Business Plan of Petrleos Mexicanos and Subsidiary Entities 2010-2024

- Executive Version June 1st 2010

Forward-Looking Statements
This presentation contains forward-looking statements. We may also make written or oral forward-looking statements in our periodic reports to the Comisin Nacional Bancaria y de Valores (Mexican National Banking and Securities Commission, or CNBV) and the U.S. Securities and Exchange Commission (SEC), in our annual reports, in our offering circulars and prospectuses, in press releases, in other written materials, and in oral statements made by our officers, directors or employees to third parties. Words such as believe, hope, anticipate and similar expressions identify forward-looking statements and reflect our point of view on , p , p p y g p future events and financial performance. We may include forward-looking statements that address, among other things, our: drilling and other exploration activities; import and export activities; projected and targeted capital expenditures and other costs; commitments, revenues and li idit etc. it t d liquidity, t As required by law, PEMEXs business plan must include 5-year goals; however, the strategic planning exercise includes longer-term goals. Actual results could differ materially from those projected in such forward-looking statements as a result of various factors that may be beyond our control. These factors include, but are not limited to: changes in international crude oil and natural gas prices; effects on us from competition; limitations on our access to sources of financing on competitive terms; significant economic or political developments in Mexico; developments affecting the energy sector; and changes in our regulatory environment. Accordingly, you should not place undue reliance on these f A di l h ld l d li h forward-looking statements. In any event, these statements speak only as of their d l ki h k l f h i dates, and we undertake no obligation to update or revise any of them, whether as a result of new information, future events or otherwise. These risks and uncertainties are more fully detailed in PEMEXs most recent Form 20-F filing with the SEC (www.sec.gov), and the PEMEX prospectus filed with the CNBV and available through the Mexican Stock Exchange (www.bmv.com.mx). These factors could cause actual results to differ materially from those contained in any forward-looking statement. For reference purposes, convenience translations into U S dollars of amounts in pesos have been made. Such translations should not be purposes U.S. made construed as a representation that the peso amounts have been or could be converted into U.S. dollars at the foregoing or any other exchange rate.

Contents

Background Course of Action and Strategies Upstream D Downstream Distribution and Marketing Cross Functional Issues Cross-Functional Expected Results Summary of PEMEXs Strategy PEMEX s Annexes

Introduction

PEMEX, in contrast to international oil companies, must strike a balance between the different roles that it plays in the domestic economy to be successful in achieving its business goals; these roles involve multiple actors and stakeholders, influencing strategic decisions. PEMEX is the main player in the domestic energy and petrochemicals markets and, as a state-owned company, is subject to a stringent regulation; it therefore requires flexibility in order to compete in a global market. This business plan seeks to provide for PEMEXs long-term sustainability in an environment where it is the main energy provider in the country and plays the leading role in Mexico s economic growth and energy security. Moreover, PEMEX Mexicos security Moreover is the main contributor to the governments fiscal revenue and is responsible for the supply of the countrys main petroleum products. gy PEMEXs strategy seeks a balance between the factors discussed above and the long-term sustainability of the company through programs to: increase efficiency in all areas of the company, increase and create economic value, protect communities and the environment, and develop technical, administrative and g p y g pp technological competencies -both internally and among PEMEXs suppliers.

PEMEXs Long Term Sustainability

Public Finances Competitive fiscal regime Alternative sources of income Public Policy Federal Government with explicit and clear goals and objectives regarding PEMEX Policy behind subsidies must be transparent Energy Security

Regulation Corporate governance Autonomy in strategic business y g decisions Flexibility and autonomy in financial, budgetary and operating issues of the business

Equilibrium

Investment in oil & gas exploration New market design Investment in refining and distribution f il di t ib ti of oil products d t

Long-Term Sustainability of PEMEX Growth and value creation Strategic focus and business process orientation Operational excellence Efficiency in project execution Infrastructure modernization Flexibility in procurement processes Environmental protection and social responsibility Industrial safety Alignment of objectives between PEMEX and its Union Enhance flexibility and productivity in labor practices Development of human resources and Research and Technological Development (R&D) capabilities
5

There are four stages in the Mexican oil industrys history. PEMEX itself first emerged in 1939 following the Oil Industry Expropriation announced by former President Lzaro Crdenas del Ro in 1938.
Foreign Companies
Mboed1
Cantarells nitrogen injection Maalob 1 f field is discovered -2nd largest oil field in Mexico

Internal Market Development

Export Orientation of PEMEX

Maximum oil production PIDIREGAS3 begin Cantarell decline begins

4,000 , 3,500 3,000 2,500 2,000 1,500 1 500 1,000 500 0

Petroleum Workers Union is constituted Mexico becomes the world s 2nd leading producer of crude oil

Oil industry nationalization

PEMEX is created

Crude oil imports: 1956-1959: 1.5 Mbpd4 1963-1964 : 1.0 Mbpd 1971-1974: 28 3 1971 1974: 28.3 Mbpd The first collective contract is signed between PEMEX and its Union

