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March 18, 2020
2
What are the financial statements?
• Financial statements provide information about the company's financial situation and its net
income (or loss), allowing management, creditors (banks and suppliers), and regulatory
entities (stock exchanges and government agencies) to know information about PEMEX's
assets, liabilities and performance.
• All economic transactions carried out by Petróleos Mexicanos must be recorded in the
accounts and consequently form part of the financial statements.
• In the case of PEMEX, general provisions applicable to securities issuers and other
participants in the securities market, known in Mexico as Círcular Única de Emisoras,
establish that financial statements must be prepared in accordance with International
Financial Reporting Standards (IFRS).
3
Financial statement objectives
The financial statements meet two main objectives:
1. To measure the operational and financial performance of the company in a specific period;
and
2. To quantify the present value of the company considering prospective analysis of assets and
liabilities valuation in the short, medium, and long term, so valuation variables are used that
do not necessarily generate cash flow, for example, asset impairment, exchange profit or loss
on account balances denominated in foreign currency (mainly debt), well plugging, among
others.
Considerations on the interpretation of the financial statements
• Since PEMEX is a company regulated under IFRS, its accounting and therefore the financial
statements recognize the use of concepts that do not generate cash flow as part of its results.
• For purposes of correctly measuring the profitability and value generation of the company, it is
necessary to establish indicators that allow isolating the effects of such concepts for an
adequate interpretation of the business performance.
4
• For many years there has been the misconception that PEMEX does not generate value
and is not profitable. This fallacy was consolidated over more than a decade, a period in
which the financial statements began to report "accounting losses".
• A reflection based on real and documented evidence would be appropriate. We believe
that it is fair that Petróleos Mexicanos be recognized as a fundamental pillar in the
construction of the contemporary Mexican State.
• This false idea that the company does not generate value has its origin in part in the way
the financial statements are prepared, since in some cases the current value of the
company's assets and liabilities is quantified using accounting concepts that do not
generate cash flow, such as asset impairment and foreign exchange gain or loss on
balances in foreign currency (mainly debt).
Petróleos Mexicanos: a company that creates value
5
Petróleos Mexicanos: a company that creates value
9%
12%
13%
15%
19%
21%
23%
29%
30%
43%
45%
Accumulated
EBITDA Margin 2019
(% EBITDA/Sales)1• The EBITDA margin is a standard indicator at the international
level that allows us to measure how much cash, associated with
the operation, is generated by each weight of income earned
and allows us to compare our profitability with other oil
companies.
• This indicator reflects the profits or earnings that the company
obtains, before payment of interest, taxes and other accounting
expenses, such as depreciation and amortization of fixed assets
in proportion to its total sales.
• For 2019, the result reflects a competitive position of PEMEX,
being above the average of relevant oil companies in the
industry.
• With the above, Petróleos Mexicanos shows the capacity to
generate value under this standard measure of profitability.
1. PEMEX does not include variables that does not generate cash flow
Sources: Bloomberg and PEMEX’s Financial Statements 2019
6
• Net income is the final profit or loss that the company obtains from its operations after
operating expenses, financial expenses, and taxes.
• Generally speaking, subtracting depreciation, financial expenses, and taxes from
EBITDA results in net income.
• Unlike other companies in the industry, a particular feature of PEMEX's income
statements is the tax distortion.
• While other O&G companies tax primarily on the profit generated, PEMEX taxes
directly on the income associated with the level of production of hydrocarbons,
which generates the payment of duties.
Fiscal burden affects net income
7
Petróleos Mexicanos: Industry Benchmark
1. Taxes calculated for comparable companies: ISR and royalties (17.25% on oil production revenues) and PEMEX: ISR, royalties (7.5% on
production revenues) and Profit-Sharing Duty.
Source: Bloomberg & PEMEX’s Financial Statements 2019.
Industry Tax Methodology: Upstream Petroleum, Fiscal and Valuation Modeling, by Kent Karriel & David Wood, 2015
9%
12%
13%
15%
19%
21%
23%
29%
30%
43%
45%
Accumulated
EBITDA Margin 2019
(EBITDA/Sales)
20%
25%
29%
32%
35%
38%
38%
41%
52%
52%
105%
Accumulated
Taxes & Duties / EBITDA
20191
• PEMEX has a proportion of taxes and
duties on EBITDA of 105%, this is above
comparable companies.
