Mexico's National Hydrocarbons Commission (Comisión Nacional de Hidrocarburos) ("CNH") held today an extraordinary session to address this matter. It is the first time CNH issues a technical opinion to justify the migration of hydrocarbons deepwater Entitlements (Asignaciones) granted to Pemex (the Mexico's national oil company) in Round Zero to a farmout agreement.

In terms of the applicable law, CNH's favorable opinion was required to migrate the Trion Field Entitlements. CNH issued such favorable opinion. According to CNH, its decision was focused in 3 essential points that justify the convenience of carrying out the Trion project in the form of a farmout: (i) hydrocarbons incremental production, (ii) the incorporation of additional reserves, and (iii) expenses, costs and investment scenario.

(i) Hydrocarbons incremental production:

During Round Zero when Pemex requested Trion Field, it had an estimated production related to a recovering factor of 22%, which raised, from a development project, the recovery of 230 MMBO and 384 MMcf of gas. Now, in the migration application Pemex propose a conceptual development for this reservoir, based on secondary recovery through water injection. With this view, it is forecasted an improvement of the recovery factor of 30%, in order to recover the amount of 420 MMBO and 325 Bcf.

(ii) Incorporation of additional reserves:

The Simba-1 well is one exploratory prospects to be drilled, which based on a conceptual development, may recover within 45 MMBO and 250 Bcf.

(iii) Expenses, costs and investment scenario.

A new exploration plan based on the progress achieved by Pemex so far. This new plan entails (a) the acquisition of new multi-azimuth seismic in the whole area, in order to solve the problems Pemex had regarding the definition of prospects, (b) the drilling of the Simba-1 Exploratory Well, and (c) the drilling of 2 Delimiter Wells.

Interestingly, CNH identified some alleged inconsistencies in the reserves considered for the Trion Field and the infrastructure planned for the development of the Field. CNH also had some doubts relating to the secondary recovery process. CNH will resolve on that later at the appropriate time.

Notwithstanding the foregoing, with the corresponding amendments to the Pemex's conceptual development plan, it will be possible to more accurately define the technical characteristics that the Pemex's partner(s) shall have (operator and financing non-operating partner) who will participate in the bidding process synchronized with the Bid #4 of Round #1.

Estimated date to initiate production at the Trion Field: Year 2022

Identified prospects:

Simba-1 (mentioned above)

As we have discussed in different forums, the devil is in the details, so the bidding guidelines for this Trion deepwater project should be clear enough as to the core aspects of the association with Pemex, as well as the fiscal terms.

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