2004: First exploration well in deep waters PEMEX Pozo: Nab 1 activities are Water depth: 681 organized in 4 meters subsidiary entities Natural gas market is liberalized Increase in production of associated natural gas in Cantarell and nonassociated gas in Burgos

Cantarell field is discovered

1904

1910

1916

1922

1928

1934

1940

1946

1952

1958

1964
2

1970

1976

1982

1988

1994

2000

2006

Crude Oil Production

Origins of Mexican oil industry (1864-1938)

Nominal Capacity of SNR

Mexican oil industry consolidation (1939-1970)

Natural Gas Production

Growth and stability (1971-1996)
d 2nd stage of development (1997-2008)

(1) Thousand barrels of oil equivalent per day. (2) National Refining System. (3) Long-term Productive Infrastructure Projects. (4) Thousand barrels per day.

As the main actor in its industry, PEMEX must maximize the value of hydrocarbons and meet the demand for petroleum products. PEMEX became the most important Mexican company during its growth stage, but today is facing critical issues that must be timely addressed.
Generate economic value through the operations of the Mexican oil industry. The central leadership and strategic direction of the oil industry. Exclusivity in oil exploitation and production, importing and distribution of petroleum products within

Legal

the country. Submit PEMEXs business plan in accordance with the countrys energy policy, consisting of the: Plan, others. National Development Plan Sector Plan and National Energy Strategy, among others Strategy

Importance

Largest supplier of energy necessities of the country. Largest value generator for the Mexican society in the energy sector. Most important company in the country in terms of sales and demand for goods and services. Contributes nearly one third of the Federal Governments tax revenues. Downward trends in reserves and production. Maturing oil fields. Performance gaps that reduce profitability. High labor liability and productivity gaps. Saturation in transportation and storage infrastructure infrastructure. Little activity in R&D and lack of own advanced technology.

Current situation1

Challenges

High capital requirements. Projects of exploration and production (E&P) of high complexity and requiring new technologies. Rapid growth in demand for motor fuels with new quality specifications that generate low environmental

impact. Decreased demand for residuals and increased demand for natural gas. High volatility of prices and margins.

PEMEX urgently needs to implement a strategy that is capable of improving its performance and maximizing economic value in all its activities, within a framework of security, reliability, profitability and sustainability.
(1) A more complete diagnosis is available at in http://www.sener.gob.mx/webSener/res/Misc/Diagnstico%20Situacin%20Pemex.pdf 7

Contents

Background Course of Action and Strategies Upstream D Downstream Distribution and Marketing Cross Functional Issues Cross-Functional Expected Results Summary of PEMEXs Strategy PEMEX s Annexes

Business Plan Description

This Business Plan is the roadmap for PEMEX to achieve its operational and financial sustainability in the long term, taking into account its current situation (and diagnosis thereof) and forecasts of the markets. PEMEXs Business Plan addresses 23 main challenges, relating to different aspects of the company, such as: operational, administrative and financial efficiency, its obligation to satisfy Mexicos energy needs, its need to sustain and increase current levels of production, and the responsibility to carry out a sustainable and safe operation. These challenges show our commitment to the Mexican society, the environment, and the long-term sustainability of the company. In order to confront these challenges, PEMEX has defined four course of action, challenges action each with its own series of objectives, goals and specific strategies: 1.Growth 2.Efficiency 2 Efficiency 3.Corporate responsibility 4.Management transformation

In order to maximize PEMEXs economic value, this Business Plan considers several strategies organized into four course of action.
Efficiency Improvement of the performance of all operations through a more educated labor force and by implementing best practices p g p in all business processes as well as reducing red tape Growth Satisfaction of the growing national de a d o demand for petroleum products, achievement of increases in reserves and production of oil & gas, and use of R&D to develop competitive advantages

Maximize economic value in a sustainable manner

Upstream Downstream Distribution and Marketing Cross-Functional Issues

Corporate Responsibility Improvement of PEMEXs reputation and relationships d l ti hi with stakeholders, as well as incorporation of environmental and social responsibility criteria in all operations

Management Modernization Taking advantage of the new regulatory framework defined by the Energy Reform to increase management autonomy, accelerate PEMEXs operations and implement a resultsoriented culture
10

Elements of Analysis in the Business Plan

For each element of the value chain: Upstream (E&P), Downstream (Refining, Gas Processing and Petrochemicals), Distribution and Marketing, and Cross-Functional Issues (Finance, Human Resources, Safety, Development and Execution of Investment Projects, etc.) this Business Plan contains the following elements: Diagnosis, market analysis and a Strengths, Weaknesses, Opportunities and Threats (SWOT) analysis. Main challenges derived from the above analysis Specific strategies to face the main challenges of the business

Diagnosis

Strengths & weaknesses

Market analysis

Opportunities & threats

Main challenges of the business

Strategies to face the main challenges of the business

11

Contents

Background Course of Action and Strategies Upstream D Downstream Distribution and Marketing Cross Functional Issues Cross-Functional Expected Results Summary of PEMEXs Strategy PEMEX s Annexes

12

The main Ustream challenges are the decline of reserves and production of oil & gas, the need to increase exploratory and recovery success, maintain costs at a competitive level and gain access to mainstream technology
Diagnosis resources.
Access to reserves.

