 My name is John Hammery, the president at CSS, and I'm so happy that everybody could get here on such a hot day, you know, I mean, and this is Washington, and it's this time of the year, but hopefully the air conditioning will hold out, I'll check on it and make sure that we're going to be okay. Delighted to have everyone here, and delighted to have an opportunity to explore this topic. I was talking with the ambassador, Medina Mora, just a few minutes ago, and he said, you used to have a Mexico program here, didn't you at CSS? I said, we did, and that was back when DeLalbert was with us, got rest her soul, she was, she did a terrific job of creating a Mexico program, and we really have not caught our balance since then. So we're making up for it today by taking pieces of Mexico. We need to get together and talk about how we do all of Mexico together, but I'm glad that we could do this part. This is, we've all been anxious to hear how Mexico is going to deal with the reform agenda, and it is coming. I mean, we had thought our timing here would let us talk about the details of it, but we know that it's going to be coming, and it's an exciting thing for us. I mean, it's part of this, we want our neighbor to do well, we think energy is a big part of doing well, and we're going to listen and talk a little bit more of that today about what it could mean for all of us, and so I'd like to thank all of you for coming and joining us today. And could I ask you now with your applause to welcome Ambassador Medina Mora, who is going to really kick this off for real. Thank you. Ambassador. Thank you very much. Delighted to be here, really, and yes, it is important to have CSAS to restart a Mexico program, and we were just coming through lunch that we take each other for granted, and we shouldn't. Actually Mexico is the second largest customer of the U.S., just out of Canada, and in business school they teach you to take care of your customers. You are our number first, the number one customer, so we have to really, and there is no accident in this economic integration which is successful and ongoing. But I would like to congratulate CSIS for hosting this event, and for promoting a very timely and necessary dialogue. I am very excited to be here and to be able to listen to the experts and understand their points of view on Mexico's development on the energy front and where energy in North America is headed. Just last month I was invited to a conference in New York organized by Goldman Sachs on the North America Energy Summit. And there we had the opportunity to listen to different perspectives on the considerable economic impact of this unconventional revolution. There is a growing consensus that North America has the capability to unlock a great potential and become an energy self-sufficient region in the next 20 years. But there are very important challenges that we need to address to turn this potential into a reality, including infrastructure, regulatory issues, and the shortage of skilled workers in the industry. We have to start thinking as a region about how we are going to address these challenges together in order to facilitate this transformation which is within our grasp. As a matter of fact, it is already here because our energy sector is very much integrated already in North America. And one of the beauties of this successful integration in terms of how we trade with each other and how we produce together is that it's not coming from a political statement which would have been sort of difficult to manage. But from market realities it just makes sense and it happens. It gives the basis for companies and business people to actually go after the opportunities and make decisions and make things happen. But one of the main conclusions in this conference submitted in New York was the importance of having a regulatory framework that is up to date. And at the same time can be effective in the decades to come. Mexico, with a long overdue package of reforms, has dramatically updated its framework with a series of far-reaching and transformative reforms that will conclude in legislative, well, congressional terms with the approval of the secondary legislation in energy sometime this summer. There is no doubt in our minds that reforms will be approved. And of course there are many challenges in how these are actually structured in the fine print. These structural reforms encompassing labor, education, telecommunications, financial services, competition policy, fiscal policy, and of course the mother of all reforms, the energy sector, that will transform our economy in the years ahead, provider, of course, that implementation is successful. The energy reform in Mexico is certainly important, but even before it takes place, the sector remains a central component of U.S.-Mexico trade. Let me give you a couple of examples. In 2013, the United States was a destination of approximately 72 percent of crude oil exports from Mexico, which arrived via tanker. The value of crude oil exports from Mexico to the U.S. is more than two times the value of auto exports, which were almost roughly $18 million. Mexico was a destination of 44 percent of U.S. exports of gasoline in 2013, 600,000 barrels per day of all products. Mexico is the third-largest oil supplier to the U.S. after Canada and Saudi Arabia. We have benefited from the lower natural gas prices in the U.S. and pipeline exports to Mexico rose by 6 percent at record level. Most likely natural gas demand will continue to grow in all sectors, mainly in industry and power generation, but there is also great potential to use it as a transportation fuel. Natural gas exports from the U.S. to Mexico through pipelines will continue to increase in the years to come. We are expanding the national gas pipeline network with two main projects now under construction, which will bring natural gas from the U.S. to Mexican territory. Three more projects are scheduled to be in operation by 2015-2016. Geography has blessed the North American region with significant energy reserves. According to the latest BP energy outlook, North America will be the only region of the world that moves from being a net energy importer to a net exporter. So while China and Europe become more dependent on energy imports, North America is becoming self-sufficient. By 2035, North America will be a net oil exporter accounting for 6 percent of global energy exports, and by 2017 the region will become a net exporter of natural gas. North America, thus, has a necessary energy resources to fuel its economic growth for a long time, and reliable and affordable energy will be a key component in ensuring a very competitive North American manufacturing base. At the end, this is the most important component of competitiveness looking towards the future. Through energy reform, Mexico will redefine its role in the energy sector, while the U.S. is adjusting to a new reality as a potential exporter of oil and gas, increasing its energy efficiency, decreasing its consumption, and developing technology that has open new frontiers of energy resources. This is an exciting time to discuss the future of Mexico and the region. With our reinvigorated economic engagement with the United States through the high-level economic dialogue, for the most, the bilateral relationship in terms of trade and investment and shared production and integrated value-added chains for the last 20 years has been driven in automatic pilot. Now we are now, for the first time in many years, addressing these from a public policy perspective as well, and these can be, of course, transformational. The bilateral initiatives launched at the North American leaders summit in Toluca last February, international engagement with Latin America through the Pacific Alliance, and with Asia via the TPP. Mexico's already significant role in the world economy has strengthened. Energy reform is a critical part of boosting prosperity, and along with the reforms currently underway in Mexico and the changes I just mentioned will be the basis for Mexico to achieve more rapid and sustainable economic growth over the next few years and coming decades. I am looking forward to hearing your thoughts, so I will just conclude by adding that I am very optimistic about our regional opening in a new chapter of our shared vision for this future. Mexico has to address the energy reform in a very smart, intelligent way, and I am very optimistic as well that we will be able to do so. Thank you very much. Next to Jesus. Okay. Well, let me add my welcome to John Hamreys to all of you for coming out and such a good crowd to welcome our visitors today. We're going to talk about the Mexican oil and gas reform, and we're very pleased that the Energy and National Security Program to co-sponsor this event with our America's program and headed by Carl Meacham. So I'm, for those I haven't met, I'm Guy Caruso and a senior advisor to the Energy and National Security Program, and the Mexican oil and gas reform has been something that I think has been in the works for a number of years, and we're going to hear from three of the, I think most knowledgeable people I can think of to talk about that in the order in which we're going to go. We'll start with Jesus Reyes-Hiroles, who is a former Secretary of Energy, former Director General of Pemex, and now in the private sector as CEO of Structura Private Company in Mexico City. He's going to start and talk a bit about some of the basic elements of the oil and gas reform, and he's been right there on the ground as this has developed, and we'll start with Jesus and then followed by Pedro Haas. Pedro has had extensive experience, first of all, with Pemex as a member of the team that was part of the gas marketing as I recall back in the day, and then with the private sector, and then he had a number of years in