• For the group of companies presented,
the average proportion of taxes and
duties on EBITDA is 36.2%.
• That is, PEMEX generates value for
the country and operates with
profitability levels above the industry
average, but the tax regime it has,
generates in accounting terms, annual
net losses
8
Crude oil production, oil price, and impact on federal
government budget revenues
Enrique PeñaFelipe CalderónVicente FoxErnesto ZedilloCarlos
Salinas
2.5 2.7
2.7
2.7
2.7
2.6 2.9 3.0 3.1
2.9 3.0 3.1 3.2 3.4
3.4
3.3
3.3
3.1
2.8
2.6
2.6
2.6
2.5
2.5
2.4
2.3
2.2
1.9
1.8
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
Crude oil production
(Million barrels per day)
18.7
14.6
14.9
13.2
13.9
15.7
18.9
16.5
10.2
15.7 24.8
18.7
21.5
24.7
31.0 42.8 53.1 61.7
84.4
57.6 7
2.3 1
01.2
102.0
98.5
86.1
43.2
35.5 46.4 6
1.5
Mexican Oil Mix
(USD per barrel)
27
%
22
%
20
%
22
%
19
%
29
% 32
%
29
%
22
%
21
%
27
%
24
%
21
%
28
%
33
% 36
% 40
%
37
% 44
%
31
% 35
% 38
%
39
%
35
%
31
%
20
%
16
%
17
% 19
%
Oil revenues /
Total Budgetary
Income
(%)
• It is important to
recognize that this
excessive tax
burden on PEMEX
allowed the
financing of the
public budget.
• In 2008, 44 cents
of each peso of the
public sector
budget came from
the income
generated by
PEMEX.
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
9
Public sector oil revenues(Constant MXN million 2019 = 1001)
1. Base INPC.
Source: Estadísticas Oportunas de Finanzas Públicas
Enrique Peña
7,046
Felipe Calderón
9,771
Vicente Fox
5,947
Ernesto Zedillo
3,604
Carlos Salinas
2,522
1,256
1,5351,518
1,953
1,294
1,463
1,7071,837
1,713
1,495
1,011915 898
1,014
705634 596
856
1,070
569497 484522
449576
691 688
463 481
955
Andrés Manuel
López Obrador
955
PEMEX has contributed to the country
MXN 29.8 trillion over the last three decades
10
PEMEX: a company that creates value
1. Preliminary figures. For oil revenues these are PEMEX data and the rest are data from shcp.gob.mx.
4,429
875
2019
Oil revenues
Public Sector Budgetary IncomeMXN billion
Taxes, duties and
other non-oil
revenues
The income that
PEMEX contributes
to the State is
equivalent to
1.5 times health
public expenditure.
1.2 times
education public
expenditure.
1
11
Distortion of non-cash items on
PEMEX's income statements
12
Comprehensive income (loss) (includes non-cash items)1
Constant MXN billion (2019=100)
1. Includes impairment, foreign exchange profit or loss, and non-successful wells
-74
-168
-525
112
-673 -753
-74
-305
45
-658
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
• PEMEX’s reached its greatest accounting
losses, measured by comprehensive loss,
during 2014 and 2015.
• However, comprehensive income (loss) should
be taken with care, since it is a mix of variables
that generate cash flow and others are non-
cash items.
• In other words, this item does not reflect
PEMEX’s profitability during the period.
13
Cash flow variables examples, 2019 Non-cash ítems examples, 2019
Concept MXN million
Assets impairment 76,973
Losses from waiting, non-
viable, and non-successful
wells
76,279
Actuarial losses due to
employee benefits320,525
Concept MXN million
Total sales 76,973
General expenses 76,279
Exploration expenses 320,525
14
Adjusted Net income (loss) (without non-cash items)1
Constant MXN billion (2019=100)
1. Is the net loss without non-cash items
-75.2 -61.7 -39.8
-171.0 -195.0
-68.4
-277.0
-165.6
-220.7
-276.6
-658.0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2019
• If you isolate the effect of non-cash
items in net loss, the amount is
considerable reduced
• Without non-cash variables effect,
the principal item that explains the
accounting losses of PEMEX is the
high tax burden, not the operation
• In the following two slides the
breakdown is presented.
15
Composition of effects on comprehensive loss
(MXN million)
-320,525
-76,973
-76,279
-262,262
77,909
2019
-658,130 Comprehensive loss
Actuarial losses due to employee benefits.
