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Rating Action:

Moody's rates PEMEX debt issuance Baa1

31 Aug 2010

USD $1,000 million of debt affected

New York, August 31, 2010 -- Moody's Investors Service assigned a Baa1 foreign currency bond rating to Petróleos Mexicanos' (PEMEX) issuance of USD $1,000 million of fixed rate global bonds due June 15th, 2035. The Baa1 rating reflects the senior unsecured status of the notes and subsidiary guarantees and is consistent with the ratings on PEMEX's other existing senior unsecured foreign currency debt. The rating outlook is stable.

RATINGS RATIONALE

PEMEX's foreign currency and national scale ratings reflect the company's position as Mexico's largest corporation and its monopoly status as the country's sole producer of crude oil, natural gas and refined products. PEMEX had a sizable 14 billion BOE of proved hydrocarbon reserves (as of January 1, 2010) and current oil and gas production averaging in the area of 3.8 million BOE/day is in line with the largest integrated and national oil companies. It is also a leading crude oil exporter, with about 40% of its total crude production exported to the United States in 2009. Although PEMEX's debt is not guaranteed by the Mexican government, our ratings reflect implicit government support given the company's strategic importance to for the government and the people of Mexico.

PEMEX faces numerous operational and financial challenges. It has not replaced production for many years and crude oil reserves have declined steadily in tandem with the sharp decline of the giant Cantarell oil field. The company's goal is to achieve 100% replacement on a proved reserves basis by 2012, a task that will be made more difficult by continuing difficulties in developing the Chicontepec field.

In addition, despite PEMEX's ample pre-tax cash flow, its capital retention and investment program have been stymied by a heavy tax burden and by the prohibition on foreign investment in the Mexican oil sector, resulting in a high debt burden. Moody's considers that the tax and energy reforms of 2007-2009 will be positive for cash retention and will provide more flexibility to the company's budgetary planning and in its ability to issue debt. However, the new fiscal regime will only modestly increase PEMEX's after-tax cash flows relative to its sizable debt levels in the near-to-medium term. In addition, while energy reform has increased PEMEX's autonomy and ability to control its budgets, it fell short of more far-reaching changes that would help promote hydrocarbon exploration and development, particularly in the deepwater Gulf of Mexico. In particular, the upstream sector remains off-limits to production sharing or other forms of equity ownership that would promote accelerated investment, relying instead on the new incentive-based contracts. Most of PEMEX's other operations, such as refining, will also remain closed to foreign investment or ownership.

PEMEX's capital spending trend is positive, with investment up significantly from very low levels in the 2002-2005 period and further benefiting from reduced royalties through 2012 that will allow the company to retain more cash for internal investment. The energy reform package also introduced a modified lower tax regime for the Chicontepec and offshore deepwater. The 2010 capital budget is expected to be up about 5% over 2009 spending in peso terms, with 84% to be spent in the upstream, including investments to stem the Cantarell decline and for development in the KMZ and CLM oil fields, as well as non-associated gas in the Burgos basin.

Our stable outlook depends on the company's ability to fund its capital without further significant leverage increases, at least in the near-term. A material increase in PEMEX financial leverage or further significant deterioration in its production could affect PEMEX's ratings. We will continue to monitor the implementation of energy reform, including developments around the incentive contracts, the impact of the cut back in investment in Chicontepec, which was expected to be a major source of production growth.

The last rating action on PEMEX occurred on April 30, 2010, when Moody's rated debt issuances under the certifcados bursátiles program.

The principal methodologies used in rating Petroleos Mexicanos were Global Integrated Oil & Gas Industry rating methodology published in November 2009, and The Application of Joint-Default Analysis to Regional and Local Governments published in December 2008. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website.

Petróleos Mexicanos, the national oil company of Mexico, is headquartered in Mexico City.

REGULATORY DISCLOSURES

Information source(s) used to prepare the credit rating is/are the following: parties involved in the ratings, public information, and confidential and proprietary Moody's Investors Service's information.

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Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

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New York
Steven Wood
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Thomas S. Coleman
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service
250 Greenwich Street
New York, NY 10007
USA

Moody's rates PEMEX debt issuance Baa1
No Related Data.
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