a senior position with the McKinsey and Company, and so he has very deep insights into how the private sector may respond to these reforms, and I think looking, he'll talk about some of the reforms and how the private sector might react and what the implications would be. Then finally Ed Morris, who is a senior the head of commodity research at the city bank, and especially focused on of course oil and gas, and Ed has been one of the most, I think I would call it most optimistic analyst, most optimistic among those who have looked at the North American energy scene and put it into the global context. I think Ed may have been the first person who actually projected that North America would be a net oil and gas exporter, and this is several years ago, so I'm sure we're going to hear even more from Ed about how now these new Mexican oil and gas reforms feed into that kind of analysis and his latest outlook for North America and its integration into global oil and gas markets. We talked a little bit earlier about how the unconventional oil and gas successes we've had in both the US and Canada certainly are part of this story, and then now we're going to hear how the Mexican oil and gas reform may fit into that that North American picture, and certainly we will we're going to hear about it from some of the most knowledgeable people I can think of, and we're going to start with Jesus, and then we'll follow right without delay to Ed or then Ed, and then we'll have plenty of time for questions and answers from the audience, so thank you very much for coming, Jesus. I will try to sort of lay the ground for the discussion that we will have later on. For some of you, some of the things I'm going to present may be already knowledge, but I think it's basic for all of them to know what is the essence of the reform and then proceed into the exchange of points of view. Let me I didn't do it before, so let me see if somewhere it's I don't use this one. Ah okay, all right okay this is easy, this is easier than this. All right, first in terms of discussing energy issues in North America, really it was very very difficult and many many friends in this room and I did discuss about this, or tried to discuss about this for years, but it was really basically an empty discussion. It was a diplomatic discussion and there was an impossibility to discuss further interaction in energy because interactions do exist and are very significant and any kind of policies for the future, because Mexico couldn't. Basically it had no leeway, no space to discuss in a more market oriented and more from a business perspective the future of energy relationships in North America. However the constitutional amendments that were passed by President Peña only last December are really a game changer in regard to that. Now private investment will be allowed in Mexico, energy sector is and it will be possible in every aspect of the hydrocarbons change and further in the electricity sector and this opening of Mexico after a long discussions since 1938 about all these happens when there is a revolution going on in the U.S. also in terms of energy with the with all the shell hydrocarbons and also when Canada is sort of collecting some of the benefits of the consistent well I would call relatively consistent and steady energy policy over the past decades I would say. So there is a major change now in the North American scenario. Now the the Mexican energy reform has a logic for itself for the energy sector but it is more than that. The Mexico's energy reform is absolutely central for Mexico's energy economic economic policy. I mean Mexico has been growing very slowly over the past 10 15 years and it's it's really a paradox because or paradigm you have a country where inflation is low you have had financial stability for so many years but you simply the country simply is not growing and this this government knows very well that one of the the critical factors is to increase significantly investment in Mexico both public and private and both domestic and foreign and for that to happen obviously the energy sector is critical it is the energy sector who has the capacity to to pull to attract a lot of investment and also for a higher growth to happen in Mexico you need a more efficient energy sector because it's implications in the rest of the economic in the rest of the economy so both because it is central to to increase total investment and both because it has efficiency implications the energy reform is central for Mexico's for Mexico and for Mr President Peña Nieto's administration. Now what is the essence of the reform? It is a very deep and far-reaching reform it basically it sounds simple but it's a complete change historically speaking it eliminates the exclusivity of Pemex on the entire hydrocarbon chain some of us and in other times thought that probably we could get some reform but nobody nobody really dream about this this is really getting as far as possible it's opening up to the to the extreme the the sector the you will have private parties then concurring with the public sector Pemex will not disappear the national oil company will not disappear and that is not the purpose the purpose is basically saying we want to maximize their resources allocated to the hydrocarbon sector of Mexico and up to now that have been limited because Mexico's framework legal framework constitutional framework basically said only one agent will be responsible of exploiting the hydrocarbons in Mexico and that agent is Pemex and with time it was obvious that Pemex and and even the Constitution went further because it it it was not it's you Pemex who has this privilege but at the same time you have to do it all by yourself which was a complete anomaly in the world I mean if you see other national oil companies they don't have the prohibition of partnering with somebody else to do some of the many things that the national oil companies have to do integrated national oil companies in Mexico it was an oddity and that was really very limiting to the development of the hydrocarbon sectors in Mexico now it allows Pemex to partner with whomever it wants in some cases with the majority stake not establishing the law but according to Pemex's interests and commercial and and business interests and it it can do it in a very flexible in a very flexible way completely flexible way that is really the what the reform one of the issues that the reform encompasses then the this change is is so radical that it will obviously shake up the the Pemex and it will transform it and make it really move much faster because now change is a matter of life for that to Pemex I mean in the past it was really impossible to make Pemex move the protection to the company was so big to its monopolistic position that you know the incentives for the company and for the people in the company to move in a different direction were limited now in my view there is a caveat in the reform and there's something I still don't understand why this the the government did not include that and that is that they kept Pemex within the budget I mean in previous lives some of us had really pushed forward in terms of saying one relatively easy and far-reaching change is to take Pemex out of the budget because the problem is it's not only the government take because that's the taxing issue and the royalties let me put that aside the problem is all the red tape and all the presence of governmental agencies that intervene in in day-to-day decisions within the company and the government did not do that it worked in the Treasury for eight years sometime back and I know that the people in the Mexican Treasury are control freaks and they they really have and against underscore that they are still they're still are the same way they have been for the past since since the Mexican Treasury was born and if you see in this reform the in my way a critical issue is that there is too much intervention of the Treasury in many of the decisions that should be have left to Pemex by itself without without intervention of the Treasury the other thing is the reform and company also reaches the electricity sector it allows the participation in generation for third parties the private sector is already the Mexican electricity sector you have IPPs and you have a lot of other activities done for CFE but now you will basically the change allows private parties to get in contact as providers suppliers of electricity with with the consumers big consumers the what they call the qualified consumers which is basically a matter of size and they would also allow for other companies to for for the CFE to which is a national utility to outsource several of the things that they that were limited I mean they had to do it by themselves now they will be able to the private sector will be able to finance install maintain manage operate and expand transmission and distribution infrastructure by means of contrast with with the with the utility it sounds a minor change it's a major change because then what you will see is a very significant increasing the efficiency of operational efficiency of the CFE due to the possibility of relying on private private parties this basically gives you a a a notion of the speed the pace at which the reform will move forward and I will not stop a lot of time here obviously the constitutional reform was enacted in December last year Pemex started the first step was for Pemex to request in what areas or fields or place where Pemex is already working or or has intention to do so the Pemex would like to to stay Pemex did so in last last March then there are the the government sent 21 initiatives to congress to change 21 different laws to change or even some some new new laws you have then in September the areas will be defined what areas will Pemex keep will be defined by the government