilling, completion, workover and well services in onshore and offshore fields both to us and to our external client Marinsa de México S.A. de C.V. (Marinsa). Beginning July 1, 2019, such services were provided through Pemex Exploracion and Production.

 

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Industrial Transformation

Our industrial transformation segment is comprised of three principal activities: (i) refining, (ii) gas and aromatics and (iii) since July 1, 2019, ethylene and derivatives:

Refining

Pemex Industrial Transformation converts crude oil into gasoline, jet fuel, diesel, fuel oil, asphalts and lubricants. We also distribute and market most of these products throughout Mexico. During 2019, atmospheric distillation refining capacity remained stable at 1,640.0 thousand barrels per day, following a capacity increase of 0.8% in 2018.

In the first nine months of 2019, our crude oil processing and production levels increased as a result of maintenance carried out in our refineries beginning in March 2019. Such maintenance was financed with operating cash flow. However, in the last quarter of the year, crude oil processing decreased due to increased refinery maintenance activities that temporarily reduced our refining capacity. Therefore, in 2019, processing of crude oil by the National Refining System decreased by 3.2%, from 611.9 thousand barrels per day in 2018 to 592.0 thousand barrels per day in 2019. In 2019, Pemex Industrial Transformation produced 625.6 thousand barrels per day of refined products, a 0.5% decrease as compared to 628.5 thousand barrels per day in 2018.

Our primary goals for 2020 include: prioritizing attention to critical risks, implementing steps to counteract low availability of ethane and wet gas for process in our petrochemical complexes and gas processing complexes and reaching the goals of the National Refining System Rehabilitation Program.

Gas and Aromatics

Our gas and aromatics business processes wet natural gas to produce dry natural gas, ethane, liquefied petroleum gas (LPG) and other natural gas liquids, along with aromatic derivatives chain products such as toluene, benzene and xylene. In 2019, our total sour natural gas processing capacity remained at 4,523.0 cubic feet per day.

In 2019, our supply of sour wet gas from Pemex Exploration and Production stabilized, particularly towards the end of the year. Despite this trend, we processed 2,826.3 million cubic feet of wet natural gas per day in 2019, a 4.3% decrease as compared to 2,951.9 million cubic feet per day in 2018. In 2019, we produced 221.3 thousand barrels per day of natural gas liquids, a 7.8% decrease as compared to 240.1 thousand barrels per day in 2018. In 2019, we also produced 2,305.0 million cubic feet per day of dry gas (which is natural gas with a methane content of more than 90.0%), a 4.8% decrease as compared 2,421.7 million cubic feet per day in 2018. Our highest dry gas production level for 2019 was 2,369.0 million cubic feet per day, which we reached during the third quarter of 2019. In 2019, we produced 919.6 thousand tons of aromatics and derivatives, a 61.5% increase as compared to 570.0 thousand tons in 2018. This increase was primarily due to stable operations of aromatics production.

Our primary goal for 2020 is to improve the utilization of our complex gas processors.

Ethylene and Derivatives

Prior to July 1, 2019, Pemex Ethylene operated as an additional productive state-owned subsidiary. As of July 1, 2019, as a result of corporate reorganization, Pemex Ethylene was merged into Pemex Industrial Transformation. Therefore, our ethylene segment operated through the productive state-owned subsidiary Pemex Ethylene until July 1, 2019 and through the productive state-owned subsidiary Pemex Industrial Transformation as a line of business after July 1, 2019.

This line of business’s main objectives include the production, distribution and marketing of ethane and propylene derivatives. In 2019, we produced a total of 1,610.8 thousand tons of petrochemical products, a 12.0% decrease from the 1,830.3 thousand tons of petrochemical products produced in 2018. This decrease was mainly due to a decrease in the national supply of ethane, which impacted the production of ethylene and its derivatives, including ethylene oxide, glycols and high-density polyethylene.

 

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Our ethylene line of business manufactures several petrochemical products, including:

 

  

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

 

  

propylene and derivatives; and

 

  

others such as oxygen, nitrogen, hydrogen and butadiene, among other products.

The primary goal for our ethylene line of business in 2020 is to enable our ethane derivatives production by adapting our infrastructure at the Pajaritos refrigerated ethylene shipping terminal in order to increase our shipping, vaporization and storage capacity for imported ethane.

Fertilizers

Our fertilizers segment operates through the productivestate-owned subsidiary Pemex Fertilizers and integrates the ammonia production chain up to the point of sale of fertilizers, including agricultural and industrial nitrates, phosphate fertilizers and acids (produced by Grupo Fertinal, S.A. de C.V., which we refer to as Fertinal). We also expect that our subsidiaryPro-Agroindustria, S.A. de C.V., which we refer to asPro-Agroindustria, will be able to begin producing urea in the second quarter of 2020.

In 2020, we intend to focus our strategy on: (1) increasing the national production of fertilizers at competitive prices; (2) contributing to the strengthening of the agricultural sector in Mexico through the supply of fertilizers; (3) ensuring a reliable supply of natural gas for the operation of our plants; and (4) continuing to make capital expenditure investments to improve the operational reliability of our four ammonia plants.

Logistics

Our logistics segment operates through the productivestate-owned subsidiary Pemex Logistics and provides land, maritime and pipeline transportation, storage and distribution services to some of our subsidiary entities and other companies, including Tesoro Mexico Supply & Marketing, S. de R.L. de C.V. (an affiliate of Marathon Petroleum Corporation), which we refer to as Tesoro, CENAGAS, local gas stations and distributors.

During 2019, we injected approximately 1,299.4 thousand barrels per day of crude oil and petroleum products into our pipelines, representing a 17.8% decrease as compared to 2018 when we injected approximately 1,581.5 thousand barrels per day, mainly due to a reduction in crude oil processed in the National Refining System and to controlled operations aimed at reducing losses from fuel subtractions in pipelines transportation systems in accordance with our strategy to combat fuel theft.

During 2019, we injected 132.7 thousand barrels per day of LPG, representing a 4.6% decrease as compared to the 139.1 thousand barrels per day of LPG injected in 2018, due to a decrease in Pemex Industrial Transformation’s sales. In addition, we injected 4.3 thousand barrels per day of petrochemicals in 2019, an increase of 79.2% as compared to the 2.4 thousand barrels per day we injected in 2018. This increase was mainly due to an increase in imports of isobutane as a result of a higher gasoline production at the Minatitlán and Salina Cruz refineries.

In 2019, we transported a total of 2,069.3 thousand barrels per day of petroleum products: 1,436.4 thousand barrels per day (69.4%) were injected by pipeline systems, 431.8 thousand barrels per day (20.9%) were transported by land transport and the remaining 201.1 thousand barrels per day (9.7%) were transported by tankers.

As of 2016, natural gas transportation is carried out by CENAGAS, with the support of Pemex Logistics through an operation and maintenance contract. During 2019, we transported approximately 5,059.1 million cubic feet per day of natural gas, a 0.2% decrease as compared to 5,070.9 million cubic feet per day we transported in 2018.

International Trading

The international trading segment provides us with international trading, distribution, risk management, insurance and transportation services. This segment operates through P.M.I. Comercio Internacional, S.A. de C.V. (which we refer to as PMI), P.M.I. Trading Designated Activity Company (formerly P.M.I. Trading, Ltd., which we refer to as P.M.I. Trading DAC), P.M.I. Norteamérica, S.A. de C.V., (which we refer to asPMI-NASA, and, together with PMI and P.M.I. Trading DAC, we collectively refer to as the PMI Subsidiaries) and Mex Gas International, S.L. (which, together with the PMI Subsidiaries, we collectively refer to as the Trading Companies). Certain of the Trading Companies sell, buy and transport crude oil, refined products and petrochemicals in world markets, and provide related risk management, insurance, transportation and storage services. The Trading Companies have offices in Mexico City, Houston and Singapore. Export sales are made through PMI to 23 major customers in various foreign markets.

 

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In 2019, our crude oil exports decreased in volume by 6.8%, from 1,184.0 thousand barrels per day in 2018 to 1,103.7 thousand barrels per day in 2019. Natural gas imports decreased by 26.6% in 2019, from 1,316.5 million cubic feet per day in 2018 to 965.9 million cubic feet per day in 2019. In 2019, our exports of petrochemical products increased by 24.5%, from 57.8 thousand metric tons in 2018 to 71.9 thousand metric tons in 2019, and our imports of petrochemical products increased 5.5%, from 831.8 thousand metric tons in 2018 to 877.3 thousand metric tons in 2019. In 2019, our exports of other petroleum products decreased 12.7%, from 132.8 thousand barrels per day in 2018 to 116.0 thousand barrels per day in 2019, and our imports of other petroleum products and liquefied petroleum gas decreased 14.1%, from 985.9 thousand barrels per day in 2018 to 846.9 thousand barrels per day in 2019. As a major supplier of crude oil to the United States, our international trading segment’s crude oil exports to the United States totaled U.S. $22.4 billion in 2019, a decrease of U.S. $4.1 billion.

 

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Infrastructure of PEMEX

 

LOGO

Exploration and Production

Following our 2015 corporate reorganization, certain business units and assets that were operated by our exploration and production segment were transferred to our drilling and services segment upon the formation of Pemex Drilling and Services on August 1, 2015. For the year ended December 31, 2015, we have not presented separately the operating results of our drilling and services segment in this Item 4 and, accordingly, the results of our exploration and production segment include the results of that segment for this period. Operating results for both the exploration and production and drilling and services segments are presented separately for periods beginning January 1, 2016. For a detailed description of the financial results of each segment, see our consolidated financial statements included herein.

Exploration and Drilling

We seek to identify new oil reservoirs through our exploration program in order to increase the future replacement rate of proved reserves. From 1990 to 2019, we completed 13,612 exploration and development wells. During 2019, our average success rate for exploratory wells was 52.2%, a 22.9% increase as compared to 2018 and our average success rate for development wells was 93.9%, a 1.9% decrease as compared to 2018. From 2015 to 2019, we discovered 12 new crude oil fields, two new natural gas fields and three new gas and condensate fields, bringing the total number of our producing fields to 319 at the end of 2019.

Our 2019 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 104.9 million barrels of oil equivalent of proved reserves resulting from the discovery of three gas and condensate producing fields, as well as from the drilling of one appraisal well in one existing field. In addition, in 2019 we acquired licensing for three-dimensional seismic multi-client data for 5,080 square kilometers in shallow waters.

 

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The following table summarizes our drilling activity for the five years ended December 31, 2019, all of which occurred in Mexican territory.

 

   Year ended December 31, 
   2015   2016  2017  2018  2019 

Wells initiated(1)

   274    93   70   166   182 

Exploratory wells initiated(1)

   22    23   22   28   32 

Development wells initiated(1)

   252    70   48   138   150 

Wells drilled(2)

   312    149   79   162   221 

Exploratory wells

   26    21   24   19   23 

Productive exploratory wells(3)

   13    6   10   5   12 

Dry exploratory wells

   13    15   14   14   11 

Success rate %

   50    29   42   26   52 

Development wells

   286    128   54   143   198 

Productive development wells

   266    110   50   137   186 

Dry development wells

   20    18   4   6   12 

Success rate %(4)

   93    86   93   96   94 

Producing wells (annual averages)

   9,363    8,749   6,699   7,671   7,400 

Marine region

   544    539   443   519   520 

Southern region

   1,403    1,244   931   1,029   1,012 

Northern region

   7,416    6,966   5,325   6,123   5,868 

Producing wells (at year end)(5)

   8,826    8,073   8,194   6,946   6,945 

Crude oil

   5,374    4,912   4,956   4,321   4,323 

Natural gas

   3,452    3,161   3,238   2,625   2,622 

Producing fields

   434    405   398   356   319 

Marine region

   41    43   43   43   43 

Southern region

   97    88   91   83   76 

Northern region

   296    274   264   230   200 

Drilling rigs

   113    110   83   84   84 

Kilometers drilled

   815    330   280   455   646 

Average depth by well (meters)

   3,038    3,655   3,639   2,808   2,870 

Discovered fields(6)

   6    1   3   4   3 

Crude oil

   6    1   1   4   —   

Natural gas

   —      —     2   —     —   

Gas and condensate

   —      —     —     —     3 

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

   349    348   291   329   327 

Total developed acreage (km2)(7)

   8,654    7,017(8)   6,886(8)   6,923(8)   7,077(8) 
  

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

Total undeveloped acreage (km2)(7)

   1,000    712(8)   620(8)   607(8)   603(8) 
  

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

 

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)

Excludesnon-commercial productive wells.

(4)

Excludes injector wells.

(5)

For the year ended December 31, 2015, all productive wells, and all other wells referred to in this table, are “net,” because we did not grant others any fractional working interests in any wells that we owned no acquired any fractional working interest in wells owned by others. Figures for the years ended December 31, 2016, 2017, 2018 and 2019 include fractional interests obtained pursuant to joint ventures and associations.

(6)

Includes only fields with proved reserves (Koban, Quesqui and Vinik).

(7)

For the year ended December 31, 2015, all acreage is net because we neither granted others fractional interests nor entered into other types of production sharing arrangements. Figures for the years ended December 31, 2016, 2017, 2018 and 2019 include fractional interests obtained pursuant to joint ventures and associations.

(8)

These values relate only to our current assignments.

Source: Pemex Exploration and Production.

Extensions and Discoveries

During 2019, our exploratory activity in the shallow waters of the Gulf of Mexico and onshore regions resulted in the discovery of six new fields: two onshore fields (the Quesqui and Vinik gas and condensate fields) and four offshore fields (the Koban gas and condensate field and the Itta, Tema and Tlamatini crude oil fields). In addition, extension activities in our Nobilis and Teca fields led to the incorporation of additional reserves. Together, these extensions and discoveries led to the incorporation approximately 115.6 million barrels of oil equivalent.

 

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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. Pemex Exploration and Production has the right to extract, but not own, the reserves granted to us by the Mexican Government and to sell the resulting production. As of the date of this report, the exploration and development activities of Petróleos Mexicanos and the subsidiary entities are limited to reserves located in Mexico.

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

Proved reserves estimates as of December 31, 2019 were prepared by our exploration and production segment and were reviewed by the Independent Engineering Firms (as defined below), which audit its estimates of our oil and gas reserves. In addition, pursuant to theLineamientos que Regulan los Procedimientos de Cuantificación y Certificación de Reservas de la Nación (Guidelines for Regulating the Nation’s Reserves Quantification and Certification Procedures), the CNH was required to review and approve the proved reserves estimates as of December 31, 2019 by the second week of April. However, due to theCOVID-19 pandemic, the CNH has suspended the deadlines and, as of the date of this annual report, has not issued the resolution in connection with the reports of Pemex fields. See “Item 3—Key Information—Risk Factors—Risk Factors Related to our Relationship with the Mexican Government— Information on Mexico’s hydrocarbon reserves is based on estimates, which are uncertain and subject to revisions.”

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

 

  

experience in the area;

 

  

stage of development;

 

  

quality and completeness of basic data; and

 

  

production and pressure histories.

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

During 2019, we did not record any material increase in our proved oil and gas reserves as a result of the use of new technologies.

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

 

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In addition to this internal review process, our exploration and production segment’s final reserves estimates are audited by independent engineering firms. Three independent engineering firms audited our estimates of proved reserves as of December 31, 2019 or January 1, 2020, as applicable. Netherland Sewell, DeGolyer and MacNaughton and GLJ (we refer to these firms together as the Independent Engineering Firms). The reserves estimates reviewed by the Independent Engineering Firms totaled 96.7 % of our estimated proved reserves. The remaining 3.3 % of our estimated proved reserves consisted mainly of reserves located in certain areas that have been shared with third parties. Netherland Sewell audited the reserves in the Cantarell,Ku-Maloob-Zaap, Cinco Presidentes andMacuspana-Muspac business units, DeGolyer and MacNaughton audited the reserves in the PozaRica-Altamira,Abkatún-Pol-Chuc and Litoral de Tabasco business units and GLJ audited the reserves in the Burgos, Veracruz,Bellota-Jujo andSamaria-Luna business units. The audits conducted by the Independent Engineering Firms consisted primarily of: (1) analysis of historical static and dynamic reservoir data that we have provided; (2) construction or updating of the Independent Engineering Firms’ own static and dynamic reservoir characterization models of some of our fields; (3) economic analysis of fields; and (4) review of our production forecasts and reserves estimates.

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

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

Our total proved developed and undeveloped reserves of crude oil, condensates and liquefiable hydrocarbons recoverable from field processing plants increased by 3.0% in 2019, from 5,786.0 million barrels in 2018 to 5,960.6 million barrels in 2019. This increase was due to discoveries, developments, delineations and revisions of our proved reserves, in particular the development of the Ayatsil and Balam fields and the discovery of the Koban, Quesqui and Vinik gas and condensate fields. Our proved developed reserves of crude oil, condensates and liquefiable hydrocarbons recoverable from processing plants decreased by 0.1% in 2019, from 3,587.6 million barrels in 2018 to 3,585.0 million barrels in 2019. The amount of our proved reserves of crude oil, condensate and liquefiable hydrocarbon reserves added in 2019 was sufficient to offset the level of production in 2019, which amounted to 687.6 million barrels of crude oil, condensates and liquefiable hydrocarbons.

Our total proved developed and undeveloped dry gas reserves decreased by 0.3% in 2019, from 6,370 billion cubic feet at December 31, 2018 to 6,351.7 billion cubic feet at December 31, 2019. Our proved developed dry gas reserves increased by 6.8% in 2019, from 3,380 billion cubic feet at December 31, 2018 to 3,608.5 billion cubic feet at December 31, 2019. This increase was principally due to an increase in proved developed dry gas reserves of the Poza Rica and Burgos fields. The amount of dry gas reserves added in 2019 was insufficient to offset the level of production in 2019, which amounted to 870.4 billion cubic feet of dry gas. Our proved undeveloped dry gas reserves decreased by 8.3% in 2019, from 2,990.0 billion cubic feet at December 31, 2018 to 2,743.1 billion cubic feet at December 31, 2019. This decrease was primarily due to certain reserves of the Poza Rica and Burgos fields that were previously classified as undeveloped reserves being reclassified as proved developed reserves.

During 2019, our exploratory activity in the shallow waters of the Gulf of Mexico and onshore regions resulted in the discovery of six new fields: two onshore fields (the Quesqui and Vinik gas and condensate fields) and four offshore fields (the Koban gas and condensate field and the Itta, Tema and Tlamatini crude oil fields). In addition, extension activities in our Teca and Nobilis fields led to the incorporation of additional proved reserves. Together, these extensions and discoveries led to the incorporation of approximately 115.6 million barrels of oil equivalent.

 

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In 2019, our proved reserves increased by 1,026.5 million barrels of oil equivalent due to reclassifications, development, revisions and discoveries.

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

Summary of Oil and Gas(1) Proved Reserves as of December 31, 2019

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

   3,585.0    3,608.5 

Proved undeveloped reserves

   2,375.6    2,743.1 
  

 

 

   

 

 

 

Total proved reserves

   5,960.6    6,351.7 
  

 

 

   

 

 

 

 

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.

Crude Oil and Condensate Reserves

(including natural gas liquids)(1)

 

   2015  2016  2017  2018  2019 
   (in millions of barrels) 

Proved developed and undeveloped reserves

  

At January 1

   10,292   7,977   7,219   6,427   5,786 

Revisions(2)

   (1,491  189   (95  22   784 

Extensions and discoveries

   111   (55  147   140   78 

Production

   (935  (891  (805  (743  (688

Farm-outs and transfer of fields due to CNH bidding process

   —     —     (38  (59  —   
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

At December 31

   7,977   7,220   6,428   5,786   5,961 
  

 

 

  

 

 

  

 

��

  

 

 

  

 

 

 

Proved developed reserves at December 31

   5,725   4,886   4,166   3,588   3,585 

Proved undeveloped reserves at December 31

   2,252   2,333   2,261   2,198   2,376 

 

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, revisions made when actual reservoir performance differs from expected performance and the effect of changes in hydrocarbon prices.

Source: Pemex Exploration and Production.

 

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Table of Contents

Dry Gas Reserves

 

   2015  2016  2017  2018  2019 
   (in billions of cubic feet) 

Proved developed and undeveloped reserves

  

At January 1

   10,859   8,610   6,984   6,593   6,370 

Revisions(1)

   (955  (183  169   3   656 

Extensions and discoveries

   47   (308  468   809   196 

Production(2)

   (1,341  (1,134  (999  (887  (870

Farm-outs and transfer of fields due to CNH bidding process

   —     —     (29  (148  —   
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

At December 31

   8,610   6,984   6,593   6,370   6,352 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Proved developed and undeveloped reserves

  

Proved developed reserves at December 31

   6,012   4,513   4,026   3,380   3,609 

Proved undeveloped reserves at December 31

   2,598   2,471   2,567   2,990   2,743 

 

Note:

Numbers may not total due to rounding.

(1)

Revisions include positive and negative changes due to new data from well drilling, revisions made when actual reservoir performance differs from expected performance and the effect of changes in hydrocarbon prices.

(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.

The following table sets forth, as of December 31, 2019, the volumes of proved developed and undeveloped reserves, the number of producing wells and the number of proved undeveloped locations for the fields that contained 95.4% of our proved reserves.

 

   Reserves   Number of
Producing
Wells
   Number of
Undeveloped
Locations(2)
 

Field

  Proved(1)   Developed(1)   Undeveloped(1) 
   (in millions of barrels of oil equivalent)         

Ku-Maloob-Zaap

   1,564.4    1,255.1    309.4    208    44 

Ayatsil

   1,172.8    426.3    746.5    21    36 

Akal

   633.0    633.0    0.0    77    0 

Aceite Terciario del Golfo(3)

   565.6    85.6    480.0    3,288    3,446 

Ixachi

   359.9    82.3    277.7    2    14 

Balam

   196.4    158.7    37.7    16    3 

Antonio J. Bermudez(4)

   144.1    94.9    49.2    222    24 

Jujo-Tecominoacán

   102.0    67.4    34.6    28    9 

Ek

   95.6    31.3    64.3    13    5 

Onel

   93.5    77.7    15.8    15    3 

Xikin

   86.2    11.7    74.5    1    4 

Quesqui

   80.0    42.3    37.7    1    1 

Yaxché

   71.1    28.9    42.2    9    12 

Tamaulipas Constituciones

   67.3    46.7    20.6    279    96 

Santuario

   64.3    16.7    47.6    29    ND 

Teotleco

   63.5    44.5    19.0    8    3 

Tekel

   60.8    0.0    60.8    0    8 

Lakach

   60.2    0.0    60.2    0    3 

Pokche

   55.3    0.0    55.3    0    6 

Nejo

   44.7    28.4    16.3    209    63 

Xux

   44.2    44.2    0.0    12    0 

Arenque

   43.7    37.7    6.0    13    2 

Utsil

   41.8    0.0    41.8    0    8 

Xanab

   40.6    40.6    0.0    9    1 

Etkal

   40.4    14.9    25.5    2    4 

Sihil

   37.6    21.2    16.4    18    0 

Suuk

   34.0    0.0    34.0    0    3 

Ixtal

   32.3    32.3    0.0    14    0 

Poza Rica

   31.3    23.3    8.0    193    23 

Puerto Ceiba

   31.2    29.8    1.3    16    1 

Tizón

   29.8    26.1    3.7    9    1 

Giraldas

   28.7    28.7    0.0    8    0 

Ayín

   28.5    0.0    28.5    0    3 

Homol

   27.4    19.6    7.9    8    0 

Rabasa

   27.3    17.3    10.1    40    17 

Gasífero

   27.1    26.2    0.9    29    1 

Kambesah

   24.6    24.6    0.0    4    0 

Cuitláhuac

   22.7    19.1    3.6    189    6 

Eltreinta

   22.5    20.1    2.4    16    3 

Cárdenas-Mora

   20.2    13.4    6.8    9    ND 

Bellota

   20.2    15.2    5.0    7    2 

 

33


Table of Contents
   Reserves  Number of
Producing
Wells
   Number of
Undeveloped
Locations(2)
 

Field

  Proved(1)  Developed(1)  Undeveloped(1) 
   (in millions of barrels of oil equivalent)        

Costero

   20.0   20.0   0.0   10    0 

Valeriana

   19.9   9.7   10.2   1    1 

Tsimín

   19.1   19.1   0.0   8    0 

Ogarrio

   18.9   4.5   14.4   87    10 

Jaatsul

   18.8   0.0   18.8   0    3 

Esah

   18.1   0.0   18.1   0    2 

Lum

   18.0   14.3   3.7   3    3 

Cibix

   17.7   3.8   13.9   1    5 

Koban

   17.6   0.0   17.6   0    2 

Sini

   17.6   14.1   3.6   7    0 

Takín

   17.3   17.3   0.0   4    0 

Terra

   17.2   17.2   0.0   13    0 

Sen

   16.3   16.3   0.0   12    0 

Kax

   15.8   15.8   0.0   3    0 

Chinchorro

   15.4   12.7   2.7   4    1 

Madrefil

   15.3   15.3   0.0   6    0 

Caparroso-Pijije-Escuintle

   14.7   9.4   5.3   16    1 

Paredón

   14.6   14.6   0.0   3    0 

Ébano Chapacao

   14.2   10.2   3.9   150    ND 

Edén-Jolote

   14.1   12.3   1.8   5    1 

Bedel

   13.4   12.3   1.1   13    1 

Kuil

   13.2   7.7   5.4   3    1 

Sunuapa

   13.0   10.2   2.8   10    2 

Mulach

   12.7   0.0   12.7   0    1 

Tupilco

   12.6   12.6   0.0   19    0 

Cinco Presidentes

   12.6   11.4   1.1   36    3 

Ixtoc

   11.9   11.9   0.0   8    0 

May

   11.6   11.6   0.0   10    0 

Cacalilao

   11.5   4.1   7.4   87    99 

Cuervito

   11.0   4.2   6.8   90    16 

Teca

   11.0   0.0   11.0   0    2 

Bolontikú

   10.8   10.8   0.0   3    0 

Och

   10.2   10.2   0.0   5    0 

Pánuco

   9.9   2.6   7.3   60    121 

Tetl

   9.3   0.0   9.3   0    3 

Blasillo

   9.3   5.4   3.8   14    6 

Taratunich

   8.8   8.8   0.0   3    0 

Uech

   8.7   8.7   0.0   2    0 

Manik

   8.2   8.2   0.0   3    0 

Rodador

   8.1   8.1   0.0   25    0 

San Ramón

   7.7   6.4   1.3   29    4 

Cheek

   7.4   0.0   7.4   0    2 

Chuc

   7.3   7.3   0.0   9    0 

Batsil

   7.3   0.0   7.3   0    0 

Cactus

   7.2   7.2   0.0   15    0 

Jacinto

   7.1   7.1   0.0   4    0 

Bacab

   7.0   7.0   0.0   6    0 

Vinik

   7.0   0.0   7.0   0    1 
  

 

 

  

 

 

  

 

 

  

 

 

   

 

 

 

Total

   6,853.2   3,996.3   2,856.8   5,809    4,146 
  

 

 

  

 

 

  

 

 

  

 

 

   

 

 

 

Our proved reserves

   7,181.9   4,278.9   2,902.9    

Percentage

   95.4  93.4  98.4   

 

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 extraction assignments and temporary assignments.