SWOT Analysis
Significant volume of prospective

Strengths

Decline of oil reserves and

Current infrastructure allows oil and gas

exploratory success.
Decline of crude oil production,

production increases within short timeframes.

Short development and production

concentration of production in mature fields and low recovery factor.

I Increase i costs and complexity of in t d l it f

cycles in onshore fields.

Low development and production costs.

Upstream investment projects.

Technological obsolescence and

Decline of reserves and production of oil

Weakness ses

limited access to mainstream technology. technology

& gas.
Portfolio of exploratory opportunities

with low average volumetric estimations.

Portfolio of production projects in latter

stages of maturity.
Lack of competence in critical p

technologies for E&P.

13

The main Upstream opportunities and threats are PEMEXs new contracting schemes (incentivized contracts), and uncertainty in future oil & gas prices and demand as well as in perforation equipment and services costs. Market Analysis SWOT Analysis
Application of the new and improved

capacity derived from the new regulatory scheme applicable to PEMEX.

Expected recovery of oil demand, p y

Op pportunities

Improved project execution

contracting scheme derived from the Energy Reform.

Internalization of PEMEX activities,

despite uncertainty about the period in which this will occur.

Expected increase in crude oil

through the acquisition of assets or participation with other companies in specific projects projects.
Income diversification through new

businesses.
Budgetary adjustments, due to lower

prices.
Expected increase in perforation

equipment and services costs.

Development and growing

income because of reduced production.

Financial markets offering limited

Threa ats

p participation of renewable energy p gy sources, but with limited impact on crude oil demand.

financing availability.
Delays in project authorizations due to

the transition to the new fiscal regime.

Hydrocarbons price volatility that might

impact the profitability of projects.

14

The current situation and the SWOT analysis thereof present three main challenges for the Upstream business.

Challenge 1: Increase hydrocarbon reserves to ensure PEMEXs long-term sustainability. Main Challen M nges Key Elements Challenge 2: Sustain and increase hydrocarbon production to satisfy the energy needs of the y country. Challenge 3: Maintain efficiency levels at international standards to improve profitability of the Upstream business, taking into account factors such as current technological obsolescence, the difficulty of acquiring state-of-the-art technology, problems and delays in the execution of investment projects, the volatility of energy prices, and the uncertainty in the growth expectations of the business.

Increase exploratory success success. Accelerate the delineation of discoveries, to reduce the uncertainty of their development. Increase recovery factor in mature fields. Successfully implement the new incentivized contracts scheme. Increase the reliability and availability of compression equipment. Increase capacity of sour gas injection in oil fields. Reduce operating and administrative costs. Implement the new costs system. l h Optimize the portfolio of investment projects.
15

Strategies in Exploration and Production

Strategies
Challenge 1: Increase hydrocarbon reserves to assure PEMEXs long-term sustainability.

1. 2. 3. 4.

Increase crude oil reserves in shallow waters and onshore. Increase the portfolio of exploratory opportunities in non-associated gas fields. Increase the probability of commercial success in deep water projects. Accelerate delineation activities to increase reserves.

Growth

Challenge 2: Sustain and increase hydrocarbon production to satisfy the energy needs of the country

5. 6. 7. 8.

Update exploitation schemes for producing fields (development and mature fields). Efficient development of complex fields (ATG1 and extra-heavy crude oil). extra heavy Reactivation of marginal, abandoned and to-be-abandoned fields. Speed up the development of recently discovered fields, to achieve timely production of crude oil and non-associated gas.

Eff ficiency

Challenge 3: Maintain efficiency levels at international standards to improve profitability in the Upstream business

9. Reduce gas flaring. 10. 10 Optimize costs associated with discovery, development production and discovery development, transportation of hydrocarbons.
(1) Aceite Terciario del Golfo

16

Contents

Background Course of Action and Strategies Upstream D Downstream Distribution and Marketing Cross Functional Issues Cross-Functional Expected Results Summary of PEMEXs Strategy PEMEX s Annexes

17

The main Downstream challenges are poor operating performance, lack of reliability in production due to delays in maintenance, and lack of flexibility in the production and logistics infrastructure.
Diagnosis SWOT Analysis
PR1: Dominant market position and

Stagnant refining capacity. p gp Operating performance below the

Weakne esses

industry average. Delays in maintenance and equipment substitution. Investment levels in the petrochemicals business below those of the leading integrated companies. Obsolete infrastructure with a small scale that limits competitiveness.

integrated refining infrastructure. PR: Refining infrastructure with deep conversion projects inprogress. PGBP2: Operational discipline. PPQ3: Market knowledge Committed and efficient labor force.