in in it's a decision of the government of the state of the Mexican state and that will be September 17 it's already what the it's a mandate in the constitution and then you you will have all the things moving like the creation of Mexico's energy fund but it's a very important thing is that the constitution mandates that the national energy regulatory commission has to define the rules and regulations that will apply to the to the transportation and work housing of fuels and that will have to be there they those regulations will have to be there for January of next year so this is one of the areas where there is a a huge need for additional investments there are many bottlenecks in the Mexican system because Pemex was not allowed to invest in the past in in expanding it's a network of fuel pipelines and work housing facilities so the it's it's really I would say almost an emergency that has to be there very quickly and a lot of investment opportunities will emerge for the private sector as as part of that and there are other things other things other important changes will come along over the next few few years and you can even see December of 2025 and that is because it is for them that the domestic content of of the in the energy in the energy projects will have to reach 35 percent which is a very in Mexico it was very curious Pemex was not a very much had not long-term relationships with a lot of suppliers an EPC companies because the way the the procurement of Mexican public sector entities did not allow for Pemex to establish a long-term relationship with a lot of of of its suppliers and EPC companies now there is this 35 percent will be defined for will be enacted for 2025 it will be enacted gradually so you have 12 reforms a new nine nine nine new laws now what is it in the very very short term the first priority and that is to basically address Mexico's gas deficit that increased very very speedily since 208 fuel deficit is increasing since 2003 there are many there are many bottlenecks in the capacity for Mexico for Mexico to import from the U.S. now that the U.S. is gradually becoming a a net exporter will become gradually a net exporter of gas we have been importing gas from the U.S. for quite some time the ambassador mentioned that before and but this is the the most urgent thing actually it's going on because the gas sector was opening in 1990 in 1992 and the first investments were done in 1996-97 so the these are the pipelines that are being now under construction and this is where a lot of activities already going on you you can see on the eastern part of Mexico a very very important one called Los Ramones it's a big pipeline it goes to the center to to San Luis Potosí it's a 850 kilometers and it's a 3.2 billion dollar project it's already under construction it's very important and also in the in the in the center and in the west the national utility the CFE is building all these pipelines that you can you can see there in the in the map and a there are six more coming up will be announced over the next two weeks let's say in the next in the next weeks which will really create a network of gas pipelines in Mexico because now it's not really a network what it is is a couple of branches that that come some from the north importing gas from the U.S. and some from the south bringing to the north to the center and to the north where the economic activity and industry is the gas that Mexico produces mostly in the southeastern part of the of the of the country now this this is a simple I will try to put it in as simple as possible the investment opportunities that emerge in Mexico with the reform and in the horizontal axis you can see the complexity of the projects and and the complexity is associated with the time that it will take for these projects to be to materialize that that you know you can see that the things are happening and in the vertical axis you have the amount of investment of the different projects so you can see for example what we were talking about gas pipelines it's already there it's happening it's not a matter of the future and it's they're expensive I mean pipelines are not an inexpensive project so you you you you require that but you will the the coal seam gas in Mexico there's no production of coal seam gas and it will be possible for private parties to produce that the day after the legislation is the secondary legislation is passed and it is expected to happen within the next within the next within this month so the day after that immediately comes in project coal seam gas production projects will emerge and so I will give you the list in a minute but you you can see to the in the north north eastern quadrant of the of the graph you can see obviously 17 is up because it will take more time to see the things happening in terms of deep water and it will require a lot of resources but things that we we have to the purpose of this graph is really seeing that what has been triggered with the constitutional reform it's a process and it's a process that will show up first in some activities and in some other activities depending on their of their complexity and of the constitution and the illegal reforms themselves you can see 16 heavy oil exploration and production in shallow waters it's a further further well it's less expensive and it's a sooner it will it will be sooner we didn't put a year in each of those but you could basically think that each of those panels correspond to about a year it's it's not exactly impossible to really do a precise exercise but it you can see let's say one two three the fourth in the south in the southwestern panel you can see that there you have a lot of activities already a 23 12 etc what do they mean it's here this is the the the codes of this so you can see from gas pipelines that are open now and then you you'll see fuel stations until 2017 this is still discussed is being discussed in the congress because people think it's too far away that the a lot of congressmen really want to shorten that period they already have it's quite clear that they have reached agreement on that and they will actually do it earlier than what was the original proposal of the government that distribution systems now oil pipelines starting in january of 2015 of next year and so on you can see step by step when that will occur and it's probably easier to see here you can see more with some detail what is how the the reform will evolve and you see january 2015 as a critical as a critical date because the your storage and distribution terminals of fuels will be opened up all pipelines facilities for logistic maritime terminals and then dry gas production in 2015 also next year production of mature fields in a new regime next year and so you you you'll move along over time and you can see in january 2018 domestic marketing of hydrocarbons this is what nobody understands very well why if the government proposed it to be so far away so towards the end of its administration administration of mr penia neato ends up in 2018 so this is being amended actually by the by the congress now to make it sooner rather than than later and then if you if you move to the to the left you can see shell gas production in 2017 shell oil production the chicontepec exploration and production project in 2017 and heavy oil e and p in shallow waters in 2017 it would be feasible as long as they as the government doesn't leave that for pemex and this this is what round zero looks like what is what pemex requested from the government to keep in terms of exploration exploration and production you can see it in the top in the top in terms of the reserves the what pemex keeps is in blue and what the state would be able to actually grant to third parties in contracts or contract with third third parties in three p is 29 percent of in in two p 17 percent and so on but it's more important if you see it in terms of the in the lower in the lower the total of the of the three of those above is what in terms of prospective resources pemex keeps only 31 percent or requested 31 percent we don't know if the government is going to give to grant to pemex 31 percent or less than that no that they say you want this but you are not you are not going to keep it and in prospective resources you have 69 percent for the state that would be able to actually be contracted with private parties and in terms of the type of let me call it the type of field you can see there the reserves and the the percentage of of of the prospective resources that each of those are the most important the most important one are obviously in shallow waters deep waters is not bad that's what is known 8.1 billion of bars of oil equivalent and you can see that in terms of onshore you basically the prospective resources that will be available for the state to want to grant to private companies is our equivalent to 82 percent of the the known the known reserves so I'll stop here and and then let's see how the conversation evolves thank you for your attention Pedro thank you very much I neglected to mention in my introduction of Pedro that about a year ago you left the McKinsey to join HEDCO and you're now a current position as the head of advisory services for HEDCO in New York so thank you Pedro well thank you very much I'm going to start out by doing something shocking for something somebody who spent 14 years at McKinsey and I'm that is that I'm not going to speak of slides you know I'm not going to present any slides so I apologize to my McKinsey educators who you know spent a lot of time teaching me how to draw slides and I'm not going to use it I think Jesus gave us a very complete comprehensive overview I'd like to of the Mexican energy reform I'd like to talk very quickly about a few points and and please stop me if I'm spending too much time one is that the the energy reform