Petroleos Mexicanos...VP-Sr Credit Officer [email protected] Marianna Waltz, CFA...

CORPORATES

CREDIT OPINION30 March 2018

Update

RATINGS

Petroleos MexicanosDomicile Mexico City, Ciudad de

Mexico, Mexico

Long Term Rating Baa3

Type LT Issuer Rating - FgnCurr

Outlook Negative

Please see the ratings section at the end of this reportfor more information. The ratings and outlook shownreflect information as of the publication date.

Contacts

Nymia Almeida 52-55-1253-5707VP-Sr Credit [email protected]

Marianna Waltz, CFA 55-11-3043-7309MD-Corporate [email protected]

CLIENT SERVICES

Americas 1-212-553-1653

Asia Pacific 852-3551-3077

Japan 81-3-5408-4100

EMEA 44-20-7772-5454

Petroleos MexicanosSemiannual update

SummaryPetroleos Mexicanos's (PEMEX) Baa3 ratings are based on its b3 Baseline Credit Assessment(BCA, a measure of a company's standalone credit strength) and takes into consideration thecompany's large proved hydrocarbon reserves; daily production averaging 2,648,000 barrelsof oil equivalent per day (boe/d) in 2017; dominant role and integrated operations in theenergy industry in Mexico; and position as a major crude oil exporter to the US. However, itsratings are hurt by a heavy tax burden and the resulting weak free cash flow; high financialleverage and low interest coverage; and challenges related to production.

Exhibit 1

Reserve profile evolutionPetroleos Mexicanos

1,253 1,159 1,080 956 967 967

12,102

9,412 8,383 8,383

7,715 7,049

9.7

8.17.8

8.7

8.0

7.3

0.0

2.0

4.0

6.0

8.0

10.0

12.0

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

2014 2015 2016 2017 2018e 2019e

ye

ars

millio

n b

oe

Total Production Total Proved Reserves Reserve Life

All figures and ratios are calculated using Moody's estimates and standard adjustments. Moody's forecasts are Moody's opinionand do not represent the view of the issuer.Source: Moody's Financial Metrics™

https://www.surveygizmo.com/s3/1133212/Rate-this-research?pubid=PBC_1115310

https://www.moodys.com/credit-ratings/Petroleos-Mexicanos-credit-rating-94100

MOODY'S INVESTORS SERVICE CORPORATES

PEMEX's Baa3 ratings also take into consideration our joint default analysis, which includes our assumptions of government support incase of need, resulting in six notches of uplift from the company's b3 BCA.

Credit strengths

» Large size of reserves and production compared with those of its peers

» The 2013 energy law that benefits the company in the medium term, although it is also accompanied with execution risk

» Government-related issuer, with very high implied government support

Credit challenges

» Weak liquidity and declining reserve life

» High fiscal and debt burden

» Weak credit metrics

Rating outlookThe negative outlook on PEMEX's Baa3 ratings reflects mostly the negative outlook on the rating of the government of Mexico.However, it also reflects the risk that the company's credit profile deteriorates more substantially than the weakening incorporated intoits b3 BCA if managerial and operating discipline weakens. We could revise the outlook to stable if PEMEX reverts the current trend ofcontinued increase in leverage and shows signs that it can improve its operating and financial profiles sustainably in the medium term.

Factors that could lead to an upgradeAn upgrade of PEMEX's ratings is unlikely over the near term, as indicated by the negative outlook. For an upgrade to be considered,the company would need to improve its liquidity position and operating profile further, reduce debt and increase retained cash flow.Simultaneously, we would have to at least maintain our current expectations for sovereign support. Improving operating metrics anda lower tax burden that supports higher levels of internal funding for capital spending and prospects for a solid trend of increases inproduction and reserves could benefit the company's BCA.

Factors that could lead to a downgradeIncreasing liquidity concerns, material increase in financial leverage or significant deterioration in production could result in adowngrade of PEMEX's BCA and debt ratings. In addition, because PEMEX's ratings benefit from implicit support from the governmentof Mexico, a downgrade of the government's rating or a change in our assumptions about government support could lead to adowngrade of PEMEX's ratings.