Strengths

PR: Substantial financial burden a d : Substa t al a c al bu de and

technological obsolescence. PR: Inadequate infrastructure to supply the domestic market for petroleum products. PR: Need for unscheduled maintenance works. k PR: Low energy efficiency. PGBP: Lack of flexibility in infrastructure which generates under-utilization. PPQ: Lack of long-term vision. PPQ: Operates in a non-profitable business chain with obsolete infrastructure.
18

(1) Pemex-Refining

(2/) Pemex-Gas & Basic Petrochemicals

(3) Pemex-Petrochemicals

The main Downstream opportunities and threats are market volatility, uncertainty of wet gas availability from PEP1, higher demand of petroleum products, structural changes in the natural gas and LPG2 markets, and low market share in petrochemicals. Market analysis
Imbalance between national supply and

SWOT Analysis
PR: Government funds supporting the

demand of distillates. Accelerated growth of distillates demand and decline of fuel oil demand. Investments in refining capacity associated with industrial cyclical margins. i Stricter quality specifications for petroleum products due to environmental concerns. High volatility in the petroleum products market (reduction in refining margins in the short term). Reduction in LPG demand due to structural changes in the market. Reactivation of th M i R ti ti f the Mexican petrochemical industry through the participation of third parties in the Ethylene XXI project.

development of green technologies. PGBP: Open market and business development with customer orientation, alliances and partnerships. PGBP: Increasing the utilization of processing capacity. PPQ: Higher market penetration through strategic alliances.
PR: Introduction of new technologies in the

O Opportunities s Thre eats

transportation market with impact on distillates demand and potential lib d d d t ti l liberalization of petroleum li ti f t l products market. PR: Better prospects of the Mexican market for petroleum products in the medium term. PR: Stricter environmental specifications for vehicles and industry industry. PR: Growing demand for petroleum products in foreign markets and volatility of crude oil prices. PGBP: Eventual changes in the structure of gas and LPG markets, reserves, accidents and volatility of international prices. PPQ: Low operational, managerial and financial flexibility to compete in the open market.
19

(1)

Pemex-Exploration and Production.

(2)

Liquefied Petroleum Gas

The current situation and the SWOT analysis thereof present four main challenges for the Downstream business.
Challenges Challenge 4: Achieve world class operating performance by attending to the delays in maintenance programs and placing greater emphasis on operational discipline and use of best practices. Challenge 5: Guarantee the supply of petroleum products to the Mexican market at the lowest cost, taking into account market volatility, the current low profitability of the refining business, and the stages of design, approval and execution of refining projects. Challenge 6: Process all the wet gas supplied to PGBP by PEP, taking into account that the oil and gas fields are far from the GPCs1, an expected increase in natural gas demand and its reduction in natural gas imports, and also the obligation to supply ethane to PPQ and Ethylene XXI project. Challenge 7: Increase the profitability of the petrochemical processes, considering financing and b d t t i t d technological b l budgetary constraints and t h l i l obsolescence. Key Elements
Efficient execution of investment p j projects Expedited and sufficient availability of financial resources Increase the reliability, operational efficiency and availability of processing equipment Alignment of demand and supply trends Compliance with environmental regulations Access to cutting edge technology
(1) Gas Processing Centers

20

Downstream Strategies
Strategies
Efficiency
Challenge 4: Achieve world class operating performance

11.Execute an institutional program to achieve operational excellence at Pemex-Refining. 12.Execute an institutional program to achieve operational excellence at Pemex-Gas and Basic Petrochemicals. 13.Execute an institutional program to achieve operational excellence at Pemex-Petrochemicals.
Challenge 5: Guarantee the supply of petroleum products to the Mexican market at the lowest cost

14.Deep conversion project for the Minatitln refinery to increase distillate production from residuals. 15.Deep conversion project for the Salamanca refinery to reduce residuals and increase distillate production. 16.Build a new refinery in Tula to process residuals from the existing refinery. 17.Select the lowest-cost alternative for supply of petroleum products. 18.Build new plants to produce Ultra Low Sulfur gasoline and diesel in the countrys six refineries. country s 19.Optimize the utilization of crude oil in the National Refining System. Challenge 6: Process all the wet gas supplied to PGBP by PEP 20.Increase processing capacity for the wet gas supplied by the Aceite Terciario del Golfo project. 21.Increase processing capacity for the wet gas supplied by the northern region of the country. 22.Increase processing capacity for the wet gas supplied by shallow waters and onshore areas in the central and southern regions of Veracruz. 23.Ensure the supply of ethane for the Ethylene XXI project through the construction of new wet gas processing infrastructure. Challenge 7: Increase the profitability of the petrochemical processes g p y p p 24.Rehabilitation of the Cosoleacaque ammonia plants to meet the requirements of the Energy Reform. 25.Implement technological upgrades to the aromatics reforming plant at Cangrejera.
(1) Ultra low sulfur