has been to a large extent you know public attention in Mexico and even political attention has been focused on the E and P part of the Mexican energy reform and it's entirely natural because it's the most politically contentious part of the reform it's the part that really required more than any other a review of the Constitution and that has you know still to this day gets the juices flowing when you when you have discussions political discussions and discussions between analysts however the the energy reform is quite comprehensive it it spans the entire energy sector and there is a very interesting a symmetry between the attention that has been spent on exploration and production and the complexity of the reform I don't want to you to understand by this that the EMP side is not complex and difficult but the rest of the reform is enormously difficult it has a very large scope so when you think about domestic fuels you know residential fuels like LPG or consumer fuels like gasoline and diesel you think about the midstream and infrastructure you think about residential power sales and distribution networks all of those things are going to require a very significant overhaul and the the creation of that entire regulatory legal regulatory and contractual framework is a massive work that is difficult to fathom I'm not again belittling the importance of the EMP side but just from an execution complexity the non EMP side of the reform is pretty big the other issue that I'd like to focus on I think the investor mentioned it and I think we we all agree with him that the reform is going to happen yes it's been slipping by you know months or weeks and we were told that it was going to be ready and at the end of last year and then it slipped into this year then we were told it was going to be done in June and July you know now it's end of July perhaps the first few days of August but it's going to happen I don't think anybody has any doubts about that the question is the amount of of work that remains to to be done in terms of once the legislation is passed after that we have to get the regulatory framework in place and we have to get contracts in place and more importantly than you know just getting these things done there's got to be a continuum between the constitutional reform the legislative the secondary legislation the regulation and the contracts all that has to hang together in a way that you know kind of makes sense the fundamental dilemma that I think the the government and the regulators are going to find themselves trying to solve once the secondary legislation is passed because I think we're we're at the point where whatever is going to be in the secondary legislation is pretty much defined although there's still some discussion is that if you leave the secondary legislation excessively open and you rely to a large extent on the regulation which the government can pass without having to go to congress you are putting a lot of weight on the authority of individual civil servants to take responsibility for decisions they it's going to be hard for them to to kind of say I'm just you know executing what the legislation has said on the other hand if you create a legislative structure that is excessively detailed then you know you're not going to get it right because nobody ever does you know you're going to have to make provisions and so you don't want to have to go to congress for that and so there's a practicality and a practicality issue that where you have different you have tensions between different kinds of of desirable outcomes and it's a difficult balance to find so this is going to take you know I don't I'm not saying it's not going to be sorted out but I think it's going to take weeks and months to get this just right and I know for a fact that even though we've heard that you know all of those texts are ready in fact they're not and you know thank god they're not because I think they deserve a lot of attention the other point I want to make is about operating challenges. Pamex and I'm going to focus on Pamex because I spent 14 years there and so it's what I know so I apologize for not talking as much or you know not at all about CFP but Pamex is a self-contained animal and it's had operating legal regulatory discretionality and so it it can operate you know the assets and it can make decisions to make whatever needs to happen happen. Let me give you an example if you are producing offshore and you have several assets producing different kinds of crude offshore and you have a pipeline system that is gathering that production and transporting it to shore whether you shut one pipeline down or you open up the valves on one particular you know field more to compensate for another that has to go into unscheduled maintenance all of that can happen instantly and Pamex makes it happen to make the production reach two and a half million barrels a day which is what it's doing today. Now the problem is if you take those pipelines and you turn them into open access common carrier pipelines open access pipeline now you have different producers you know that are connecting themselves to those pipelines possibly and then you know Pamex can not just decide overnight that I've got to shut this pipeline down because you know I need to do some unscheduled maintenance on it all of a sudden that has production consequences on other players. Now take that example and multiply it across the entire Pamex system. Pamex is going to have to transition from a monopoly situation to a situation that is rule driven and it's not only because it's going to be competing but because the authorities the particularly the CRE and CNH the two regulatory bodies are going to create a series of rules. Now you're not going to be able to have a system where these two regulatory bodies are you know credible in front of private sector investors when they are able to enforce the rules in front of you know in front enforce the rules for private sector investors and not for Pamex. So this is going to create a lot of issues. Let me just show an example of this. Right now we have an issue and I have some numbers here that I can share as an example. Pamex has a plan this year it's the operating plan to produce two and a half million vows a day. Well along this production and I'm not you know these are public figures I'm not talking about you know secret figures or of any kind and if you if you compare production with distribution and distribution means refining plus export you have differences of anywhere between a hundred and a hundred fifty thousand bells a day and that is water and it's water that comes from the water cut in several areas of production and particularly the Cantorale field. In the month of May that number has reached about 260,000 bells a day. There is a it's a net number about a hundred and fifty and the difference is because there is a significant amount of production that has not been able to be processed either through separation or or tankage and has had to be injected into the salt domes and to sandepetu and so those that crude is going to be you know the water is going to be eventually separated etc but the water cut is increasing so I have no idea whether this is a trend that's going to rise or whether it's going to stabilize but 150,000 bells a day of water declared as crude is is a lot and apparently Pemex is paying taxes on the 150,000 bells a day of water because it wants to do this in order to consider it crude over production because it wants to be able to report that it reaches the two and a half million bells a day. Now this is a number that you know cannot continue like this at some point the government is going to have to recognize that this is water and not crude and it's going to have to climb down from that number which is as I said already there in the statistics if you care to you know dig a little bit so you know this issue with statistics becomes absolutely crucial when you have to introduce private sector actors into the picture for example we know that there's been some issues with investors in the incentive-based service contracts where some of the baselines that Pemex had originally given were proven not to be you know what they had been reported originally in the future when you're talking about farm outs for example with PSAs if Pemex goes ahead with some of these farm outs and some of the baselines prove not to be correct then the private sector investor is going to litigate because obviously you know the original data in the data room are not correct so anyway there's a big issue all I want to say in this respect is that shifting from a state monopoly to a to a market solution is a very complex endeavor and the trend the managerial transition in addition to the regulatory transition the managerial transition for Pemex is very difficult and remember some of these issues as Jesus mentioned like the tax the the budget issue have not been changed and particularly importantly the the the labor relation relationship between Pemex and its union has not been changed so you know I fail to see at this point to visualize how this transition to a more efficient market driven company is going to happen I was also asked to mention how the the energy reform was visualized by the private sector let me talk about one thing first which is how it's visualized by the Mexican public opinion Jesus also mentioned it and I think the investor made a reference to it too one key issue is that I think in general the public is not very keen on the energy reform and it's not that it doesn't see the need to modernize Pemex and CFE I think the public is not stupid and it recognizes that these companies need to improve I think that the key problem is that there is a fear of corruption and there is a fear of ineptitude in the management of this transition and there's a