(4)

Includes the Cunduacán, Iride, Oxiacaque, Platanal and Samaria fields.

ND:

No data available as undeveloped reserves are located in areas shared with third parties.

Source: Pemex Exploration and Production.

 

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Table of Contents

Ourreserve-replacement ratio, or RRR, for a given period is calculated by dividing the sum of proved reserves additions due to discoveries, developments, delineations and revisions by that period’s total production. During 2019, we obtained 1,026.5 million barrels of oil equivalent of proved reserves, which represents an RRR of 120.1%, as compared to our RRR of 34.7% in 2018. We expect continued improvements in our RRR in subsequent years.

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, 2019, this ratio was 8.4 years for proved reserves. For more information, see Note 31 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 10% 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, 2019

        

Average sales prices

        

Crude oil, per barrel

  U.S. $53.34   U.S. $59.68   U.S. $61.73   U.S. $57.13 

Natural gas, per thousand cubic feet

   3.63    1.57    3.54    3.55 

Average production costs, per barrel of oil equivalent

   10.37    17.27    16.32    14.06 

Year ended December 31, 2018

        

Average sales prices

        

Crude oil, per barrel

   58.71    61.41    66.34    66.13 

Natural gas, per thousand cubic feet

   4.37    1.62    4.21    4.21 

Average production costs, per barrel of oil equivalent

   10.03    38.94    14.78    13.73 

Year ended December 31, 2017

        

Average sales prices

        

Crude oil, per barrel

   41.70    48.75    52.90    48.71 

Natural gas, per thousand cubic feet

   5.07    4.25    4.12    4.32 

Average production costs, per barrel of oil equivalent

   7.53    23.25    11.53    10.90 

 

(1)

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

Source: Pemex Exploration and Production.

In 2019, our average production cost was U.S. $14.06 per barrel of oil equivalent, which represented an increase of 2.4%, as compared to our average production cost of U.S. $13.73 per barrel of oil equivalent in 2018. This increase resulted primarily from an increase in purchases between PEMEX entities and associated expenses and payments under Integrated Exploration and Production Contracts.

We calculate and disclose our production costs pursuant to international practices, which are based on U.S. GAAP under ASC Topic 932. In accordance with ASC Topic 932, the production cost per barrel of oil equivalent is calculated by dividing total production expenses (in U.S. dollars) by total production of oil and gas (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 andnon-capitalized maintenance costs, and other costs, such as fees for general services, a labor fund for active personnel, corporate services, indirect overhead and applicable taxes and duties. However, it excludesnon-cash expenses such as amortization of capitalized well expenses, the depreciation of fixed assets, expenses associated with the distribution and handling of oil and gas and other expenses that are related to exploration, development and drilling activities.

 

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Table of Contents

Crude Oil and Natural Gas Production

In 2019, we produced an average of 1,683.8 thousand barrels per day of crude oil, a decrease of 7.6% as compared to our average production of 1,822.5 thousand barrels per day of crude oil in 2018. The decrease in 2019 resulted primarily from the decrease of production in the Cantarell,Yaxché-Xanab, Crudo Ligero Marino, ElGolpe-Puerto Ceiba,Bellota-Chinchorro, Complejo Antonio J. Bermúdez,Cactus-Sitio Grande,Ixtal-Manik, Chuc, Costero Terrestre andTsimín-Xux projects. Notwithstanding this overall decrease, our average production of heavy crude oil increased by 3.3 thousand barrels per day, or 0.3% more than the average daily production in 2018, primarily due to an increase in our drilling activities and a deceleration in the decline in field production, primarily in theAyatsil-Tekel project. In 2019, the average production of light crude oil decreased by 142.1 thousand barrels per day, or 18.9%, as compared to 2018. This decrease occurred mainly due to a natural decline in production in the Chuhuk, Caan, and Ixtal fields of theAbkatún-Pol-Chuc business unit; the Xanab, Tsimín, Sinán, Bolontikú and Yaxché fields of the Litoral de Tabasco business unit; the Costero and Sitio Grande fields of theMacuspana-Muspac business unit; and the Samaria, Íride and Sini fields of theSamaria-Luna business unit.

Crude oil can be classified by its sulfur content. “Sour” or heavy crude oil contains 3.4% or greater sulfur content by weight and “sweet” or light crude oil contains less than 1.0% sulfur content by weight. Most of our production is classified as sour or heavy crude oil.

Our exploration and production segment primarily produces four types of crude oil:

 

  

Altamira, a heavy crude oil;

 

  

Maya, a heavy crude oil;

 

  

Isthmus, a light crude oil; and

 

  

Olmeca, anextra-light crude oil.

Most of our production consists of Isthmus and Maya crude oil. In 2019, 63.8% of our total production of crude oil consisted of heavy crude oil and 36.2% consisted of light andextra-light crude oil. The Marine regions yield mostly heavy crude oil (71.0% of these regions’ production in 2019), although significant volumes of light crude oil are also produced there (29.0% of these regions’ production in 2019). The Southern region yields mainly light andextra-light crude oil (together, 82.6% of this region’s production in 2019), and the Northern region yields both light andextra-light crude oil (38.5% of this region’s production in 2019) and heavy crude oil (61.5% of this region’s production in 2019).

The most productive crude oil and natural gas fields in the Gulf of Mexico are located in theKu-Maloob-Zaap, Litoral de Tabasco,Abkatún-Pol-Chuc and Cantarell business units in the Marine regions and the Samaria Luna andBellota-Jujo business units in the Southern region. In particular, theKu-Maloob-Zaap business unit was our most important crude oil producer in 2019, producing an average of 842.7 thousand barrels per day of crude oil in 2019, or 50.0% of our total crude oil production for the year, and 785.8 million cubic feet per day of natural gas, or 16.3% of our total natural gas production for the year. Our second most important crude oil producer was Litoral de Tabasco which produced an average of 198.8 thousand barrels per day of crude oil in 2019, or 11.8% of our total crude oil production for the year, and an average of 713.1 million cubic feet per day of natural gas, or 14.8% of our total natural gas production for the year.

 

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Table of Contents

The following table sets forth our annual crude oil production rates by type of oil for the five years ended December 31, 2019.

Crude Oil Production

 

   Year ended December 31,   2019
vs. 2018
 
   2015   2016   2017   2018   2019 
   (in thousands of barrels per day)   (%) 

Marine regions

            

Heavy crude oil

   1,054.9    1,018.3    978.0    996.1    982.7    (1.3

Light crude oil(1)

   705.4    682.7    605.6    514.8    402.2    (21.9

Total

   1,760.3    1,700.9    1,583.6    1,510.9    1,384.8    (8.3

Southern region

            

Heavy crude oil

   31.7    22.3    16.9    25.8    36.2    40.2 

Light crude oil(1)

   362.1    321.8    249.8    193.6    172.2    (11.0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

   393.8    344.1    266.7    219.4    208.4    (5.0

Northern region

            

Heavy crude oil

   65.7    62.0    54.2    49.3    55.6    12.9 

Light crude oil(1)

   47.0    46.5    43.8    43.0    34.9    (18.8
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

   112.7    108.5    97.9    92.3    90.6    (1.9

Total heavy crude oil

   1,152.3    1,102.6    1,049.1    1,071.2    1,074.5    0.3 

Total light crude oil(1)

   1,114.5    1,051.0    899.2    751.4    609.3    (18.9
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total crude oil

   2,266.8    2,153.6    1,948.3    1,822.5    1,683.8    (7.6
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

Note:

Numbers may not total due to rounding.

(1)

Includesextra-light crude oil.

Source: Pemex Exploration and Production.

The following table sets forth our annual crude oil production by region and business unit for the five years ended December 31, 2019.

Crude Oil Production

 

   Year ended December 31,   2019
vs. 2018
 
   2015   2016   2017   2018   2019 
   (in thousands of barrels per day)   (%) 

Marine regions

            

Ku-Maloob-Zaap

   853.1    866.6    858.0    874.7    842.7    (3.7

Litoral de Tabasco

   347.2    359.9    345.8    291.1    198.8    (31.7

Abkatún-Pol-Chuc

   286.7    258.7    203.2    183.8    184.0    0.1 

Cantarell

   273.4    215.8    176.0    161.2    159.3    (1.1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

   1,760.4    1,700.9    1,583.6    1,510.9    1,384.8    (8.3

Southern region

            

Samaria-Luna

   145.4    127.0    99.9    86.5    82.1    (5.1

Bellota-Jujo

   101.7    90.3    72.4    58.6    58.2    (0.7

Cinco Presidentes

   87.6    80.0    63.1    50.7    41.5    (18.1

Macuspana-Muspac

   59.0    46.8    31.3    23.6    26.4    11.9 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

   393.7    344.1    266.7    219.4    208.3    (5.1

Northern region

            

PozaRica-Altamira

   58.7    53.9    48.2    43.7    41.0    (6.1

Aceite Terciario del Golfo

   42.0    39.8    34.4    28.4    24.3    (14.5

Veracruz

   12.1    14.8    15.3    17.6    22.3    26.7 

Burgos

   —      —      —      2.6    3.0    15.4 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

   112.7    108.5    97.9    92.3    90.6    (1.8
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total crude oil

   2,266.9    2,153.6    1,948.3    1,822.5    1,683.8    (7.6

 

Note:

Numbers may not total due to rounding.

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 2019, the average crude oil production from the 43 fields located in these regions was 1,384.8 thousand barrels per day.

The Southern region covers an area of approximately 392,000 square kilometers, including the states of Guerrero, Oaxaca, Chiapas, Tabasco, Yucatán, Quintana Roo, Campeche and Veracruz. In 2019, the average crude oil production from the 76 fields located in this region was 208.3 thousand barrels per day.

 

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Table of Contents

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 2019, the average crude oil and natural gas production in the Northern region totaled 90.6 thousand barrels per day of crude oil and 927.6 million cubic feet per day of natural gas, respectively, from the 200 oil and gas fields in this region.

The following table sets forth our annual natural gas production by region and business unit for the five years ended December 31, 2019.

Natural Gas Production

 

   Year ended December 31,   2019 
   2015   2016   2017   2018   2019   vs. 2018 
   (in millions of cubic feet per day)   (%) 

Marine regions

            

Cantarell

   1,277.1    1,184.9    1,133.4    1,151.1    1,245.7    8.2 

Ku-Maloob-Zaap

   556.5    589.3    552.3    693.5    785.8    13.3 

Litoral de Tabasco

   993.5    950.0    882.3    798.0    713.1    (10.6

Abkatún-Pol-Chuc

   455.9    390.5    319.5    288.2    300.5    4.3 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

   3,283.0    3,114.6    2,887.6    2,930.8    3,045.2    3.9 

Southern region

            

Samaria-Luna

   500.3    498.7    426.9    381.0    371.7    (2.4

Macuspana-Muspac

   455.3    382.2    291.6    249.2    269.3    8.1 

Bellota-Jujo

   264.5    231.5    183.3    147.4    128.1    (13.0

Cinco Presidentes

   160.1    137.7    109.1    90.9    74.3    (18.2
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

   1,380.1    1,250.0    1,011.0    868.5    843.4    (2.9

Northern region

            

Burgos

   1,099.0    864.6    699.2    603.9    567.6    (5.9

Veracruz

   392.2    322.8    263.5    217.3    208.1    (4.2

Aceite Terciario del Golfo

   145.2    142.5    118.5    92.2    69.4    (24.8

PozaRica-Altamira

   101.5    97.9    88.2    90.3    82.5    (8.7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

   1,737.9    1,427.8    1,169.4    1,003.7    927.6    (7.6
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total natural gas

   6,401.1    5,792.5    5,068.0    4,803.0    4,816.2    0.3 

 

Note:

Numbers may not total due to rounding.

Source: Pemex Exploration and Production.

In 2019, the Marine regions produced 3,045.2 million cubic feet per day of natural gas, or 63.2% of our total natural gas production, an increase of 3.9% as compared to the regions’ 2018 production of 2,930.8 million cubic feet per day. In 2019, the Southern region produced 843.4 million cubic feet per day of natural gas, or 17.5% of our total natural gas production, a decrease of 2.9% as compared to the region’s 2018 production of 868.5 million cubic feet per day. In 2019, the Northern region produced 927.6 million cubic feet per day of natural gas, or 19.3% of our total natural gas production, a decrease of 7.6% as compared to the region’s 2018 production of 1,003.7 million cubic feet per day.

Our average natural gas production increase by 0.3% in 2019, from 4,803.0 million cubic feet per day in 2018 to 4,816.2 million cubic feet per day in 2019. Natural gas production associated with crude oil production accounted for 83.2% of total natural gas production in 2019, with the remainder of natural gas production consisting of extraction from fields holding natural gas reserves. As of December 31, 2019, 124 of our 319 gas producing fields, or 38.9%, producednon-associated gas. Thesenon-associated gas fields accounted for 16.8% of all of our natural gas production in 2019.

Investments in Exploration and Production

In nominal peso terms, our capital expenditures for exploration and production were Ps. 98,763 million in 2019, as compared to Ps. 71,107 million in 2018, representing an increase of 38.9% in nominal terms. Of our total capital expenditures, Ps. 17,560 million was directed to theKu-Maloob-Zaap fields, Ps. 803 million was directed to theTsimin-Xux project, Ps. 10,711 million was directed to the Chuc project, Ps. 2,342 million was directed to the Cantarell fields, Ps. 3,715 million was directed to the Crudo Ligero Marino project, Ps. 1,092 million was directed to theOgarrio-Sánchez Magallanes project, Ps. 958 million was directed to the Delta del Gijalva fields, Ps. 3,166 million was directed to the Antonio J. Bermúdez fields, Ps. 243 million was used for development of the Burgos natural gas fields and Ps. 758 million was directed to the Aceite Terciario del Golfo (ATG) project. During 2019, expenditures for these ten projects amounted to 41.9% of all our capital expenditures for exploration and production. The remaining 58.1% amounted to Ps. 57,415 million in nominal terms, which was directed to the 28 remaining projects, as well as to other exploratory projects, other development projects and administrative and technical support.

 

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2020 Exploration and Production Capital Expenditures Budget

For 2020, our total capital expenditures budget is Ps. 175,743 million, as compared to Ps. 98,763 million of capital expenditures made in 2019, representing an increase of 77.9%, largely with a view of reaching our objectives of stopping and reversing the decline in our reserves and production, and accelerating the development of discovered fields. The 2020 budget includes all of the 26 ongoing strategic exploration and production projects, an additional Ps. 41,249 million to be allocated to other exploratory projects and Ps. 45,458 million to be allocated to other development projects. Ps. 131,307 million, or 74.7% of our 2020 capital expenditures budget is to be allocated to projects relating to field development and pipelines. Ps. 44,436 million, or 25.3% of the total budget, will be allocated to exploration activities.

The 2020 exploration and production budget includes Ps. 21,590 million for investments in theKu-Maloob-Zaap project, Ps. 6,556 million for the Integral Yaxché project, Ps. 5,178 million for the Chuc project, Ps. 331 million for theTsimín-Xux project, Ps. 7,737 million for the Cantarell project, Ps. 1,228 million for the Delta del Grijalva project, Ps. 10,723 million for the Crudo Ligero Marino project, Ps. 5,346 million for the Antonio J. Bermúdez project, Ps. 4,767 million for the Ogarrio Sánchez Magallanes project, Ps. 1,500 million for the Burgos project, Ps. 908 million for the Bellota-Chinchorro project, and Ps. 109,879 million for the remaining projects, as well as for other exploratory and development projects and administrative and technical support.

Given the recent and ongoing impact of theCOVID-19 pandemic on our business and the global economy, we anticipate adjustments to Pemex Exploration and Production’s investment budget for 2020, which may include reductions to our capital expenditures andnon-capitalizable maintenance expenses. For more information regarding the impact of theCOVID-19 pandemic to our investment budget, See “Item 5—Overview”.

Exploration and Production Investment Trends

In 2019, we invested Ps. 21,992 million in nominal terms, or 22.3% of the total capital expenditures of our exploration and production segment, in exploration activities, which represented an 8.0% decrease from the Ps. 23,892 million invested in exploration activities in 2018. In 2019, we invested Ps. 76,771 million in nominal terms, or 77.7% of our total capital expenditures in development activities, which represents a 62.6% increase from the Ps. 47,214 million invested in development activities in 2018.

In 2020, we have budgeted Ps. 44,436 million, or 25.3% of total capital expenditures, for exploration activities of our exploration and production segment, which represents a 102.1% increase in nominal terms from the amount invested in exploration activities in 2019. For development activities in 2020, we have budgeted Ps. 131,307 million, or 74.7% of total capital expenditures, which represents a 71.0% increase in nominal terms from the amount that we invested in development activities in 2019.

Our projected exploration and development capital expenditures correspond to the areas assigned to us through bidding rounds, which represent the areas in which we are exploring, operating or have an interest in developing based on our operational capabilities. The SENER 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 are reserved by the Mexican Government for potential 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 due to a number of factors, including the results of potential subsequent bidding rounds in which we participate.

The capital expenditures of our exploration and production segment have constituted 73.5% or more of our total capital expenditures in each of the last three years. In 2020, the budgeted capital expenditures of our exploration and production segment constitute 89.1% of our total capital expenditures.

 

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The following tables sets forth our capital expenditures, excludingnon-capitalizable maintenance, related to exploration and development for each of the three years ended December 31, 2019, and the budget for 2020. Capital expenditure amounts are derived from our budgetary records, which are prepared on a cash basis. Accordingly, these capital expenditure amounts do not correspond to capital expenditure amounts included in our consolidated financial statements prepared in accordance with IFRS.

Exploration and Development Capital Expenditures

 

   Year ended December 31,(1)   Budget 
   2017   2018   2019(2)   2020(2)(3) 
   (in millions of pesos) (4) 

Exploration

  Ps. 28,753   Ps. 23,892   Ps. 21,992   Ps.44,436 

Development

   56,738    47,214    76,771    131,307 

Total

  Ps.85,491   Ps.71,107   Ps.98,763   Ps. 175,743 
  

 

 

   

 

 

   

 

 

   

 

 

 

 

Note:

Numbers may not total due to rounding.

(1)

Amounts based on cash basis method of accounting.

(2)

Figures include our drilling and services line of business beginning July 1, 2019. Prior to July 1, 2019, Pemex Drilling and Services operated as an additional productive state-owned subsidiary. As of July 1, 2019, Pemex Drilling and Services was merged into Pemex Exploration and Production.

(3)

Original budget published in the Official Gazette of the Federation on December 11, 2019.

(4)

Figures are stated in nominal pesos.

Source: Pemex Exploration and Production

Investments and Production by Project

We conduct exploration, production and development activities in fields throughout Mexico. Our main projects areKu-Maloob-Zaap,Tsimín-Xux, ATG, Cantarell, Crudo Ligero Marino, Burgos, Chuc, Antonio J. Bermúdez,Ogarrio-Sánchez Magallanes and Delta del Grijalva. These projects are described below.

 

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Exploration and Production’s Capital Expenditures

 

   Year ended December 31,(1)   Budget 
   2017   2018   2019   2020(2) 
   (in millions of pesos)(3) 

Exploration and Production

        

Ku-Maloob-Zaap

  Ps. 20,454   Ps. 10,879   Ps. 17,560   Ps. 21,590 

Chuc

   8,761    13,178    10,711    5,178 

Ek-Balam

   737    2,918    8,888    8,237 

Integral Yaxché

   7,984    3,686    5,592    6,556 

Crudo Ligero Marino

   1,026    3,535    3,715    10,723 

Antonio J. Bermúdez

   1,306    1,148    3,166    5,346 

Cantarell

   3,119    2,228    2,342    7,737 

Cuenca de Veracruz

   671    2,018    2,110    4,935 

Ixtal-Manik

   368    807    1,922    201 

Bellota-Chinchorro

   400    1,187    1,646    908 

Cactus-Sitio Grande

   463    412    1,377    687 

Tamaulipas-Constituciones

   101    339    1,232    2,220 

Ogarrio-Sánchez Magallanes

   1,063    1,227    1,092    4,767 

Delta del Grijalva

   1,705    879    958    1,228 

El Golpe-Puerto Ceiba

   286    365    902    945 

Tsimín-Xux

   4,961    1,065    803    331 

Aceite Terciario del Golfo

   604    511    758    2,311 

Integral Poza Rica

   173    324    491    1,354 

Jujo-Tecominoacán

   565    492    405    1,460 

Burgos

   606    162    243    1,500 

Cuenca de Macuspana

   117    96    125    212 

Costero Terrestre

   120    114    83    78 

Lakach

   1,058    1,083    56    —   

Arenque

   6    61    40    38 

Ayín-Alux

   1    —      —      —   

Lankahuasa

   11    —      —      —   

Other Exploratory Projects

   26,235    22,388    20,550    41,249 

Other Development Projects

   2,341    —      11,324    45,458 

Xikin

   —      —      6,210    5,898 

Esah

   —      —      1,675    1,795 

Tetl

   —      —      728    1,367 

Suuk

   —      —      637    2,603 

Teekit Profundo

   —      —      566    1,675 

Octli

   —      —      505    1,769 

Ixachi

   —      —      436    20,079 

Koban

   —      —      174    2,639 

Manik NW

   —      —      149    729 

Cahua

   —      —      66    478 

Mulach

   —      —      64    2,473 

Cheek

   —      —      44    366 

Hok

   —      —      40    1,609 

Tlacame

   —      —      30    1,304 

Cibix

   —      —      —      339 

Chocol

   —      —      —      335 

Others

   2,341    —      —      —   

Administrative and Technical Support

   249    5    —      —   

Drilling and Services(4)

   —      —      672    494 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

  Ps.85,491   Ps.71,107   Ps.98,763   Ps.175,743 

 

Notes: Numbers may not total due to rounding.

(1)

Amounts based on cash basis method of accounting.

(2)

Original budget published in the Official Gazette of the Federation on December 11, 2019.

(3)

Figures are stated in nominal pesos.

(4)

Figures include our drilling and services line of business beginning July 1, 2019. Prior to July 1, 2019, Pemex Drilling and Services operated as an additional productive state-owned subsidiary. As of July 1, 2019, Pemex Drilling and Services was merged into Pemex Exploration and Production.

Source: Petróleos Mexicanos.

 

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Ku-Maloob-Zaap Project. TheKu-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, 2019, there were a total of 294 wells completed, 208 of which were producing. The project produced an average of 842.7 thousand barrels per day of crude oil, 50.0% of our total production, and 785.8 million cubic feet per day of natural gas in 2019. As of December 31, 2019, cumulative production was 6.0 billion barrels of crude oil and 3.2 trillion cubic feet of natural gas. As of December 31, 2019, proved hydrocarbon reserves totaled 2.7 billion barrels of crude oil and 0.953 trillion cubic feet of natural gas. Total proved reserves were 2.9 billion barrels of oil equivalent, of which 1.7 billion barrels of oil equivalent were proved developed reserves.

In nominal peso terms, our exploration and production segment’s capital expenditures for this project were Ps. 10,879 million in 2018 and Ps. 17,560 million in 2019. For 2020, we anticipate that our capital expenditures will be Ps. 21,590 million and that total accumulated capital expenditures for this project will reach approximately U.S. $26.7 billion. In 2019, we paid approximately U.S. $39.3 million to acquire approximately 106.6 billion cubic feet of nitrogen for the pressure maintenance project in the fifth module of the Cantarell nitrogen cryogenic plant. In 2020, we expect to spend approximately U.S. $38.5 million to acquire approximately 105.4 billion cubic feet of nitrogen for injection into theKu-Maloob-Zaap fields.

Tsimín-Xux Project. This project consists of the Tsimín and Xux fields, which include volatile oil and gas condensate reservoirs in the shallow waters of the Gulf of Mexico. The Tsimín 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 2019, no new wells were completed at the Xux or Tsimín fields. During 2019, average daily production at theTsimín-Xux project totaled 69.5 thousand barrels of crude oil and 435.4 million cubic feet of natural gas. During 2019, the sales prices of the light andextra-light crude oil produced at these fields averaged approximately U.S. $65.40 per barrel, making this one of our most important projects in terms of revenue generation.

 

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As of December 31, 2019, cumulative production totaled 0.1 billion barrels of crude oil and 1.1 trillion cubic feet of natural gas. Total proved reserves were 63.3 million barrels of oil equivalent, of which all were proved developed reserves.

In nominal peso terms, our exploration and production segment’s capital expenditures for theTsimín-Xux project were Ps. 1,065 million in 2018 and Ps. 803 million in 2019. In 2020, we expect capital expenditures for this project to total Ps. 331 million and that, by the end of 2020, our total accumulated capital expenditures for this project will reach approximately U.S. $226.7 million.

Chuc Project. The Chuc project is the second largest producer of light crude oil in the Southwestern Marine region, and includes the operation and maintenance of thePol-A facility and water injection complexes. This project covers an area of 213 square kilometers. The fields of this project are located on the continental shelf of the Gulf of Mexico, off the coast of the states of Tabasco and Campeche, at a depth of between the20- and100-meter isobaths, approximately 132 kilometers from the Dos Bocas Marine Terminal in Paraíso, Tabasco, and 79 kilometers northeast of Ciudad del Carmen, Campeche. The fields in the project include Abkatún, Batab, Caan, Ché, Chuc, Chuhuk, Etkal, Homol, Kanaab, Kuil, Onel, Pol, Taratunich and Tumut. As of December 31, 2019, 125 wells had been completed, of which 72 were producing. During 2019, average production totaled 159.8 thousand barrels per day of crude oil and 256.2 million cubic feet per day of natural gas. As of December 31, 2019, cumulative production totaled 6.0 billion barrels of crude oil and 6.9 trillion cubic feet of natural gas. As of December 31, 2019, proved hydrocarbon reserves totaled 135.3 million barrels of oil and 389.5 billion cubic feet of natural gas, or 214.4 million barrels of oil equivalent. As of December 31, 2019, total proved developed reserves were 159.8 million barrels of oil equivalent.