Growth

21

Contents

Background Course of Action and Strategies Upstream D Downstream Distribution and Marketing Cross Functional Issues Cross-Functional Expected Results Summary of PEMEXs Strategy PEMEX s Annexes

22

The main challenges in Distribution and Marketing (D&M) are low levels of costumer orientation, difficulties in meeting contractual specifications for crude oil and natural gas, and saturation and lack of flexibility in logistics infrastructure.
Diagnosis SWOT Analysis

Dominant competitive position as crude Difficulties in meeting contractual

specifications for crude oil and natural gas. Saturation and lack of flexibility in logistics infrastructure for petroleum products. High distribution costs for petroleum products. Saturation and lack of flexibility in logistics infrastructure for natural gas and LPG. Lack of focus on customers and deteriorating reputation of PEMEX. High nitrogen content in natural gas.

oil supplier on the Gulf of Mexico coast. Exclusive hydrocarbon exploration and production rights within Mexico. PGBP: Successful experience in dealing with competition competition.

Weaknesses

Strengths

Lack of a consumer-oriented culture in

p petroleum products. p Inadequate petroleum products pricing mechanism.

23

The main opportunities and threats in D&M are meeting the total demand for petroleum products in the domestic market, potential increase in the participation of third parties in the D&M businesses of natural gas and LPG, and the small market share of PPQ in the domestic market. Market Analysis
Obligation to satisfy all demand for

SWOT Analysis
Increase market share of PPQ in the Mexican

Threats

products. petroleum products High market volatility that generates price and margin uncertainty. Potential increase in the participation of third parties in the supply and distribution f PG di ib i of LPG. Regulatory change affecting first-hand sales of natural gas, forcing the sale of imports due to logistical convenience at g p , p g a regulated price, and preventing the passing along of real costs to end customers. Limited participation and increased competition in the domestic petrochemicals market. Low market share in the Mexican market for ethane, propylene and aromatics derivatives.

petrochemicals market th t h i l k t through strategic h t t i alliances. Existence of niches in the crude oil market. Open market for natural gas, and commercial development focusing on the consumer. Strategic alliances and partnerships with third parties for transportation and marketing of natural gas and LPG. Growing demand for natural gas.

Oppor rtunities

PPQ lacks of sufficient flexibility to compete in

an open market. Price regulation and natural gas regulatory policy. Structural change in the Mexican LPG market that has led to a reduction in demand in the residential sector. Growth of imports of natural gas by the CFE1 and private parties.
24

(1) Federal Electricity Commission

The current situation and the SWOT analysis present thereof three main challenges for the D&M areas.
Challenges Challenge 8: Reduce logistics costs, considering the saturation of current infrastructure, limited availability of fi il bilit f financial resources and th th t posted b private parties ability to i l d the threat t d by i t ti bilit t invest and participate in infrastructure for distribution of hydrocarbons. Challenge 9: Ensure that all products comply with contractual specifications in terms of volume, time and quality, considering the saturation of current infrastructure and limited li i d availability of fi il bili f financial resources. i l Challenge 10: Increase customer satisfaction, considering the historical lack of customer focus.

Key Elements
On-time availability of financial resources. Implement a price mechanism that recognizes real costs. I l t i h i th t i l t Ensure competitive conditions for PEMEXs clients in the provision of transportation and

storage services in association with private parties.

Understand and meet PEMEXs customer needs. Efficient planning and execution of investment projects and customer service initiatives.

25

Distribution and Marketing Strategies

Strategies
Challenge 8: Reduce logistics costs

Efficienc cy

26. Optimize t l 26 O ti i petroleum l i ti logistics 27. Increase capacity and flexibility of the National System of Natural Gas (PGBP) 28. Optimize logistics and backup capacity in LPG distribution (PGBP)

Challenge 9: Ensure that all products comply with contractual specifications in

terms of volume, time and quality 29. Build infrastructure to control and/or eliminate nitrogen content in natural gas 30. 30 Construction and optimization of infrastructure for the handling transportation and distribution of, and compliance with specifications for hydrocarbons G Growth
Challenge 10: Satisfaction of customer needs

31. 31 Modernization of the trading processes at PR 32. Modernization of the trading processes at PPQ 33. Implement a CRM1 system in natural gas and signing of long-term contracts in bundled natural gas sales g gp g y (PGBP) ) 34. Alignment of the LPG trading processes with the new regulatory framework (

(1) Client Relationship Management

26

Contents

Background Course of Action and Strategies Upstream D Downstream Distribution and Marketing Cross Functional Issues Cross-Functional Expected Results Summary of PEMEXs Strategy PEMEX s Annexes

27

The main challenges in Cross-Functional Issues are low efficiency and reliability of business processes, a limited results-oriented culture, high labor liabilities, technological obsolescence and a fiscal regime that distorts investment decisions. Diagnosis
Positive results in security, industrial safety and

SWOT Analysis

Strengths Weakne esses

environmental protection. Multiple efforts to improve operational performance with neither substantial impact nor sustained results. Inefficient business processes, lack of standardization and lack of continuous-improvement process. Inefficient procurement processes. Lack of local industrial integration with PEMEX. Planning and execution projects below international standards. Labor productivity below international standards. Limited availability of qualified personnel. Lack f L k of a corporate results-oriented culture. t lt i t d lt Lack of alignment among business objectives and personnel goals. Technological obsolescence and lack of technological development in PEMEXs core businesses. Price mechanisms that distort market conditions conditions. Growing labor liabilities. Increase in leverage levels and opportunities to reduce financing costs. Fiscal regime that has not achieved its goal of fostering Upstream investment investment.