sense that whatever improvement is going to happen is not going to mean anything for me the citizen that those are the big issues that the government has this is really important because in my mind the test of the success of the reform is not whether it brings gazillions of dollars flowing into Mexico in fact I disagree with the government vision that this is the thing that is going to bring that is going to put the economy into a higher gear but I think the key issue is the durability of the reform and the durability means two cents first of all credibility with private sector investors over the long run and secondly legitimacy in the eyes of the Mexican people and achieving that balance over a long period of time that is what is really complicated and that's what's you know tough to achieve now the second part of the impact is with private sector investors and there I think that you're going to see a wide variety of attitudes I think deep water offshore companies are pretty comfortable in the sense that they don't have to deal with any of the insecurities on shore they can they they understand more or less the geology because it's not too distant particularly in some parts around Perdido etc it's not too distant from what they're already looking at on the other side of the border and so I think the problem there is the the actual drafting the detail of the legislation and and the the potential the long-term potential that these companies can see there and I think I think there you're going to have I would guess that unless the regulators the regulation and the contractual arrangements are suicidal I think you're going to see a lot of interest I think in in unconventionals it's going to be very it's it's going to be complicated and it's going to depend very much on a company basis to me the biggest danger there is that the regulatory it's it's aggression's law kind of problem it's a situation where the good operators stay away and the not so good operators essentially you know manage the regulatory complexity the security complexity the water issues etc one of the big problems that we had in previous deregulation like the the gas deregulation is the fact that we never really managed the Mexican government never really managed to coordinate the federal the state and the local level and so I could see a situation where you know you have your federal permit you earned your acreage you show up with a drill rig and the state authorities or the local authorities prevent you from going and that's a big issue that is going to have to be addressed at some point there are some mechanisms to do it but I think it's it's got to be addressed in greater detail I I think the the private sector there's a little bit of an out finish on this point there's a bit of a disconnect I think there's a bit of a disappointment on the part of some people in the Mexican government because they feel that they would have expected a bit more enthusiasm from the private sector and the private sector is now in a wait and see attitude the problem is that if you're the head of business development or exploration for one of these companies whether small medium large you have to propose to your investment committee or your executive committee or your board a project that is quantified and that is risk adjusted to the umpteenth level of detail and that level of detail today is not known so there are people who think that it's going to get done quickly there are some people who think it's going to take you know much longer maybe two three years to get there there are some people who are going to be first off the you know the starting line and there are some people who are going to wait and see to see how it evolves so I think it's you know the timing is more or less the one that that Jesus described but I think the actual implementation and details and you know translation into investment opportunities and decisions is going to be it is still to be defined okay thank you Pedro senior Morse thank you very much it's an honor privilege to be here again with you thanks guy for the invitation I was asked to address the implications for global markets of what might be unfolding in Mexico and what's unfolding north of Mexico and other parts of North America and let me first note that so far the unconventional revolution in the U.S. and Canada has not been kind to Mexico it's not as though the U.S. is intentionally or not following a good neighbor policy it's been a pretty bad neighbor policy in terms of making the Gulf of Mexico market in the United States extremely competitive and less rewarding financially for Pemex and the Mexican government where if there were a big open global system that could process a Mexican crude undoubtedly the net back to Mexico would be higher if not substantially higher then is currently received on the U.S. Gulf of Mexico coast and I'll talk a bit about this as I go through the story there the other thing I might note in terms of timing and it's the only subject that I plan to raise outside of the implications for global markets is that timing is pretty exquisite in terms of the potential opening of Mexico to foreign investment if you are a big international oil company or an even more modest size international oil company and you're looking for a place to invest where there are opportunities for large-scale rewards they are Canada the United States and the others are Russia Iraq and Iran and that doesn't leave much room so I think given the light of geopolitics recently that companies will find Mexico with all of the difficulties of defining on a risk-adjusted basis the risk reward opportunities will likely be moving toward the acceptance of risk for the potential reward just in terms of where else one one can go Mexican supply is the third leg of a North American energy revolution I think we can debate and we have to make assumptions on that debate about where Mexican output could go let's use kind of government general numbers an increase in production of a half a million barrels a day by the time of President Pena's end of term and then maybe a million barrels a day by 2025 so that's a conservative number in terms of the resource base and in terms of what might be possible just looking across the divide in the Eagleford where technically recoverable resources on the Mexican side exceed those on the US side in the Eagleford it would not take much if this were the United States to get on short conventional non-conventional production up to a half a million barrels a day let alone whatever might be happening on the conventional side so let's let's use these as working numbers Canadian production is likely to continue these are quasi official numbers based on the cap so current production in Canada is roughly three and a half million barrels a day and we can kind of readily project five million barrels a day adjusted for where the price of oil may be but there's going to be an uplift as Canadian oil reaches waterborne markets in terms of the net back price to the wellhead even if global prices falter so in addition to the say half a million or 700,000 barrels a day maybe by 2020 from Mexico there's another million and a half from Canada and on the US supply our own view is that there's going to be around 4.3 million barrels a day more production by 2020 in comparison to the end last year three and a half million of that is onshore 800,000 offshore mostly deep water and in addition to that some two million barrels a day of natural gas liquid so if you add all of those things up we see US production having risen to a total of over 12 and a half million barrels a day and maybe close to 19 million barrels a day actually if you add all of these things together in terms of increments including including MGL liquid so this is a very robust probably the fastest growing sustainable area production growth in the world and it's North American I actually have used these slides in this room before we just on the US side see the net balance going positive on the US net oil side before the end of the decade if you take into account where oil demand is going so we see that the oil and gas trade balance combined becoming net positive by by 2020 I know Guy talked about North American self-sufficiency as did Hazen's a little bit but I think the real issue is the Atlantic basin versus the rest of the world because the Atlantic basin is already a self-sufficient environment that's a result of decline in European refinery requirements and the growth of North American production growth of Western Hemisphere production in general any growth from now on is going to make the Atlantic basin a surplus area if you just look at the supply demand balances in the Atlantic basin and that means there's a lot of crude oil coming into the Atlantic basin that is kind of trapped there I'll talk about it very quickly the Atlantic basin crude deficit really is fading so fast that it's likely to end by the end of this year the US has pushed out almost completely imports from Africa we are pushing out imports from the Middle East but the problem is not by enough because imports from the Middle East still are well above a million of 400,000 barrels a day and by the time we get to the end of this year and have pipeline capacity to bring Canadian crude to the US Gulf Coast that reliance on crude from outside of the Atlantic basin is going to fade substantially we can talk about US export restraints loosening to the degree there is a loosening of US export constraints it'll feed into a growing surplus in the Atlantic basin and I've also used part of this slide in this room before indicating in our own view that under the current regime for oil exports the US if not by the end of this year certainly by this time next year without any change in policy will be exporting probably over a million barrels a day of