In nominal peso terms, our exploration and production segment’s capital expenditures for the Chuc project were Ps. 13,178 million in 2018 and Ps. 10,711 million in 2019. In 2020, we expect our capital expenditures to be Ps. 5,178 million and anticipate that our total accumulated capital expenditures for this project will reach approximately U.S. $7.8 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, 2019, there was a total of 568 wells drilled in the Cantarell project, 127 of which were producing. During 2019, the Cantarell business unit, of which the Cantarell project is part, was the fourth most important producer of crude oil in Mexico, averaging 159.3 thousand barrels per day of crude oil. This was 1.1% less than 2018 production, which was 161.2 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 2019 averaged 1,245.7 million cubic feet per day. This was 8.2% more than the 2018 average natural gas production, which was 1,151.1 million cubic feet per day.

As of December 31, 2019, cumulative production of the Cantarell project was 14.3 billion barrels of crude oil and 10.6 trillion cubic feet of natural gas. As of December 31, 2019, proved oil and gas reserves of the Cantarell project totaled 607.4 million barrels of crude oil and 749.4 billion cubic feet of natural gas. As of December 31, 2019, total proved reserves were 738.2 million barrels of oil equivalent, of which 721.8 million barrels were proved developed reserves.

The Akal field, which is the most important field in the Cantarell project, averaged 42.8 thousand barrels per day of crude oil production during 2019. This was 14.1% less than the average production in 2018, which was 49.8 thousand barrels per day.

In nominal peso terms, our exploration and production segment’s capital expenditures for the Cantarell project totaled Ps. 2,228 million in 2018 and Ps. 2,342 million in 2019. For 2020, we budgeted Ps. 7,737 million for capital expenditures for the Cantarell project. By the end of 2020, we expect our total accumulated capital expenditures to be approximately U.S. $41.6 billion for this project.

On October 10, 1997, we awarded abuild-own-operate contract for a nitrogen cryogenic plant at the Cantarell project to a consortium formed by BOC Holdings, Linde, Marubeni, West Coast Energy and ICA Fluor Daniel. Under this contract, the consortium is responsible for the financing, design, construction and operation of the plant. The plant began operations in 2000 and cost 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 committed to purchasing 1.2 billion cubic feet per day of nitrogen from the consortium and to continue to supply service through June 2027.

 

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During 2019, we paid U.S. $203.5 million under this contract for an approximate total volume of 418.5 billion cubic feet of nitrogen, which was injected into the Cantarell fields. In 2020, our exploration and production segment expects to pay U.S. $197.4 million under this contract for an approximate total volume of 414.3 billion cubic feet of nitrogen to be injected into the fields.

Crudo Ligero Marino Project. The Crudo Ligero Marino Project is located on the continental shelf in the Gulf of Mexico, across the coasts of the states of Tabasco and Campeche, about 75 kilometers from the Dos Bocas Marine Terminal in Paraíso and 89 kilometers northwest from Ciudad del Carmen, Campeche. The main objectives for the Crudo Ligero Marino project during the years 2019 to 2035 are to continue constructing one marine structure, in addition to the marine structure completed during 2014, drill additional wells, implement secondary recovery, as well as intervention, optimization and maintenance techniques to its facilities, particularly in the Sinan, Kab and Kax fields. As of December 31, 2019, a total of 102 wells had been completed at this project, of which 34 were producing. During 2019, average daily production totaled 70.2 thousand barrels of crude oil and 231.3 million cubic feet of natural gas. As of December 31, 2019, cumulative production was 923.7 million barrels of crude oil and 2,662.2 billion cubic feet of natural gas. Proved oil and gas reserves totaled 39.2 million barrels of crude oil and 130.6 billion cubic feet of natural gas. Total proved reserves were 65.6 million barrels of oil equivalent, of which 65.6 million barrels were proved developed reserves.

In nominal peso terms, our exploration and production segment’s capital expenditures for the Crudo Ligero Marino project totaled Ps. 3,535 million in 2018 and Ps. 3,715 million in 2019. For 2020, we anticipate our capital expenditures to total Ps. 10,723 million and that total accumulated capital expenditures for this project will reach approximately U.S. $656.0 million.

Ogarrio-Sánchez Magallanes Project. TheOgarrio-Sánchez Magallanes project is composed of 18 crude oil and natural gas producing fields and forms part of the Cinco Presidentes business unit. This project is located between the state borders of Veracruz and Tabasco and covers an area of 10,820 square kilometers. From a geological standpoint, this project pertains to the Isthmus Saline basin, specifically the southeastern basins at the Tertiary level. TheOgarrio-Sánchez Magallanes project is geographically bounded by the Gulf of Mexico to the north, the geological folds of the Sierra Madre of Chiapas to the south, the Tertiary basin of Veracruz to the west and the Comalcalco Tertiary basin to the east. The primary objective of this project is to increase production levels through the drilling of development wells and infill wells, which are drilled between producing wells to more efficiently recover oil and gas reserves, the execution of workovers of wells and the implementation of secondary and enhanced oil recovery processes. In addition, we aim to optimize the infrastructure of this project in order to counteract the decreases in production levels that result from the natural depletion of its reservoirs.

As of December 31, 2019, theOgarrio-Sánchez Magallanes project had 539 producing wells. Six new wells were completed during 2019. Average daily production totaled 41.5 thousand barrels of crude oil and 74.3 million cubic feet of natural gas during 2019. As of December 31, 2019, cumulative production was 1.3 billion barrels of crude oil and 1.9 trillion cubic feet of natural gas. Proved hydrocarbon reserves totaled 92.6 million barrels of crude oil and 198.1 billion cubic feet of natural gas. Total proved reserves were 119.2 million barrels of oil equivalent, of which 80.0 million barrels were proved developed reserves.

In nominal peso terms, our capital expenditures for theOgarrio-Sánchez Magallanes project were Ps. 1,227 million in 2018 and Ps. 1,092 million in 2019. For 2020, we anticipate that our capital expenditures will total Ps. 4,767 million and that by the end of 2020 total accumulated capital expenditures for this project will reach approximately U.S. $201.5 million.

Delta del Grijalva Project. The Delta del Grijalva project is the most important project in the Southern region in terms of both oil and gas production. The project covers an area of 1,343 square kilometers. As of December 31, 2019, there was a total of 200 wells drilled, of which 62 were producing. During 2019, the project produced an average of 48.3 thousand barrels per day of crude oil and 217.6 million cubic feet per day of natural gas.

As of December 31, 2019, cumulative production in the Delta del Grijalva project was 0.8 billion barrels of crude oil and 3.2 trillion cubic feet of natural gas. Proved oil and gas reserves as of December 31, 2019 totaled 56.4 million barrels of crude oil and 259.5 billion cubic feet of natural gas. As of December 31, 2019, total proved reserves were 117.0 million barrels of oil equivalent, 94.2 million of which were proved developed reserves.

In nominal peso terms, our exploration and production segment’s capital expenditures for the Delta del Grijalva project were Ps. 879 million in 2018 and Ps. 958 million in 2019. In 2020, we expect our capital expenditures to be Ps. 1,228 million, bringing our total capital expenditures for the project to approximately U.S. $4.0 billion.

 

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Antonio J. Bermúdez Project. The Antonio J. Bermúdez project is designed to accelerate reserves recovery, as well as increase the recovery factor, by drilling additional wells and implementing a system of pressure maintenance through nitrogen injection. It consists of the Samaria, Cunduacán, Oxiacaque, Iride and Platanal fields, and covers an area of 163 square kilometers. As of December 31, 2019, a total of 882 wells had been completed, of which 222 were producing. During 2019, the project produced an average of 33.8 thousand barrels per day of crude oil and 154.1 million cubic feet per day of natural gas. As of December 31, 2019, cumulative production was 3.0 billion barrels of crude oil and 4.9 trillion cubic feet of natural gas. As of December 31, 2019, proved hydrocarbon reserves in these fields totaled 107.7 million barrels of crude oil and 152.4 billion cubic feet of natural gas. As of December 31, 2019, total proved reserves were 144.1 million barrels of oil equivalent, of which 94.9 million were proved developed reserves.

In nominal peso terms, our exploration and production segment’s capital expenditures for the Antonio J. Bermúdez project were Ps. 1,148 million in 2018 and Ps. 3,166 million in 2019. For 2020, we anticipate that our capital expenditures for this project will be Ps. 5,346 million and that our total accumulated investments in the project will reach approximately U.S. $9.5 billion.

Burgos Project. The Burgos project is the largest producer ofnon-associated gas in Mexico. The purpose of the Burgos project is to enable us to meet increasing domestic demand for natural gas. The fields in Burgos accounted for 11.8% of our total natural gas production in 2019. The project is located in northeastern Mexico.

During 2019, the Burgos project produced an average of 567.6 million cubic feet per day of natural gas. In 2019, we drilled 16 additional wells at the Burgos project, bringing our total completed wells drilled to 8,004, 2,626 of which were producing. The most important fields are the Nejo,Arcabuz-Culebra, Cuitláhuac, Cuervito, Velero and Santa Anita fields, which together produced 56.8% of the total production of the Burgos project in 2019.

Main Fields of the Burgos Project

(as of December 31, 2019)

 

   Nejo   Arcabuz-
Culebra
   Cuitláhuac   Velero   Cuervito   Santa Anita 

Wells completed

   436    974    448    221    138    81 

Producing wells

   209    472    189    136    90    56 

2019 production of natural gas (million cubic feet per day)

   120.4    81.1    43.3    28.5    15.6    33.7 

Cumulative production of natural gas (billion cubic feet)

   621.4    2,133.5    841.7    371.4    219.2    286.0 

Proved reserves of natural gas (billion cubic feet)

   248.4    34.6    121.0    37.7    58.6    19.5 

Proved developed reserves

   164.1    33.2    101.9    37.7    22.2    9.9 

Proved undeveloped reserves

   84.3    1.4    19.2    0.0    36.3    9.6 

 

Source: Pemex Exploration and Production.

During 2019, proved reserves increased by 5.9 million barrels of oil equivalent, from 169.7 million barrels of oil equivalent in 2018 to 175.6 million barrels of oil equivalent in 2019, primarily due to the maintenance of production of certain fields in the Burgos project.

In nominal peso terms, our exploration and production segment’s capital expenditures (including capital expenditures made pursuant to Financed Public Works Contracts, or FPWCs) for the Burgos project were Ps. 162 million in 2018 and Ps. 243 million in 2019. For 2020, we anticipate that our capital expenditures for this project will amount to Ps. 1,500 million and that our total accumulated capital expenditures will reach approximately U.S. $20.5 billion.

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, 2019, there was a total of 4,659 wells completed, of which 1,912 were producing. The project produced an average of 24.3 thousand barrels per day of crude oil in 2019 as compared to 28.4 thousand barrels per day of crude oil in 2018, which represents a 14.4% decrease, and 69.4 million cubic feet per day of natural gas in 2019 as compared to 92.2 million cubic feet of natural gas per day in 2018, which represents a 24.7% decrease. The decrease in crude oil and natural gas production was primarily due to the decline in pressure in certain reservoirs. As of December 31, 2019, cumulative production was 333.7 million barrels of crude oil and 727.2 billion cubic feet of natural gas. As of December 31, 2019, proved reserves totaled 434.9 million barrels of crude oil and 854.6 billion cubic feet of natural gas. Total proved hydrocarbon reserves were 565.6 million barrels of oil equivalent, of which 85.6 million barrels of oil equivalent were proved developed reserves.

 

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During 2019, field development activities at the project included the drilling of 11 new wells and the completion of 13 wells, all 13 of which were classified as producing, reflecting a 100% success rate. As of December 31, 2019, 83.0% of the total producing wells were operating with artificial systems such as mechanical, pneumatic, hydraulic and electric pumping, while the remaining 17.0% were “flowing wells” that are classified accordingly because they did not require any means of artificial lift.

In nominal peso terms, our exploration and production segment’s capital expenditures for the ATG project were Ps. 511 million in 2018 and Ps. 758 million in 2019. For 2020, we anticipate that our capital expenditures for this project will be Ps. 2,311 million and that total accumulated investments in this project will be approximately U.S. $13.2 billion.

Crude Oil Sales

During 2019, domestic consumption of crude oil amounted to approximately 576.8 thousand barrels per day, which represented 34.2% 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 89.2% of exported crude oil volume sold by PMI in 2019. 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,   2019 
   2015   2016   2017   2018   2019   vs. 2018 
   (in thousands of barrels per day)   (%) 

Production

   2,266.8    2,153.5    1,948.3    1,822.5    1,683.8    (7.6

Distribution

            

Refineries

   1,064.0    935.0    769.0    606.4    576.8    (4.9

Export terminals

   1,177.7    1,198.7    1,167.8    1,186.9    1,102.5    (7.1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

   2,241.7    2,133.7    1,936.7    1,793.3    1,679.3    (6.4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Statistical differences in stock measurements(1)

   25.2    19.8    11.6    29.2    20.0    (31.5

 

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 the past, we identified increases in the difference between the volumes of crude oil production and distribution. Based on an analysis conducted in coordination with the CNH, 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.

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 2019, gas flaring represented 4.8% of total natural gas production, as compared to 3.7% of total natural gas production in 2018. The increased gas flaring in 2019 was primarily due to the maintenance carried out in a gas sweetening plant at the Akal field and in the floating production storage and offloading production system, as well as failures in the processing plants at the Ciudad Pemex facility. As a result, we are carrying out maintenance of our compression modules in order to increase the use of produced gas.

 

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Pipelines

The crude oil and natural gas pipeline network owned by our exploration and production segment connects crude oil and natural gas producing centers with refineries and petrochemical plants. At the end of 2019, this pipeline network consisted of approximately 37,469 kilometers of pipelines, of which 2,060 kilometers were located in the Northeast Marine region, 1,421 kilometers were located in the Southeast Marine region, 9,540 kilometers were located in the Southern region, 24,448 kilometers were located in the Northern region. For a description of products transported by the pipeline network, see “—Business Overview—Logistics” in this Item 4.

Integrated Exploration and Production Contracts, Financed Public Works Contracts and CSIEEs

Our FPWC program, previously known as the Multiple Services Contracts program, was first announced in December 2001. The objective of the program was to provide a contractual framework that promotes efficient execution of public works in order to increase Mexico’s oil and gas production. The FPWC were 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 oil and gas produced and works performed under each FPWC.

Our Integrated E&P Contracts program was established as part of reforms to the Mexican energy sector enacted in 2008. The objective of these Integrated E&P Contracts was to increase our execution and production capabilities. The oil and gas reserves located in and extracted from the areas to which we have a legal right, continue to be owned exclusively by the Mexican Government. Under this program, payments to the contractors were made on aper-barrel basis, plus recovery costs, provided that the payments did not exceed our cash flow from the particular block.

We may amend our Integrated E&P Contracts and FPWCs in order to align these contracts with the contractual framework established under the Hydrocarbons Law and existing Integrated E&P Contracts or FPWCs may be migrated into a contract for exploration and production upon agreement by the contract parties to the technical guidelines established by the SENER (after seeking our favorable opinion) and the financial terms determined by the Ministry of Finance and Public Credit. Upon approval by the contract parties, the existing Integrated E&P Contract or FPWC will terminate and be replaced by the new contract for exploration and production without the need for a bidding process. If the contract parties do not agree to the proposed technical guidelines and contractual and financial terms, the original Integrated E&P Contract or FPWC remain in effect.

As of the date of this annual report, we have migrated three Integrated E&P Contracts to contracts for exploration and production:

 

  

On December 18, 2017, the Integrated E&P Contract governing the Santuario and El Golpe blocks was migrated;

 

  

On August 3, 2018, the Integrated E&P Contract governing the Ebano block was migrated; and

 

  

On November 21, 2018, the Integrated E&P Contract governing the Miquetla Block was migrated.

In addition, we migrated the FPWCs governing the Misión block and the Olmos block on March 2, 2018 and February 22, 2018, respectively, to different contractual frameworks permitted under the Petróleos Mexicanos Law. For more information on the migration of these Integrated E&P Contracts and FPWCs, see “—Other Exploration and Production Contracts” below.

As of the date of this annual report, we are pursuing integration of the technical and economic components of our Integrated E&P Contracts and FPWCs in order to execute extraction activities under the long-term service contracts for oil production (contratos de servicios de largo plazo para la producción del petróleoor CSIEEs) business model. The implementation of CSIEEs is part of our 2019-2023 Business Plan, see “Item 5—Operating and Financial Review and Prospects—2019-2023 Business Plan and Recent Initiatives.” The bidding process began in late 2019 and is expected to continue through to 2021. All of these contracts relate to relatively low risk proven and probable reserves, and some also have an exploration component.

 

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Additionally, we are negotiating with third-party contractors the potential migration from our current contracts to contracts conforming to CSIEE-type terms, or otherwise preferable for us and for the third-party contractors. These negotiations include the FPWCs that govern the Pánuco, Altamira, Pitepec, Miahuapan and Magallanes blocks, all of which were previously evaluated in 2018 to be migrated to contracts for exploration and production under the Hydrocarbons Law.

The goal of these contract migration strategies is to increase our hydrocarbon production and to meet our reserve replacement goals at competitive costs. As of the date of this annual report, we have not migrated any existing FPWCs or Integrated E&P Contracts to CSIEEs or similar contracts.

Among the FPWC works during 2019, maintenance and development activities were carried out in the Burgos project under the FPWC program. The work carried out in 2019 represented an investment of U.S. $197.1 million. In 2019, natural gas production in the existing FPWC blocks reached 120.8 million cubic feet per day and condensate production reached 3.0 thousand barrels per day.

During 2019, contractors expended U.S. $196.4 million in connection with Integrated E&P Contracts. In 2019, production in the existing Integrated E&P blocks reached 16.2 thousand barrels per day of crude oil and 49.2 million cubic feet per day of natural gas, for a total of 26.0 thousand barrels of oil equivalent per day.

Farm-Outs and CSIEEs

Over the last several years, we have pursuedfarm-outs and other partnerships in order to diversify and strengthen our exploration and production portfolio and to focus on the most profitable projects. Throughfarm-outs, we sell a partial interest in fields that have been granted to us and enter into agreements for the joint operation of such fields. This requires third parties to make financial contributions to the partnership and to provide field services, allowing us to recoup some of our previous investments in the fields and to share some of the risk associated with the further development of the fields, while maintaining an interest in the future profits.

On December 11, 2018, the Mexican Government announced the suspension of bidding rounds for exploration and extraction of hydrocarbons contracts in order to evaluate the results and progress of the existing contracts. On June 13, 2019, the Mexican Government announced the suspension of bidding rounds for newfarm-outs to provide an opportunity to evaluate the performance of existingfarm-outs. The existing farm-outs will continue to operate in accordance with the terms and conditions of their respective contracts. We understand the Mexican Government will use the results of such evaluation to determine whether to pursuefarm-outs in the future.

During 2019, in accordance with our 2019-2023 Business Plan, we evaluated the use of CSIEEs as a replacement for farm-outs to encourage the participation of the private sector in our operations. The CSIEE model seeks to increase production by guaranteeing incentive-based remuneration based on production received and the risk involved in the field in question pursuant to the terms of each contract. Each CSIEE contract is to have a term between 15 and 25 years. CSIEE contracts are expected to replace farm-outs as a vehicle for private sector involvement, although existingfarm-out arrangements will be maintained for the duration of their respective terms. However, as of December 31, 2019, no CSIEE was in effect.

TriónFarm-Out

On July 28, 2016, the CNH published the tender offer and bidding package to select a partner for Pemex Exploration and Production to carry out exploration and production activities in the Trión block field assignments located in the Perdido Fold Belt in the Gulf of Mexico. Since the Trión block has a depth greater than 2,500 meters, it requires a high level of technical expertise and financial investment to develop.

On December 5, 2016, the CNH announced that BHP Billiton Petróleo Operaciones de México, S. de R.L. de C.V., or BHP Billiton Mexico, an affiliate of BHP Group Limited and BHP Group Plc, had been selected as the partner for Pemex Exploration and Production in the Trión blockfarm-out. Pursuant to the terms of its bid, BHP Billiton Mexico made a U.S. $789.6 million contribution to the partnership in exchange for a 60% participating interest in the Trión Block. BHP Billiton Mexico will be the operator of the Trión block, and must invest U.S. $1.9 billion in the Triónfarm-out before we are required to invest in the project, which will likely not occur until 2022. The corresponding exploration and production contract, joint operating agreement and other relevant agreements were executed on March 3, 2017, and the CNH approved the exploration plan in February 2018. As of December 31, 2019, thisfarm-out is in the exploration and evaluation stages.

 

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Ogarrio,Cárdenas-Mora andAyin-BatsilFarm-Outs

In addition to the Triónfarm-out, on October 4, 2017, the CNH held a bidding round forfarm-outs of the Ogarrio,Cárdenas-Mora andAyin-Batsil blocks. No bids were received for theAyin-Batsil block, which is located in the shallow waters of the Gulf of Mexico. However, multiple bids were received for the Ogarrio block. The Ogarrio andCárdenas-Mora blocks, both onshore fields located in the state of Tabasco, were ultimately awarded to the German company Deutsche Erdoel AG (DEA) and the Egyptian company Cheiron Holdings Limited (Cheiron), respectively. DEA’s bid consisted of an initial cash payment of U.S. $190.0 million, a royalty rate of 13% and an additional cash payment of U.S. $213.9 million, which is the highestsign-up bonus submitted in a CNH bidding round as of the date of this annual report. Cheiron’s bid consisted of an initial cash payment of U.S. $125.0 million, a royalty rate of 13% and an additional cash payment of U.S. $41.5 million. The corresponding contracts were signed on March 6, 2018 and have a term of 25 years. We retain a 50% interest in both blocks. The Ogarrio and Cárdenas-Mora fields are currently in the development stage following the approval of the development plan by the CNH in March of 2019. In 2019, the Ogarrio field produced approximately 5.8 thousand barrels of crude oil per day and 16.7 million cubic feet per day of natural gas. In 2019, theCárdenas-Mora block produced approximately 5.4 thousand barrels per day of crude oil and 14.5 million cubic feet per day of natural gas.

Other Exploration and Production Contracts

In addition to thefarm-outs described above, we have also pursued other types of partnerships for the exploration and production of fields that were not already granted to us.

On December 5, 2016, we participated in the bidding process referred to as Round 1.4, through which we, as part of a consortium consisting of Pemex Exploration and Production, Chevron Energía de Mexico, S. de R.L. de C.V., or Chevron Energía, a subsidiary of Chevron Corporation, and INPEX Corporation, were awarded an exploration contract for a field located in the Perdido Fold Belt in the Gulf of Mexico. The field covers an area of approximately 1,686.9 square kilometers and is located approximately 117 kilometers off the coast of Mexico in water depths ranging between 500 meters and 1,700 meters. Chevron Energía will be the operator and holds a 33.3334% interest in the consortium, while Pemex Exploration and Production and INPEX Corporation each hold a 33.3333% interest. The corresponding exploration and production contract, joint operating agreement and other relevant agreements were executed on February 28, 2017. This project is currently in the exploration phase following approval of the exploration plan by the CNH in February of 2018.

On May 2, 2017, Pemex Exploration and Production entered into a contract for crude oil extraction with the CNH to upgrade the assignments under the shared shallow water production structure for the Ek and Balam project area located in Campeche Sound. Under the contract, which has a term of 22 years with two possiblefive-year extensions, the Mexican Government will retain 70.5% of the operating profits and will pay Pemex Exploration and Production the remaining 29.5%. Pemex Exploration and Production has provided a guarantee of U.S. $5.0 billion. During 2019, we produced an average of 46.3 thousand barrels per day of crude oil and 10.7 million cubic feet per day of natural gas pursuant to this contract.

On June 19, 2017, we participated in another bidding round conducted by the CNH, referred to as Round 2.1. As a result of this bidding process, we won two blocks. We were awarded Block 2, which covers an area of 549 square kilometers and is located on the continental shelf of theTampico-Misantla basin, to the west of the Gulf of Mexico, in partnership with DEA. We are the operating partner in this block and own a 70% interest. Additionally, we were awarded Block 8, which is in the Southeastern Basins and covers an area of 586 square kilometers, in partnership with Colombia’s Ecopetrol. In Block 8, we are also the operating partner and own a 50% interest. The corresponding contracts for the exploration and extraction of hydrocarbons with DEA and Ecopetrol were signed on September 25, 2017. Both blocks are in the exploration phase following approval of the exploration plans by the CNH in November and October of 2018, respectively.

On December 18, 2017, we executed contracts for an association with Petrofac México, S.A. de C.V., or Petrofac, under which we assigned to Petrofac the rights to certain fields that were part of the ElGolpe-Puerto Ceiba project, including the onshore fields of Santuario, El Golpe and Caracolillo located in the state of Tabasco. We have a 64% share in this project. During 2019 we had an average production of 10.8 thousand barrels per day of crude oil and 8.1 million cubic feet per day of gas. These fields are currently in the development stage following approval of the development plan by the CNH in December of 2018.

On March 2, 2018, we completed the first migration of an FPWC. The FPWC governing the Misión block was migrated to a shared production contract with Servicios Múltiples de Burgos, S.A. de C.V. and the CNH. The Misión block is in the states of Nuevo León and Tamaulipas. We have a 51% interest in the contractual area and the average production under this contract in 2019 amounted to 101.6 million cubic feet per day of natural gas. The FPWC governing the Misión block allows exploration and extraction activities. The CNH approved the development plan in December 2018 and the exploration plan in January 2019. The Misión block is currently in both the exploration and extraction phases.

 

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On March 27, 2018, we successfully participated in the first call of bidding Round 3 of the CNH, and were awarded seven contractual areas in shallow waters, six of them as part of a consortium and one on an individual basis. Pemex Exploration and Production won four blocks in the Southeast Basins: two in consortium with Total S.A., one with Shell Oil Company and one individually, as well as three blocks corresponding to the province of Tampico-Misantla-Veracruz: two in partnership with Compañía Española de Petróleos and one in partnership with DEA.

On May 7, 2018, we signed four exploration and extraction contracts covering severaldeep-water blocks in the Gulf of Mexico, the rights to which were auctioned off pursuant to the bidding round referred to as Round 2.4:

 

  

Block 2 with Shell Exploración y Extracción de México, S.A. de C.V., as operator. We have a 50% interest in the contractual area, which spans 2,146 square kilometers and is in the Plegado Perdido Belt.

 

  

Block 22 with Chevron Energía de Mexico, S. de R.L. de C.V., as operator, and Inpex E&P México, S.A. de C.V. We have a 27.5% interest in the contractual area, which spans 2,879 square kilometers and is in the Cuenca Salina region.

 

  

Block 5. We are the operator of and have a 100% interest in the contractual area, which spans 2,733 square kilometers and is in the Plegado Perdido Belt.

 

  

Block 18. We are the operator of and have a 100% interest in the contractual area, which spans 2,917 square kilometers and is in the Cordilleras Mexicanas region.

The CNH approved the exploration plans for Blocks 5 and 22 in May 2019, Block 2 in June 2019 and Block 18 in July 2019. These blocks are currently in the exploration phase.

