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	Filed Pursuant to Rule 424(b)(3) Registration Number 333-103197    333-103197-01 333-103197-02 333-103197-03 333-103197-04
	Prospectus

Pemex Project Funding Master Trust

Exchange Offers

for the following classes of securities:

U.S. $750,000,000 8.00% Notes due 2011
U.S. $1,000,000,000 7.875% Notes due 2009
U.S. $500,000,000 8.625% Bonds due 2022
U.S. $1,000,000,000 7.375% Notes due 2014
unconditionally guaranteed by
Petróleos Mexicanos
Terms of the Exchange Offers

•

We are offering to exchange the securities that we sold in private offerings for new registered securities.



•

The exchange offers expire at 5:00 p.m., New York City time, on March 25, 2003, unless we extend them.



•

You may withdraw a tender of old securities at any time prior to the expiration of the exchange offers.



•

All old securities that are validly tendered and not validly withdrawn will be exchanged.



•

We believe that the exchange of securities will not be a taxable exchange for either U.S. or Mexican federal income tax purposes.



•

We will not receive any proceeds from the exchange offers.



•

The terms of the new securities to be issued are identical to the old securities, except for the transfer restrictions and registration rights relating to the old securities.



•

The payment of principal and interest on the new securities will be unconditionally guaranteed by Petróleos Mexicanos, a decentralized public entity of the Federal Government of the United Mexican States, which we refer to as the guarantor.



•

Three of the four subsidiary entities of Petróleos Mexicanos will guarantee its obligations as guarantor of the new securities. These subsidiary entities are Pemex-Exploration and Production, Pemex-Refining and Pemex-Gas and Basic Petrochemicals; we refer to them as the subsidiary guarantors.

We are not making an offer to exchange securities in any jurisdiction where the offer is not permitted.

Investing in the securities issued in the exchange offers involves certain risks. See "Risk Factors" beginning on page 17.

Neither the Securities and Exchange Commission nor any State securities commission has approved or disapproved the securities to be distributed in the exchange offers, nor have they determined that this prospectus is truthful and complete. Any representation to the contrary is a criminal offense.

February 24, 2003

TABLE OF CONTENTS

	Page
About this Prospectus	3
Available Information	3
Currency of Presentation	4
Presentation of Financial Information	4
Prospectus Summary	5
Selected Financial Data	12
Risk Factors	17
Use of Proceeds	25
Ratio of Earnings to Fixed Charges	25
Capitalization of PEMEX	27
Operating and Financial Review and Prospects	28
Recent Developments	31
Pemex Project Funding Master Trust	41
The Exchange Offers	43
Description of the New Securities	53
Book Entry; Delivery and Form	68
Taxation	71
Plan of Distribution	75
Validity of Securities	76
Public Official Documents and Statements	76
Change in Independent Auditors	76
Experts	77
General Information	78
Annual Report on Form 20-F of Petróleos Mexicanos for its Fiscal Year ended December 31, 2001	80
Unaudited Condensed Consolidated Financial Statements of Petróleos Mexicanos, Subsidiary Entities and Subsidiary Companies as of June 30, 2002 and for the six-month periods ended June 30, 2002 and 2001	F/B-1

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        We have applied, through our listing agent, to list the new securities on the Luxembourg Stock Exchange.

ABOUT THIS PROSPECTUS

        You should rely only on the information provided in this prospectus. We have authorized no one to provide you with different information. You should not assume that the information in this prospectus is accurate as of any date other than the date on the front of the document.

        We are furnishing this prospectus solely for use by prospective investors in connection with their consideration of participating in the exchange offers. We confirm that:

•

the information contained in this prospectus is true and correct in all material respects and is not misleading;



•

we have not omitted other material facts, the omission of which would make this prospectus as a whole misleading; and



•

we accept responsibility for the information we have provided in this prospectus.

        Petróleos Mexicanos, as guarantor, will file an application to register the new securities with the Sección Especial del Registro Nacional de Valores (the Special Section of the National Registry of Securities) maintained by the Comisión Nacional Bancaria y de Valores (National Banking and Securities Commission) of the United Mexican States ("Mexico"). Registration of the new securities with the Special Section of the Registry does not imply any certification as to the investment quality of the new securities, the solvency of the issuer, the guarantor or the subsidiary guarantors or the accuracy or completeness of the information contained in this prospectus. The new securities may not be publicly offered or sold in Mexico.