crude oil and we'll see Canadian crude coming into the US through increased pipeline capacity in the midcontinent of the US bringing crude to the US Gulf Coast where it will compete with crude oil from Saudi Arabia Kuwait Venezuela Columbia Mexico and Iraq which practically sees no crude oil imports already Mexican crude oil exports the US is falling even more than production is falling because there's not enough room in the US Gulf refining system to refine all of the crude oil coming from Mexico we're seeing the version of crude to Europe and to the Pacific basin where again the pipeline at Salinas cruise has been exporting into the Pacific basin including into the US West Coast and growing numbers the real the real place where crude oil exports are needed from the Americas is really Asia where the deficit currently around 21 million barrels a day is going to grow to probably 24 million barrels a day by the end of this decade if not more and Mexico is no exception looking increasingly to Asia and Europe one of the other places that one can find incremental North American crude going into the Pacific basin is from Canada but pipeline politics in Canada are very difficult and it looks as though we'll see significant amounts of crude oil from Alberta moving east to the Atlantic basin by pipe and rail and south to the Gulf of Mexico by a pipe and rail and not taking advantage of the higher netbacks that can be realized in the Pacific basin so Mexican crude may be the only North American crude to take advantage of that but here's the summary of what I would say by 2020 the three North American producers could see combined incremental growth of liquids of 8.3 million barrels a day the bulk of that coming out of the US combined with new exports out of the KRG from Iraq and from Central Asia the already crowded med is going to become more crowded the already self-sufficient North Atlantic and South Atlantic basins are going to become surplus oil will want to get out of this area toward other countries the problem is worsened by the fact that some of the exporters to the western hemisphere Saudi Arabia and Kuwait have their exports relatively sticky on the Saudi side because they don't want to lose market share in a big market and rely on East Asia and South Asia for market growth of Kuwait because they believe that exported 330,000 barrels a day to the US Gulf Coast market however non-remunerative it may be helps them keep 15,000 US troops there so the there's a sticky amount of oil that won't leave the Atlantic basin making it more difficult for the crude produced in in both Mexico and Canada to achieve a kind of fair market value in a global marketplace and even though Canadian crude is likely to have the highest netbacks it might have by exporting to the Pacific that's not likely to be the case any liberalization of US crude oil exports is going to even make the Atlantic basin market more crowded so the challenge for Mexico today exacerbated by a growth of 500,000 a day maybe by 2018 700 or 800 by 2020 and a minimum of a million by 2025 is where to maximize value where to optimize the maximization of value of that crude oil and it looks like that won't be easy anyway thanks for the opportunity to share this little addendum to the other remarks thank you man well thanks thanks to all three of our speakers for a comprehensive overview of the reform by Jesus and I think a very sobering realistic view of the challenges from faced by the implementation that Pedro outlined and then Ed's view of how these might affect the global market and one thing I say about Ed's is I look at those numbers and I say it looks like it's going to be you know a challenge to get those into the market without causing downward pressure on price but when you think about all of the uncertainties we're now facing even though the 2020 still weighs out with uncertainty in Iraq, Iran, Nigeria, etc. I think I'm glad that we do have these potential new sources of supply because we're probably going to need them and with that I know we're getting tight on time so I want to go right to Q's and A's please identify yourself and your affiliation and keep your questions as concise as possible appreciated hello hi I'm Dr. Donna Wells I'm an expert in the Russian language internet but I also happen to be a native Texan we're reading about mass graves and head-none pikes down there should private investors be concerned about cartel violence or possible growth and political power of the cartels thank you you're a cartel expert yeah I certainly am no I think that there are parts of Mexico where you you will have to contend with these issues and some of the companies present there like Schlumberger, Halliburton, Baker Hughes already are I was told recently that control risk that manages the the security risk for Schlumberger rates northern Mexico along you know on the same level as southern Iraq although that was before you know the situation we have right now in in Iraq so but I do think that there are some issues that the companies are facing now when you talk to some of the players they tell you well you know I'm in Yemen I'm in Nigeria I think I can deal with with northern Mexico so it's not that they disregard the security issues but it's that oil companies are pretty a pretty hearty lot and some of them not all of them interestingly I mean if if you're an operator in south Texas or west Texas and you're going to Mexico for the first time ever it's going to be a little bit of an issue and you're going to need to find crews that are willing to go to Mexico etc which you might not on the other hand if you're you know let's say an oxy for example I mean oxy is in pretty rough places total it's in pretty rough places so are they going to feel comfortable they're not comfortable but do they think they can manage it I think they can there's another dimension which you know everybody focuses on the security issue I think there's all that also big issues in terms of community relations and and this is a big issue that happened when we were talking about the the gas reform because Pemex has ways of dealing with this that are not necessarily open to the private sector and in areas for example on shore in the south of Mexico and Tabasco Chiapas you have a lot of community relations issues I understand that there's one particular service contract that is operated by Schlumberger where they haven't been able to operate the first day you know they they haven't been able to go in at all so those are issues that are going to have to be dealt with no doubt maybe we could take a couple questions now starting with the one here and then that any over on this side and uh and that will be second Steven Nodder from McClarty Associates I'd like to pick up on something that Mr. Haas said and ask Dr. Ray I said oh there's a question based on his experience as the director general of Pemex given that you have an entrenched bureaucracy in Pemex that's used to doing things in a certain way and that now the rules are changing that takes away a lot of that authority and power and ability to to act as a monopoly and also in CFE how do you think that transition is going to go and how long is it going to take before you reset the mindset of of these people that have been used to to running things for so long and what's the impact of that on retention of these uh mid and senior level executives in those institutions thank thank you and that's question then we'll we'll answer them both and uh and at Haas sir inter-american development bank uh hi I was just wondering I didn't hear much about environmental assessment impacts uh and I've noted uh in several other jurisdictions that you move one reform ahead but uh you also need all the environmental approvals to be able to move several uh uh projects ahead how do you see that working out together with the uh community approval and so on for several of the projects as soon as maybe you get to answer the question about Pemex and then whoever around well I think that Pemex cannot be changed from from within I mean I probably am leaving proof of that no so um it needed a major checkup and it had to come from outside uh this does the trick obviously this reform because it really puts Pemex in competition in every aspect of the of the whole the whole chain now the um the big the big issue is I think that from within Pemex if you sort of obviously the top manager top top management is convinced of the reform and they are working for it the issue is how successful they will be to implement the changes within the company so that Pemex is able to cope with competition and at the same time by doing so allowing a significant and rapid expansion of the hydrocarbon sectors in Mexico of Mexico actually a lot of companies really want to go to Mexico partnering with Pemex but to I mean you there are some there might raise they may they might arise some questions related with the capacity of Pemex to be a good partner so um which in turn has to do with the regulations and with the Treasury and the way the Treasury is going to treat Pemex I think that the the critical issue is that within Pemex a some of the most important layers of executives the guys who are in the fields the supervisors they accept the notion of of eliminating the exclusivity of Pemex there was a very important discussion about this in in relation with the reform of 208 it was in 208 when actually the taboo of discussing these issues was eliminated because there was a taboo I mean in 206 when I entered into I became the CEO there the there was it was a prohibition to actually talk about the opening of Pemex or the opening of the sector this is only you know eight years six years ago it's a completely different ballgame now you know and everybody discusses that every political party includes that this this topic in their agenda