ENERGY ALERT

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Jul 21, 2017 - o Period for getting access to the data room (purchase of the License for the use of information): it was
July 21, 2017

ENERGY ALERT CNH makes call for bids of 30 Deep Water blocks for extraction and exploration of hydrocarbons / Some modifications in the bidding terms were announced in the Ogarrio and Cardenas More Farm Outs On July 19, 2017, the Hydrocarbons Commission in Mexico published the drafts of the call for bids and license contract for Round 2 Phase 4 – Exploration and extraction of hydrocarbons in deep-water and announced some modifications to Ogarrio and Cardenas – Mora Farm Outs. Below is a summary of the most important terms and conditions of the drafts of the call for bids and Contracts. Deep-water bidding – Round 2.4: ►

• The CNH will bid 30 contractual areas in the following zones:

Bidding Terms: ► • Interested Parties should pay $39.3 MXP to have access to the data rooms. Such payment is only mandatory for the Operator. It is worth mentioning that companies which previously acquired the License codes for the use of the information that corresponds for this bidding should not be required to make this payment. • Both Operator and non-Operators shall cover the Registry fee of $750,000 MXP. ► The Bidding day will take place on January 24, 2018. The chart below illustrates the most important dates of the bidding process:

• To prequalify for the bidding process companies have to demonstrate among others, the following: o Technical Requirements: i. Participation in the last 5 years in at least one project of exploration and extraction of hydrocarbons in deep or ultra-deep waters with more than 500 meters of depth; and ii. Capital investments in exploration and/or extraction projects of at least $2 billion USD; and iii. Experience in industrial safety. o Financial Requirements: Operator: i. Shareholder’s equity of at least $2 billion USD; or ii. Investment of assets of at least $10 billion USD and an investment credit rate. Non-operator: iii. Shareholder’s equity of at least $250 million USD ► • Unlike previous bids, it is established that modifications can be made to the prequalification requirements. • Oil and Gas associations such as the Mexican Association of Hydrocarbons Companies (“AMEXHI” per its acronym in Spanish), will be able to allowed to request formal meetings with CNH in order to provide comments and feedback of the industry regarding the Bidding Guidelines. • Bidders will be able to participate as an individual bidder or as part of one or more consortiums with another operator or non-operator; unlike previous rounds, it was mentioned that there will be no limitation regarding to the number of Consortiums in which an Interested Party may participate. However, the restriction of only submitting one proposal by Contractual Area under any figure the Bidder participates (Individual Bidder or Consortium) remains.

• The weighted average of the offer or biding factor to determine the winner will be calculated considering the value of the over-royalty, determined as percentage of the contractual value of the hydrocarbons, and the additional investment factor related to the minimum work program, according to the formula provided in the bidding terms. • In this regard, unlike previous rounds, it was established that just with the fact of bidding the Maximum Bid Variables of i) Over- Royalty (pending to be published), and ii) the Additional Commitment Factor (2 wells); the “Signing Bonus” that is offered in case of a tie, will automatically became part of the Economic Value of the Proposal. In other words, even in the case that there is no tie in the Economic Value of Proposals, with only the fact of bidding the Maximum Bid Variables, the Bidder will have the obligation to pay the “Signing Bonus”. • Winning Bidder should provide a Bid Guarantee of $3 million USD for each proposal. • The amount of Work Units committed as Minimum Work Program are the following:

• It is worth mentioning that the Work Units committed as additional to the Minimum Work Program, is equivalent to the value of the exploratory wells that are offered in the Economic Proposal, as shown in the following table:

• Finally, the Contractor would be able to accumulate Work Units per meter drilled in each exploratory well in accordance with the following table:

License for the Exploration and Extraction of Hydrocarbons in Deep Waters: • License contracts will be applicable. • As stated by the Mexican constitution the Contract provides that hydrocarbons remain property of the Government. The Contractors will have the right to the onerous transfer of the hydrocarbons produced. • The initial term of the Contracts will be 35 years. The term may be extended for 2 more periods. Frst extension could be of 10 years and the second extension of 5 years. • Contracts include a transition phase of 180 days. In such period the CNH will provide among others the following: o Available information of the Contractual Area for wells and materials, o Assets inventory, o Environmental, industrial safety and operational safety authorizations, and o The social impact study prepared by the Ministry of Energy, as well as the information related to Social Liabilities. o Environmental base line. • Contractors have to file a letter of credit as guarantee to comply with their obligations related to the minimum work program. • Contractors should also provide a Corporate Guarantee issued by their ultimate holding company or by another entity. In case the Corporate Guarantee is not issued by the ultimate holding company the contractors should file audited consolidated financial statements that demonstrate a shareholder’s equity of $5.0 billion USD. In case of a Consortium, the amount should be equal to the $5.0 billion USD multiplied by its percentage of Working Interest. • Local content obligations are included: 3%, 6% and 8% during the Exploration Phase and from 4% to 10% during the Development Phase. However, by initiative of one of the CNH’s commissioners, it will be requested by the CNH to the Ministry of Economy to increase the percentage during the Development Phase from 10% to 24% in order to further promote the development of the Mexican industry. The proposal is that this new percentage could be reached 10 years after the effective date of the Contract. ► • Contractors may relinquish certain areas of the blocks. ► • Provisions related to the relinquishment of areas and unifications are included. ► • Contractors will be able to commercialize the production by themselves or using other parties. ► • The consideration for the Government will be the i) quota for exploration phase, ii) royalties and iii) over-royalties that will be adjusted according to an R-factor included in the Contracts. The consideration for the contractor will be the onerous transfer of the hydrocarbons. ► • R-factor should be computed on a quarterly basis and is based on the profitability of the contractor. • The Contracts include provisions to determine the value of hydrocarbons similar to the ones included in prior rounds. Farm Outs – Ogarrio and Cardenas/ Mora: The most important modifications that were made to the Bidding Guidelines, License Contract and the Joint Operating Agreement (“JoA”) are the following: ► • Prequalification requirements: o Technical Requirements: • In the Cardenas Mora Farm Out, the wording was changed in order to make technical requirements much more flexible. In the prior version of the Bidding Guidelines it was required proof of experience as Operator in onshore projects of carbonate deposits. With the new modifications, now it is only required to demonstrate experience as Operator in Onshore projects. • Definition of the term “mature field” was included. • Minimum level of production during the last five years was reduced from 10 Mboed to 5 Mboed. o Financial Requirements: • Shareholder’s equity requirement was reduced from $150 MUSD to $130 MUSD. • It was confirmed that just with the fact of bidding the Maximum Bid Variable of Over- Royalty (pending to be published), the “Signing Bonus” that is usually offered in case of a Tie, will automatically become part of the Economic Value of the Proposal. In other words, even in the case that there is no tie in the Economic Value of the Proposals, with only the fact of offering the Maximum Bid Variable, the Bidder will have the obligation to pay the “Signing Bonus”.

• The Calendar Dates were also extended. The most relevant modifications are the following: o Period for getting access to the data room (purchase of the License for the use of information): it was extended from July 25 to August 3rd. o Period for the payment of the registry fee and request of prequalification appointment: it was extended from July 28 to August 8. o The Bidding Day remains on October 4th, 2017. • As per SENER request, the JoA was lined up in certain way with the provisions of the License Contract regarding to Pre-existing Damages. Even that there are still some prior environmental contingencies from Pemex that could affect the Winning Bidder, the responsibility and expenses of pre-existing damages will be assumed in accordance with the following: o For wells and certain materials that are determined as not useful for oil activities of the License Contract, PEP will be the responsible party. o For wells and certain materials that are determined as useful for oil activities of the License Contract, PEP and the Winning Bidder will be the responsible in proportion to their participation. • It was clarified that Signing Bonus will be split between Pemex and State in an 80% / 20% proportion. Said “Signing Bonus”, should be paid before the execution of the Contract. • It was clarified that the Initial Payment ($190 million USD for Ogarrio and $125 million USD for Cardenas – Mora) for Pemex will be structured in the following manner: o An uncertain amount (which should be defined soon by Pemex) plus VAT as purchase of the 50% of the ownership of the assets located in the Contractual Area and that are listed in the JoA. o An uncertain amount (which should be defined soon by Pemex) plus VAT as payment for the right to participate in the oil and gas activities of the Contractual Area. o Pemex is granting the flexibility to pay 50% of this considerations before the signing of the License Contract and the remaining 50% one year later after signing of the License Contract. However, it will request the issuance of a letter of credit for an amount equal to the remaining 50% total balance. o It will be of quite relevance to determine the tax treatment of this payments made to Pemex from an Corporate Income Tax perspective. • It was confirmed the alternative that the Winning Bidder will have to sell to PEP its proportion of hydrocarbons for a 12 month period. • The following appendixes were included in the JoA, which should be of quite relevance to analyze it as it includes important obligations for the Winning Bidder: o Accounting Procedures for the registration to be carried out by the Operator in the Joint Operating Account (i.e. accounting records / electronic systems required by the Winning Bidders, Eligible Expenses that can be registered in the Joint Operating Account, access to Non-Operators) o List of Positions of Personnel Commission (Personnel that may be designated by Pemex) o Personnel Commission Agreement (Personnel service contract that will be executed with Pemex) o Model of Temporary Contract for the sale of Oil and Natural Gas to Pemex ► Transition Phase provided by the License Contract will be extended from 120 to 180 days. • Unless it is an Extraction Contract, it was included in the License Contract the alternative of requesting to CNH the authorization to carry out Exploration activities.

Contacts: Alfredo Alvarez [email protected] Rodrigo Ochoa [email protected] Enrique Pérez-Grovas [email protected] Javier Noguez [email protected] Rodrigo Mondragon [email protected] Jimena González de Cossío [email protected] José Fano [email protected] Yuri Barrueco [email protected] Elizabeth Ceballos [email protected] Salvador Meljem [email protected]