2 30 March 2018 Petroleos Mexicanos: Semiannual update


Key indicators

Exhibit 2

Petroleos Mexicanos

Petroleos Mexicanos

US Millions Dec-14 Dec-15 Dec-16

LTM

(Dec-17) 2018e 2019e

Average Daily Production (MBOE / Day) 3,432.4 3,173.9 2,950.8 2,648.8 2,650.0 2,623.0

Total Proved Reserves (MMBOE) 12,101.8 9,412.0 8,383.0 8,383.0 7,109.0 6,452.0

Crude Distillation Capacity (mbbls/day) 1,602.0 1,640.0 1,602.0 1,602.0 1,602.0 1,602.0

Downstream EBIT/Total Throughput Barrels (17.68)$ (11.01)$ (10.29)$ (12.12)$ (2.50)$ (2.50)$

EBIT / Interest Expense 6.5x -0.4x 3.6x 1.3x 1.6x 1.6x

RCF / Net Debt 3% -1% -1% 3% 1% 1%

Debt / Book Capitalization 142% 195% 164% 191% 167% 160%

EBIT / Avg. Book Capitalization 37% -3% 33% 12% 13% 15%

All figures and ratios are calculated using Moody's estimates and standard adjustments. Moody's forecasts are Moody's opinion and do not represent the view of the issuer. Periods areFiscal year-end unless indicated. LTM = Last 12 months.Total proved reserves for Dec-17 from latest available reserve report as of 1 January 2017.Data as of 2017 from BMV report.Source: Moody's Financial Metrics™

ProfileFounded in 1938, PEMEX is Mexico's productive state-owned enterprise. The company's oil-dominant status will change with thecontinued implementation of the 2013 energy law, although, in the foreseeable future, PEMEX will remain the main energy company inthe country, with fully integrated operations in oil and gas exploration and production (E&P), refining, distribution and retail marketing,as well as petrochemicals.

PEMEX is also a leading crude oil exporter, with over 50% of its crude exported to various countries, mainly to the US. In December2017, the company posted $74.4 billion in revenues and $106 billion in assets. In that year, PEMEX's royalties, tax, duties and otherpayments to the government amounted to about 17.6% of the latter's annual budget. As of that year, PEMEX produced an averageof 1,948,000 barrels per day (bpd) of crude oil and had total proved reserves of 8.4 billion barrels of oil equivalent (boe), whichrepresented 8.7 years of reserve life.

Exhibit 3

Revenue breakdown by business segmentExhibit 4

EBITDA breakdown by business segment

E&P27%

Industrial Transformation34%

Logistics3%

Trading Companies36%

Industrial Transformation refers mostly to refining and marketingData as of December 2017Source: PEMEX's Mexican Stock Exchange financial report

E&P88%

Industrial Transformation-6%

Logistics3%

Trading Companies3%

Industrial Transformation refers mostly to refining and marketing.Data as of December 2017Source: PEMEX's Mexican Stock Exchange financial report



Detailed credit considerationsHigh fiscal burden and elevated financial leverageIn 2014-16 period, PEMEX's leverage increased to fund large outflows for taxes, duties and capital spending without achieving sustainedincreases in production or operating efficiencies. In 2015 in particular, despite the sharp decline in oil prices that began in late 2014,the company's operating expenses were resilient, with negative effect on credit metrics. The year 2016 represented a turnaround, andPEMEX focused on cost optimization and standardization of processes, reducing operating expenses by around 45%. The companyis currently focused on strategic and profitable activities; hence, 2017 was a year of stabilization. Revenue grew as a result of highercrude and fuel prices as well as higher volumes of gasoline sales. Expenses were stable, in line with PEMEX's cost-efficiency policyimplemented in 2016.

PEMEX's pretax cash flow is robust and could support high levels of investment, but capital retention and investment have beenstymied by its heavy tax burden. PEMEX has the lowest production costs in Latin America, about $9.5 per barrel, including royalties,although its tax burden was equivalent to roughly $57 per barrel in 2015, as per the company. PEMEX has traditionally paid out allof its EBITDA in the form of taxes and duties, leaving it with the need to incrementally raise debt to finance fixed charges and capitalspending.

We believe that the company will continue to provide most of its operating cash to fund around 15% of the government's annualbudget in the next three to four years. In the longer term, however, as the share of new oil E&P activity increases the company'sportfolio of projects, PEMEX's tax burden should gradually decline, based on the new tax regime for the oil industry, as established inthe 2013 energy law. When this happens, we would reassess our assumptions for support and dependence related to the governmentunder our joint default analysis.