and so on so I think my perception is this this layer of executives to accept the fact that the exclusivity the exclusivity had to go and that Pemex had to compete with other with other companies but and it's a very important but but in a level playing field and it's there where the fact that they not took Pemex out of the budget and the I would say excessive intrusion of the of the treasury in many of the decisions of Pemex it creates a problem because some of those middle layers and high layers functioners they are completely unhappy with that you see okay you want and we want Pemex to compete let us compete but do not put us in an on-level playing field if you if you really make an assessment I think that the big loser of the reform as it is is Pemex paradoxically because it one would say that within the mind of the government strategically thinking they they need to understand that they need Pemex to be the dominant company for quite some time some years for the country and the sector to keep moving ahead there is the other thing is impossible to imagine that you pass from day one to day two and the monopoly is gone and everything else is done by somebody by somebody else so and that is not in my mind it's not clear that they really get it that it's a complicated thing and they have to put a lot of attention to that so as not to become an impairment of the of the of the reform I would sort of there are other aspects the taxing aspects and other things but I leave it I leave it here no thank you in answer Annette Hester's question is the environmental protection regulations are they part of this secondary legislation or they're they're different well actually the constitutional reform did include the creation of a commission on security issues I mean not security safety safety labor safety issues and environmental aspects in the energy in the energy industries and it will become a new a new agency and the I would say in terms of the safety Pemex has made a lot of strides over the past years so I have no concern with that actually it's if you see the records of Pemex as compared with other national oil companies is the Pemex does very well the issue is the environmental and the environmental has to do I'm not very concerned about current operations of Pemex in regard to the environmental impact there are some as every company in the world has but if you see the standards of which Pemex operates currently they're relatively high standards the question has to do more with the issue of shell operations how will all the discussion that is really going on in the U.S. and in other in other corners of the world in regard to that permeate and be dealt with in in Mexico by the agency and by public opinion and by by the government that I think is a critical is a critical issue now there is an important difference if you saw the map that they actually presented here it's very interesting that some of the areas where there is potential for shell operations in Mexico traditions in Mexico are on the coastal areas and that makes a big difference in regard to the issue of water because there are some in the Coahuila not just a bordering with the U.S. in the very north it's a dry area but as soon as you move a little bit further south doing some of the Mollipas and especially in Veracruz there's a lot of water it's a completely different different thing now we are not going to pollute the water the issue is what techniques do you use to actually return the water you use in these explorations to the in the same conditions that they were taking from nature and that that that will there's the good thing is that there is a lot of way that has been already a progress that has been made here and the in the U.S. with technologies and with the know-how so how to do that the that of that Mexico will benefit just by sort of receiving the know-how with the investors that would be interested in doing that and the the downside of that is that most probably there will be a contamination of the discussion because the the ONGs that that discuss these issues are transnational and they they clearly would clearly you know bring the raise the issues down there there's already starting a interesting debate about about those issues so those are the ones that I'm not talking about the air that's a different that's that emissions of CO2 or something like that that's different I'm talking more about the water the water the water okay we've got three more questions I think that's going to have to wrap it up because I know two of our speakers have tight travel schedules one and then there are two more over here thank you very much for your presentations as a Rosales from Georgetown University there have been many comments about the excess of optimism in the goals and benefits from the energy reform very recently the Oxford Institute with that which I believe Mr. Has is somewhat familiar to this because because it was a paper recently released that was highlighting the lack of services for deep water exploration that the new fields would hardly offset the production in mature fields and one of the current CEO current Pemex counselors said that the government should address in the secondary regulations in the secondary legislation whether the country should follow a model of production with a dominant regulator or a dominant producer and my personal view in international aspects is that the discussion about international prices sell sufficiency with which does not necessarily mean independence from markets because we recently saw them the instability of prices with the Iraq war so in this context how how will the Mexican government will address and will try to attract and retain foreign investment thank you and the other two more and then we'll finish hi I'm Jason Kleinerman I'm a student at Penn State University I was wondering if the panel could elaborate more on the fiscal structure of the proposed exploration and production contracts and also what are Pemex's strategies relating to them diversifying their international trading partners and what role do U.S. and Chinese firms play in this investment hi good afternoon I'm doing an internship here in a consulting company but I'm a Mexican citizen so I'm going back to Mexico and Mr. Has mentioned that there are a lot of questions in between Mexican people about how this reform is going to give me a benefit as a Mexican citizen as far as I know the taxes that Pemex pay it's about a 40 percent annually for the Mexican budget so I think that if we bring new companies that are going to actually sell these same product that Pemex sells I think so Pemex sales are going to drop and if Mexico is inviting other companies to invest in Mexico I think Mexico needs to offer something that is attractive so my question is whether these companies are going to pay the same amount of taxes that Pemex paid or if not where is this money come this money that Pemex is going to stop producing how Mexico is going to produce this money or where is this money coming from hey thank you and maybe you can answer the global can you have time the the one about okay good all right let me start with the fourth let me start with the fourth and then you might we go backwards if that's okay no because I think the fourth is very important the the guidelines that are in the secondary legislation about how the contracts will be are very similar to international the international guidelines there are a couple of issues but they there are like four variables that the government will actually move when crafting the contracts with the private parties in terms of granting them a a a permit or license to exploit some some some areas the I think the bottom line of all these discussions is the following Mexico will have to have a competitive contract scheme because the otherwise would be an absurdity in the context of the reform you you you make the reform because you want more investment both private and public into the hydrocarbon sector is not bringing private investment instead of Pemex's Pemex's investment because that would then it would be a some some zero game you need to keep Pemex investing and to bring other players in competition or in partnership with Pemex to bring additional resources so that you can multiply the number of wells being drilled and the installations and the facilities being constructed and so on so the the contract the the taxing aspect of those contracts will have at the end of the day to be competitive to international with international standards corrected by Reyes and other other all the other all the factors that have to be considered so that is the the the basic the basic point it doesn't matter which one of those four variables they move that depends a lot of if the government is eager to to get some resources short sooner than later or if they are willing to sacrifice some some some some resources some some income from those contracts in the short term for the future and then you can do all sorts of plays with that and models and I don't know that but bottom line is the number at the end that the government take that Mexico's government is going to take from the contracts that will be negotiated with private parties and with Pemex will have to be internationally competitive and that that the clarity is there there are some other issues that maybe the scheme is a little bit too complex because the Treasury wants to have an opinion in each contract things like that bureaucracy bureaucracy know that in my view is not needed and should be done in a more in a more systemic way but are those are secondary the issue is the competitiveness of the of the Mexican scheme is a video I know without I respond to your to your question okay I have a complimentary take on on this I think that one of the issues that the government faces is the selection of the assets