On June 27, 2018, we signed seven exploration and extraction contracts covering shallow water blocks in the Gulf of Mexico, the rights to which were auctioned off pursuant to the bidding round referred to as Round 3.1:

 

  

Block 16 and Block 17 with DEM, S. de R. de C.V, as operator, and Cepsa E.P. Mexico, S. de R.L. de C.V. We have a 40% interest in the contractual area, which spans 785 square kilometers and is in the Tampico-Misantla-Veracruz area.

 

  

Block 18 with Cepsa E.P. Mexico, S. de R.L. de C.V. We operate the block with an 80% interest in the contractual area, which spans 813 square kilometers and is in the Tampico-Misantla-Veracruz area.

 

  

Block 29. We are the operator of and have a 100% interest in the contractual area, which spans 471 square kilometers and is in the Cuencas del Sureste area.

 

  

Block 32 with Total E&P México, S. A. de C.V. We operate the block with a 50% interest in the contractual area, which spans 1,027 square kilometers and is in the Cuencas del Sureste area.

 

  

Block 33 with Total E.P. Mexico, S. de R.L. de C. as operator. We have a 50% interest in the contractual area, which spans 581 square kilometers and is in the Cuencas del Sureste area.

 

  

Block 35 with Shell Exploración y Extracción de México, S.A. de C.V. as operator. We have a 50% interest in the contractual area, which spans 798 square kilometers and is in the Cuencas del Sureste area.

The CNH approved the exploration plans for Block 18 in July 2019 and for the other six blocks in September 2019. These blocks are currently in the exploration phase.

On August 3, 2018, we migrated the Integrated E&P Contract for the Ébano block to a shared production contract with DS Servicios Petroleros, S.A. de C.V. (DIAVAZ), as operator, and D&S Petroleum, S.A. de C.V. The Ébano block spans an area of 1,569.1 square kilometers and is located in the states of Veracruz, San Luis Potosí and Tamaulipas. In 2019, average production under this contract was 6.1 thousand barrels per day of crude oil and 1.7 million cubic feet per day of gas. We and DIAVAZ contributed to a corporate guarantee delivered to the Mexican Government in accordance with our respective interests in the partnership. The corporate guarantee totaled U.S. $500 million, 55% of which was contributed by us and 45% of which was contributed by DIAVAZ.

 

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Our shared production contract for the Ébano block allows for exploration and extraction activities. The CNH approved the development plan in May 2019 and the exploration plan in October 2019. This block is currently in both the exploration and extraction phases.

On September 18, 2018, we signed apre-unitization agreement related to certain tracts of the Yaxché fields and the shared production contract for Block 7 with a consortium of Talos Energy Inc., as operator, Sierra Oil & Gas and Premier Oil plc. Both areas are located in the offshore regions of Mexico’s Southeast basin. Thispre-unitization agreement is atwo-year contract that enables information sharing relating to the Zama discovery, which spans Block 7 and a neighboring block assigned to us.

On December 9, 2019, theTalos-led consortium submitted to SENER a shared reservoir notice for the Zama field. On March 5, 2020, SENER resolved to continue with the unitization process.

On November 21, 2018, we migrated the Integrated E&P Contract for the Miquetla block to a license contract with Operadora de Campos DWF, S.A. de C.V., as operator. The Miquetla block spans 139.7 square kilometers and is located in the states of Puebla and Veracruz. In 2019, average production under this contract was 1.3 thousand barrels per day of crude oil and 4.2 million cubic feet per day of natural gas. We have a 49% interest in the contractual area and the contract has a term of 30 years. Our license contract for the Miquetla block allows for exploration and extraction activities. The CNH approved the development and exploration plans in November 2019. This block is currently in both the exploration and extraction phases.

Expediting the development of newly discovered fields

In 2019, we began the development of 22 new fields discovered in the last four years, 18 in shallow water and four onshore. We designed a strategy for these developments, considering both the manner of contracting and in the formation of integrated services.

In order to improve the contracting process, we established the following four strategies:

 

  

regulatory, contractual and constructive simplification;

 

  

establishment of reference detail type engineering;

 

  

homologation of technical bases for design, and

 

  

encouragement of the formation of consortiums of companies to develop more efficiently the infrastructure necessary for the production and transportation of hydrocarbons, such as platforms, pipelines and interconnections, among others.

In 2019, we contracted three infrastructure development packages, which together entailed the development of 15 platforms and 17 pipelines. During 2019, the construction of marine infrastructure progressed 79.6% and the construction of land infrastructure (land platforms, pipelines, process) progressed 45.1%.

In 2019, we also contracted five integrated drilling packages, including the drilling of 128 wells in 22 fields. As of December 31, 2019, we had begun production in five fields of these 22 fields. These five fields had an average production of 6.4 thousand barrels per day of crude oil and 42.2 million cubic feet per day of natural gas in 2019.

Collaboration and Other Agreements

Pemex Exploration and Production, or its predecessorPemex-Exploration and Production, have entered intonon-commercial scientific and technology agreements with the following parties, which, except as noted, remain in effect as of the date of this annual report:

 

  

Pan American Oil, Plc (PAO), during 2015;

 

  

Hokchi Energy, S.A. de C.V., during 2016;

 

  

Kinder Morgan Texas LLC, during 2016;

 

  

ENI México, S. de R.L. de C.V., during 2016 (expired in May 2019);

 

  

Ministerio de Energía y Minas de Nicaragua, Pan American Oil PLC and the Empresa Nicaragüense del Petróleo (Petronic), during 2017;

 

  

3M México, S.A. DE C.V., during 2017; and

 

  

Sun God Energía de México, S.A. de C.V., during 2018.

Through these agreements, we have sought 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 strictlynon-commercial,i.e., there is no transfer of resources and they do not establish a binding relationship among the parties.

 

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Drilling and Services

Prior to July 1, 2019, Pemex Drilling and Services operated as an additional productive state-owned subsidiary. As of July 1, 2019, as a result of corporate reorganization, Pemex Drilling and Services was merged into Pemex Exploration and Production. Therefore, our drilling and services segment operated through the productive state-owned subsidiary Pemex Drilling and Services until July 1, 2019 and through the productive state-owned subsidiary Pemex Exploration and Production as a line of business after July 1, 2019. Prior to July 1, 2019, Pemex Drilling and Services mainly provided services to Pemex Exploration and Production.

In 2019, our drilling and services business provided drilling, completion, workover and well services in onshore and offshore fields both to us and to our external client Marinsa. Beginning July 1, 2019, such services were provided through Pemex Exploration and Production.

During 2019, we carried out the following activities: drilling of 74 wells, 54 of which were onshore and 20 offshore, completion of 48 wells, 25 of which were onshore and 23 offshore and 328 workovers, 263 of which were onshore and 65 offshore. These services were performed with an average of 99 rigs, 61 of which were onshore and 38 offshore, including both owned and leased rigs.

In addition, during 2019 we carried out 10,460 well services for our own infrastructure, 48% of which were wirelines, 32% cementings, 17% registrations and perforations and 3% coiled tubing operations. We also provided well services to our external client Marinsa.

Drilling and Services Capital Expenditures

Our drilling and services segment invested Ps. 738 million on capital expenditures in 2019. The 2020 budget for drilling and services capital expenditures is included in the budget for Pemex Exploration and Production capital expenditures.

The following table sets forth our drilling and services segment’s capital expenditures, excludingnon-capitalizable maintenance, for each of the three years ended December 31, 2019. Capital expenditure amounts are derived from our budgetary records, which are prepared on a cash basis. Accordingly, these capital expenditure amounts do not correspond to capital expenditure amounts included in our consolidated financial statements prepared in accordance with IFRS.

Drilling and Services’ Capital Expenditures

 

   Year ended December 31,(1)   Budget 
   2017   2018   2019(2)   2020(3)(4) 
   (in millions of pesos)(5) 

Drilling and Services

        

Acquisition of TwoJack-Up Platforms

  Ps.794   Ps.804   Ps.403    n.a. 

Acquisition of NineLand-Based Drilling Rigs

   352    353    178    n.a. 

Drilling Rig Equipment and Well Service Equipment Maintenance Program

   96    83    60    n.a. 

Acquisition of Two Modular Drilling Rigs

   3    2    7    n.a. 

Others

   307    146    90    n.a. 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

  Ps.  1,550   Ps.  1,388   Ps.  738    n.a 

 

Note: Numbers may not total due to rounding.

(1)

Amounts based on cash basis method of accounting.

(2)

Figures include our drilling and services segment’s capital expenditures for thesix-month period ended June 30, 2019. Prior to July 1, 2019, Pemex Drilling and Services operated as an additional productive state-owned subsidiary. As of July 1, 2019, Pemex Drilling and Services was merged into Pemex Exploration and Production.

(3)

As a result the merger of Pemex Drilling and Services into Pemex Exploration and Production on July 1, 2019, our drilling and services segment ceased to operate as a separate segment, but rather was consolidated as a line of business within our exploration and development segment. 2020 budget figures for our drilling and services line of business are included within our capital expenditures for our exploration and development segment. See “Item 4—Business Overview—Exploration and Development Capital Expenditures.”.

(4)

Original budget published in the Official Gazette of the Federation on December 11, 2019.

(5)

Figures are stated in nominal pesos.

Source: Petróleos Mexicanos.

 

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Industrial Transformation

Our industrial transformation segment is comprised of three principal activities: (i) refining, (ii) gas and aromatics and (iii) since July 1, 2019, ethylene and derivatives:

Refining

Refining Processes and Capacity

Our refining 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, 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 ahorizontal-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, we use 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 productoff-take.

 

  

Alkylation and isomerization. This polymerization process unites olefins and isoparaffins. Butylenes and isobutanes are combined with sulfuric acid or hydrofluoric acid to rearrangestraight-chain hydrocarbon molecules intobranched-chain products. Pentanes and hexanes, which are difficult to reform, are isomerized through the use of aluminum chloride and otherprecious-metal catalysts. Normal butane may be isomerized to provide a portion of the isobutene 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 producesstraight-run gasoline (coker naphtha) and variousmiddle-distillate fractions used as catalytic feedstock, thus generating a concentrated solid material.

 

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These production processes together constitute our production capacity as set forth in the table below.

Refining Capacity by Production Process

 

   At December 31, 
   2015   2016   2017   2018   2019 
   (in thousands of barrels per day) 

Production Process

          

Atmospheric distillation

   1,640.0    1,602.0    1,627.0    1,640.0    1,640.0 

Vacuum distillation

   772.4    767.5    772.2    772.2    772.2 

Cracking

   422.5    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

   1,099.9    1,230.0    1,230.0    1,230.0    1,230.0 

Alkylation and isomerization

   154.8    154.3    154.3    154.3    154.3 

Coking

   155.8    155.8    155.8    155.8    155.8 

 

 

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

As of December 31, 2019, we owned and operated six refineries: Cadereyta, Madero, Minatitlán, Salamanca, Salina Cruz and Tula. Our refineries consist of atmospheric and vacuum distillation units, where the bulk of crude oil input is processed. Secondary processing facilities include desulfurization units and facilities for catalytic cracking, reforming and hydrotreating.

During 2019, our refineries processed 592.0 thousand barrels per day of crude oil (103.2 thousand barrels per day at Cadereyta, 58.0 thousand barrels per day at Madero, 91.6 thousand barrels per day at Minatitlán, 92.9 thousand barrels per day at Salamanca, 125.1 thousand barrels per day at Salina Cruz and 121.2 thousand barrels per day at Tula), which in total consisted of 299.9 thousand barrels per day of Olmeca and Isthmus crude oil and 292.1 thousand barrels per day of Maya crude oil.

In the first nine months of 2019, we processed 151.7 thousand barrels per day of crude oil above the 504.9 thousand barrels per day we processed during the fourth quarter of 2018. This recovery was mainly due to improved levels of processing and production that resulted from the maintenance carried out in our refineries since March 2019. Such maintenance was financed with operating cash flow. Specific factors that contributed to this recovery include: the stabilization of process levels at our Minatitlan refinery, the restart of operations of the Mayan distilling unit at our Madero refinery in June 2019, the stabilization of operations at our Cadereyta refinery during the first nine months of 2019, with an average production level of 107.9 thousand barrels per day, and the stabilization of operations at our Salamanca refinery through August 2019 due to the restart of two distilling units.

In the last quarter of 2019, we processed 557.1 thousand barrels per day of crude oil. This decrease, which began at the end of the third quarter, was due to increased refinery maintenance activities that temporarily reduced our refining capacity since September 2019. During 2019, we processed 592.0 thousand barrels per day of crude oil, a decrease of 3.2% compared to 2018.

We began maintenance of our refineries pursuant to our refinery rehabilitation program in 2019, which emphasizes addressing critical risks of our facilities, improving efficiency and stabilizing our crude oil processing. We anticipate that this rehabilitation program will conclude in 2020. Among others, our refinery rehabilitation program has included maintenance of the following equipment: a crude distilling unit, a distilling unit, a visbreaker, a delayed coking unit, a fluid catalytic unit, a solvent desalphalting unit, a catalytic reformer unit, a methyl tert-butyl ether (MTBE) unit, an alkylation unit, an isomerization unit, hydrotreaters and sulfur recovery units.

Since 1993, through our subsidiary company,PMI-NASA, we have participated in a limited partnership with Shell Oil Company in a refinery located in Deer Park, Texas, which has the capacity to process 340 thousand barrels per day of crude oil. Under the Deer Park Limited Partnership agreement,PMI-NASA and Shell Oil Company each provide 50% of the refinery’s crude oil input and own 50% of the refinery’s output. This agreement is limited to the specific purpose of operating the Deer Park refinery.

 

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Production

We produce a wide range of products derived from crude oil and natural gas, including LPG, gasoline, jet fuel, diesel, fuel oil, asphalts, lubricants and other refined products. In 2019, we produced 625.6 thousand barrels per day of refined products (including dry gasby-products of the refining process), as compared to 628.5 thousand barrels per day in 2018, representing a decrease of 0.5%. Despite the overall decrease in refined products, the production of distillates (gasoline, diesel and jet fuel) increased during the fourth quarter of 2019, mainly due to increased performance as a result of the maintenance carried out in our refineries.

The following table sets forth, by category, our production of petroleum products for the five years ended December 31, 2019.

Refining Production

 

   Year ended December31,   2019 
   2015   2016   2017   2018   2019   vs. 2018 
   (in thousands of barrels per day)   (%) 

Refinery Crude Oil Runs

   1,064.5    933.1    767.0    611.9    592.0    (3.2

Refined Products

            

Liquefied petroleum gas

   21.4    17.2    15.8    10.1    7.2    (28.7

Gasoline

            

Pemex Magna

   272.5    150.6    11.0    8.8    13.9    57.6 

Ultra-Low Sulfur Magna

   88.4    165.5    238.7    196.4    187.1    (4.7

Pemex Premium(1)

   16.8    7.7    5.6    1.9    1.7    (9.4

Base

   3.6    1.6    1.8    —      0.8    —   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

   381.4    325.3    257.0    207.1    203.5    (1.7

Kerosene (Jet fuel)

   47.8    42.8    40.5    34.7    29.0    (16.3

Diesel

            

Pemex Diesel(2)

   191.5    130.1    87.4    67.8    54.8    (19.1

Ultra-Low Sulfur Diesel

   83.0    85.1    63.8    48.9    74.1    51.7 

Others

   0.2    1.0    2.4    0.1    1.3    871.1 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

   274.7    216.2    153.6    116.8    130.3    11.5 

Fuel oil(3)

   237.4    228.1    217.3    185.1    149.8    (19.1

Other refined products

            

Asphalts

   17.7    16.9    16.5    13.8    10.0    (27.3

Lubricants

   2.3    3.0    1.9    1.9    0.9    (52.0

Paraffins

   0.5    0.6    0.4    0.5    0.2    (57.2

Still gas

   62.2    61.9    47.9    34.8    45.4    30.4 

Other refined products(4)

   68.9    65.3    35.5    23.7    49.3    107.6 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

   151.6    147.6    102.1    74.7    105.8    41.6 

Total refined products

   1,114.3    977.2    786.2    628.5    625.6    (0.5
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

Note: Numbers may not total due to rounding.

(1)

Pemex Premium is anultra-low sulfur gasoline with 0.003% sulfur content.

(2)

Pemex Diesel is sold in the northern border market with 0.003% sulfur content.

(3)

Includes heavy fuel oil and intermediate 15.

(4)

Includes mainly coke, along with other products such as aeroflex, furfural extract, and light cyclic oil

Source: Pemex BDI.

Our refining production mostly consist of gasoline, diesel and fuel oil. In 2019, gasoline represented 32.5%, fuel oil represented 23.9%, diesel fuel represented 20.8%, jet fuel represented 4.6% and LPG represented 1.2% of total petroleum products production. The remainder, 16.9% of our production, consisted of a variety of other refined products.

Variable Refining Margin

During 2019, the National Refining System recorded a variable refining margin of U.S. $0.80 per barrel, a decrease of U.S. $0.16 per barrel as compared to U.S. $0.96 in 2018. This decrease was primarily a result of a decline in prices and weak refining margins in the north coast of the Gulf of Mexico, which were caused by decreased demand for gasoline and heightened levels of refinery production. The decrease was partially offset by increased operational performance of the National Refining System due to an increase in the yield of distillates.

 

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The following table sets forth the variable refining margin for the five years ended December 31, 2019.

Variable Refining Margin

 

   Year ended December 31,   2019 
   2015   2016   2017   2018   2019   vs. 2018 
   (U.S. dollars per barrel)   (%) 

Variable margin

   3.35    4.48    5.43    0.96    0.80    (16.6

Domestic Sales

We market a full range of refined products, including gasoline, jet fuel, diesel, fuel oil and petrochemicals. We are one of a few major producers of crude oil worldwide that experiences significant domestic demand for our refined products.

For the five years ended December 31, 2019, the value of our domestic sales of refined products and petrochemicals was as follows.

Value of Refining’s Domestic Sales(1)

 

   Year ended December 31,   2019 
   2015   2016   2017   2018   2019   vs. 2018 
   (in millions of pesos)(2)   (%) 

Refined Products

            

Gasoline

            

Pemex Magna

  Ps.274,006.9   Ps.248,595.2   Ps.361,021.7   Ps.428,838.0   Ps.374,020.2    (12.8

Pemex Premium

   81,813.5    87,422.8    82,028.7    83,837.1    75,538.0    (9.9

Aviation fuels (Others)

   339.8    342.4    371.1    433.1    404.7    (6.6
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  Ps.356,160.2   Ps.336,360.4   Ps.443,421.5   Ps.513,108.2   Ps.449,962.9    (12.3

Kerosene (Jet fuel)

   27,077.2    28,945.2    39,024.5    56,793.9    55,716.4    (1.9

Diesel

            

Pemex Diesel

   139,796.2    117,556.3    181,854.4    207,499.4    171,405.9    (17.4

Others

   22,930.4    19,236.4    28,195.1    26,669.3    23,659.7    (11.3
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  Ps.162,726.7   Ps.136,792.7   Ps.210,049.5   Ps.234,168.6   Ps.195,065.6    (16.7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Fuel oil

            

Total

   25,906.0    16,436.3    35,622.9    43,779.1    28,789.8    (34.2

Other refined products

            

Asphalts

   7,575.5    5,468.7    5,895.8    7,062.0    6,058.3    (14.2

Lubricants

   1,297.5    1,473.0    1,061.4    1,277.4    673.3    (47.3

Paraffins

   257.9    267.0    230.9    291.4    135.8    (53.4

Coke

   669.5    501.9    421.1    200.5    666.0    232.3 

Citroline

   0.9    4.6    3.6    —      —      —   

Gas oil for domestic use

   587.4    424.2    —      —      —      —   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  Ps.10,388.8   Ps.8,139.4   Ps.7,612.8   Ps.8,831.2   Ps.7,533.5    (14.7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Refined Products

  Ps.582,258.9   Ps.526,673.9   Ps.735,731.2   Ps.856,681.0   Ps.737,068.2    (14.0

Petrochemicals(3)

  Ps.3,930.9   Ps.3,118.0   Ps.3,905.6   Ps.3,795.9   Ps.2,422.4    (36.2
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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 our industrial transformation segment (carbon black feedstocks and propylene).

Source: Pemex BDI.

In 2019, our domestic sales of refined products decreased by Ps. 119,612.8 million, or 14.0% in value as compared to 2018 levels (excluding IEPS tax and value added tax). This was primarily due to a 12.3% decrease in the value of our gasolines sales, a decrease of 16.7% in the value of our diesel sales and a 34.2% decrease in the value of our fuel oil sales, in each case primarily as a result of decreased average prices.

 

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The volume of our domestic sales of refined products for thefive-year period ended December 31, 2019 was distributed as follows.

Volume of Refining’s Domestic Sales

 

   Year ended December 31,   2019
vs. 2018
 
   2015   2016   2017   2018   2019 
   

(in thousands of barrels per day, except

where otherwise indicated)

   (%) 

Refined Products

            

Gasoline

            

Pemex Magna

   638.0    637.5    660.5    646.2    607.5    (6.0

Pemex Premium

   154.8    185.1    136.6    117.5    112.7    (4.1

Aviation fuels (Others)

   0.5    0.5    0.5    0.5    0.5    (1.5
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

   793.3    823.1    797.5    764.2    720.6    (5.7

Kerosenes (jet fuel)

   70.8    76.2    81.7    85.6    83.3    (2.7

Diesel

            

Pemex Diesel

   330.6    335.5    317.6    292.8    256.9    (12.3

Others

   54.2    51.8    47.9    38.5    36.1    (6.0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

   384.7    387.2    365.5    331.3    293.0    (11.6
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Fuel oil

            

Total

   111.7    102.6    124.7    105.1    76.5    (27.2

Other refined products

            

Asphalts

   15.9    15.9    15.4    12.9    9.5    (26.3

Lubricants

   2.6    3.1    2.0    2.0    1.0    (51.6

Paraffins

   0.6    0.6    0.4    0.5    0.2    (57.2

Coke

   45.9    36.3    21.3    13.2    27.4    107.8 

Citroline

   —      0.01    0.01    —      —      —   

Gas oil for domestic use

   1.2    0.9    —      —      —      —   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

   66.2    56.9    39.1    28.5    38.1    33.3 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total refined products

   1,426.7    1,446.0    1,408.4    1,314.8    1,211.5    (7.9
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Petrochemicals(1)

   620.9    543.5    464.5    411.1    362.8    (11.8

 

 

Note: Numbers may not total due to rounding.

(1)

In thousands of metric tons. These are petrochemical products produced in our refineries (raw material for black carbon and propylene).

Source: Pemex BDI.

The volume of our domestic gasoline sales decreased by 5.7% in 2019, from 764.2 thousand barrels per day in 2018 to 720.6 thousand barrels per day in 2019. The volume of our diesel sales decreased by 11.6%, from 331.3 thousand barrels per day in 2018 to 293.0 thousand barrels per day in 2019. The decrease in the volume of our domestic gasoline and diesel sales was mainly due to increased competition in the supply of products in the open market. The volume of our domestic sales of fuel oil decreased by 27.2 %, from 105.1 thousand barrels per day in 2018 to 76.5 thousand barrels per day in 2019, primarily due to a decrease in CFE’s demand for fuel oil.

In 2019, sales of Pemex Premium gasoline decreased 4.1% as compared to 2018, to 112.7 thousand barrels per day, while those of Pemex Magna decreased 6.0% as compared to 2018, to 607.5 thousand barrels per day.

We have also made concerted efforts to build and enhance our brands. Pursuant to these efforts, on June 5, 2016, Pemex Industrial Transformation announced the establishment of a joint branding program between us and various entities that own and operate retail service stations in Mexico. The joint branding program allowed our franchisees to rename their retail service stations while continuing to sell our products under our brand. In addition, we continued to provide technical and operational assistance to such franchisees. We believe that this program has strengthened our relationship with entities that own and operate retail service stations in Mexico, and we plan to continue our commercial branding strategy.

On November 15, 2017, we relaunched the “Pemex Franchise” image program with a new business model that includes new products and a variety of association structures. The goal of this program, which consists of nearly 10,000 service stations throughout Mexico, is to provide better service to end users and to strengthen the PEMEX brand.

On October 11, 2018, we launched the seventh generation of ourhigh-end performance additive that blends with our Pemex Magna and Pemex Premium gasolines. This additive is promoted as Pemex Aditec. Pemex Aditec is a multifunctional additive and is formulated to help obtain optimum performance, cleanliness and protection of the engine. We believe that Pemex Aditec technology may provide a competitive advantage for the Pemex Franchise scheme.

At the end of 2018 and during the first quarter of 2019, we implemented an advertising campaign in digital media to publicize the benefits and characteristics of gasoline with Pemex Aditec technology.

 

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During the last quarter of 2019, we began the development of the eighth generation of the performance additive for Pemex gasolines in conjunction with theInstituto Mexicano del Petróleo (Mexican Petroleum Institute or IMP). The development of this additive includes innovations such a molecular tracer, new high-spectrum detergent molecules and corrosion and oxidation inhibition.

As part of the Pemex Franchise program, we operate three association structures: (i) PEMEX Franchise, (ii) sublicensing of branded products and (iii) the sale of generic, unbranded products. We also have two options for wholesale distribution: (i) independent retailers of unbranded products and (ii) associate distributors ofPEMEX-branded gasoline and diesel. In order to strengthen the PEMEX brand, in 2018 we introduced an optional redesign for service stations. As of December 31, 2019, 345 service stations have been redesigned and more than 665 are in the process of being redesigned.

As of December 31, 2019, there were 8,593 retail service stations in Mexico, of which 8,548 were privately owned and operated as franchises, while the remaining 45 were owned by Pemex Industrial Transformation. This total number of retail service stations represents a decrease of 13.5% from the 9,930 service stations as of December 31, 2018. This decrease was mainly due to increased competition in the open market. As of December 31, 2019, we had 6,432 marketing contracts, a decrease of 3,501 marketing contracts as compared to 9,933 marketing contracts as of December 31, 2018. The decrease in the number of marketing contracts is mainly due to the higher concentration of customer volume in each contract as a result of new commercial contract models. These 6,432 contracts include 20 of the largest volume trading and distribution customers nationwide. In addition, Pemex Industrial Transformation supplies oil products to 2,992 service stations outside the Pemex Franchise program. Of these service stations, 568 operate under a sublicense of PEMEX brands and 2,424 usethird-party brands.

In order to gain market presence, competitors often transfer well-established Pemex gas stations to third-party brands. As a result, we are working to counteract this by opening new gas stations under our franchise model and strengthening the Pemex brand among our existing gas stations. During December 2019, 593 Pemex gas stations were undergoing transformation to our Pemex franchise model. Additionally, we received 126 requests for gas stations to register under the Pemex franchise model.