Exhibit 5

Leverage trendDebt to EBITDA

3.2x

22.5x

4.5x

8.8x7.9x 7.6x

0.0x

5.0x

10.0x

15.0x

20.0x

25.0x

2014 2015 2016 2017 2018e 2019e

Data as adjusted by Moody'sSource: Moody's Financial Metrics™

Large reserves, stable production in the medium termPEMEX's large proved hydrocarbon reserves, which as of December 31, 2016 (last available reserve report) amounted to 8.4 billion boeand were equal to almost nine years of life, declined from over 10 years of life early in the century due to high taxation and a legacy ofunder or inefficient investment that have hurt its reserve base and production growth.

PEMEX's daily production averaged 2,648,000 barrels of oil equivalent per day in 2017 and has been challenged since 2004 by thenatural decline of certain fields and a lower quality of crude oil, as well as the company's limited ability to invest efficiently, givenlimited capital and a lack of technological expertise in deepwaters, where growth opportunities exist. For instance, lower spendinglevels in the recent years have affected the company's crude oil production, which has declined over the past years, averaging roughly2,561,644 bpd in 2015, 2,434,426 bpd in 2016 and 1,948,000 bpd in 2017, a fall of around 6%-7% on an annual basis. However,according to the company, production reached a bottom level in 2017 and will marginally increase starting in 2018 on the backof higher capital spending and from higher production mainly from areas that were farmedout starting in 2017. We estimate that



production of oil equivalent (crude oil and gas) will remain stable in 2018-19 and at a lower pace in 2019. We recognize that thecompany is now focused on profitable barrels, not necessarily on production volumes.

Capital spending as of 12 months ended December 31, 2017, amounted to $4.5 billion. In 2018, we expect capital investments toincrease to about $6 billion, which is however lower than the $8.2 billion in 2016 and the $16 billion spent in 2015. E&P usually takesabout 80% of the company's annual capital investments.

Exhibit 6

Unleveraged cash margin evolutionPetroleos Mexicanos

$46.35

$15.27

$8.95

$3.66

$19.00 $19.00

$5.00

$10.00

$15.00

$20.00

$25.00

$30.00

$35.00

$40.00

$45.00

$50.00

2014 2015 2016 2017 2018e 2019e

US

D/b

bl

All figures and ratios are calculated using Moody's estimates and standard adjustments. Moody's forecasts are Moody's opinion and do not represent the view of the issuer.Source: Moody's Financial Metrics™

On March 3, 2017, PEMEX signed its first deepwater farm-out contract with BHP Billiton for the development of the Trion field, locatedin the Perdido area, a $7.4 billion project (source: CNH, Comision Nacional de Hidrocarburos). The investment will total $1.9 billion forBHP Billiton and $600 million for PEMEX by the time initial production is achieved. In the long- to medium term, larger oil productionwould help boost PEMEX's cash generation and gradually reduce its high dependence on external funding. PEMEX expects the Trionfield to produce 120,000 barrels per day by 2025; initial production is expected by 2023.

The deepwater Gulf of Mexico and unconventional shale resources provide the greatest prospects for long-term reserves andproduction growth in Mexico, but they also present major capital, development and technology challenges. While PEMEX has plannedto increase its deepwater exploration spending and has had several significant oil and gas discoveries, much of its future success willhinge on the 2013 energy law, interest from overseas producers has grown considerably since the first auction of Mexico's energyproduction rights in July 2015. We expect the company's core southeastern basin to remain its most important producing area for theforeseeable future.



Exhibit 7

Despite Cantarell's production decline, Ku-Maloob-Zaap production has remained stableBreakdown by asset

0

500

1000

1500

2000

2500

3000

3500

4000

Ene/2000 Ene/2001 Ene/2002 Ene/2003 Ene/2004 Ene/2005 Ene/2006 Ene/2007 Ene/2008 Ene/2009 Ene/2010 Ene/2011 Ene/2012 Ene/2013 Ene/2014 Ene/2015 Ene/2016 Ene/2017

thousa

nd b

arre

ls p

er d

ay

Cantarell Ku-Maloob-Zaap Others

Data as of January 2017.Source: PEMEX

Capital spending under strainPEMEX's legacy of underinvestment was changed during 2012-14, when there was a significant step-up in capital spending andgovernment approvals of increasing budgets. However, given lower cash flow derived from lower oil prices since 2014, the company'sexpenditure was reduced, as discussed in “large reserves, but negative production growth prospect in the medium term” section.