Non-cash item
Assets impairment
Non-cash item
Losses from waiting, non-viable, and non-successful
wells Non-cash item
Cash flow variables, fundamentally explained by
taxes and duties (MXN 360 billion in 2019).
72% of the
comprehensive loss as
of 2019 is explained by
non-cash items, in
other words are virtual
accounting effects
Unrealized exchange profit
16
PEMEX: 2019 financial statement(MXN billion)
1. Includes assets impairment, and losses from waiting, non-viable, and non-successful wells
2. Correspond to actuarial losses due to employee benefits
Total
Sales
Cost of sales
Cash Flow Non-cash
Flow1
Gross Income General
Expenses
Operating
Income
Financial Cost Foreign
Exchange
Profit
Profit
sharing in
associated
companies
Income
before taxes
and duties
Taxes and
duties
Net loss Other
comprehensive
results
(Actuarial
loss)2
Comprehensive
loss
1,403
-850
-337
217
-147
70
-142
87
-1
14
-360 -346
-312 -658
Includes MXN 18,401 million
of non-cash item
Non-cash item
Non-cash item Non-cash item
These are not
proportionate to
the profit
17
Non-cash items examples
18
Example #1: actuarial loss
• The actuarial gains or losses are the changes in
the present value of the obligation due to changes
in the actuarial assumptions, in this case the
discount rate used went from 9.29% in December
2018 to 7.53% in December 2019, i.e. a decrease
of 176 basis points that generated an impact of
MXN 320 billion of actuarial losses.
• In 2018, the discount rate increased and
generated an actuarial income of MXN 231 million.
• This change, according to the accounting
technique, is recorded in Equity, but does not
constitute a cash flow variable except if on
December 31, 2019 all the company's labor
liabilities had been settled.
2019 2018
Opening balance 1,081,094 1,259,098
+
Period net cost
(affects income statement) 115,331 114,359
Actuarial losses (gains)
(affects equity) 320,525 -231,718
Sub total 1,516,951 1,141,739
minus
Payments -60,129 -61,197
PEMEX's reserve for employee benefits 1,456,821 1,080,542
Petróleos MexicanosReserve for employee benefits
MXN million
19
Example #2: financial cost increase
1. Lease interests. As of 2019, the IFRS 16 "Leases" came into effect, which establishes that
for all service contracts involving the use and control of a specific asset, an asset must be
recorded for the right to use that asset and a liability for the lease, the valuation of the liability
is made at a discounted value and a financial cost is recognized for its updating, this item
reached in 2019 an amount of MXN 5,403.89 million.
2. Financing cost for wells plugging. PEMEX is responsible for the plugging of the wells that it
abandons. A liability must be registered for the amount of the obligations that it must pay for
leaving the exploited areas in original conditions, and update that provision using a discount
rate (the average discount rate for 2018 was 13.5% and 10.6% for 2019).
The effects of the restatement of financing cost do not represent a cash flow per se, since it is
an obligation that will be paid when the wells are abandoned and there is an obligation to plug
them. In 2019, the financial cost of this provision was MXN 18,401 million.
20
Example #2: financial cost increase
• The interest cost of the debt decreases in
2019.
• However, by 2019, the accounting standard
incorporates as financial cost the concept of
lease interest that increases the total financial
cost.
• Finally, the concept of well plugging is
included, which is a non-cash item but has a
negative impact of MXN 18,401 million.
MXN million
2019 2018 Nominal %
Financial cost 124,151.31 127,497.22 -3,345.91 -3%
Leases interests (IFRS 16) 5,403.89 5,403.89 N/A
Financial cost of wells plugging 18,401.70 -6,770.20 25,171.90 137%
Subtotal financial cost 147,956.90 120,727.02 27,229.88 18%
Cost of financial derivatives 18,512.03 22,258.61 -3,746.59 -20%
Total financial cost 166,468.93 142,985.64 23,483.29 14%
Minus
Financial income 24,449.19 31,557.12 -7,107.94 -29%
Net financial cost 142,019.74 111,428.51 30,591.23 22%
Petróleos MexicanosFinancial cost
Change
21
Why are the results of 2019 so different from those of 2014
and 2015?
• Oil production was falling.
• The 1P reserves fell.
• Investment was falling at a rate of -13.2%.
• In 2015 PEMEX registered a net debt of
MXN 486 billion
• The tax burden remained unchanged.