Despite the aggressive competitive environment and our relatively limited marketing investment, we maintained approximately 77% of market share with our franchised andsub-licensed Pemex gas stations by the end of December 2019.

Pricing Decrees

As of December 31, 2017, fuel prices in Mexico are fully liberalized. However, the CRE reserves the right to intervene. Therefore, our sales prices continue to be subject to potential future regulations by the CRE, until theComisión Federal de Competencia Económica (Federal Economic Competition Commission) determines that there is effective competition in the wholesale market.

Gasoline and Diesel

As of December 31, 2017, sale prices of gasoline and diesel have been fully liberalized and are determined by the free market. For more information, see “Item 5—Operating and Financial Review and Prospects—IEPS Tax, Hydrocarbon Duties and Other Taxes.”

On January 1, 2019, in accordance with reports issued by the CRE, average national regular retail gasoline prices decreased by Ps. 0.29 per liter, as compared to December 31, 2018. Similarly, average national retail diesel prices decreased by Ps. 0.08 per liter on January 1, 2019, as compared to December 31, 2018.

On December 16, 2019, the CRE issued agreement A/043/2019, which terminated agreement A/057/2018 and allowed Pemex to set the prices for its gasoline and diesel.

Fuel Oil

We determine the fuel oil price methodology based on the guidelines issued by the CRE in resolution RES/047/2016. Prices using this methodology are calculated weekly and apply to all customers, including the CFE.

We withhold IEPS tax. While it is included in the price to our customers, we pay this tax to the authorities upon collection of the sale of our products and it is not included in our revenues. For more information, see “Item 4—Taxes, Duties and Other Payments to the Mexican Government—Fiscal Regime for PEMEX.”

As of January 1, 2018, the IEPSa los Combustibles Fósiles(IEPS Tax on Fossil Fuels) was 15.76 Mexican cents per liter, as of January 1, 2019, the IEPS Tax on Fossil Fuels was 16.50 Mexican cents per liter and as of January 1, 2020, the IEPS Tax on Fossil Fuels was 16.99 Mexican cents per liter.

The Mexican Government could modify these price controls or impose additional price controls in the future. See “Item 3—Key Information—Risk Factors—Risk Factors Related to our Relationship with the Mexican Government—The Mexican Government has historically imposed price controls in the domestic market on our products.”

 

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Refining’s Capital Expenditures

Investments

Over the past several years, we have focused our investment program on enhancing the quality of the gasoline and diesel we produce to meet Mexico’s environmental standards. In 2019, we shifted our focus to the maintenance of our existing refineries and the expansion of our refinery system in order to increase our hydrocarbon production. Our continued objective is to stabilize and improve our ability to process heavy crude oil in order to optimize our refinery production and increase our production of other hydrocarbons in order to supply the growing national demand.

Our refining business invested Ps. 8,409 million in capital expenditures in 2019 and has budgeted Ps. 12,500 million in capital expenditures for 2020.

This increase in our capital expenditures budget for 2020 as compared to 2019 is because in 2020, our entire capital expenditures budget is to be used for the rehabilitation of our six refineries that form the National Refining System. Pursuant to this rehabilitation program, we have evaluated each of our six existing refineries and have identified specific maintenance requirements for each plant. Our rehabilitation program focuses on addressing critical risks of the facilities such as mechanical integrity and safety, and improving the efficiency and the stabilization of our crude oil processing.

The following table sets forth our refining business’ capital expenditures, excludingnon-capitalizable maintenance, for each of the three years ended December 31, 2019, and the budget for 2020. Capital expenditure amounts are derived from our budgetary records, which are prepared on a cash basis. Accordingly, these capital expenditure amounts do not correspond to capital expenditure amounts included in our consolidated financial statements prepared in accordance with IFRS.

Refining’s Capital Expenditures

 

   Year ended December 31,(1)   Budget 
   2017   2018   2019   2020(2) 
   (in millions of pesos)(3) 

Refining

        

Maintenance of the Production Capacity at the Madero Refinery

  Ps.766   Ps.1,933   Ps.1,717   Ps.—   

Fuel Quality Investments(4)

   5,196    2,639    1,374    —   

National Refining System Rehabilitation Program

   —      —      1,196    12,500 

Maintaining the Production Capacity at the Cadereyta Refinery

   733    1,139    1,140    —   

Residual Use at the Miguel Hidalgo Refinery in Tula (Formerly Reconfiguration of Miguel Hidalgo Refinery in Tula)

   1,912    306    948    —   

Rehabilitation of Electrical Substations Miguel Hidalgo Refinery

   391    1,281    843    —   

Maintenance of the Production Capacity at the Minatitlán Refinery

   3,673    1,884    519    —   

Maintenance of the Production Capacity at the Salina Cruz Refinery

   1,338    2,429    296    —   

Installation of a 250 T/hr. Steam Boiler at the Minatitlan Refinery

   19    —      115    —   

Adequacy of the Burner System and Installation of an Elevated Burner at the Francisco I. Madero Refinery

   —      163    62    —   

Maintenance of the Production Capacity at the Salamanca Refinery

   762    406    33    —   

Integral Maintenance Program and Process Compressor Technology Update at the Miguel Hidalgo Refinery

   —      1    25    —   

Residual Conversion from Salamanca Refinery

   773    101    17    —   

Cadereyta Refinery Energy Train

   —      —      15    —   

Acquisition of Capitalizable Catalysts for the Hydrotreatment Process in the Tula Refinery

   5    112    12    —   

Supervision and Administration Work for the Use of Waste at the Salina Cruz Refinery

   22    16    8    —   

Tuxpan Pipeline and Storage and Distribution Terminals

   67    342    3    —   

Project Refinery in Tula(5)

   —      18    —      —   

Others

   330    1,351    87    —   

Total

  Ps.  15,988   Ps.  14,119   Ps.  8,409   Ps.  12,500 
  

 

 

   

 

 

   

 

 

   

 

 

 

 

Notes: Numbers may not total due to rounding.

(1)

Amounts based on cash basis method of accounting.

(2)

Original budget published in the Official Gazette of the Federation on December 11, 2019.

(3)

Figures are stated in nominal pesos.

(4)

Includes clean fuels investments for gasoline and diesel in our six refineries.

(5)

Includespre-investments studies,on-site preparation and other expenses related to this project. This project concluded in 2018.

(6)

2019 figures reflect the decrease caused by budget adjustment authorized by the Board of Directors of Petróleos Mexicanos in accordance with resolutionCA-050/2019 in special meeting 942. This budget adjustment reclassified the capital expenditures of the new Dos Bocas refinery from investment in property, plant and equipment to financial investment.

Source: Petróleos Mexicanos.

 

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In 2019, we imported approximately 544.3 thousand barrels per day of gasoline, which represented approximately 75.5% of total domestic demand for gasoline in that year. Our priority in 2020 is to increase our production of oil products by focusing on the maintenance of our existing refineries and the development of the new Dos Bocas refinery in order to increase our production capacity.

Additionally, we are exploring alternative investment projects, including our fuel quality project, the reconfiguration of the Miguel Hidalgo refinery in Tula and the residual conversion at the Salamanca refinery.

Our projects are described in further detail below.

Fuel Quality Project, Gasolines Phase (ULSG)

This project consisted of the installation of ULSGpost-treatment units in our six refineries in order to improve the quality of our gasoline. As of the date of this annual report, all gasoline produced in Mexico meets international environmental standards and the plants are operating, pending the completion of various complementary projects suspended due to budgetary restrictions.

Fuel Quality Project, Diesel Phase (ULSD)

This project consists of the construction of five ULSD facilities, five hydrogen plants, four sulfur recovery units, five sour water treatment plants and the reconfiguration of 17 existing units to produce ULSD. However, as of December 31, 2019, this project has been suspended and our capital expenditures budget is focused on other areas of priority. We continue to evaluate funding alternatives for the completion of this project, which would aid our compliance with environmental regulations. However, the CRE has approved extending the deadline for our compliance with the relevant regulation,NOM-016-2016, which governs sulfur content in commercial diesel.

Residual Use at the Miguel Hidalgo Refinery in Tula (formerly Reconfiguration of the Miguel Hidalgo Refinery in Tula)

The Miguel Hidalgo refinery in Tula has been undergoing renovations since 2014. This project consists of the construction of nine plants. The main ongoing project at this refinery is to complete the coking plant. The project is expected to increase production of refined oil products from 315 thousand barrels per day to 340 thousand barrels per day, as well as improve the production of gasoline and distillates. As of December 31, 2019, construction of the coking plant, which was 63% complete, has been suspended due to budgetary constraints. We are currently evaluating funding alternatives in order to complete construction.

 

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Residual Conversion of the Salamanca Refinery

The reconfiguration of the Ing. Antonio M. Amor refinery in Salamanca, Guanajuato has focused on the conversion oflow-value residuals intohigh-steamhigh-value distillates (without a need for increased crude oil processing), as well as the modernization of the lubricants train to produce lubricants of greater value and quality. As of December 31, 2019, however, this project was approximately 12.9% complete and has been suspended due to budgetary constraints. We are currently evaluating funding alternatives in order to resume this reconfiguration.

Tuxpan Maritime Terminal

This project is intended to help meet the increase in the demand for refined products in the metropolitan area of the Mexico Valley. The total cost of the project is Ps. 5,637.9 million, which includes the construction of a pipeline measuring18-inches in diameter and 109 kilometers in length from Cima de Togo to Venta de Carpio, five storage tanks located at the Tuxpan Maritime Terminal with a capacity of 100,000 barrels each, a research study to determine the best option for the discharge of refined products from tankers and pipelines into these storage tanks and auxiliary services.

As of April 2018, two of the three key phases of this project were completed: thepre-investment studies and construction of theTuxpan-Mexico pipeline, which is currently operating. The third phase, the storage system, is 97.2% complete. We have arranged an extension with the Ministry of Finance and Public Credit to allow for additional time in which this final phase may be completed. Four of the five storage tanks have been delivered to the Tuxpan Maritime Terminal and are in operation. The fifth and remaining tank is 99.9% complete. Completion of this project is contingent upon budget availability to continue site works.

Maintenance at the Francisco I. Madero Refinery

On August 23, 2017, we commenced a scheduled gradual shutdown of our Francisco I. Madero refinery, located in Ciudad Madero, Tamaulipas, in order to implement a comprehensive general maintenance program for the plants at this refinery. Operations at the plants were restarted in February 2018, but we experiencedstart-up and stabilization difficulties which caused our Madero refinery to be out of operation during the second half of 2018.

In January 2019, we restarted our Mayan plant andU-901 reformer after performing maintenance at these plants. In June 2019, we restarted the operations of its process plants, including the Mayan distilling unit. In September 2019, we began the rehabilitation of the Madero refinery pursuant to our National Refining System Rehabilitation Program, and increased the levels of crude oil process in this refinery as well as the reliability of its operational processes.

Hydrogen Supply for Refineries

In order to permit us to specialize, maximize value, and focus on the processing of crude oil, in the past we have partnered with third parties for projects related to auxiliary services, such as the supply of hydrogen to our refineries.

On September 1, 2017, we entered intolong-term agreements with Air Liquide for the supply of hydrogen to the Miguel Hidalgo refinery in Tula. Air Liquide operates the existing hydrogen plant at the Miguel Hidalgo refinery. In February 2018, we executed the plant’s performance and stabilization tests, which was an important milestone under the contract with Air Liquide. In addition, in April 2018 we entered into a long-term agreement with Linde AG for the supply of hydrogen to our Madero refinery. In July 2018, we signed several agreements related to the supply of hydrogen to our Cadereyta refinery. However, some of the conditions precedent required by these agreements were not met, and these agreements were subsequently terminated.

Rehabilitation of the National Refining System

As part of our efforts to stabilize the operations of our refineries, we adopted a program for the rehabilitation of the National Refining System. Pursuant to this program, we allocated additional resources for the repair and maintenance of our six existing refineries. Our rehabilitation program focuses on addressing critical risks of the facilities, such as mechanical integrity and safety, and improving the efficiency and stabilization of our crude oil processing. These activities began in September 2019 and increased in the last quarter of the year. Since the launched of our rehabilitation program, we have provided maintenance to 39 process plants,13 auxiliary services facilities and 21 storage tanks.

The budget for thePrograma de Rehabilitación del Sistema Nacional de Refinación (National Refining System Rehabilitation Program) for 2020 is Ps. 12,500 million. We have evaluated each of our six existing refineries and have identified specific maintenance requirements for each plant.

 

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Dos Bocas Refinery

On December 7, 2018, the Board of Directors of Petróleos Mexicanos, in accordance with resolutionCA-161/2018, authorized the construction of a new refinery in Dos Bocas in the state of Tabasco as part of our institutional strategy plan. The project is estimated to add 340 million barrels per day of refined Maya oil, which we expect would, in turn, increase our production of gasoline and diesel by at least 290 million barrels per day. This project is supported by the Mexican Government, which has announced that a goal of constructing this refinery is to decrease Mexico’s reliance on imported energy resources by increasing our refining capacity and distillates production.

By December 31, 2019, we had made significant progress with respect to studies, site preparation, license contracting, phase I engineering and procurement of equipment with long delivery time. We are in the process of requesting authorization from Pemex’s Board of Directors to begin the FEL II(Front-End Loading II) phase of this project. The FEL methodology is applied in investment projects management by using the following three stages: FEL I (visualization), FEL II (conceptualization) and FEL III (definition).

Gas and Aromatics

Natural Gas and Condensates

All wet natural gas production is directed to our gas processing facilities. At the end of 2019, we owned nine facilities.

The following facilities are located in the Southern region:

 

  

Nuevo Pemex. This facility contains 13 plants that together in 2019 produced 673.4 million cubic feet per day of dry gas, 28.4 thousand barrels per day of ethane, 33.3 thousand barrels per day of liquefied gas, 13.3 thousand barrels per day of naphtha and 55.6 thousand tons of sulfur.

 

  

Cactus. This facility contains 22 plants that together in 2019 produced 449.4 million cubic feet per day of dry gas, 23.7 thousand barrels per day of ethane, 26.3 thousand barrels per day of liquefied gas, 26.3 thousand barrels per day of naphtha and 64.8 thousand tons of sulfur.

 

  

Ciudad Pemex. This facility contains eight plants that together in 2019 produced 609.7 million cubic feet per day of dry gas and 180.3 thousand tons of sulfur.

 

  

La Venta. This facility contains one plant that in 2019 produced 86.7 million cubic feet of dry gas per day.

 

  

Matapionche. This facility contains five plants that together in 2019 produced 11.2 million cubic feet per day of dry gas, 0.5 thousand barrels per day of liquefied gas, 0.2 thousand barrels per day of naphtha and 2.5 thousand tons of sulfur.

 

  

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

 

  

Morelos. This facility contains one plant that in 2019 produced 12.5 thousand barrels per day of ethane, 14.5 thousand barrels per day of liquefied gas and 4.0 thousand barrels per day of naphtha.

 

  

Cangrejera. This facility contains two plants that together in 2019 produced 12.2 thousand barrels per day of ethane, 15.8 thousand barrels per day of liquefied gas and 5.1 thousand barrels per day of naphtha.

 

  

Pajaritos. This facility contains one plant, which wasnon-operational as of the date of this annual report.

The following facilities are located in the Northern region:

 

  

Burgos. This facility contains nine plants that together in 2019 produced 375.5 million cubic feet per day of dry gas, 8.0 thousand barrels per day of liquefied gas and 8.8 thousand barrels per day of naphtha.

 

  

Poza Rica. This facility contains five plants that together in 2019 produced 81.8 million cubic feet per day of dry gas, 1.7 thousand barrels per day of liquefied gas and 0.7 thousand barrels per day of naphtha.

 

  

Arenque. This facility contains three plants that together in 2019 produced 15.9 million cubic feet per day of dry gas.

Petrochemical Complexes

In addition to our gas processing facilities, we also own the following two petrochemical complexes:

 

  

Independencia. The Independencia petrochemical complex consists of three plants and is located in the Central region. In 2019, this complex produced 141.5 thousand tons of methanol and 27.8 thousand tons of petrochemical specialties.

 

  

Cangrejera. The Cangrejera petrochemical complex consists of five plants and an aromatics line and is located in the Southern region. In 2019, this complex produced 919.6 thousand tons of aromatics and derivatives and 437.1 thousand tons of other petrochemical products (butanes, hexane, hydrogen, pentanes, BTX liquids, petroleum products, naphtha gas and heavy naphtha).

 

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The following tables set forth our processing capacity, as well as our total natural gas processing and production, for the five years ended December 31, 2019.

Gas and Aromatics’ Processing and Production Capacity(1)

 

   Year ended December 31, 
   2015   2016   2017(5)   2018   2019 
   (in millions of cubic feet per day, except where otherwise indicated) 

Sweetening plants

          

Sour condensates(2)

   144    144    144    144    144 

Sour natural gas

   4,523    4,523    4,523    4,523    4,523 

Natural gas liquids recovery plants

          

Cryogenics

   5,912    5,912    5,912    5,912    5,912 

Natural gas liquids fractionating(2)

   569    569    569    569    569 

Processing of hydrosulfuric acid

   219    219    229    229    229 

Aromatic compounds and derivatives(Cangrejera and Independencia)(3)(4)

   1,694    1,694    1,734    1,734    1,734 

 

(1)

Production capacity refers to aromatic compounds and derivatives.

(2)

In thousands of barrels per day.

(3)

Thousand tons per year

(4)

Since November 2015, the operation of Methanol I and II plants, the CPQ Independencia petrochemical specialties plant and the CPQ Cangrejera aromatic compounds plants have been assigned to Pemex Industrial Transformation.

(5)

Values of our CCR reforming plant were updated in 2017.

Source: Pemex BDI.

 

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Natural Gas, Condensates and Aromatics’ Processing and Production(1)

 

   Year ended December 31,   2019 
   2015   2016   2017   2018   2019   vs. 2018 
   (in millions of cubic feet per day, except where otherwise indicated)   (%) 

Processing

            

Wet gas

   4,073    3,672    3,237    2,952    2,826    (4.3

Sour gas

   3,225    2,997    2,688    2,492    2,396    (3.9

Sweet gas(2)

   847    675    550    459    431    (6.3

Condensates(3)(6)

   45    41    32    27    22    (18.2

Gas to natural gas liquids extraction

   3,904    3,450    3,199    2,782    2,651    (4.7

Wet gas

   3,745    3,394    3,086    2,782    2,651    (4.7

Reprocessing streams(4)

   159    56    113    —      —      —   

Production

            

Dry gas(5)

   3,454    3,074    2,667    2,422    2,305    (4.8

Natural gas liquids(6)(7)

   327    308    280    240    221    (7.8

Liquefied petroleum gas(6)(8)

   174    159    144    122    108    (12.0

Ethane(6)

   107    106    101    85    77    (9.5

Naphtha(6)

   69    62    52    43    43    (0.9

Sulfur(9)(11)

   858    673    551    443    377    (14.9

Methanol(9)

   161    145    116    148    141    (4.6

Aromatic compounds and derivatives(9)(10)

   1,022    940    622    570    920    61.5 

Others(9)(12)

   535    507    302    269    465    73.0 

 

Note: Numbers may not total due to rounding.

GPC = Gas Processing Complex

(1)

Excludes operations of our exploration and production segment, which produced 4,816.2 million cubic feet per day in 2019.

(2)

Includes sweet vapor from condensates.

(3)

Includes internal streams.

(4)

Reprocessing of pipeline dry gas at the Pajaritos cryogenic plant.

(5)

Includes 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 production from GPC, refineries and transfers from Pemex Exploration and Production.

(9)

In thousands of tons.

(10)

Includes aromine 100, benzene, styrene, ethylbenzene, fluxoil, high octane hydrocarbon, toluene and xylenes.

(11)

Production of gas processing GPCs and refineries. In 2019, our Poza Rica and Arenque facilities ceased producing sulfur due to operational difficulties of the condenser units.

(12)

Includes butanes, petrochemical specialties, pentanes, hexane, hydrogen, BTX liquids, isopentanes and petroleum products, naphtha gas, petrol octane base and heavy naphtha.

Source: Pemex BDI.

 

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We process sour and sweet condensates from our exploration and production segment in order to obtain stabilized natural gas liquids and also recover liquid hydrocarbons obtained from the processing of sweet natural gas. In addition, we obtain liquids from internal streams and hydrocarbons condensed in sour wet gas pipelines. Our production of natural gas liquids, including stabilized condensates, reprocessing and other fractionating streams, decreased by 7.8% from 240 thousand barrels per day in 2018 to 221 thousand barrels per day in 2019.

We process sour condensates, which have a higher sulfur content, to produce stabilized sweet condensates. The volume of sour condensates we processed and internal streams of our gas and aromatic compoundsub-segment totaled 22.4 thousand barrels per day in 2019, a 18.2% decrease from the 27.0 thousand barrels per day processed in 2018. We also process sweet condensates at our Burgos facilities to produce light and heavy natural gasoline.

The production of sulfur totaled 377 thousand tons in 2019, a 14.9% decrease from 443 thousand tons in 2018. This decrease was due to the fact that our Poza Rica and Arenque facilities ceased producing sulfur, primarily due to operational difficulties of the condenser units.

The production of aromatic compounds and derivatives totaled 919.6 thousand tons in 2019, a 61.5% increase from 569.5 thousand tons in 2018. This increase was due to the fact that the aromatic production operated steadily throughout the year, whereas in 2018 our naptha reforming plant (CCR) operated only intermittently due to equipment failure and we experienced shortages in auxiliary services and raw materials from our Minatitlán refinery.

Over the five years ended December 31, 2019, the value of our domestic sales was distributed as follows:

Value of Gas and Aromatics’ Domestic Sales(1)

 

   Year ended December 31,   2019
vs. 2018
 
   2015   2016   2017   2018   2019 
   (in millions of pesos)(2)   (%) 

Natural gas

  Ps.53,037.3   Ps.67,536.5   Ps.74,287.7   Ps.62,355.4   Ps.41,735.5    (33.1

Liquefied petroleum gas

   78,194.0    50,179.8    49,137.3    52,053.6    32,161.8    (38.2

Ethane(3)

   310.7    1,284.7    2,989.7    3,203.4    2,365.0    (26.2

Heptane

   1.0    —      0.9    9.5    26.8    181.9 

Propane

   57.6    73.8    111.6    148.2    91.7    (38.1

Light naphtha

   39.7    84.5    158.8    221.4    212.7    (3.9

Heavy naphtha

   191.0    404.8    429.3    708.6    833.2    17.6 

Sulfur

   926.1    585.7    540.2    766.0    534.3    (30.2

Methanol

   748.4    625.1    806.9    1,089.9    818.7    (24.9

Aromatic compounds and derivatives(4)

   3,479.4    2,122.1    1,673.1    1,759.8    1,802.0    2.4 

Others(5)

   399.1    261.4    308.5    296.1    258.9    (12.6
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  Ps.  137,384.3   Ps.  123,158.4   Ps.  130,444.0   Ps.  122,611.9   Ps.  80,840.6    (34.1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

Note: Numbers may not total due to rounding.

(1)

Excludes value added tax.

(2)

Figures are stated in nominal pesos.

(3)

In January 2016, we began the supply of ethane to Braskem IDESA.

(4)

Includes aromine 100, benzene, styrene, toluene, xylene.

(5)

Includes petrochemical specialties, hydrogen, isopropanol, hexane, pentane and naphtha gas.

Source: Pemex BDI.

 

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The volume of our domestic sales of gas and aromatics for thefive-year period ended December 31, 2019 was distributed as follows:

Volume of Gas and Aromatics’ Domestic Sales

 

   Year ended December 31,   2019 
   2015   2016   2017   2018   2019   vs. 2018 
   (in thousands of barrels per day, except where otherwise indicated)   (%) 

Natural gas(1)

   3,246.6    3,347.3    2,623.0    2,064.3    1,604.4    (22.3

Liquefied petroleum gas(2)

   278.8    202.1    171.3    165.1    151.0    (8.6

Ethane

   8.8    30.5    57.7    48.9    51.5    5.3 

Heptane

   0.1    —      0.1    0.5    1.9    306.9 

Propane

   10.1    11.3    11.3    11.8    11.5    (3.1

Heavy naphtha(3)

   29.9    64.3    56.2    69.5    95.2    37.0 

Light naphtha(3)

   6.2    13.3    19.9    21.3    27.4    28.7 

Sulfur(3)

   572.7    580.5    529.9    450.5    382.5    (15.1

Methanol(3)

   112.0    111.3    100.8    106.0    107.1    1.1 

Aromatic compounds and derivatives(3)(4)

   240.0    155.1    111.3    101.6    120.0    18.1 

Others(3)(5)

   40.5    29.6    28.2    22.8    26.7    17.2 

 

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)

Includes aromine 100, benzene, styrene, toluene, ethylbenzene, fluxoil and xylene.

(5)

Includes petrochemical specialties, hydrogen, isopropanol, hexane, pentane and naphtha gas.

Source: Pemex BDI.

In 2019, the value of our domestic sales in gas and aromatics decreased by 34.1% as compared to 2018, reaching Ps. 80,840.6 million. This decrease was mainly due to a reduction in domestic sales volume of natural gas and liquefied petroleum gas.

Domestic sales of natural gas decreased by 22.3%, as compared to 2018, from 2,064.3 million cubic feet per day in 2018 to 1,604.4 million cubic feet per day in 2019. This decrease was mainly due to increased competition from private companies importing foreign natural gas.

Domestic sales of gas LP decreased by 8.6%, as compared to 2018, from 165.1 thousand barrels per day in 2018 to 151.0 thousand barrels per day. This decrease was mainly due to continued increased competition from private companies importing foreign gas LP since 2016.

Internal sales of sulfur decreased by 15.1%, as compared to 2018, from 450.5 thousand tons in 2018 to 382.5 thousand tons in 2019. This decrease was mainly due to a lower supply of gas for our processing complexes, particularly the Cactus facility, as a result of maintenance.

Internal sales of aromatics increased by 18.1%, as compared to 2018, from 101.6 thousand tons in 2018 to 120.0 thousand tons in 2019. This increase was mainly due to a greater supply of these products.

 

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Subsidiaries of Pemex Industrial Transformation

Pemex Industrial Transformation conducts certain management, real estate and distribution activities through its subsidiaries and through certain joint ventures. The following table lists its subsidiaries, their principal operating activities and Pemex Industrial Transformation’s ownership interest as of December 31, 2019.

Subsidiaries of Pemex Industrial Transformation(1)

 

Subsidiary

  

Principal Activity

  Ownership Interest
(%)
 

Mex Gas Internacional, S.L.(2)

  Holding company   100.00 

Terrenos para Industrias, S.A.

  Real estate holding company   100.00 

PTI Infraestructura de Desarrollo, S.A. de C.V.