Exhibit 8

Capital spending and lifting cost evolutionPetroleos Mexicanos

17.2 16.0

8.2 7.2

6.0 6.0

$9.37 $9.70

$8.50

$11.60

$9.50 $9.50

$2.00

$4.00

$6.00

$8.00

$10.00

$12.00

$14.00

-

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0

2014 2015 2016 2017 2018e 2019eU

SD

/BO

E

US

D b

illio

n

Axis Title

Capital Spending E&P Production Costs / BOE

All figures and ratios are calculated using Moody's estimates and standard adjustments. Moody's forecasts are Moody's opinion and do not represent the view of the issuer.Source: Moody's Financial Metrics™

The largest portion of investments will continue to be directed upstream, mostly in the southeastern basins where Cantarell andKu-Maloob-Zaap are located. In 2017, PEMEX proceeded with its farm-out agenda, starting with the Ayin-Batsil in shallow waters,Cardenas-Mora and Ogarrio in onshore fields and Nobilis-Maximino field in deepwaters to be auctioned in 2018.

Despite the need to reduce dependence on fuel imports, lack of resources prompted the company to look for partners in downstreamsegment. Investments for the reconfiguration of refineries, for instance, were reassessed to be carried out through joint ventures. In2017, the company completed the installation of the fractional tower at the coker plant in the Tula refinery. The Salamanca and SalinaCruz refineries are scheduled to be reconfigured in the next few years, most probably with partners. The Tula refinery is currently underreconfiguration.



Close relationship with the government and evolving corporate governancePEMEX's Baa3 ratings take into consideration our joint default analysis, which includes our assumptions that there is i) a veryhigh likelihood of extraordinary support from the Government of Mexico (A3 negative) to avoid default and ii) a very high defaultcorrelation between PEMEX and the government, resulting in six notches of uplift from the company's b3 BCA. Our view on thelikelihood of support considers the prominent role of PEMEX in the Mexican economy and its 100% government ownership, as well asboth verbal support and factual evidence of support in 2016 by the government. We believe that it is important for the governmentto facilitate PEMEX's continued access to the capital markets, given the company’s role in generating hard foreign currency throughoil exports and in paying large annual amounts in duties, royalties and taxes, which in aggregate represent about 17.6% of thegovernment’s annual budget.

Since October 2014 and as a result of the energy law reform, occurred in late 2013, PEMEX is a productive state-owned enterprise, withmore autonomy with regard to investment allocation. Also, although PEMEX's chief executive officer is appointed by the president ofMexico, the company's board of directors is 50% independent, consisting of five representatives of the Mexican government, includingthe secretary of energy (who serves as chairperson of the board), and five experienced independent members. The company also hasan Audit Committee; Human Resources and Compensation Committee; a Strategy and Investment Committee; and an Acquisitions,Leasing, Public Works and Services Committee.

However, the government continues to exert outright influence on PEMEX's decisions. For instance, the company's net financialbalance, as well as its maximum borrowing threshold, must follow the government's guidance and are approved first by PEMEX's boardand then by the Congress on an annual basis. In turn, government support to the company is exemplified by the MXN20,000 millionand MXN10,000 million injected as cash equity contribution in 2014 and 2015, respectively. In 2016, evidence of this support was theMXN184,200 million in equity injection for the pension liability, on top of the $4.2 billion support announced in April 2016, including$1.5 billion in cash. In addition, in August 2017, the government granted certain fiscal benefits to PEMEX related to exploratory assets,which will help the return on investment, the fiscal benefit amounts about MXN7,800 million and is retroactive and applies up to150,000 barrels of oil in non-profitable fields after taxes. These events validated our assumption of a very high implicit governmentsupport for the national oil company.

PEMEX benefits from the 2013 energy law, but with executional riskThe most important change from the energy law reform was the end of PEMEX's monopoly to its current status as a productive state-owned enterprise. The new law also i) triggered changes in the company's board of directors, which became more independent, ii)established a range of contract structures to attract private investment in the entire oil and gas value chain, and iii) opened up PEMEXto a more standard corporate and tax structure. In addition, new upstream contract structures will have provisions to allow privatecompanies to book reserves (even though they remain assets of the state), removing a major impediment to earlier attempts to spurprivate investment in oil development in Mexico.