• Sales costs grew.
• The decline in oil production was stopped.
• By January 2020, production increased by
101 Mbd.
• 1P reserves grow by almost 180 Mmboe.
• Investment grew by 13.6%.
• PEMEX recorded a net debt reduction of
MXN 29 billion.
• The Profit-sharing duty tax burden for 2020
and 2021 decreases by 7 and 4%
respectively.
• Administration costs and expenses are
decreasing.
2014 & 2015 2019 & 2020
22
Concluding remarks
• If in the last decade PEMEX had not had a confiscatory tax regime, its financial statements would
reflect positive results.
• Under this "accounting loss" model, the Mexican State has captured oil income via taxes. However,
this model forced PEMEX to get into debt in order to bear the fiscal burden, a decision that is clearly
irrational and inefficient, because PEMEX's debt is more expensive than the debt contracted by the
federal government.
• This government made the historic decision to reduce PEMEX's excessive fiscal burden.
• At the end of 2019, at the request of the Executive, the Congress of the Union approved the initiative
of a Law to modify the rate of the Profit-Sharing Duty, which represents more than 80 percent of the
direct tax burden of the company.
• With this initiative, the tax rate was reduced from 65 to 58 percent by 2020 and there will be an
additional reduction of 4 percent in 2021.
• For the company, these reductions in the tax burden, will mean savings of approximately MXN 45
billion in 2020, and almost MXN 95 billion in 2021.
Variations
If no further specification is included, comparisons are made against the same realized period of the last year.
Rounding
Numbers may not total due to rounding.
Financial Information
Excluding budgetary and volumetric information, the financial information included in this report and the annexes hereto is based on unaudited consolidated financial statements prepared in accordance with International Financial Reporting Standards as issued by the International
Accounting Standards Board (“IFRS”), which PEMEX has adopted effective January 1, 2012. Information from prior periods has been retrospectively adjusted in certain accounts to make it comparable with the unaudited consolidated financial information under IFRS. For more information
regarding the transition to IFRS, see Note 23 to the consolidated financial statements included in Petróleos Mexicanos’ 2012 Form 20-F filed with the Securities and Exchange Commission (SEC) and its Annual Report filed with the Comisión Nacional Bancaria y de Valores (CNBV).
EBITDA is a non-IFRS measure. We show a reconciliation of EBITDA to net income in Table 32 of the annexes to PEMEX’s Results Report as of December 31, 2019. Budgetary information is based on standards from Mexican governmental accounting; therefore, it does not include
information from the subsidiary companies or affiliates of Petróleos Mexicanos. It is important to mention, that our current financing agreements do not include financial covenants or events of default that would be triggered as a result of our having negative equity.
Methodology
We might change the methodology of the information disclosed in order to enhance its quality and usefulness, and/or to comply with international standards and best practices.
Foreign Exchange Conversions
Convenience translations into U.S. dollars of amounts in Mexican pesos have been made at the exchange rate at close for the corresponding period, unless otherwise noted. Due to market volatility, the difference between the average exchange rate, the exchange rate at close and the spot
exchange rate, or any other exchange rate used could be material. Such translations should not be construed as a representation that the Mexican peso amounts have been or could be converted into U.S. dollars at the foregoing or any other rate. It is important to note that we maintain our
consolidated financial statements and accounting records in pesos. As of December 31, 2019, the exchange rate of MXN 18.8452 = USD 1.00 is used.
Fiscal Regime
Beginning January 1, 2015, Petróleos Mexicanos’ fiscal regime is governed by the Ley de Ingresos sobre Hidrocarburos (Hydrocarbons Revenue Law). From January 1, 2006 and to December 31, 2014, PEP was subject to a fiscal regime governed by the Federal Duties Law, while the tax
regimes of the other Subsidiary Entities were governed by the Federal Revenue Law.
On April 18, 2016, a decree was published in the Official Gazette of the Federation that allows assignment operators to choose between two schemes to calculate the cap on permitted deductions applicable to the Profit-Sharing Duty: (i) the scheme established within the Hydrocarbons
Revenue Law, based on a percentage of the value of extracted hydrocarbons; or (ii) the scheme proposed by the SHCP, calculated upon established fixed fees, USD 6.1 for shallow water fields and USD 8.3 for onshore fields.