  Dos Bocas refinery project development company   99.99 

 

(1)

As of December 31, 2019.

(2)

Mex Gas Internacional, S.L. is the only subsidiary of Pemex Industrial Transformation that is a consolidated subsidiary company. See Note 5 to our consolidated financial statements included herein.

Source: Pemex Industrial Transformation Divestitures

On July 14, 2018, the Board of Directors of Petróleos Mexicanos authorized the divestiture of our 5% indirect participation in TAG Pipelines Sur, S. de R. L. de C. V. As of December 31, 2019, this operation was still in progress.

Pricing Decrees

As of December 31, 2017, fuel prices in Mexico are fully liberalized. However, the CRE reserves the right to intervene. Therefore, until the Federal Economic Competition Commission determines that there is effective competition in the wholesale market, our sales prices continue to be subject to potential future regulations by the CRE.

As of July 1, 2017, the CRE permitsthird-party participants to enter the gasoline and diesel market and has authorized the permanent regime offirst-hand sales of natural gas. This permanent regime allows us to sell natural gas under two separate pricing mechanisms: (1) the first hand sale price, wherein we may sell natural gas directly to customers without additional transportation or services and (2) the full marketing price, wherein we may charge a higher price that includes transportation and services costs associated with the commercialization of natural gas.

Since 2003, price control mechanisms for LPG have been implemented through governmental decrees. Since January 1, 2017, we have sold LPG in accordance with the methodology authorized by CRE for determining thefirst-hand sales price at the point of delivery, and all end user prices are freely determined by the market.

Since December 16, 2019, PEMEX determines the marketing list prices according to the pricing mechanism authorized by ourComité de Precios y Aspectos Económicos de la Política Comercial de Petróleos Mexicanos y Empresas Productivas Subsidiarias(Committee on Prices and Economic Aspects of the Commercial Policy of Petróleos Mexicanos and its Productive Subsidiary Entities). This change is in compliance with Resolution 1008/2019 of the CRE, which considers the participation of PEMEX in first-hand sales and the marketing of LPG within a free market. Additionally, on December 16, 2019, the CRE issued resolution RES/1755/2019, which approved the commercialization contract agreement model addendum to the contract agreement.

As of January 1, 2017 the IEPS Tax on Fossil Fuels was 13 Mexican cents per kilogram. As of January 1, 2018, this tax was 14 Mexican cents per kilogram, and, as of January 1, 2019, this tax was 15 Mexican cents per kilogram. We withhold IEPS tax. For more information, see “Item 4—Taxes, Duties and Other Payments to the Mexican Government—Fiscal Regime for PEMEX.”

The Mexican Government could modify these price controls or impose additional price controls in the future. See “Item 3—Key Information—Risk Factors—Risk Factors Related to our Relationship with the Mexican Government—The Mexican Government has historically imposed price controls in the domestic market on our products.”

Natural Gas Hedging Operations

We offer, as avalue-added service, hedging contracts to our domestic customers to protect them against fluctuations in the prices of natural gas. For information on hedging contracts offered to natural gas domestic customers, see “Item 11—Quantitative and Qualitative Disclosures about Market Risk.”

Gas and Aromatics Capital Expenditures

Our gas and aromatics business invested Ps. 489 million in capital expenditures in 2019 and has budgeted Ps. 2,000 million in capital expenditures for 2020.

 

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The following table sets forth our gas and aromatics business’ capital expenditures, excludingnon-capitalizable maintenance, for each of the three years ended December 31, 2019, and the budget for 2020. Capital expenditure amounts are derived from our budgetary records, which are prepared on a cash basis. Accordingly, these capital expenditure amounts do not correspond to capital expenditure amounts included in our consolidated financial statements prepared in accordance with IFRS.

Gas and Aromatics’ Capital Expenditures

 

   Year ended December 31,(1)   Budget
2020(2)
 
   2017   2018   2019 
   (in millions of pesos)(3) 

Gas and Aromatics

        

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

  Ps.271   Ps.136   Ps.61   Ps.—   

Cryogenic Maintenance III Nuevo Pemex GPC

   39    92    26    258 

Conservation of the Main Services

   —      49    22    199 

Modernization of Systems and Processing Equipment of GPC La Venta

   20    18    18    111 

Maintenance of the Fractionation Plant I of the GPC Nuevo Pemex

   2    9    14    131 

Maintenance of Plants and Auxiliary Services of GPC Burgos

   9    31    7    114 

Maintenance of the Gas and Petrochemical Process Center Coatzacoalcos

   —      —      —      128 

Modernization of the Product Movement Areas of the GPCs

   239    644    —      —   

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

   216    241    —      —   

Conditioning of the Venting Systems at Cactus GPC

   147    131    —      —   

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

   64    53    —      —   

Security Requirements for Improvement of Operational Reliability of the GPCs

   31    41    —      —   

Conservation and Modernization of the Storage Area at Coatzacoalcos Area GPC

   32    22    —      —   

Rehabilitation and Modernization of Natural Gas Turbochargers of Cryogenic Plants of GPC Nuevo Pemex

   41    —      —      —   

Rehabilitation of Cooling Towers of GPC Cactus

   29    12    —      107 

Integral Project of Electric Reliability at GPCs

   22    —      —      —   

Conservation of the Operational Reliability of the GPC Ciudad Pemex

   6    —      —      —   

Facilities Conditioning in the GPC Cactus for Ethane Supply

   5    —      —      —   

Integral maintenance of the Modular Cryogenic Plant 5 of the GPC Cactus

   —      —      —      155 

Others

   1,414    1,428    341    797 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

  Ps.2,587   Ps.2,907   Ps.489   Ps.2,000 
  

 

 

   

 

 

   

 

 

   

 

 

 

 

Notes:

Numbers may not total due to rounding.

GPC = Gas Processing Complex.

(1)

Amounts based on cash basis method of accounting.

(2)

Original budget published in the Official Gazette of the Federation on December 11, 2019.

(3)

Figures are stated in nominal pesos.

Source: Petróleos Mexicanos.

Ethane Supply Contract

On February 19, 2010, we entered into a contract to supply 66,000 barrels per day of ethane to the Etileno XXI project, a petrochemical complex in Nanchital, Veracruz that produces ethylene and polyethylene. The Etileno XXI project commenced operations on March 18, 2016. The Etileno XXI project is owned and operated by Braskem IDESA, S.A.P.I., or Baskem IDESA.

During 2019, we supplied 808.9 million cubic meters of ethane for a total of Ps. 2,365.0 million under this contract. We are currently in negotiations with Braskem IDESA regarding this contract.

 

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Ethylene and Derivatives

Prior to July 1, 2019, Pemex Ethylene operated as an additional productive state-owned subsidiary. As of July 1, 2019, as a result of corporate reorganization, Pemex Ethylene was merged into Pemex Industrial Transformation. Therefore, our ethylene segment operated through the productive state-owned subsidiary Pemex Ethylene until July 1, 2019 and through the productive state-owned subsidiary Pemex Industrial Transformation as a line of business after July 1, 2019.

This line of business’ main objectives include the production, distribution and marketing of ethane and propylene derivatives. In 2019, we produced a total of 1,610.8 thousand tons of petrochemical products, a 12.0% decrease from the 1,830.3 thousand tons of petrochemical products produced in 2018. This decrease was mainly due to a decrease in the national supply of ethane, which impacted the production of ethylene and its derivatives, including ethylene oxide, glycols and high-density polyethylene.

Our ethylene line of business manufactures several petrochemical products, including:

 

  

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

 

  

propylene and derivatives; and

 

  

others such as oxygen, nitrogen, hydrogen and butadiene, among other products.

The primary goal for our ethylene line of business in 2020 is to enable our ethane derivatives production by adapting our infrastructure at the Pajaritos refrigerated ethylene shipping terminal in order to increase our shipping, vaporization and storage capacity for imported ethane.

Capacity

 

  

Cangrejera Petrochemical Complex: This complex is located in the southern region of the country and has five plants and a line of aromatics.

 

  

Morelos Petrochemical Complex: This complex is located in the southern region of the country and has six plants and auxiliary services.

 

  

Pajaritos Petrochemical Complex: This complex is located in the Southern region of the country, has an ethylene plant and has not operated since 2016.

In 2019, the Cangrejera and Morelos complexes together produced 1,104.9 thousand tons of ethane derivatives, 11.8 thousand tons of propylene and derivatives, and 494.2 thousand tons of other products.

 

  

Refrigerated Terminal for Ethylene and Shipping at Pajaritos: This terminal is currently used to import ethane due to a decrease in national ethane production. In 2019, we imported 164.5 thousand tons of ethane through this terminal.

Total production capacity of our operating plants for the five years ended December 31, 2019 was distributed among our facilities as set forth below.

Ethylene and Derivatives’ Production Capacity

 

   Year ended December 31, 
   2015   2016   2017   2018   2019 
   (in thousands of tons) 

Petrochemical Facility

          

Cangrejera(1)

   1,321.3    1,321.3    1,321.3    1,321.3    1,321.3 

Morelos

   2,277.2    2,277.2    2,277.2    2,277.2    2,277.2 

Pajaritos

       —      —      207.0    207.0 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

   3,598.5    3,598.5    3,598.5    3,805.5    3,805.5 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

Notes: Numbers may not total due to rounding.

(1)

Our ethylene line of business’s capacity in Cangrejera does not include the production capacity of aromatics and derivatives.

(2)

At the end of 2018, the assets of the Pajaritos Petrochemical Complex were transferred to Pemex because the alliance with Petroquímica Mexicana de Vinilo (PMV) was dissolved.

Source: Pemex Ethylene.

 

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Production

The following table sets forth our ethylene production for the five years ended December 31, 2019.

Ethylene’s Production(1)

 

   Year ended December 31,   2019 
   2015   2016   2017   2018   2019   vs. 2018 
   (in thousands of tons)   (%) 

Ethane derivatives

   1,992.8    1,690.7    1,274.1    1,304.8    1,104.9    (15.3

Propylene and derivatives

   66.0    42.8    12.9    16.5    11.8    (28.6

Others

   910.9    795.2    597.0    509.0    494.2    (2.9
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total(1)

   2,969.7    2,528.7    1,884.0    1,830.3    1,610.8    (12.0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

Note: Numbers may not total due to rounding.

(1)

Figures include petrochemical products used as raw material to produce other petrochemicals.

Source: Pemex BDI.

In 2019, our total production of our ethylene business decreased 12.0%, as compared to 2018, from 1,830.3 thousand tons in 2018 to 1,610.8 thousand tons in 2019. This decrease was primarily due to a decrease in the national supply of ethane, which impacted the production of ethylene and its derivatives, in particular ethylene oxide, glycols and high-density polyethylene.

During 2018, Pemex Ethylene reengineered its refrigerated terminal to provide ethane refrigeration rather than ethylene refrigeration, which allows us to import ethane, a raw material necessarily for our operations of which we have had a domestic shortage in recent years. We began to import ethane in January 2018. At the end of 2019, we installed a new vaporization system in our Pajaritos petrochemical complex, which allowed us to increase the vaporization of liquid ethane and the supply to our Cangrejera and Morelos complexes.

In addition, we are developing a vaporizer installation project for our ethane and ethylene refrigerated terminal. This project consists of the supply and installation of vaporizer, pumps, pipes and other accessories needed in order to increase our capacity to vaporize liquid ethane at this facility by 1,200 tons per day. We anticipate that this project will increase the capacity in our ethylene chain and is intended to offset the decrease in the domestic ethane supply.

Domestic Sales

The following table sets forth our ethylene domestic sales for the five years ended December 31, 2019.

Value of Ethylene’s Domestic Sales(1)

 

   Year ended December 31,   2019 
   2015   2016   2017   2018   2019   vs. 2018 
   (in millions of pesos)(2)   (%) 

Ethane derivatives

  Ps.15,649.1   Ps.14,539.4   Ps.12,252.7   Ps.12,472.8   Ps.8,951.4    (28.2

Propylene and derivatives

   1,156.5    788.3    340.7    314.4    114.8    (63.5

Others

   104.0    64.8    28.3    45.9    56.5    23.1 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  Ps.  16,909.6   Ps.  15,392.5   Ps.  12,621.7   Ps.  12,833.2   Ps.  9,122.7    (28.9
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

Note: Numbers may not total due to rounding.

(1)

Excludes value added tax.

(2)

Figures are stated in nominal pesos.

Source:Pemex BDI.

In 2019, the value of our domestic sales decreased by 28.9% as compared to 2018, from Ps. 12,833.2 million in 2018 to Ps. 9,122.7 million in 2019. This decrease was primarily due to a decrease in revenues from the sale of glycols,low-density polyethylene andlow-density linear polyethylene. This decrease was also due to the decline in ethylene prices around the world.

 

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Sales to other Subsidiary Entities

The following table sets forth the intercompany sales of petrochemical products for the five years ended December 31, 2019.

Ethylene’s Intercompany Sales(1)

 

   Year ended December 31,   2019 
   2015   2016   2017   2018   2019   vs. 2018 
   (in millions of pesos)(2)   (%) 

Ethane and derivatives

  Ps.82.1   Ps.109.8   Ps.1.1   Ps.2.5   Ps.3.8    52.0 

Others(3)

   86.9    457.8    284.2    62.0    59.2    (4.5
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  Ps.  169.0   Ps.  567.6   Ps.  285.3   Ps.  64.5   Ps.  63.0    (2.3
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

Note: Numbers may not total due to rounding.

(1)

Excludes value added tax.

(2)

Figures are stated in nominal pesos.

(3)

Includes diethylene glycol, ethylene, hydrogen, ethylene pyrolysis liquids, monoethyleneglycol and nitrogen.

Source: Pemex BDI.

In 2019, our intercompany sales decreased by 2.3% as compared to 2018, from Ps. 64.5 million in 2018 to Ps. 63.0 million in 2019. This decrease was mainly due to a reduction in the sales volume of ethylene hydrogen.

 

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Ethylene Capital Expenditures

Our ethylene business invested Ps. 55 million in capital expenditures in 2019, and has budgeted Ps. 2,452 million for capital expenditures in 2020.

The following table sets forth our ethylene business’ capital expenditures, excludingnon-capitalizable maintenance, for each of the three years ended December 31, 2019, and the budget for 2020. Capital expenditure amounts are derived from our budgetary records, which are prepared on a cash basis. Accordingly, these capital expenditure amounts do not correspond to capital expenditure amounts included in our consolidated financial statements prepared in accordance with IFRS.

Ethylene’s Capital Expenditures

 

   Year ended December 31,(1)   Budget
2020(2)
 
   2017   2018   2019 
   (in millions of pesos)(3) 

Ethylene(4)

        

Modernization of Fire Protection Network at Cangrejera PC

  Ps.68   Ps.171   Ps.16   Ps.43 

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

   —      168    —      —   

Maintaining the Production Capacity of the Swing Plant2015-2017 at Morelos PC

   16    78    22    40 

Sustainability of the Production Capacity of the Ethylene Plant at Morelos PC

   43    75    26    658 

Acquisition of Catalysts for Pemex Ethylene Plants

   —      72    —      7 

Maintaining the Production Capacity of Ethylene Oxide Plant2015-2017 at Morelos PC

   49    69    62    79 

Maintenance Program of the Capacity of the Low Density Polyethylene Plant at Cangrejera PC

   64    48    63    451 

Maintenance Program of the Ethylene Plant at Cangrejera PC

   39    48    4    455 

Rehabilitation of Maintenance Areas to Support Production at Cangrejera PC

   82    47    —      —   

Modernization and Optimization of Infrastructure and Auxiliary Services I at Cangrejera PC

   74    43    —      6 

Maintenance of the Production Capacity of the Asahi Plant2015-2017 at Morelos PC

   13    26    14    3 

Maintenance Program for the Production Capacity of the Ethylene Oxide Plant at Cangrejera PC

   2    20    2    300 

Maintaining the Production Capacity of Auxiliary Services at Morelos PC

   4    18    —      108 

Maintaining the Production Capacity of the Mitsui Plant2015-2017 at Morelos PC

   14    8    8    17 

Maintenance of the Production Capacity of the Ethylene Oxide Plant at Cangrejera PC

   38    3    —      —   

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

   1    —      —      —   

Maintaining Production Capacity of the Low Density Polyethylene Plant

   67    —      —      —   

Maintaining the Production Capacity of Ethane Derivatives Chain II at Morelos PC

   1    —      —      —   

Maintaining the Production Capacity of Auxiliary Services II

   16    —      —      —   

Maintaining the Production Capacity of Auxiliary Services III

   8    —      —      —   

Maintaining the Production Capacity of the Ethane Derivatives Chain III at Morelos PC

   1    —      —      —   

Steam Generation Plant Maintenance Program

   —      —      —      24 

Maintenance Program for the Electric Generation Plant

   —      —      —      253 

Maintenance and Sustaining Operations of the Refrigerated Terminal of Ethane Shipments at Pajaritos (TREEP)

   —      —      —      7 

Others

   18    81    1    1 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

  Ps.618   Ps.975   Ps.219   Ps.2,452 
  

 

 

   

 

 

   

 

 

   

 

 

 

 

Notes: Numbers may not total due to rounding.

PC = Petrochemical Complex.

(1)

Amounts based on cash basis method of accounting.

(2)

Original budget published in the Official Gazette of the Federation on December 11, 2019.

(3)

Figures are stated in nominal pesos.

(4)

Capital expenditures were made for certain projects in years following the original term indicated in the project title.

Source: Petróleos Mexicanos.

 

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Fertilizers

Our fertilizers segment operates through the productivestate-owned subsidiary Pemex Fertilizers and integrates the ammonia production chain up to the point of sale of fertilizers, including agricultural and industrial nitrates, phosphate fertilizers and acids (produced by Fertinal). We also expect that our subsidiaryPro-Agroindustria will begin producing urea in the second quarter of 2020.

In 2020, we intend to focus our strategy on: (1) increasing the national production of fertilizers at competitive prices; (2) contributing to the strengthening of the agricultural sector in Mexico through the supply of fertilizers; (3) ensuring a reliable supply of natural gas for the operation of our plants; and (4) continuing to make capital expenditure investments to improve the operational reliability of our four ammonia plants.

In addition, as part of our strategy we intend to integrate our Fertinal andPro-Agroindustria segments into the production chain of natural gas to ammonia to fertilizers. We expect that this integration will help us offer a wide range of fertilizers, nitrogen and phosphates at competitive prices. Furthermore, we expect that establishing new commercial channels will allow us to bring the supply of ammonia and fertilizers closer to industrial and agricultural producers throughout the country. Likewise, Pemex Fertilizers is in negotiations with theSecretaría de Agricultura y Desarrollo Rural(Ministry of Agriculture and Rural Development, or SADER), to fulfill the urea and diammonium phosphate demand of small agriculture producers through the Mexican Government programSembrando Vida.

Capacity

As of December 31, 2019, we owned four ammonia plants, one of which resumed operations in December 2019 after undergoing major maintenance. Two of our plants are scheduled to undergo major maintenance during 2020 and 2021. Finally, our remaining plant likewise requires further rehabilitation, and this rehabilitation will be scheduled based on the availability of budgetary resources.

The total ammonia production capacity of our operating plants for the last three years was distributed among our facilities as set forth below:

Fertilizers’ Total Capacity

 

   Year ended December 31, 
   2017   2018   2019 
   (thousands of tons) 

Petrochemical Complexes

  

Cosoleacaque (ammonia)

   1,440    1,440    1,440 

 

Source: Pemex Fertilizers.

 

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Production

The following table summarizes the annual production of our fertilizers segment for the three years ended December 31, 2019.

Fertilizers’ Production

 

   Year ended December 31,   2019 
   2017   2018   2019   vs. 2018 
   (thousands of tons)   (%) 

Methane Derivatives

        

Ammonia

   500    151    —      (100.0

Carbon dioxide

   844    372    7    (98.1
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   1,343    523    7    (98.7
  

 

 

   

 

 

   

 

 

   

 

 

 

 

Note: Numbers may not total due to rounding.

Source: Pemex BDI.

Total annual production of methane derivatives in 2019 decreased 98.7% from 523 thousand tons in 2018 to 7 thousand tons in 2019. This decrease was mainly due to shortages in the supply of raw material that have kept our Cosoleacaque plant out of operation sincemid-August of 2018.

Sales of Fertilizers

The following table sets forth the value of our domestic sales of our fertilizers segment for the three years ended December 31, 2019.

Value of Fertilizers’ Domestic Sales(1)

 

   Year ended December 31,   2019 
   2017   2018   2019   vs. 2018 
   (in millions of pesos)(2)   (%) 

Methane Derivatives

        

Ammonia

  Ps.4,676.5   Ps.5,544.3   Ps.3,642.8    (34.3

Carbon dioxide

   109.1    56.8    —      (100.0
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

  Ps.  4,785.7   Ps.  5,601.1   Ps.  3,642.8    (35.0
  

 

 

   

 

 

   

 

 

   

 

 

 

 

Note: Numbers may not total due to rounding.

(1)

Excludes value added tax.

(2)

Figures are stated in nominal pesos.

Source:Pemex BDI.

In 2019 the value of domestic sales in our fertilizers segment decreased by 35.0%, from Ps. 5,601.1 million in 2018 to Ps. 3,642.8 million in 2019, primarily due to production stoppages due to a shortage of natural gas for use as raw material and a decrease in the resale of ammonia imports.

Volume of sales

The following table sets forth the value of our domestic sales for the three years ended December 31, 2019.

Volume of Fertilizers’ Domestic Sales

 

   Year ended December 31,   2019 
   2017   2018   2019   vs. 2018 
   (thousands of tons)   (%) 

Methane Derivatives

        

Ammonia

   760.4    771.7    581.9    (24.6

Carbon dioxide

   207.6    151.3    0.1    (99.9
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   968.0    923.0    582.0    (36.9
  

 

 

   

 

 

   

 

 

   

 

 

 

 

Note:

Numbers may not total due to rounding.

Source:Pemex BDI.

 

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Fertilizers Capital Expenditures

Our fertilizers segment invested Ps. 203 million in capital expenditures in 2019 and has budgeted Ps. 1,069 million in capital expenditures for 2020. The following table sets forth our fertilizers segment’s capital expenditures, excludingnon-capitalizable maintenance, for each of the three years ended December 31, 2019, and the budget for 2020. Capital expenditure amounts are derived from our budgetary records, which are prepared on a cash basis. Accordingly, these capital expenditure amounts do not correspond to capital expenditure amounts included in our consolidated financial statements prepared in accordance with IFRS.

Fertilizers’ Capital Expenditures

 

   Year ended December 31,(1)   Budget 
   2017   2018   2019   2020(2) 
   (in millions of pesos)(3) 

Fertilizers

        

Rehabilitation of Primary Reformers and Auxiliary Ammonia Plant VI and VII at Cosoleacaque PC

  Ps. 75   Ps. 138   Ps.23   Ps. —   

Maintenance to Storage and Distribution Areas at Cosoleacaque PC

   38    72    —      71 

Rehabilitation of the ammonia plant No. V, at Cosoleacaque PC

   —      38    5    —   

Maintenance of refrigeration and ammonia storage plant No. 2 of the Pajaritos Refrigerated Terminal

   —      30    4    50 

Maintaining the Production Capacity of Ammonia Plant VII and its Auxiliary Services at Cosoleacaque PC

   5    22    5    —   

Maintaining the Production Capacity of Ammonia Plant VI at Cosoleacaque PC

   —      18    —      —   

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

   102    11    —      —   

Maintenance to Cryogenic Ammonia Storage Plant No. 1 at Pajaritos Refrigerated Terminal

   —      —      1    90 

Maintenance to Transportation, Handling and Storage Areas at Cosoleacaque PC

   —      —      111    415 

Maintenance to Receipt, Storage and Distribution Areas at Salina Cruz Refrigerated Ammonia Terminal

   —      —      54    443 

Others

   45    2    —      —   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

  Ps. 264   Ps.331   Ps. 203   Ps. 1,069 
  

 

 

   

 

 

   

 

 

   

 

 

 

 

Notes: Numbers may not total due to rounding.

PC = Petrochemical Complex.

(1)

Amounts based on cash basis method of accounting.

(2)

Original budget published in the Official Gazette of the Federation on December 11, 2019.

(3)

Figures are stated in nominal pesos.

Source: Petróleos Mexicanos.

Pajaritos Petrochemical Complex

In 2014, we acquired anon-operating nitrogen fertilizer production facility located in Pajaritos, Veracruz. After the acquisition, we initiated a major rehabilitation project that involved the restoration of our rotating, static and mechanical equipment and the rehabilitation of a carbon dioxide compression station and a pipeline. The Pajaritos complex rehabilitation was completed in the second quarter of 2018. While tests were started at that time, production could not be stabilized due to the discontinuous operation of our Cosoleacaque petrochemical complex due to a shortage of natural gas for use as raw material, which led to an insufficient supply of ammonia and carbon dioxide. We expect that we will be able to start operations at this facility during the second quarter of 2020, and, once the production stabilizes, we expect to have a production capacity of 36 thousand tons of urea per month (80% of its designed capacity).

 

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Fertinal

Fertinal produces fertilizers, primarily phosphates, as well as acids and other agricultural and industrial nitrates, and operates an industrial complex located in Lázaro Cárdenas, Michoacán. Fertinal’s total production capacity for the three years ended December 31, 2019 is as set forth below.

Fertinal Segment’s Total Capacity

 

   Year ended December 31, 
   2017   2018   2019 
   (thousands of tons) 

Nitrate and phosphates

   1,420    1,225    1,178 

 

Source: Fertinal Group

Fertinal’s total production for the three years ended December 31, 2019 is set forth below.

Fertinal Segment’s Production

 

   Year ended December 31,   2019 
   2017   2018   2019   vs. 2018 
   (thousands of tons)   % 

Phosphates

   763.9    880.7    783.9    (11.0

Nitrate

   220.8    225.1    200.7    (10.8

Others

   3.5    23.3    1.4    (94.0
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   988.2    1,129.1    986.0    (12.7
  

 

 

   

 

 

   

 

 

   

 

 

 

 

Source: Fertinal Group

The following table sets forth the value of Fertinal’s domestic sales for the three years ended December 31, 2019.

Value of Fertinal’s Domestic Sales(1)

 

   Year ended December 31,   2019 
   2017   2018   2019   vs. 2018 
   (in millions in pesos)(2)   % 

Phosphates

  Ps. 1,717.5   Ps. 1,576.1    Ps. 2,177.2    38.1 

Nitrates

   1,099.1    1,316.9    1,076.7    (18.2

Ammonia

   108.6    1,168.2    1,002.5    (14.2

Sulfur

   11.1    158.7    124.1    (21.8

Sulfuric Acid

   4.5    2.5    2.1    (16.0

Others

   24.7    32.6    27.8    (14.7
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

  Ps.2,965.5   Ps.4,255.0    Ps. 4,410.4    3.7 
  

 

 

   

 

 

   

 

 

   

 

 

 

 

Note:

Numbers may not total due to rounding.