The 2013 law broadens the range of models for investment in Mexico, from the pre-existing service contracts to profit-sharingcontracts, production-sharing contracts and licenses. Production-sharing or other licensing arrangements between the state andprivate oil companies, where the companies can be paid in cash and oil, are likely to be more attractive to international oil companies,particularly in higher-risk areas, such as the deepwater Gulf of Mexico, unconventional shale or even the complex Chicontepec field. Insome cases, PEMEX could enter into the contracts and bid jointly with private partners. The new structures are a key step in attractingmajor oil companies and their technology.

PEMEX continues to take advantage of Mexico’s 2013 energy law, strengthening its portfolio of oil and gas assets and consolidating itsoffshore position in deepwater fields. The company will continue to be able to participate in joint ventures with third parties that willprovide additional access to technologies used in E&P of a wide variety of fields, such as deep water, shale and mature fields, amongothers, which should improve its business prospects in the long term. Moreover, the possibility of collaboration with third partiesin downstream activities could generate economic benefits to PEMEX. However, its current weak credit profile may prevent it fromcommitting large sums of capital to joint ventures.

Moreover, PEMEX is a net beneficiary of higher fuel prices, which help the company sell gasoline at prices much closer to its coststructure. This should positively affect the company's fuel retail margins and somewhat mitigate its refining and marketing losses. Sincefuel retail is not a strategic business for PEMEX, the company’s reduced retail sales volume will likely result as competition intensifies


https://www.moodys.com/credit-ratings/Mexico-Government-of-credit-rating-489500

https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_191731

https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1023632


amid free market fuel prices, however PEMEX's is the supplier of the gasoline sold in the country. The new pricing scheme implementedin 2017 modifies the calculation formula of maximum prices of gasoline and diesel recognizing logistic and distribution costs. As ofDecember 1, 2017, sale prices of gasoline and diesel were fully liberalized throughout the country.

Recent developmentsPEMEX's strategy includes entering into alliances in onshore and shallow waters to increase production and efficiency and grow itsportfolio of partners; it also includes associations in deep waters to accelerate field development and exploitation. Accordingly, in June2017, PEMEX won two blocks in Round 2.1, block 2 in alliance with Deutsche Erdoel AG and block 8 with Ecopetrol (Baa3 stable), theMexican oil company will be the operating partner, with a 50% equity stake in both blocks.

In early 2017, PEMEX signed an agreement with Air Liquide S.A. (A3 stable) for hydrogen supply at the Tula refinery. In addition,the company is selecting partners for hydrogen supply to its refineries in Cadereyta, in the state of Nuevo León, and Madero, inTamaulipas. These alliances will allow PEMEX to have more reliable access to hydrogen and reduce the frequency of unscheduledrefinery shutdowns, therefore, reducing operating costs.

In July 2017, Tesoro (Baa3 stable) signed an agreement with PEMEX to use its pipelines and its unused storage system in the states ofSonora and Baja California for the next three years. PEMEX plans to enter into more of these type of agreements, which will help itmaximize the use of the installed infrastructure capacity.

In October 2017, PEMEX auctioned farm-outs for the Ayin-Batsil field, unassigned; Cardenas-Mora field, a $127 million expectedinvestment in partnership with Cheiron Holdings Limited; and Ogarrio field, a $95 million expected investment in partnership withDeutsche Erodel AG. The company expects to farm-out the Nobilis-Maximino field in 2018.

In November 2017, PEMEX announced the Ixachi discovery, its largest onshore find in 15 years, a 70 kilometer-length area in the stateof Veracruz. This onshore well has positive results in the production of condensates and wet gas, and according to the company, it hasproved, probable and possible reserves of 366 Mboe.

On December 18, 2017, PEMEX, Petrofac Limited (Ba1 negative) and the Comision Nacional de Hidrocarburos signed the firstexploration and extraction agreement for Santuario and El Golpe onshore fields located in Tabasco, which, according to PEMEX, holdproved, probable and possible reserves of 135.5 million barrels and now produce 6,000 bpd. The fields are estimated to produce 31,000bpd. The expected investment amounts to $1.6 billion.

In January 2018, PEMEX won four blocks in Round 2.4. In the Perdido area, the company won Block 2 in partnership with Royal DutchShell Plc (Aa2 stable) and Block 5 without a partner. In Cordilleras mexicanas area, it won Block 18 without a partner, and in Cuencasalina area, it won Block 22 in association with Chevron Corporation (Aa2 stable) and Inpex Corporation (A2 negative).