Technically trained and experienced personnel

work. committed to disciplined work Market knowledge. New financing alternatives derived from the Energy Reform (Citizen Bonds). PEP: Access to financial resources. PGBP: Corporate vision and business process experience.

Lack of alignment among business objectives

and personnel goals. p g Limited corporate vision and lack of economic orientation. Technological obsolescence. Lack of value generation and results-oriented culture. Excessive internal regulation. Low integration and sophistication with domestic suppliers of equipment and services. Excessive procurement regulation and cases of corruption. Static and reactive planning mechanisms, which do not consider alternative scenarios and risk levels.
28

The current situation and the SWOT analysis thereof present thirteen main challenges for the Cross-Functional areas.
Keys for Success

Capital allocation on time and according to plan Development of human resources Development of project management capabilities

Challenges
Challenge 11: Ensure a safe, reliable, p g , , profitable and sustainable operation, taking into account the ongoing p , g g g processes of standardization, systematization and application of best practices, along with and the need to strengthen the environmental management of investment projects and to gain social acceptance for operations in local communities. Challenge 12: Execute investment in infrastructure projects on schedule, in accordance with budgetary provisions, and reach planned targets, outperforming a poor historic record and considering current adjustments in the project management division. Challenge 13: Add value through an efficient procurement process, considering that PEMEX has lost its purchasing advantage because of its scale, and its limited business relationships with suppliers and contractors. Challenge 14: Recruit and maintain the right technical and administrative personnel to execute our business plan, taking into account the imminent loss of key personnel and the opportunity to modernize and improve PEMEXs relationship with the Union. Challenge 15: Increase the efficiency of business processes, bearing in mind PEMEXs current lack of standards, best practices and continuous improvement systems. Challenge 16: Implement corporate governance processes to operate effectively and efficiently, given the operational, operational technical and commercial autonomy of the subsidiary entities, and their lack of entities accountability.
29

Based on the current situation and analysis of the opportunities and threats in Cross-Functional areas, we identify thirteen main related challenges (continued).
Challenges
Challenge 17: Support business growth and improvement through development of technology, to overcome obsolescence. technological obsolescence Challenge 18: Moderate the growth in labor liabilities generated by the current PEMEX pension regime. Challenge 19: Combat the illicit fuels market considering the extent of our pipeline network and limited monitoring resources. Challenge 20: Set pricing adjustments to adequately reflect market indicators, allow better operational and investment planning and avoid potential losses. Challenge 21: Propose adjustments to the taxation regime to increase financial resources for PEMEX, taking into account the high dependence of the Federal Government on PEMEX revenues. Challenge 22: Successful execution of the Business Plan in order to realize PEMEXs vision. Challenge 23: Identify and exploit opportunities that may occur in the financial markets to reduce our liabilities cost and maintain a healthy debt level.

30

Cross-Functional Issues Strategies

Corporate Responsibility

35. Consolidation and continuous improvement of the SSPA1 36. Implementation of the Sustainability, Development and Environmental Protection strategy 48. Implementation of the illicit fuels market strategy

Str rategies

E Efficiency

37. 38. 39. 40.

Implementation of Implementation of Implementation of p Implementation of

the Pemex Reliability system the Pemex Profitability system a divestment program y j g ( ) the Institutional System for Project Management (SIDP)

41. Design and implementation of an integrated and company-specific procurement business model 42. Implementation of the human resources strategy 43. Implementation of the Process Management System (SGP) 44. Increase governability of the corporate body and accountability of the subsidiary entities 45. Implementation of the Strategic Technology Program 46. Implementation of the knowledge administration system 47. Evaluate adjustments to the current pension regime j p g 49. Propose new pricing mechanisms to the SHCP2 50. Analyze and propose adjustments to the taxation regime 51. Implementation of the Strategy Management System 52. Emission of Citizens Bonds to diversify financial resources and increase transparency of the management of the company 53. Implementation of a diversified liability structure 54. Implementation of an incentive system
(1) Health, Safety and Environmental Protection System (2) Ministry of Finance and Public Credit

Mo odernization of managem ment ctices prac

31

Contents

Background Course of Action and Strategies Upstream D Downstream Distribution and Marketing Cross Functional Issues Cross-Functional Expected Results Summary of PEMEXs Strategy PEMEX s Annexes

32

The two main pillars of PEMEXs strategy are Efficiency and Growth
Value maximization is achieved when gaps are closed along both axes. In general, Efficiency initiatives depend on internal, political and statutory factors, while Growth initiatives depend on the market and the availability of resources. The value of the latter can be y p maximized only if the former are implemented.

ent) Efficiency (process improveme y i

Results: Value Maximization Deals with gaps in: Reliability Performance Human Resources Management

The operational as well as financial p results of PEMEXs strategy, are a function of the Efficiency initiatives and of the selected Growth projects, depe d g on the a et and on depending o t e market a d o budgetary feasibility. Maximizing the value of the company requires the execution of both, initiatives to improve Efficiency and Efficiency, Growth projects to meet market requirements. Executing initiatives along only one axis is not enough.