(1)

Excludes value added tax.

(2)

Figures are stated in nominal pesos.

Source: Fertinal Group.

The increase in our sales in 2019 was mainly due to higher volume in domestic phosphates sales despite the significant drop in the international prices of phosphate fertilizers during 2019 (approximately 36%). This led to a significant decrease in financial margins, as well as a restriction in cash flow towards the end of the 2019.

In 2019, we operated at average of 83.7% of our total production capacity. Due to the cash flow restrictions, we were not able to make the capital expenditure required to meet our operational needs for our facilities located in Lazaro Cardenas, Michoacán and our mining unit located in San Juan de la Costa, Baja California Sur.

In 2019, together with SADER, Fertinal was a direct participant in the Mexican Government programSembrando Vida, to provide fertilizers to small agriculture producers. The pilot program was implemented in the state of Guerrero, and represents a change in Fertinal’s distribution and commercialization paradigm in the Mexican fertilizers market.

 

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Logistics

Our logistics segment operates through the productivestate-owned subsidiary Pemex Logistics and provides land, maritime and pipeline transportation, storage and distribution services to some of our subsidiary entities and to other companies, including Tesoro, CENAGAS, local gas stations and distributors.

Transportation of Crude Oil and Refined Products

During 2019, we injected approximately 1,299.4 thousand barrels per day of crude oil and petroleum products into our pipelines, representing a 17.8% decrease as compared to 2018 when we injected approximately 1,581.5 thousand barrels per day, mainly due to a reduction in crude oil processed in the National Refining System and to controlled operations aimed at reducing losses from fuel subtractions in pipelines transportation systems in accordance with our strategy to combat fuel theft.

During 2019, we injected 132.7 thousand barrels per day of LPG, representing a 4.6% decrease as compared to the 139.1 thousand barrels per day injected in 2018, due to a decrease in Pemex Industrial Transformation’s sales. In addition, we injected 4.3 thousand barrels per day of petrochemicals in 2019, an increase of 79.2% as compared to the 2.4 thousand barrels per day we injected in 2018. This increase was mainly due to an increase in imports of isobutane as a result of a higher gasoline production at the Minatitlán and Salina Cruz refineries.

In 2019, we transported a total of 2,069.3 thousand barrels per day of LPG: 1,436.4 thousand barrels per day (69.4%) by pipeline systems, 431.8 thousand barrels per day (20.9%) by land transport and the remaining 201.1 thousand barrels per day (9.7%) by tankers. As of 2016, natural gas transportation is carried out by CENAGAS, with the support of Pemex Logistics through an operation and maintenance contract. During 2019, we transported approximately 5,059.1 million cubic feet per day of natural gas, a 0.2% decrease as compared to 5,070.9 million cubic feet per day we transported in 2018.

Treatment and Primary Logistic

In 2019, we received an average of 1,309.2 thousand barrels per day of crude oil for treatment, which consists of dehydration and desalination, representing a decrease of 0.5% as compared to 1,315.2 thousand barrels per day in 2018. This decrease was mainly due to lower crude oil production by Pemex Exploration and Production. During 2019, we delivered an average of 834.5 thousand barrels of crude oil per day to the National Refining System and 478.5 thousand barrels of crude oil per day to the export terminals.

During 2019, we transported an average of 3,388.3 million cubic feet per day of natural gas through the Altamira, Misión, Santuario and Gas Marino Mesozoico transportation systems, as compared to the 3,096.9 million cubic feet per day in 2018, which represents a 9.4% increase, partially due to an increase in natural gas production by Pemex Exploration and Production. In addition, we transported an average of 19.8 thousand barrels per day of condensate by the Misión and Condensado Terrestre Sur transportation systems compared to 23.9 thousand barrels per day in 2018, which represents a 17.2% decrease, partially due to a processing reduction in the gas sweetening plants of Pemex Industrial Transformation.

During 2019, we had 18 leak and spill events, none of which were significant.

Open Season

During 2017, under the guidelines issued by the CRE, Pemex Logistics began participating in “Open Season” auctions, which are intended to be transparent and competitive auctions for access to our pipelines and storage infrastructure, wherein any participant can compete to offer its services.

As a result of the Open Season stages 1.1 and 3.1 assigned in 2017 and 2018 respectively, Pemex Logistics provides services to Tesoro, using our pipeline transport systems and storage terminals in the states of Sonora, Sinaloa and Baja California. These contracts include access to theRosarito-Mexicali,Rosarito-Ensenada,Guaymas-Hermosillo andGuaymas-Ciudad Obregón pipelines transportation systems, as well as the Rosarito, Mexicali, La Paz and Ensenada storage terminals in Baja California; the Guaymas, Ciudad Obregón, Hermosillo, Magdalena, Nogales and Navojoa storage terminals in Sonora and the Mazatlán, Topolobampo and Guamúchil storage terminals in Sinaloa.

On July 10, 2019, the CRE granted Pemex Logistics an extension to present the Open Season proposal regarding the available capacity of the remaining storage and pipelines transportation systems.

On September 26, 2019, Pemex Logistics presented to the CRE the Open Season proposal for all storage and transportation systems of petroleum products whose capacity has not been offered and, therefore, is not reserved under a capacity contract, or reserved by Pemex Logistics for its own use. This available capacity was grouped in five systems: the Veracruz, Centro, Salamanca, Madero and Progreso zones.

 

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Transport and Distribution

Our pipelines connect crude oil and natural gas production centers with refineries and petrochemical plants, and our storage terminals with Mexico’s major cities. At the end of 2019, the pipeline network measured approximately 15,909.1 kilometers in length, of which 14,458.0 kilometers are currently in operation and 1,451.1 kilometers are temporarily out of operation. These pipelines may be temporarily out of operation because of a decline in the production of a field where the pipeline is located or because the transportation service is irregular, which makes its operation unprofitable. Once such circumstances are more favorable, the pipelines may become operational again. As of the date of this annual report, we are analyzing the 1,451.1 kilometers of pipelines that are temporarily out of operation to determine if and how they may be used in the future.

As of December 31, 2019, the pipeline network of Pemex Logistics was distributed as follows:

 

Transported Product

  Length (km) 

Petroleum products

   8,427.9 

Crude Oil

   5,216.5 

LP Gas

   1,394.6 

Chemicals

   392.2 

Petrochemicals

   246.0 

Fuel Oil

   142.6 

Jet Fuel

   81.2 

Water

   8.1 
  

 

 

 

Total

   15,909.1 
  

 

 

 

We have implemented a pipeline integrity management plan, which requires us to keep detailed documentation on the condition of our pipelines in order to optimize our maintenance investments. The pipeline integrity management plan is based onNOM-027, as well as API RP 1160 for liquid hydrocarbons and ASME B31.8S standards for gas, and includes 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 of pipeline reliability and integrity;

 

  

maintenance and risk mitigation planning and programming; and

 

  

ongoing monitoring throughout all stages.

We have made considerable progress towards satisfying the requirements ofNOM-027 on risk assessment and pipeline integrity. As of December 31, 2019, we have analyzed 100% of our overall logistics pipeline network. In addition, we have implemented several measures related to our pipeline integrity management plan, including by collecting information in order to create pipeline databases.

The results of our risk evaluation are as follows:

 

  

High Risk: 0.0 kilometers

 

  

Medium Risk: 3,623.9 kilometers

 

  

Low Risk: 12,286.0 kilometers

Notwithstanding the implementation of our pipeline integrity management plan, we experienced 25 leaks and spills in 2019. The total number of incidents in 2019 represented an increase of 47.1%, as compared to the 17 incidents we experienced in 2018. Of the 25 incidents in our transportation pipelines, 16 were due to a failure in the mechanical integrity of the pipelines, six were due tothird-party incidents and four were due to other factors.

The transportation of crude oil, natural gas and other products through the pipeline network is subject to several risks, including risk of leakage and spills, explosions and fuel theft. In 2019, we spent a total of Ps. 338.1 million in expenditures for the rehabilitation and maintenance of our pipeline network and we have budgeted Ps. 1,000.6 million for these expenditures in 2020. See “Item 3—Key Information—Risk Factors—Risk Factors Related to our Operations—We are an integrated oil and gas company and are exposed to production, equipment and transportation risks, blockades to our facilities and criminal acts and deliberate acts of terror” above.

 

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Fleet Developments

In July of 2013, as part of a plan to modernize the fleet, we signed an agreement with theSecretaría de Marina - Armada de México (Mexican Navy, or SEMAR), valued at Ps. 3,212.1 million (U.S. $250.0 million), for the construction of 22 marine vessels for our refining business. This agreement initially included construction of 16 tugboats, three multipurpose vessels and three barges, but was modified in 2016 to remove the construction of the three barges and to extend the final delivery date to December 2021. This transaction is now valued at Ps. 4,705.0 million. As of December 31, 2019, the Mexican Navy has delivered 11 tugboats. The remaining eight vessels are expected to be available during 2020.

As of December 31, 2019, we owned 16 refined product tankers. We also own 24 tugboats, 1,444 tank trucks and 511 train tank cars, as well as 76 storage and distribution terminals, ten liquefied gas terminals, five maritime terminals and ten dock operation and maintenance facilities. These facilities, together with our pipeline network, constitute the hydrocarbons transportation and distribution infrastructure.

Our current fleet of refined product tankers includes 16 vessels, all of which are owned by Pemex Logistics, with a total transportation capacity of 5,035.6 thousand barrels. 50% of our vessels are located on the Pacific coast and the other 50% are in the Gulf of Mexico. Of the capacity of the vessels located on the Pacific coast, 82.4% is used to transport distillates and 17.6% is used to transport fuel oil and heavy diesel. Of the capacity of the vessels located in the Gulf of Mexico, 87.7% is used for distillates and 12.3% is used for fuel oil and heavy diesel.

Logistics Capital Expenditures

Our logistics segment invested Ps. 2,118 million in capital expenditures in 2019 and has budgeted Ps. 3,135 million in capital expenditures for 2020.

 

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The following table sets forth our logistics segment’s capital expenditures, excludingnon-capitalizable maintenance, for each of the three years ended December 31, 2019, and the budget for 2020. Capital expenditure amounts are derived from our budgetary records, which are prepared on a cash basis. Accordingly, these capital expenditure amounts do not correspond to capital expenditure amounts included in our consolidated financial statements prepared in accordance with IFRS.

Logistics’ Capital Expenditures

 

   Year ended December 31,(1)   Budget 
   2017   2018   2019   2020(2) 
   (in millions of pesos)(3) 

Logistics

        

Larger Fleet Modernization

  Ps. 645   Ps. 604   Ps.—     Ps. —   

Acquisition of 5 Tankers Vessel by Cash and/or by Leasing

   431    435    437    452 

Replacement of Vessel Tanks Nuevo Pemex I, II, III and IV by Acquisition and/or Leasing

   332    334    336    350 

Evaluation and Rehabilitation of the Mechanical Integrity of the Turbosine, Diesel, Gasoline and Fuel Oil Pipelines and Gas Pipelines in the Central Zone

   80    204    1    —   

Evaluation and Rehabilitation of the Mechanical Integrity of the Pipelines in Northern and Pacific Zones

   316    105    2    —   

Maintenance of Safety, Measurement, Control and Automation Systems in Storage and Distribution Terminals

   235    91    10    98 

Renewal of Tugs, Chalanes and Multipurpose Vessels of the Smaller Fleet

   258    68    46    122 

Evaluation and Rehabilitation of the Mechanical Integrity of the Pipelines NuevoTeapa-Madero-Cadereyta

   88    65    —      —   

Implementation of the SCADA System in 47 Pipeline Transportation Systems

   78    45    13    —   

Refurbishment, Modification and Modernization of Pumping and Compression Stations Nationwide

   95    7    —      —   

Modernization of the Instrumented Security and Basic Control Systems of the Pumping Stations and Product Receipt Northern Zone

   6    7    —      —   

Evaluation and Rehabilitation of the Mechanical Integrity of the Pipeline’s PozaRica-Salamanca and NuevoTeapa-Tula-Salamanca

   6    6    —      —   

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

   205    —      —      —   

Natural Gas Transportation from Jáltipan to Salina Cruz Refinery

   12    —      —      —   

Maintenance of Marine Facilities

   11    —      —      —   

T. M. Dos Bocas- CCC Palomas Corridor

   —      —      —      255 

Integrity Diagnostics and Adequacy of the Instrumented Safety Systems and the Basic Control of the Southeast Pumping Stations

   —      —      —      207 

Gas Marino-Mesozoico Transportation Systems

   —      —      —      205 

Rehabilitations for the Maintenance of Vessels of the Major Fleet Attached to Pemex Logística

   —      —      —      204 

Maintenance of T.M Dos Bocas

   —      —      —      177 

Maintenance of Pipeline Transportation Systems Permission 7 Oleos

   —      —      —      160 

Altamira Integral System Maintenance Case

   —      —      —      140 

Maintenance of Pipelines Monitoring, Control Systems and Flow Measurement Systems of the National Distribution Network of Pemex Refineries

   —      —      —      138 

Maintenance of Pipelines Transportation Systems Permission 5 South, Gulf, Central and West Zones

   —      —      —      118 

Others

   2,120    3,072    1,273    509 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

  Ps. 4,917   Ps. 5,042   Ps. 2,118   Ps. 3,135 
  

 

 

   

 

 

   

 

 

   

 

 

 

 

Notes: Numbers may not total due to rounding.

(1)

Amounts based on cash basis method of accounting.

(2)

Original budget published in the Official Gazette of the Federation on December 11, 2019.

(3)

Figures are stated in nominal pesos.

Source: Petróleos Mexicanos.

 

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CENAGAS

Pursuant to the Hydrocarbons Law, on August 11, 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.

On October 29, 2015, we signed a transfer agreement with CENAGAS for the transfer to CENAGAS of assets associated with the Integrated Natural Gas System and the distribution contract for theNaco-Hermosillo pipeline system. The National Gas Pipeline System has 87 pipelines with a total length of almost 9,000 kilometers and a transport capacity over 5,000 million cubic feet per day, while theNaco-Hermosillo system is a 300 kilometers long pipeline with a transport capacity of 90 million cubic feet per day. The approximate aggregate book value of these assets, which were transferred to CENAGAS on January 1, 2016, was Ps. 7,450.1 million.

On December 29, 2016, we entered into two agreements with CENAGAS pursuant to which we continued to provide operation and maintenance services and commercial operation services to CENAGAS during 2017. Both agreements, which have a total value of Ps. 3,045.0 million and Ps. 116.3 million, respectively, initially had a term of one year and are automatically renewed for one year unless either party gives advance notice to the contrary. The agreements for nine of the 21 pipeline subsystems have been terminated as a result of a new services bidding strategy implemented by CENAGAS. However, Pemex Logistics subsequently won bids for three of these nine pipeline subsystems with an estimated contract value of Ps. 78.8 million and, as a result, continues to provide services to CENAGAS for 15 of the 21 pipeline subsystems.

During 2019 we obtained Ps. 3,171.0 million from our services provided to CENAGAS.

International Trading

PMI and the PMI Subsidiaries conduct international commercial activities for our crude oil, refined and petrochemical products, with the exception of natural gas, which is marketed directly by our industrial transformation segment. The PMI Subsidiaries’ main objectives are to assist in maximizing our profitability and optimizing our operations through international trade, facilitating our link with the international markets and pursuing new business opportunities marketing our products internationally. PMI and the PMI Subsidiaries manage the international sales of our crude oil and petroleum products and acquire in the international markets those petroleum products that we import to satisfy domestic demand. Sales of our crude oil are carried out through PMI. Trading of petroleum products in the international markets are carried out through P.M.I. Trading DAC, which also performsthird-party trading, transportation and risk management activities in alternative markets (customers and suppliers other than us).

 

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Exports and Imports

PMI purchases crude oil from our exploration and production segment and then sells it to PMI’s customers. PMI sold an average of 1,103.7 thousand barrels of crude oil per day in 2019, which represented 65.5% 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, 
   2015   2016   2017   2018   2019 
   (tbpd)   (%)   (tbpd)   (%)   (tbpd)   (%)   (tbpd)   (%)   (tbpd)   (%) 

Crude Oil Exports (by Volume)

                    

Olmeca(1) (API gravity of38°-39°)

   124.2    10.6    108.3    9.0    18.9    1.6    —      —      —      —   

Isthmus (API gravity of32°-33°)

   194.0    16.5    153.1    12.8    85.8    7.3    30.7    2.6    4.1    0.4 

Maya (API gravity of21°-22°)

   743.4    63.4    867.2    72.4    1,053.9    89.8    1,090.0    92.1    985.0    89.3 

Altamira (API gravity of15.0°-16.5°)

   27.7    2.4    23.7    2.0    15.3    1.3    19.9    1.7    20.7    1.9 

Talam (API gravity of-15.8º)

   83.1    7.1    45.3    3.8    —      —      43.5    3.7    93.9    8.5 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

   1,172.4    100.0    1,197.6    100.0    1,173.9    100.0    1,184.0    100.0    1,103.7    100.0 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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)

During 2018 and 2019 we used Olmeca crude oil for processing in our refineries and did not export Olmeca crude oil.

Source: PMI operating statistics as of January 7, 2020.

 

   Year ended December 31, 
   2015   2016   2017   2018   2019 
   (U.S. dollars per barrel) 

Crude Oil Prices

          

Olmeca

  U.S. $51.46   U.S. $39.71   U.S. $51.79   U.S. $—     U.S. $—   

Isthmus

   49.28    37.72    50.75    64.54    60.43 

Maya

   41.12    35.30    46.48    61.47    55.83 

Altamira

   36.19    30.35    39.45    57.81    53.69 

Talam

   36.40    28.44    —      59.47    53.72 

Weighted average realized price

  U.S. $43.12   U.S. $35.65   U.S. $46.79   U.S. $61.41   U.S. $55.63 

 

Source: PMI operating statistics as of January 7, 2020.

 

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Geographic Distribution of Export Sales

As of December 31, 2019, PMI had 23 customers in eight countries. In 2019, 55.2% of our crude oil export sales were to customers in the United States and Canada, which represents a 9.0% decrease as compared to 2018. Since 2014, primarily as a result of increased availability of light crude oil in the United States and other developing trends in international demand for imported crude oil, we have expanded the scope of our geographic distribution and adapted our strategy to diversify and strengthen the position of Mexican crude oil in the international market.

The following table sets forth the geographic distribution of PMI’s sales of crude oil exports for the five years ended December 31, 2019. 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, 
   2015   2016   2017   2018   2019 
   (tbpd)   (%)   (tbpd)   (%)   (tbpd)   (%)   (tbpd)   (%)   (tbpd)   (%) 

PMI Crude Oil Export Sales to:

                    

United States and Canada

   689.6    58.8    571.8    47.7    617.2    52.6    669.8    56.6    609.2    55.2 

Europe

   257.4    22.0    294.1    24.6    219.1    18.7    199.1    16.8    181.8    16.5 

Asia

   219.2    18.7    319.1    26.6    317.2    27.0    311.4    26.3    312.6    28.3 

Central and South America

   6.2    0.5    12.5    1.0    20.4    1.7    3.8    0.3    —      —   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

   1,172.4    100    1,197.6    100    1,173.9    100    1,184.0    100    1,103.7    100 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Olmeca (API gravity of38°-39°)(1)

                    

United States and Canada

   39.8    3.4    4.1    0.3    —      —      —      —      —      —   

Others

   84.4    7.2    104.2    8.7    18.9    1.6    —      —      —      —   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

   124.2    10.6    108.3    9.0    18.9    1.6    —      —      —      —   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Isthmus (API gravity of32°-33°)

                    

United States and Canada

   78.1    6.7    3.2    0.3    4.7    0.4    —      —      2.7    0.3 

Others

   115.9    9.9    149.9    12.5    81.1    6.9    30.7    2.6    1.4    0.1 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

   194.0    16.5    153.1    12.8    85.8    7.3    30.7    2.6    4.1    0.4 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Maya (API gravity of21°-22°)

                    

United States and Canada

   513.2    43.8    541.3    45.2    597.2    50.9    623.9    52.7    506.1    45.9 

Others

   230.2    19.6    325.9    27.2    456.7    38.9    466.1    39.4    478.9    43.4 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

   743.4    63.4    867.2    72.4    1,053.9    89.8    1,090.0    92.1    985.0    89.3 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Altamira (API gravity of15.0°-16.5°)

                    

United States and Canada

   27.7    2.4    21.9    1.8    15.3    1.3    19.9    1.7    20.7    1.9 

Others

   —      —      1.8    0.1    —      —      —      —      —      —   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

   27.7    2.4    23.7    2.0    15.3    1.3    19.9    1.7    20.7    1.9 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Talam (API gravity of 15.8°)

                    

United States and Canada

   30.7    2.6    1.3    0.1    —      —      25.8    2.2    79.7    7.2 

Others

   52.4    4.5    44.0    3.7    —      —      17.6    1.5    14.2    1.3 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

   83.1    7.1    45.3    3.8    —      —      43.5    3.7    93.9    8.5 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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)

During 2019 we used Olmeca crude oil for processing in our refineries and did not export Olmeca crude oil.

Source: PMI operating statistics as of January 7, 2020.

 

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In total, we exported 1,103.7 thousand barrels of crude oil per day in 2019, and in 2020 we expect to export approximately 1,086.0 thousand barrels of crude oil per day. We sell the crude oil produced by Pemex Exploration and Production under a variety of contractual arrangements. Of the 1,086.0 thousand barrels of crude oil per day we expect to export in 2020, we are contractually committed to deliver approximately 1,056.0 thousand barrels per day pursuant to existing supply commitments. We believe that our proved developed and proved undeveloped reserves will be sufficient to allow us to fulfill our supply commitments.

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, 2019.

Volume of Exports and Imports

 

   Year ended December 31,   2019 
   2015   2016   2017   2018   2019   vs. 2018 
   (in thousands of barrels per day, except as noted)   (%) 

Exports

    

Crude Oil:

            

Olmeca

   124.2    108.3    18.9    —      —      —   

Isthmus

   194.0    153.1    85.8    30.7    4.1    (86.6

Maya

   743.4    867.2    1,053.9    1,090.0    985.0    (9.6

Altamira

   27.7    23.7    15.3    19.9    20.7    4.0 

Talam

   83.1    45.3    —      43.5    93.9    115.9 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total crude oil

   1,172.4    1,197.6    1,173.9    1,184.0    1,103.7    (6.8

Natural gas(1)

   2.7    2.2    1.7    1.4    1.3    (5.8

Gasoline

   62.9    52.7    45.0    37.7    33.6    (10.9

Other petroleum products

   130.8    132.9    113.1    95.1    82.3    (13.4

Petrochemical products(2)

   333.8    124.7    60.5    57.8    71.9    24.5 

Imports

            

Natural gas(1)

   1,415.8    1,933.9    1,766.0    1,316.5    965.9    (26.6

Gasoline

   440.1    510.9    583.7    607.3    544.3    (10.4

Other petroleum products and LPG(1)

   299.7    289.6    354.1    378.7    302.7    (20.1

Petrochemical products(2)

   107.3    278.2    332.8    831.8    877.3    5.5 

 

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

(1)

Numbers expressed in millions of cubic feet per day.

(2)

Thousands of metric tons.

Source: PMI operating statistics as of January 7, 2020, and Pemex Industrial Transformation.

 

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Crude oil exports decreased by 6.8% in 2019, from 1,184.0 thousand barrels per day in 2018 to 1,103.7 thousand barrels per day in 2019, mainly due to an 86.6% decrease in light crude oil Istmo exports and a 9.6% decrease in heavy crude oil Maya exports, which was partially offset by a 115.9% increase in Talam crude oil exports and a 4.0% increase in Altamira crude oil exports in 2019. We did not export Olmeca crude oil in 2018 and 2019 due to a lack of availability of Olmeca crude oil for export.

We import dry gas, a variety of natural gas, to satisfy shortfalls in our production and to meet demand in areas of northern Mexico that, due to their distance from the fields, can be supplied more efficiently by importing natural gas from the United States. Domestic sales of dry gas decreased by 22.3%, as compared to 2018, from 2,064.3 million cubic feet per day in 2018 to 1,604.4 million cubic feet per day in 2019, mainly due to competition from third-party supply in the national market. Natural gas imports decreased by 26.6% in 2019, from 1,316.5 million cubic feet per day in 2018 to 965.9 million cubic feet per day in 2019. This decrease in natural gas imports was primarily due to decreased demand in the domestic market due to competition from third party suppliers.

P.M.I. Trading DAC sells refined products on anFOB,Delivered Ex-ship andCost and Freight basis and buys refined and petrochemical products on anFOB,Cost and Freight andDelivered Ex-ship,Delivery at FrontierandDelivered at Place 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, 2019.

Value of Exports and Imports(1)

 

   Year ended December 31, 2019  2019 
   2015   2016  2017  2018  2019  vs. 2018 
   (in millions of U.S. dollars)  (%) 

Exports

    

Olmeca

  U.S. $2,333.1   U.S. $1,569.3  U.S. $358.1  U.S. $—    U.S. $—     —   

Isthmus

   3,489.0    2,107.6   1,588.7   722.2   90.1   (87.5

Altamira

   366.6    262.4   219.8   419.5   405.5   (3.3

Maya

   11,158.9    11,172.6   17,880.6   24,455.6   20,072.90   (17.9

Talam

   1,103.6    470.1   —     943.4   1,840.80   95.1 
  

 

 

   

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total crude oil(2)

  U.S. $18,451.2   U.S. $15,582.0  U.S $20,047.2  U.S. $26,540.7  U.S. $22,409.3   (15.6
  

 

 

   

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Natural gas

   1.6    1.1   1.3   1.0   0.8   (20.0

Gasoline

   1,007.4    733.2   746.9   813.9   626.6   (23.0

Other petroleum products

   1,580.2    1,161.9   1,655.6   1,938.1   1,429.70   (26.2

Petrochemical products

   63.5    20.5   37.8   39.2   39.6   1.0 
  

 

 

   

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total natural gas, petroleum and petrochemical products

  U.S. $2,652.7   U.S. $1,916.7  U.S. $2,441.5  U.S. $2,792.3  U.S. $2,096.7   (24.9
  

 

 

   

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total exports

  U.S. $21,103.9   U.S. $17,498.7  U.S. $22,488.8  U.S. $29,333.0  U.S. $24,506.0   (16.5
  

 

 

   

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Imports

        

Natural gas

  U.S. $1,673.7   U.S. $2,097.9  U.S. $2,484.1  U.S. $2,043.2  U.S. $1,072.5   (47.5

Gasoline

   12,805.2    11,994.8   15,380.1   18,867.5   15,353.90   (18.6

Other petroleum products and LPG

   6,178.6    5,699.9   8,466.3   11,103.3   7,983.90   (28.1

Petrochemical products

   196.3    85.5   122.5   588.8   657.2   11.6 
  

 

 

   

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total imports

  U.S. $20,853.7   U.S. $19,878.1  U.S. $26,433.3  U.S. $32,602.8  U.S. $25,067.6   (23.1
  

 

 

   

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net exports (imports)

  U.S. $250.1   U.S. $(2,379.4 U.S. $(3,944.2 U.S. $(3,269.8 U.S. $(561.6  (82.8
  

 

 

   

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

 

Note: Numbers may not total due to rounding.