In March 2018, Pemex won seven blocks in Round 3.1, which was focused in shallow waters. In Cuencas del Sureste basin, Pemex wonBlock 29 individually, Block 32 and 33 in partnership with Total, and Block 35 with Shell. In Tampico Misantla basin, the company wonBlock 16 and 17 in partnership with Deutsche Erdoel and Compañia Española de Petroleo and Block 18 with Compañia Española. Theareas Pemex won are close to certain of its blocks in the Gulf of Mexico and will create synergies in exploration activities by usingexisting infrastructure.


https://www.moodys.com/credit-ratings/Ecopetrol-SA-credit-rating-600011139

https://www.moodys.com/credit-ratings/Air-Liquide-SA-credit-rating-600052154

https://www.moodys.com/credit-ratings/Andeavor-credit-rating-735750

https://www.moodys.com/credit-ratings/Petrofac-Limited-credit-rating-823192868

https://www.moodys.com/credit-ratings/Royal-Dutch-Shell-Plc-credit-rating-808544449

https://www.moodys.com/credit-ratings/Royal-Dutch-Shell-Plc-credit-rating-808544449

https://www.moodys.com/credit-ratings/Chevron-Corporation-credit-rating-716000

https://www.moodys.com/credit-ratings/INPEX-Corporation-credit-rating-821528694


Exhibit 9

PEMEX as a strategic partner for companies in the oil and gas industry in MexicoSummary of PEMEX's areas assigned in auctions and farmouts

Perdido Area

Block 3

Round 1.4

Tampico

Misantla

Block 2

Round 2.1

Southeastern

Basins

Block 8

Round 2.1

Trion

1st Farm-out

Cardenas-Mora

3rd Farm-Out

Ogarrio

3rd Farm-Out Ek-Balam

Santuario & El

Golpe

Perdido Area

Block 2

Round 2.4

Perdido Area

Block 5

Round 2.4

Cordilleras

mexicanas

Block 18

Round 2.4

Cuenca Salina

Block 22

Round 2.4

Partner Chevron and

Inpex

Deutsche Erdoel

AG

Ecopetrol BHP Billiton Cheiron

Holdings Limited

Deutsche Erdoel

AG

N.A. Petrofac Shell N.A. N.A. Chevron and

Inpex

Total expected investment

(USD million)

2,017 578 807 7,424 127 95 5,000 1,590 6,131 6,131 3,318 4,747

Type of Hydrocarbon light crude light crude and

dry gas

light crude light crude and

gas

light crude light crude heavy crude light crude and

gas

light crude light crude dry and wet gas heavy crude

Auction date 5-Dec-16 5-Dec-16 4-Oct-17 4-Oct-17 2-May-17 18-Dec-1719-Jun-17 31-Jan-18

Tampico Misantla

Area 16

Round 3.1

Tampico Misantla

Area 17

Round 3.1

Tampico Misantla

Area 18

Round 3.1

Cuencas del

Sureste

Area 29

Round 3.1

Cuencas del

Sureste

Area 32

Round 3.1

Cuencas del

Sureste

Area 33

Round 3.1

Cuencas del

Sureste

Area 35

Round 3.1

Partner Deutsche Erdoel

AG and Cía.

Española de

Petroleos

Deutsche Erdoel

AG and Cía.

Española de

Petroleos

Cía. Española

de Petroleos

N.A. Total Total Shell

Total expected investment

(USD million)

569 569 569 541 474 541 541

Type of Hydrocarbon light crude and

dry gas

light crude light crude light crude heavy crude and

dry gas

light crude heavy crude

Auction date 27-Mar-18

Source: PEMEX, CNH



Liquidity analysisPEMEX has strengthened its liquidity position by contracting committed long-term revolving credit facilities for a total of $8 billion,in US dollars and in Mexican pesos. In addition, in 2017, the company entered into a hedging program on 409,000 bpd, equivalent to20% of crude production, which reduced earnings' downside risk. In 2018, the company plans to continue using hedges.

However, PEMEX's liquidity position is still weak: in addition to paying a large share of its EBITDA to the government in the form oftaxes and duties, roughly $4.9 billion in cash and equivalents, as of December 2017, negatively compares with $16.1 billion in debtmaturing in the next 18 months, although $1.9 billion is related to a committed revolving facility that matures in 2019. Management'sgoal is to hold at least $4.5 billion in cash at all times.