Deals with gaps in: Reserves Production Demand Logistics

Growth (reserves and infrastructure)

33

The execution of the Efficiency initiatives defined in the strategy maximizes PEMEXs value. Successful execution of the Efficiency initiatives, will help the company to achieve high operational standards and maximize the value of its infrastructure projects. The above implies that g p reductions are achieved not only in current operations, but also in p gap y p , the future through improvements in the planning, execution and operation of the Growth initiatives.

Impact of the Strategy

In current operations: Outstanding operational Efficiency and reliability Improvement in operational planning and coordination In Growth initiatives: C Continuous i improvement in planning, management and project financing

Business as usual

Efficiency

Growth

Strategy
34

The annual average investment required to implement and apply the Strategy is Ps. 369 MMM1, with the highest investment levels between 2012 and 2014.

Annual Investment (Ps. MMM1)

443 421 436

376
Corporate PPQ PGBP PR PEP

379

263

338

331

343

359

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Average Investment1 2010-2019 PEP PR PGBP PPQ Total

(1) Billions of constant 2009 pesos.

289 68 7 5 369
35

The current Business Plan demonstrates the economic value of certain strategies aiming to closing performance gaps; however, there is also further potential that must wait to be detailed.
Estimate of the gaps in value Net Return (Billion pesos/year) Net Return (Billion pesos/year, average 2010-2024) Actions to close the identified gaps
The economic value of the

1,299 1 299 1,019 280 1,282

17
Operating Quantified and Results Detailed (Business as Improvement usual + IT-OE(1): 27 Growth) E&P-OE(2): 106 Proy(3): 146 Operating Taxes, Results Depreciation (Potential , Financial Quantified) Cost and Pension Liabilities Net Return

108

125

Gaps to be Net Return Detailed (to (Potential reverse losses Estimated) in Subsidiary Entities)

(1) IT-OE: Operational Efficiency in Industrial Transformation (2) E&P-OE: Operational Efficiency in Exploration and Production (3) Proy: Improvement in the execution of investment projects

strategies aiming to close operational gaps and to improve project execution has been quantified. The results shown in the graph at left present such estimations. However there is an However, additional potential to be captured in order to reverse losses in the Subsidiary Entities. It is necessary to detail the strategies to close such gaps and to rank those existing in order to expedite the capture of their value.
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In order to reverse the negative results of certain Subsidiary Entities, elements remain to incorporated into the Business Plans strategies that have the potential to capture an additional nearly Ps. 108 MMM per year.
Increasing energy efficiency of processes
Operational Efficiency

Increasing high-value product yields Improving transportation logistics Increasing the reliability of equipment personnel and processes equipment,

Reversing operating results

Reducing management expenditures

Management

Increasing labor productivity Revising tax paying mechanisms tax-paying Revising pricing mechanisms Executing and operating deep conversion projects and petrochemical

Mkt. Opportunities

plants efficiently Integrating the ethylene and propylene chains, taking advantage of facilities of globally compete scale

Adjusting the cost cap Increasing and establishing an indexation mechanism for the cost cap in the general
Changing the fiscal regime to promote investment

regime, which cap is currently set at Ps. 6.50 per barrel of crude oil and Ps. 2.70 per million cubic feet of natural gas, each in nominal 2005 pesos. Establishing a differentiated regime for fields with significant reserves and those that are totally inactive (matured/marginal) For fields in deep waters, provision for a grace period for tax payments (tax holiday) Lowering the tax rate
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Contents

Background Course of Action and Strategies Upstream D Downstream Distribution and Marketing Cross Functional Issues Cross-Functional Expected Results Summary of PEMEXs Strategy PEMEX s Annexes

38

The main elements of this Business Plan can be grouped into four themes:
Main Ob bjectives f h I. Improvement of the current operating and financial conditions
Achieve world class

l bl l f II. Reliable supply of hydrocarbons for the country

Satisfy national demand for

d III. Maintain and increase current levels of crude oil and gas production
Maintain and increase

IV. PEMEXs sustainability

Increase the reserves-

p g performance operating p Increase productivity Increase the efficiency of administrative processes

Effective implementation

p petroleum p products at the lowest possible costs and complying with environmental regulations.
Deep conversion projects in

current levels of crude oil and gas production

p replacement ratio
Minimize environmental impact of

PEMEXs activities and projects Achieve recognition as a socially responsible company