(1)

Does not include crude oil, refined products and petrochemicals purchased by P.M.I. Trading DAC, orPMI-NASA 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)

Crude oil exports are subject to adjustment to reflect the percentage of water in each shipment.

Source: PMI operating statistics as of January 7, 2020, which are based on information in bills of lading, and Pemex Industrial Transformation.

In 2019, imports of natural gas decreased in value by 47.5% as compared to 2018, primarily as a result of a decrease in the volume of natural gas imports. Imports of gasoline decreased in value by 18.6% over the same period due to a decrease in the volume of gasoline imported resulting from higher domestic production of gasoline.

 

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The following table describes the composition of our exports and imports of selected refined products for the three years ended December 31, 2019.

Exports and Imports of Selected Petroleum Products

 

   Year ended December 31, 
   2017   2018   2019 
   (tbpd)   (%)   (tbpd)   (%)   (tbpd)   (%) 

Exports

            

Liquefied petroleum gas(1)

   5.7    3.6    1.2    0.9    0.7    0.6 

Fuel oil

   103.5    65.5    89.8    67.6    69.3    59.7 

Gasoline

   45.0    28.5    37.7    28.4    33.6    29.0 

Others

   3.9    2.5    4.0    3.0    12.4    10.7 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

   158.0    100.0    132.8    100    116.0    100.0 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Imports

            

Gasoline(2)

   582.5    62.2    607.3    61.6    544.3    64.3 

Fuel oil

   24.4    2.6    16.5    1.7    11.8    1.4 

Liquefied petroleum gas

   42.6    4.5    61.8    6.3    53.9    6.4 

Diesel

   237.5    25.4    240.6    24.4    178.4    21.1 

Others

   49.1    5.2    59.8    6.1    58.7    6.9 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

   936.2    100.0    985.9    100    846.9    100.0 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

Notes: Numbers may not total due to rounding.

tbpd = thousand barrels per day.

(1)

Includes butanes and propane.

(2)

Includes premium gasoline, regular gasoline, premium components and naphthas

Source: Pemex BDI.

In 2019, exports of petroleum products decreased by 12.7%, from 132.8 thousand barrels per day in 2018 to 116.0 thousand barrels per day in 2019, mainly due to decreases in the export volumes of fuel oil and natural gas of 22.8% and 10.9%, respectively. Imports of petroleum products decreased by 14.1% in 2019, from 985.9 thousand barrels per day in 2018 to 846.9 thousand barrels per day in 2019, primarily due to an increase in domestic production of petroleum products.

Exports of petroleum products decreased in value by 25.3% in 2019, primarily due to a 16.8% decrease in the average price of fuel oil and decreases in the average prices of other petroleum products. In 2019, imports of petroleum products decreased in value, by 22.1%, primarily due to a 12.8 % decrease in volume of imports caused by lower domestic gasoline sales and a decrease in the average price of gasoline as compared to the previous year. Our net imports of petroleum products for 2019 totaled U.S. $561.6 million, which represents an 82.8% decrease from our net imports of petroleum products of U.S. $3,269.8 million in 2018.

The Secretary of Energy has entered into certain agreements to reduce or increase crude oil exports and production. See “Item 4—Information on the Company—Trade Regulation, Export Agreement and Production Agreements” below in this Item 4.

Hedging Operations

P.M.I. Trading DAC 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 DAC establish: (1) that DFIs are used exclusively to mitigate the volatility of oil and gas 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 ofrisk-taking and risk measurement. Capital at risk is calculated on a daily basis in order to compare the actual figures with the aforementioned limit. See “Item 11—Quantitative and Qualitative Disclosures about Market Risk—Changes in Exposure to Main Risks—Hydrocarbon Price Risk.”

Gas Stations in the United States

In 2019, additional Pemex brand gas stations in the United States opened, for a combined total of 13 locations in areas with different demographic characteristics (nine in Texas and four in California) as of December 31, 2019. The fuel supply at these gas stations is derived from the United States wholesale market and the selling prices are subject to the local market conditions. We believe that all these Pemex brand gas stations will allow Pemex to evaluate in detail the market response to the Pemex brand and to establish a brand experience in accordance to the demand of the subset market segments. Additionally, we expect that the information gathered from all our gas stations in the United States will help to develop a market penetration strategy to maximize the value of the Pemex brand through major U.S. fuel marketers.

 

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PEMEX Corporate Matters

In addition to the operating activities that we undertake through the activities of our subsidiary entities and subsidiary companies, we have certain centralized corporate operations that coordinate general labor, safety, insurance and legal matters.

Industrial Safety and Environmental Protection

Our Corporate Office of Planning, Coordination and Performance is responsible for planning, conducting and coordinating programs to:

 

  

foster a company culture of safety, environmental protection and efficient and rational use of energy;

 

  

improve the safety of our workers and facilities;

 

  

reduce risks to residents of the areas surrounding our facilities; and

 

  

reduce greenhouse gas emissions and identify the risks associated with climate change in Mexico in order to develop strategies to minimize the impact of climate change on our operations.

We intend to further develop industrial safety and environmental programs for each subsidiary entity. The environmental and safety division of each subsidiary entity coordinates closely with the Corporate Office of Planning, Coordination and Performance to promote sustainable performance focused on continuous improvement.

Insurance

We maintain a comprehensive property and general liability insurance program for onshore and offshore properties and liabilities. All onshore properties, such as refineries, processing plants, pipelines and storage facilities are covered, as are all of our offshore assets, such as drilling platforms, rigs, gas gathering systems, maritime terminals and production facilities.

Our insurance covers risks of sudden and accidental physical damage to or destruction of our properties, as well as risk of sudden and accidental physical loss, including as a consequence of purposeful terrorist acts. This insurance also provides coverage for the contents of pipelines and storage facilities, and any of our liabilities arising from such acts. Our insurance also covers extraordinary costs related to the operation of offshore wells, such as control andre-drilling costs, evacuation expenses and liability costs associated with spills. We also maintain protection and indemnity insurance for our full marine fleet, in addition to life insurance, aircraft, automobile and heavy equipment insurance, cargo and marine hull insurance, as well as insurance for deep water drilling activities and onshore and offshore minor construction projects on operating facilities.

In accordance with Mexican law, we have entered into all of our insurance contracts with Mexican insurance carriers. These policies have limits of U.S. $1.8 billion for onshore property, U.S. $1.9 billion for offshore property, U.S. $0.3 billion for extraordinary costs related to the operation of offshore wells, U.S. $1.0 billion for marine-related liabilities, U.S. $1.1 billion for onshore and offshore liabilities, U.S. $0.5 billion for offshore terrorist acts and U.S. $0.5 billion for onshore terrorist acts. Limits of insurance policies purchased for each category of risk are determined using professional risk management assessment surveys conducted by international companies on an annual basis and the market capacity available per risk and must be in compliance with local regulations enacted following the energy reform. In addition, in compliance with the regulations enacted in June of 2016 by theAgencia Nacional de Seguridad Industrial y de Protección al Medio Ambiente del Sector Hidrocarburos (National Agency for Industrial Safety and Environmental Protection of the Hydrocarbons Sector or ASEA), we maintain insurance coverage with respect to third party liability, liability for environmental damage and control of well, works or drilling activities and extraction of hydrocarbons, the treatment and refining of crude oil and the processing of natural gas. We have also ensured that we maintain insurance coverage in connection with our strategic alliances and other joint arrangements.

Since June 2003, we have not maintained business interruption insurance, which in the past compensated us for loss of revenues resulting from damages to our facilities. Instead, we purchase ad hoc business interruption mitigation insurance coverage, which compensates us for the additional expenses necessary to recover our production capabilities in the shortest time possible.

 

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During 2019 we continued to engage in deep water exploratory and drilling activities that were covered by our existing insurance program until December 31, 2019. In August 2012, we purchased a policy to increase the coverage available for potential property damage, third party liability and control of well risks related to these activities. Under this policy, we maintained coverage for each deep water well drilled, and the limits are determined based on the risk profile of the corresponding well. This policy had a limit of U.S. $3.3 billion, including U.S. $1.3 billion for control of well risks, U.S. $1.1 billion for liability and U.S. $0.9 billion for property damage. This policy also included contemplates additional coverage for environmental liabilities and remediation activities relating to deep water exploration and drilling.

All of our insurance policies are in turn reinsured through Kot Insurance Company, AG (which we refer to as Kot AG). Kot AG is a wholly owned subsidiary company that was originally formed in 1993 under the laws of Bermuda as Kot Insurance Company, Ltd. and was subsequently organized under the laws of Switzerland in 2004. Kot AG is used as a risk management tool to structure and distribute risks across the international reinsurance markets. The purpose of Kot AG is to reinsure policies held through our local insurance carriers and to maintain control over the cost and quality of the insurance covering our risks. Kot AG reinsures over 80% of its reinsurance policies with unaffiliated third-party reinsurers. Kot AG carefully monitors the financial performance of its reinsurers and actively manages counterparty credit risk across its reinsurance portfolio to ensure its own financial stability and maintain its creditworthiness. Kot AG maintains solid capitalization and solvency margins consistent with guidelines provided by Swiss insurance authorities and regulations. As of December 31, 2019, Kot AG’s net risk retention is about U.S. $425 million spread across different reinsurance coverages to mitigate potential aggregation factors.

Compliance at Pemex

Our new corporate compliance programPemex Cumplewas authorized by the Board of Directors of Petróleos Mexicanos in November 2019. This program amends and supplements our existing compliance program, which was approved by the Board of Directors of Petróleos Mexicanos in July 2017.

As part of this new program, we implemented a compliance hub with different lines of attention: ethics and integrity, anticorruption and due diligence, legal compliance, and data protection and transparency. The program is aimed to strengthen our compliance culture with respect to national anticorruption strategy and international laws, international treaties, specific regulations for the oil and gas sector, economic competition and internal policies.

Ethics Committee

Our Ethics Committee consists of members from our management team, with the head of the Institutional Internal Control Unit at Petróleos Mexicanos serving as its chairman.

Our Ethics Committee is primarily responsible for:

 

  

promoting awareness and use of our code of ethics and code of conduct, including through online training available for our employees, in order to improve our culture of ethics;

 

  

establishing procedures that implement the principles found in our code of ethics in order to increase compliance and to detect behavior that adversely affects our activities;

 

  

analyzing and giving instructions to the appropriate areas on possible violations to our code of ethics and code of conduct that are reported through the ethics tip line; and

 

  

working with the Liabilities Unit at Petróleos Mexicanos and our Internal Auditing Area to exchange information regarding violations of our code of ethics and our code of conduct.

See “Item 16B—Code of Ethics” for more information regarding our code of ethics.

Collaboration and Other Agreements

On October 27, 2014, Petróleos Mexicanos and theSecretaría de Agricultura, Ganadería, Desarrollo Rural, Pesca y Alimentación(SAGARPA), now SADER, entered into a collaboration agreement to carry out concurrent actions to support the well-being of the communities in which we operate under thePrograma de Apoyo a la Comunidad y Medio Ambiente (Program to Support Communities and the Environment, which we refer to as PACMA).

 

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On February 5, 2015, Petróleos Mexicanos and theInstituto Politécnico Nacional (National Polytechnic Institute) of Mexico entered into a collaboration agreement for the development of human resources, technology and research, with the aim of promoting and supporting joint research programs and the development of knowledge related to the hydrocarbons industry.

On February 18, 2015, Petróleos Mexicanos and the Organisation for EconomicCo-operation and Development (OECD) signed a memorandum of understanding with the aim of benefiting from the OECD’s knowledge of and experiences with international best practices relating to the procurement of goods and services.

On February 19, 2015, Petróleos Mexicanos signed a memorandum of understanding with the Infraestructura Energética Nova, S.A.B. de C.V. and Sempra LNG units of the U.S. energy company Sempra Energy for the potential joint development of a natural gas liquefaction project at the site of the Energía Costa Azul facility located in Ensenada, Mexico.

On April 7, 2015, Petróleos Mexicanos and First Reserve signed a memorandum of understanding and cooperation to explore new opportunities for joint energy projects, which would provide access to financing, as well as the exchange of technical and operational experience. This agreement contemplates up to U.S. $1.0 billion of investments in potential projects relating to infrastructure, maritime transport and power cogeneration, among others.

On May 12, 2015, Petróleos Mexicanos and Global Water Development Partners, a company founded by private equity funds operated by Blackstone, signed a memorandum of understanding with the aim of creating a partnership to invest in water and wastewater infrastructure for Petróleos Mexicanos’ upstream and downstream facilities. This partnership is intended to finance and carry out environmentally sustainable projects for water treatment in Petróleos Mexicanos’ operations.

On May 29, 2015, Petróleos Mexicanos and the U.S. based global asset manager BlackRock Financial Management Inc. signed a memorandum of understanding with the aim of accelerating the development and financing ofenergy-related infrastructure projects that are of strategic importance to Petróleos Mexicanos.

On July 20, 2015, Petróleos Mexicanos, through its Corporate Office of Procurement and Supply, signed an agreement with the OECD with the aim of adopting and promoting best practices in procurement and fostering efficient management strategies and transparency in Petróleos Mexicanos’ processes. The agreement also contemplates the training of our personnel by the OECD on issues of transparency and ethics, the design of procurement procedures and mitigating risks of collusion.

On July 22, 2015, Petróleos Mexicanos and theSecretaría de Desarrollo Agrario, Territorial y Urbano (Ministry of Agriculture, Land and Urban Development) signed a collaboration agreement with the aim of establishing consulting and training mechanisms for the development of hydrocarbon exploration, extraction and distribution projects in strict observance of the applicable legal framework and with full respect for agricultural landowners.

On July 23, 2015, Petróleos Mexicanos and the Instituto Tecnológico y de Estudios Superiores de Monterrey, A.C. signed a collaboration agreement with the purpose of (1) fostering competitive development within the Mexican oil and gas industry; (2) carrying out specialized research and consulting services, including lectures, seminars, conferences and other events of common interest to the institutions; and (3) providing postgraduate studies for our employees and internships for college students at Petróleos Mexicanos.

On September 9, 2015, Petróleos Mexicanos and General Electric signed a memorandum of understanding with the aim of creating a partnership to invest in new technology and financing initiatives for gas compression, power generation and the production of hydrocarbons, both onshore and offshore, including in deepwater fields.

On October 10, 2015, Petróleos Mexicanos and the United Nations Development Programme in Mexico reaffirmed their commitment to use best practices in terms of inclusion, equality andnon-discrimination in the workplace.

 

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On January 19, 2016, Petróleos Mexicanos and Mubadala Petroleum signed a memorandum of understating agreeing to joint projects to explore the Mexican energy sector, including its upstream activities, primary midstream activities and infrastructure projects for a total investment of U.S. $4.0 billion. Among these projects is a commercial logistic infrastructure system in the Salina Cruz, Oaxaca area, for an approximate investment in excess of U.S. $3.0 billion.

On January 19, 2016, Petróleos Mexicanos and the Abu Dhabi National Oil Company signed a memorandum of understanding with the aim to share each company’s best practices with respect to different upstream activities, including exploration, development and production in oil fields; improved recovery, handling and processing of liquefied natural gas; as well as human resources training, sustainability, internal controls, transparency, process development andcyber-security.

On January 19, 2016, Petróleos Mexicanos and Saudi Aramco signed a memorandum of understanding renewing and strengthening the relationship between both companies and establishing an exchange of ideas surrounding operational excellence, sustainability and energy efficiency, and innovation and technological development.

On April 1, 2018, Petróleos Mexicanos, the SENER, the CNH and Natural Resources Canada subscribed to a memorandum of understanding and collaboration in order for Mexico and Canada to share demonstrations of technology and practices for the conservation of hydrocarbons and the measurement and reduction of emissions.

On March 6, 2019, Petróleos Mexicanos and the JBIC signed a memorandum of understanding with the purpose of exchanging experiences and promoting development in the energy sector.

On November 15, 2019, Petróleos Mexicanos and China Export & Credit Insurance Corporation (Sinosure) signed a memorandum of understanding with the purpose of strengthening the cooperative relationship between these two entities.

Through these agreements, we seek to increase our technical and scientific knowledge in areas that include exploration and drilling. These broad agreements of technological and scientific collaboration are strictlynon-commercial,i.e., there is no transfer of resources among the parties.

Property, Plants and Equipment

General

Substantially all of our property, consisting of refineries, storage, production, manufacturing and transportation facilities and certain retail outlets, is located in Mexico, including Mexican waters in the Gulf of Mexico. The location, character, utilization and productive capacity of our exploration, drilling, refining, petrochemical production, transportation and storage facilities are described above. See “—Exploration and Production,” “—Drilling and Services,” “Industrial Transformation,” “—Ethylene,” “—Fertilizers” and “—Logistics”. The insurance program covering all of our properties is also described above. See “—Insurance.”

Reserves

Under Mexican law, all crude oil and other oil and gas reserves located in the subsoil of Mexico are owned by the Mexican nation and not by us. The Mexican Government has granted us the right to exploit the petroleum and other oil and gas reserves assigned to us in connection with the process that occurred in August 2014 and is commonly referred to as Round Zero, as well as the right to explore for and exploit petroleum and other oil and gas reserves in areas that have been granted to us in various subsequent rounds. Productivestate-owned companies and other companies participating in the Mexican oil and gas industry may report assignments or contracts and the corresponding expected benefits for accounting and financial purposes. See “Information on the Company—History and Development—Legal Regime” above in this Item 4. Our estimates of hydrocarbons reserves are described under “—Exploration and Production—Reserves” above.

GENERAL REGULATORY FRAMEWORK

Petróleos Mexicanos is regulated by the Mexican Constitution, the Petróleos Mexicanos Law and the Hydrocarbons Law, among other regulations. The purpose of the Petróleos Mexicanos Law is to regulate the organization, management, operation, monitoring, evaluation and accountability of Petróleos Mexicanos as aproductive-state owned company of the Mexican Government. On October 31, 2014, the Regulations to the Petróleos Mexicanos Law were published in the Official Gazette of the Federation. These regulations were modified on February 9, 2015. The purpose of these regulations is to regulate, among other things, the appointment and removal of the members of the Board of Directors of Petróleos Mexicanos, potential conflicts of interest for Board members, and the evaluation of Petróleos Mexicanos.

 

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The Mexican Government and its ministries regulate our operations in the oil and gas sector. The SENER monitors our operations, and the Secretary of Energy acts as the chairperson of the Board of Directors of Petróleos Mexicanos. In addition, theLey de los Órganos Reguladores Coordinados en Materia Energética (Coordinated Energy Regulatory Bodies related to the Energy Matters Law), which took effect on August 12, 2014, establishes mechanisms for the coordination of these entities with the SENER and other ministries of the Mexican Government. The CNH has the authority to award and execute contracts for exploration and production in connection with competitive bidding rounds. The CRE has the authority to grant permits for the storage, transportation and distribution of oil, gas, petroleum products and petrochemicals in Mexico, and to regulate thefirst-hand sale of these products. The regulatory powers of the CNH and the CRE extend to all oil and gas companies operating in Mexico, including Petróleos Mexicanos and our subsidiary entities.

On December 2, 2014, the SENER published in the Official Gazette of the Federation a statement declaring that the new Board of Directors of Petróleos Mexicanos was performing its duties and the mechanisms for our oversight, transparency and accountability had been implemented in accordance with the Petróleos Mexicanos Law. As a result, the special regime that governs Petróleos Mexicanos’ activities relating to productivestate-owned subsidiaries, affiliates, compensation, assets, administrative liabilities, budget, debt levels and the state dividend took effect. On June 10, 2015 the General Provisions for Contracting with Petróleos Mexicanos and its ProductiveState-Owned Subsidiaries were published in the Official Gazette of the Federation, and on June 11, 2015, the special regime for acquisitions, leases, services and public became effective. On May 18, 2018, new General Provisions for Contracting with Petróleos Mexicanos and its Productive State-Owned Subsidiaries were published in the Official Gazette of the Federation, repealing the previous general provisions published in June 2015 and their subsequent amendments. These General Provisions regulate the legal process for acquisitions, leases, works and services needed for our projects and require that our suppliers, contractors and other participants with whom we have or intend to have a commercial relationship recognize and adopt our Compliance Program (as defined below) and establish prevention and compliance systems in accordance with applicable law. New amendments to these General Provisions were published in the Official Gazette of the Federation on August 1, 2018.

In accordance with the Petróleos Mexicanos Law, each year the Ministry of Finance and Public Credit provides us with estimated macroeconomic indicators for the following fiscal year, which we are to use to prepare the consolidated annual budget for Petróleos Mexicanos and the subsidiary entities, including our financing program. Upon approval by the Board of Directors of Petróleos Mexicanos, our consolidated budget and financing program is then submitted to the Ministry of Finance and Public Credit, which has the authority to adjust our financial balance goal and the ceiling on our wage and salary expenditures for the fiscal year. The consolidated annual budget and financing program of Petróleos Mexicanos and the subsidiary entities, including any adjustments made by the Ministry of Finance and Public Credit, is then incorporated into the federal budget for approval by the Chamber of Deputies. The Mexican Government is not, however, liable for the financial obligations that we incur. In approving the federal budget, the Chamber of Deputies authorizes our financial balance goal and the ceiling on our wage and salary expenditures for the fiscal year, which it may subsequently adjust at any time by modifying the applicable law.

We are also subject to various domestic and international laws and regulations related toanti-corruption,anti-bribery andanti-money laundering, such as theCódigo Penal Federal (Federal Criminal Code), which criminalizes certain corrupt practices, including bribery, embezzlement and abuse of authority; theLey General del Sistema Nacional Anticorrupción (General Law of the National Anti-Corruption System); theLey de Fiscalización y Rendición de Cuentas de la Federación (Federal Audit and Accountability Law) and theLey General de Responsabilidades Administrativas (General Law of Administrative Liabilities), among others. These laws establish a national anti-corruption system designed to coordinate efforts among the Mexican Government, federal entities, states and municipalities to prevent, investigate and punish corrupt activities and oversee public resources, as well as determine administrative liabilities of public officials and the applicable penalties.

We also employ internal control procedures and guidelines designed to monitor the activities of our employees, including senior management, and to ensure compliance with applicableanti-corruption,anti-bribery andanti-money laundering laws and regulations. TheLineamientos que regulan el sistema de control interno en Petróleos Mexicanos, sus empresas productivas subsidiarias y empresas filiales (Guidelines governing the internal control system of Petróleos Mexicanos, its productive subsidiary entities and affiliates) set forth the principles underlying our internal controls system and the procedures necessary for its implementation and monitoring. In addition, theLineamientos para regular a los Testigos Sociales en Petróleos Mexicanos y sus empresas productivas subsidiarias (Guidelines to regulate public witnesses in Petróleos Mexicanos and its productive subsidiary entities), delineates the ways in which public witnesses may act asthird-party observers in connection with our procurement procedures. These internal controls and guidelines are applicable to Petróleos Mexicanos and the subsidiary entities. For a description of the risks relating toanti-corruption,anti-bribery andanti-money laundering laws and regulations, see “Item 3—Key Information—Risk Factors—Risk Factors Related to our Operations—We are subject to Mexican and internationalanti-corruption,anti-bribery andanti-money laundering laws. Our failure to comply with these laws could result in penalties, which could harm our reputation, prevent us from obtaining governmental authorizations needed to carry out our operations and have an adverse effect on our business, results of operations and financial condition.”

 

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On July 14, 2017, the Board of Directors of Petróleos Mexicanos approved our compliance program, which is a series of procedures intended to aid our compliance with legal, accounting and financial provisions in order to prevent corruption and to promote ethical values. These procedures include a focus on internal controls, risk management, ethical principles and corporate integrity, as well as policies promoting transparency and accountability.

This compliance program was superseded by our new corporate compliance program,Pemex Cumple,which was authorized by the Board of Directors of Petróleos Mexicanos in November 2019. As part of this new program, we have implemented a compliance hub with different lines of attention: ethics and integrity, anticorruption and due diligence, legal compliance, and data protection and transparency.

The program is aimed to strengthen our compliance culture, with respect to national anticorruption strategy and international laws, international treaties, specific regulations for the oil and gas sector, economic competition and internal policies.

On November 11, 2019,Código de Conducta de Petróleos Mexicanos, sus empresas productivas subsidiarias y, en su caso, empresasfiliales (Code of Conduct of Petróleos Mexicanos, its productive subsidiary entities and, where applicable, affiliated companies, or the Code of Conduct), was published in the Official Gazette of the Federation, replacing the code of conduct issued on August 28, 2017. This Code of Conduct delineates behaviors expected of and banned for our employees, in accordance with the values established in our Code of Ethics, and includes data protection and transparency related matters.

Our newCódigo de Ética para Petróleos Mexicanos, sus empresas productivas subsidiarias y empresas filiales (Code of Ethics for Petróleos Mexicanos, its productive subsidiary entities and affiliates, or the Code of Ethics) was also published in the Official Gazette of the Federation on December 24, 2019. This new Code of Ethics was approved by the Board of the Directors of Petróleos Mexicanos on November 26, 2019. Our new Code of Ethics includes respect,non-discrimination, honesty, loyalty, responsibility, legality, impartiality and integrity, human rights protection and inclusion practices, among others.

On September 11, 2017, thePolíticas y Lineamientos Anticorrupción para Petróleos Mexicanos, sus empresas productivas subsidiarias y, en su caso, Empresas Filiales(Anti-corruption Policies and Guidelines for Petróleos Mexicanos, its productive subsidiary entities and, where applicable, affiliated companies) and thePolíticas y Lineamientos para el desarrollo de la Debida Diligencia en Petróleos Mexicanos, sus empresas productivas subsidiarias y, en su caso, Empresas Filiales, en Materia de Ética e Integridad Corporativa (Policies and Guidelines to carry out Due Diligence in Petróleos Mexicanos, its productive subsidiary entities and, where applicable, affiliated companies, in Ethics and Corporate Integrity Matters) became effective. The purpose of these regulations is to set up actions to prevent acts of corruption as well as provide means to confront and fight them and mitigate our own risks as well asthird-party risks that may affect the activities of PEMEX for acts of corruption, lack of ethics or corpora