PEMEX has been able to access the capital markets. The company issued €4.25 billion in notes in February 2017, $5 billion in July 2017(liability management) and £450 million in November 2017. In addition, it issued $4 billion in February 2018, of which $1.8 billion wereused to repurchase existing notes, which improved its debt maturity profile.

Exhibit 11

Debt maturity profileData as of December 2017

4.9 8.0 8.1

10.7 9.4

67.4

-

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

Cash & ST Investments Jan 2018 - Sep 2018 Oct 2018 -Sep 2019 Oct 2019 - Sep 2020 Oct 2020 - Sep 2021 +Oct 2021

US

D b

illio

n

Exchange rate as of December 31, 2017Source: PEMEX's Mexican Stock Exchange financial report; Banxico



Rating methodology and scorecard factorsThe Global Integrated Oil & Gas Industry rating methodology yields an indicated rating of Ba1 as of 12 months ended December 31,2017, compared with PEMEX's BCA of b3. The methodology outcome reflects the company's large-scale operations, as well as highfinancial leverage and the negative impact of the government's fiscal reliance and influence on PEMEX.

Exhibit 12

Rating factorsPetroleos Mexicanos

Integrated Oil & Gas Industry Grid [1][2]

Factor 1 : Scale (25%) Measure Score Measure Score

a) Average Daily Production (Mboe/d) 2,648.8 Aa 2,650.0 Aaa

b)Proved Reserves (Million boe) 8,383.0 Aa 7,109.0 Aa

c) Total Crude Distillation Capacity (mbbl/day) 1,602.0 A 1,602.0 A

Factor 2 : Business Position (20%)

a) Business Position Baa Baa Baa Baa

Factor 3 : Profitability and Returns (10%)

a)EBIT/Average Book Capitalisation 11.8% Baa 12.7% Baa

b) Downstream EBIT/Total Throughput Barrels ($/bbl) -$12.1 Ca -$2.5 Ca

Factor 4 : Financial Policy (20%)

a) Financial Policy Ba Ba Ba Ba

Factor 5 : Leverage and Coverage(25%)

a)EBIT / Interest Expense 1.3x B 1.6x B

b)Retained Cash Flow/Net Debt 2.6% Caa 0.8% Ca

c)Total Debt/Capital 190.7% Ca 167.0% Ca

Rating:

Indicated Rating from Grid Factor 1-5 Ba1 Ba1

Constraints Related to Government Policy Goals 4 4 4 4

a) Indicated Rating from Grid B2 B2

b) Actual Rating Assigned Baa3

Government-Related Issuer Factor

a) Baseline Credit Assessment b3

b) Government Local Currency Rating A3

c) Default Dependence Very High

d) Support Very High

e) Final Rating Outcome Baa3

Current

FY 12/31/2017

Moody's 12-18 Month Forward View

As of 3/23/2018 [3]

[1] All ratios are based on 'Adjusted' financial data and incorporate Moody's Global Standard Adjustments for Non-Financial Corporations.[2] As of 12/31/2017(L).[3] This represents Moody's forward view, not the view of the issuer, and unless noted in the text, does not incorporate significant acquisitions and divestitures.Source: Moody’s Financial Metrics™



Appendix

Exhibit 13

Peer snapshotPetroleos Mexicanos

(in US millions)

FYE

Dec-15

FYE

Dec-16

LTM

Dec-17

FYE

Dec-16

FYE

Dec-17

LTM

Dec-17

FYE

Dec-15

FYE

Dec-16

LTM

Sep-17

FYE

Dec-15

FYE

Dec-16

LTM

Sep-17

FYE

Dec-15

FYE

Dec-16

LTM

Sep-17

Revenue $73,696 $57,915 $74,485 $200,628 $237,162 $237,162 $143,421 $127,925 $144,524 $97,314 $81,405 $86,663 $222,894 $183,008 $223,399

Avg. Prod. (MBOE/day) 1,949 2,951 2,648 4,053 3,985 3,985 2,250 2,345 2,411 2,524 2,503 2,619 3,317 3,307 3,473

Proved Reserves (MBOE) 9,412 8,383 8,383 19,974 21,221 21,221 10,973 10,911 10,911 10,421 9,593 9,593 16,925 17,561 17,561