that it wants to put on the block and the sequencing that's really important let me just give you an example to you know stop speaking conceptually let's say that you start the auction with deepwater offshore in areas where Pemex has actually you know it says it has found something it's uncertain how much and there's no 1p reserves and the prospectivity is kind of doubtful well you know you have a 10 to 12 year span between discovery and first oil you have very low prospectivity you have you know some seismic data but not really a lot so you're taking a lot of risk and if you want to go into that if you want to start your auctioning of acreage that way you're going to get you know very few players because there's not too many people who play in the paleo gene that's very ultra deep water and there's low prospectivity and there's a lot of risk and you know a very long life cycle to first oil now if you start on the other hand with and nobody knows what the energy reform is going to look like and what are the issues you know all of that remains to be tested so you're starting with very high risk stuff and with a very uncertain practical application of the reform now let's say that you do it otherwise you say i'm going to go to shallow waters offshore you know right i'm going to auction the block that's between kuma lobsab and cantorail and abkatun right those blocks right there prospectivity is very high there's a lot of hydrocarbons and you know if you're an oil man where do you look for oil where there's already oil and so you have shallow waters which are very easy to operate in it's 150 feet of draft you have a lot of undersea infrastructure because the pipelines you know we're designed for three and a half million bells a day and you're now at two and a half million barrels and you know it's relatively low risk in comparison to uh to uh to ultra deep water so the amount of money that people are willing to pay for that acreage the enthusiasm uh that you're gonna have for that acreage is a lot higher so it doesn't only depend i mean i agree with what jesus was saying but it doesn't only depend on the the the marginal tax rate and the royalty rate etc it also depends on on how you want to start and i know that pemex gets ulcers when thinking that the mexican government could auction blocks in in shallow waters you know offshore because that's their turf and that's where they think they have a chance but the question is if you're thinking about the development of the mexican oil sector and you're thinking of attracting foreign investors if it was my money i would start with shallow waters and then you prove the concept you bring in people with low risk issues and uh you you're going to have a lot of competition you have many more companies that can operate in that environment and uh once you prove the concept and you start you know um filing the you know sending the rough edges then you get a much sturdier infrastructure uh legal infrastructure and regulatory infrastructure you've proven the concept and then you can move on to more complicated areas so there's a there's a big decision on the part i have no idea what they're going to decide no i'm not privy to those discussions but they have to they have to make design discussions they have to make sequencing discussions they have to make uh they have to make decisions based on sequencing based on how much they're going to give to pemex you know of that request that jesus was talking about uh and all of that is going to have an impact on on the unfolding of the of the reform there's the changing situation in north america have changed the policy goals or or the targets about where mexico would sell out oil now i mean does that i think the one questioner asked whether we're or let new oil be going to china or i mean is that listen i learned to go i learned many years ago i spent 12 years in international trade and then i consulted for many companies worldwide on international trade issues you know crude oil is cash basically okay there is no problem i remember that hedging yes there is no problem with selling crude oil the only question is at what price you're going to sell it and that has two dimensions to it one is the efficiency you know are you getting the market price you're not going to get more than the market price you have to be careful not to get less than the market price and the second is whether you're maximizing the netback because you're going to the right market you know that's all there is now pmi i think has uh the international trade subsidiary pemex has the capability analytical and commercial to market the crude oil wherever it makes the most money it's the question of whether mexican energy policy will give it the freedom to execute whatever sales strategy is needed to maximize the the return but that's all there is i i don't think there's any particular mystery in it did your question get answered i don't think they're gonna meet i mean the government has a three million barrel a day goal by the end of this administration the number is not two million and a half uh current production it's two million 350 thousand as i mentioned and uh plus you have the decline and to make up for that i mean i just don't think that they're going to be able to reach three million barrels a day now i i think there's another issue which is that one of the problems we have is that the government i believe from the very beginning because it had all these political constraints and it had to make sure that the whole legislation would pass etc has been making a lot of commitments and promises you know volumes of production declining prices to the public etc i i just don't think those are tenable and i don't think people believe them uh and i think the government can get in trouble because it promises things that it is going to have a hard time delivering does that mean that it invalidates the the the reform i don't think it invalidates the reform this is a very ambitious complicated reform it's take it's going to take some years to get done and polished and executed in a way that you know has never been done in mexico and so it's normal that we're going to have bumps in the road the problem is if you promise that there's not going to be any bumps and then there are bumps people are going to say ah you lied to me uh come on i mean the exceeded expectations is part of the process of selling the reforms every government when tries to push for a reform regretfully falls into a promising things that are too optimistic and that happened also with the energy reform in mexico uh and it has different implications in mexico and outside so the issue here is managing the expectations because the reform is a very serious uh very profound reform you already the government finally after 70 years of discussion in mexico uh actually made a ball of snow that put on the top of the mountain and the ball is rolling and it's going to be a heck of a huge ball when it gets down so let's not hope let's not lose hope not hope but the perspective of that that is true now bumps and non bumps expectations that feel frustrated in the short term and changes and so that will happen but it's a reality i want to add one element in regard to that if you allow me guy because one has to also be confident about the capacity of mexico to deal with that just think about the the changes in the energy in the gas reform of 94 96 whatever i mean at the end of the day it did work it took time the regulations were there nafta before that nafta is it's a reality institutions are there i mean the country has been able to to build up the institutions that are needed to to to implement big changes like that so and the country is an open country so there are many questions if the mexican economy will have the capacity to respond to a very um you know demanding uh a high high demand for labor and you you talked about that for labor and supplies and companies and engineering capacities and so on and the the responses mexico by itself no but it's an open economy and and and just you have very close it's an afta member and you have the u.s. and canada right there so with that the capacity of mexico i'm i'm not concerned about the capacity of mexico to respond in that aspect of it no our regulations you can have regulations of 10 9 8 5 so i mean you can grade them but it's uh but it's uh it's there i i have a problem there and this is a discussion we might need to have you know at a later date but i think the gas regulation to me and i would see you of pemex gas when it happened is exactly the example that we have to avoid we had a constitutional reform we had regulatory reform we created the c re we had all the bells and whistles and i think the reform failed and the proof that the reform failed is that the economy has had gas alerts gas supply alerts and uh that it has been impossible to build the infrastructure to uh supply mexico with with the gas and that's the thing that we have to avoid we have to avoid a regulatory and legal and regulatory environment that does 95 percent of the work and then falls short of the last five percent that you need to actually execute the point and there is that risk i i think it's it's going to be i think it's going to work but i think it's going to be complicated and i think there is the risk in this particular case that we also fall short because of x y or z uh just like we did at the time of the of the gas reform i hope it's not the case but it's a complicated issue and i think that unless we're very very aware that it may happen to us again i think we run the risk that it will if we are aware that it happened to us and that we are able to go back and see what went wrong and we avoid the same mistakes i think then we have a better chance but it's not that easy it's not you know a piece of cake okay well thank thank you