The Special Tax on Production and Services (IEPS) applicable to automotive gasoline and diesel is established in the Production and Services Special Tax Law “Ley del Impuesto Especial sobre Producción y Servicios”. As an intermediary between the Ministry of Finance and Public Credit
(SHCP) and the final consumer, PEMEX retains the amount of the IEPS and transfers it to the Mexican Government. In 2016, the SHCP published a decree trough which it modified the calculation of the IEPS, based on the past five months of international reference price quotes for gasoline
and diesel.
As of January 1 2016, and until December 31, 2017, the SHCP will establish monthly fixed maximum prices of gasoline and diesel based on the following: maximum prices will be referenced to prices in the U.S. Gulf Coast, plus a margin that includes retails, freight, transportation, quality
adjustment and management costs, plus the applicable IEPS to automotive fuel, plus other concepts (IEPS tax on fossil fuel, established quotas on the IEPS Law and value added tax).
PEMEX’s “producer price” is calculated in reference to that of an efficient refinery operating in the Gulf of Mexico. Until December 31, 2017, the Mexican Government is authorized to continue issuing pricing decrees to regulate the maximum prices for the retail sale of gasoline and diesel
fuel, taking into account transportation costs between regions, inflation and the volatility of international fuel prices, among other factors. Beginning in 2018, the prices of gasoline and diesel fuel will be freely determined by market conditions. However the Federal Commission for Economic
Competition, based on the existence of effective competitive conditions, has the authority to declare that prices of gasoline and diesel fuel are to be freely determined by market conditions before 2018.
Hydrocarbon Reserves
In accordance with the Hydrocarbons Law, published in the Official Gazette on August 11, 2014, the National Hydrocarbons Commission (CNH) will establish and will manage the National Hydrocarbons Information Center, comprised by a system to obtain, safeguard, manage, use,
analyze, keep updated and publish information and statistics related; which includes estimations, valuation studies and certifications. On August 13, 2015, the CNH published the Guidelines that rule the valuation and certification of Mexico’s reserves and the related contingency resources.
As of January 1, 2010, the Securities and Exchange Commission (SEC) changed its rules to permit oil and gas companies, in their filings with the SEC, to disclose not only proved reserves, but also probable reserves and possible reserves. Nevertheless, any description of probable or
possible reserves included herein may not meet the recoverability thresholds established by the SEC in its definitions. Investors are urged to consider closely the disclosure in our Form 20-F and our Annual Report to the CNBV and SEC, available at http://www.pemex.com/.
Forward-looking Statements
• This report contains forward-looking statements. We may also make written or oral forward-looking statements in our periodic reports to the CNBV and the SEC, in our annual reports, in our offering circulars and prospectuses, in press releases and other written materials and in oral
statements made by our officers, directors or employees to third parties. We may include forward-looking statements that address, among other things, our:
• exploration and production activities, including drilling;
• activities relating to import, export, refining, petrochemicals and transportation, storage and distribution of petroleum, natural gas and oil products;
• activities relating to our lines of business, including the generation of electricity;
• projected and targeted capital expenditures and other costs, commitments and revenues;
• liquidity and sources of funding, including our ability to continue operating as a going concern;
• strategic alliances with other companies; and
• the monetization of certain of our assets.
• Actual results could differ materially from those projected in such forward-looking statements as a result of various factors that may be beyond our control. These factors include, but are not limited to:
• changes in international crude oil and natural gas prices;
• effects on us from competition, including on our ability to hire and retain skilled personnel;
• limitations on our access to sources of financing on competitive terms;
• our ability to find, acquire or gain access to additional reserves and to develop the reserves that we obtain successfully;
• uncertainties inherent in making estimates of oil and gas reserves, including recently discovered oil and gas reserves;
• technical difficulties;
• significant developments in the global economy;
• significant economic or political developments in Mexico;
• developments affecting the energy sector; and
• changes in our legal regime or regulatory environment, including tax and environmental regulations.
Accordingly, you should not place undue reliance on these forward-looking statements. In any event, these statements speak only as of their dates, and we undertake no obligation to update or revise any of them, whether as a result of new information, future events or otherwise. These
risks and uncertainties are more fully detailed in our most recent Annual Report filed with the CNBV and available through the Mexican Stock Exchange (http://www.bmv.com.mx/) and our most recent Form 20-F filing filed with the SEC (http://www.sec.gov/). These factors could cause
actual results to differ materially from those contained in any forward-looking statement.
Forward-Looking Statement & Cautionary Note