Distil. Capacity (MB/day) 1,602 1,602 1,602 4,907 4,918 4,918 2,247 2,011 2,011 2,176 2,176 2,295 1,853 1,880 1,880

EBIT/Avg Book Capital -2.9% 33.3% 11.8% 3.7% 6.7% 6.7% 7.4% 5.3% 7.3% 7.7% 7.9% 8.4% 3.8% 1.1% 4.6%

DS EBIT/Throughput Bbls (11.01)$ (10.29)$ (12.12)$ 7.34$ 7.68$ 7.68$ 11.68$ 10.26$ 10.69$ 15.94$ 17.81$ 10.45$ 12.12$ 9.14$ 10.00$

EBIT / Int. Exp. -0.4x 3.6x 1.3x 7.0x 11.3x 11.3x 10.1x 6.2x 7.7x 2.0x 1.8x 1.9x 3.7x 1.1x 4.3x

RCF / Net Debt -0.6% -0.5% 2.6% 20.3% 32.3% 32.3% 32.3% 27.1% 38.5% 15.6% 14.8% 18.0% 36.1% 19.1% 22.3%

Total Debt/Capital 195.4% 163.7% 190.7% 20.1% 19.3% 19.3% 46.5% 47.7% 43.3% 73.5% 70.1% 67.0% 41.9% 48.5% 48.8%

Source: Moody’s Financial Metrics™. All figures & ratios calculated using Moody’s estimates & standard adjustments. FYE = Financial Year-End. LTM = Last Twelve Months. RUR* = Ratings under Review, where UPG = for upgrade and DNG = for downgrade.

Petroleos Mexicanos Exxon Mobil Corporation Total S.A. Petroleo Brasileiro S.A. - P BP p.l.c.

Baa3 Negative Aaa Stable Aa3 Stable Ba3 Stable A1 Positive

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

2014 2015 2016 2017 LTM

Avg. Prod. (MBOE/day)

0

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000

2014 2015 2016 2017 LTM

Proved Reserves (MBOE)

0

1,000

2,000

3,000

4,000

5,000

6,000

2014 2015 2016 2017 LTM

Distil. Capacity (MB/day)

-5.0x0.0x5.0x

10.0x15.0x20.0x25.0x30.0x35.0x40.0x45.0x

2014 2015 2016 2017 LTM

EBIT / Int. Exp.

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

2014 2015 2016 2017 LTM

RCF / Net Debt

0.0%

50.0%

100.0%

150.0%

200.0%

250.0%

2014 2015 2016 2017 LTM

Total Debt/Capital

Petroleos Mexicanos (Baa3) Exxon Mobil Corporation (Aaa) Total S.A. (Aa3) Petroleo Brasileiro S.A. - PETROBRAS (Ba3) BP p.l.c. (A1)

All figures and ratios are calculated using Moody's estimates and standard adjustments.Source: Moody's Financial Metrics™



Exhibit 14

Debt adjustmentsPetroleos Mexicanos

2.05

1.2 3.25

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

Rptd. Debt Pensions Adj. Debt

US

D b

illio

n

Data as of December 2017All figures and ratios are calculated using Moody's estimates and standard adjustments.Source: Pemex 2016 Form 20-F; Pemex Mexican Stock Exchange financial report; Moody’s Financial Metrics™

Exhibit 15

EBITDA adjustmentsPetroleos Mexicanos

17

-3

4.8 0.01 19

-

2

4

6

8

10

12

14

16

18

20

Rptd. EBITDA Unusual Pensions Public Adj. EBITDA

US

D b

illio

n

Data as of December 2017.All figures and ratios are calculated using Moody's estimates and standard adjustments.Source: Pemex 2016 Form 20-F; Pemex Mexican Stock Exchange financial report; Moody’s Financial Metrics™

Ratings

Exhibit 16Category Moody's RatingPETROLEOS MEXICANOS

Outlook NegativeIssuer Rating Baa3Senior Unsecured Baa3Commercial Paper -Dom Curr P-3NSR Senior Unsecured Aa3.mxNSR Commercial Paper MX-1NSR BACKED Senior Unsecured Aa3.mx

Source: Moody's Investors Service



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Petroleos Mexicanos...VP-Sr Credit Officer [email protected] Marianna Waltz, CFA...

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