Efficient development of Increase reserves of crude oil in

Strategic Projects c and Aspects A

of the: O f h Operating, i administrative and financial improvement of PEMEX program Development of PEMEXs human capital Alignment of personal, Union and overall enterprise objectives

h N i l Refining System the National R fi i S Expansion of gas refining and processing capacity Optimization of logistics systems Production of Ultra Low Sulfur fuels Development of personnel competencies Updating, assimilation and development of new gy technology

l fi ld d complex fields (ATG and extra-heavy crude oil) Optimization of exploitation schemes Apply enhanced recovery techniques to oil and gas fields Increase PEMEXs project execution capacity through participation of third parties On-time application of new gy technology
Production of 2.7 MMbpd of

h ll d h shallow waters and onshore.

Increase exploratory success rate

in deep waters
Consolidation and continuous

improvement of SSPA Implementation of the environmental protection strategy Implement more effective control mechanisms to prevent theft of petroleum products

Achieve positive results in

net profit in the four Subsidiary Entities by 2012 Position the National Refining System within the 2nd quartile in ti l ffi i di g operational efficiency according to international standards Reach the goal of 0.6% gas flaring by 2024

Achieve a proved reserves-

Mai Goals in

crude oil by 2012 and 3.3 MMbpd of crude oil by 2024 Production of 6.3 MMMcfpd of natural gas in 2012 and g 8.0 MMMcfpd in 2024

replacement ratio of 100% by 2012 and above 100% by 2013 Maintain a world class position in industrial security and safety y y

39

Contents

Background Course of Action and Strategies Upstream D Downstream Distribution and Marketing Cross Functional Issues Cross-Functional Expected Results Summary of PEMEXs Strategy PEMEX s Annexes

40

Senior Management

Board of Directors

General DirectionChief Executive Officer Office of the General Counsel

Mr. Jos Nstor Garca Reza Dr. Juan Jos Surez Coppel

Internal Control Body

Mr. Gustavo Ernesto Ramrez Rodrguez

Corporate Direction of Operations-Chief Operating Officer

Mr. Carlos Murrieta Cummings

Corporate Direction of Administration

Mr. Esteban Levn Balcells

Corporate Direction of Finance-Chief Financial Officer

Mr. Carlos Trevio Medina

Corporate Direction of Information Technology and Business Processes

Mr. Mauricio Abraham Galn Ramrez

Exploration and Production

Mr. Carlos Arnoldo Morales Gil

Refining
Mr. Miguel Tame Domnguez

Gas and Basic Petrochemicals

Mr. Jordy Herrera Flores

Petrochemicals
Mr. Rafael Beverido Lomeln

International Trade (PMI)

Mrs. Mara del Roco Crdenas Zubieta

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Board of Directors
Government Representatives Chairwoman
Dr. Georgina Y. Kessel Martnez

Alternate
Mr. Mario Gabriel Budebo

Secretary of Energy

Undersecretary of Hydrocarbons of the Ministry of Energy

Board Members
Mr. Ernesto Javier Cordero Arroyo

Alternates
Mr. Dionisio Prez-Jcome Friscione

Secretary of Finance and Public Credit

Dr. Alejandro Mariano Werner Wainfeld

Undersecretary of Expenditures of the Ministry of Finance and Public Credit

Dr. Ignacio Quesada Morales

Undersecretary of Finance and Public Credit

Mrs. Patricia Flores Elizondo

Advisor of the Secretary of Finance and Public Credit

Mr. Antonio Vivanco Casamadrid

Head of the Presidents Office

Mr. Gerardo Ruiz Mateos

Chief of Staff of the Presidents Office

Mr. Felipe Duarte Olvera

Secretary of Economy
Mr. Salvador Vega Casillas

Undersecretary of Competitiveness and Regulation of the Ministry of Economy

Mr. Rafael Morgan Ros

Secretary of Public Function

Undersecretary of Control and Auditing of the Public Administration

Representatives of th P t l R t ti f the Petroleum W k U i Workers Union Board Members and Union Representatives
Mr. Ricardo Aldana Prieto Mr. Fernando Pacheco Martnez Mr. Jorge Wade Gonzlez Mr. Hctor Manuel Sosa Rodrguez Mr. Pedro Garca Barabata

Alternates and Union Representatives

Mr. Hctor Javier Saucedo Garza Mr. Jess Gerardo Gonzlez Salgado Mr. Donaciano Gonzlez Hidalgo Mr. Alejandro Mendoza Guadarrama Mr. Alfredo Yuen Jimnez

Professional Members
Mr. Jos Fortunato lvarez Enrquez Dr. Hctor Moreira Rodrguez Dr. Rogelio Gasca Neri Dr. Fluvio Csar Ruiz Alarcn

Committees
Audit and Performance Evaluation Strategy and Investment Transparency and Accountability Development and Technological Research Acquisitions, Leasing, Works and Services Compensation Environmental and Sustainability

42