AVAILABLE INFORMATION

        Petróleos Mexicanos files annual and other information (File No. 0-99) with the Securities and Exchange Commission. You may read and copy any document Petróleos Mexicanos files at the SEC's public reference room in Washington, D.C. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms.

        Separate financial statements of the Pemex Project Funding Master Trust have not been included in this prospectus. Petróleos Mexicanos does not believe that these financial statements would be material to you because (i) Petróleos Mexicanos, an SEC reporting company, is the sole beneficiary of the issuer, (ii) the issuer has no independent operations, and (iii) Petróleos Mexicanos has fully and unconditionally guaranteed the issuer's obligations under the securities.

        In its future filings under the Securities Exchange Act of 1934, as amended, a footnote to Petróleos Mexicanos' annual financial statements will state that the issuer is consolidated with Petróleos Mexicanos, and that the guarantee, when taken together with the indenture, the trust agreement of the issuer and Petróleos Mexicanos' obligations to pay all fees and expenses of the issuer, constitutes a full and unconditional guarantee by Petróleos Mexicanos of the issuer's obligations under the securities.

        We have filed a registration statement with the SEC on Form F-4 covering the new securities. This prospectus does not contain all of the information included in the registration statement. Any statement made in this prospectus concerning the contents of any contract, agreement or other document is not necessarily complete. If we have filed any of those contracts, agreements or other documents as an exhibit to the registration statement, you should read the exhibit for a more complete understanding of the document or matter involved. Each statement regarding a contract, agreement or other document is qualified in its entirety by reference to the actual document.

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        We are required to file periodic reports and other information with the SEC under the Securities Exchange Act of 1934, as amended. We will also furnish other reports as we may determine appropriate or as the law requires.

        You may read and copy the registration statement, including the attached exhibits, and any reports or other information we file, at the SEC's public reference room in Washington, D.C. You can request copies of these documents, upon payment of a duplicating fee, by writing to the SEC's Public Reference Section at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference rooms. In addition, any filings we make electronically with the SEC will be available to the public over the Internet at the SEC's website at http://www.sec.gov.

        You may also obtain copies of these documents at the offices of the Luxembourg listing agent, Kredietbank S.A. Luxembourgeoise.

CURRENCY OF PRESENTATION

        References in this prospectus to "U.S. dollars", "U.S. $", "dollars" or "$" are to the lawful currency of the United States of America. References in this prospectus to "pesos" or "Ps." are to the lawful currency of Mexico. We use the term "billion" in this prospectus to mean one thousand million.

        This prospectus contains translations of certain peso amounts into U.S. dollars at specified rates solely for your convenience. You should not construe these translations as representations that the peso amounts actually represent the actual U.S. dollar amounts or could be converted into U.S. dollars at the rate indicated. Unless we indicate otherwise, the U.S. dollar amounts have been translated from pesos at an exchange rate of Ps. 9.1423 to U.S. $1.00, which is the exchange rate that the Ministry of Finance and Public Credit gave to Petróleos Mexicanos on December 31, 2001.

        On February 11, 2003, the noon buying rate for cable transfers in New York reported by the Federal Reserve Bank of New York was Ps. 10.9550.

PRESENTATION OF FINANCIAL INFORMATION

        The audited consolidated financial statements of PEMEX as of December 31, 2001 and 2000 and for each of the three years in the period ended December 31, 2001 are included in Item 18 of the 2001 Form 20-F (the "Form 20-F") of Petróleos Mexicanos, which is included in this prospectus and the registration statement covering the new securities. We refer to these financial statements as the 2001 financial statements. We also include unaudited condensed consolidated financial statements of PEMEX as of June 30, 2002 and for the six-month periods ended June 30, 2001 and 2002. These consolidated financial statements were prepared in accordance with accounting principles generally accepted in Mexico, or "Mexican GAAP", and as to the recognition of inflation, in accordance with the guidelines established in Financial Reporting Standard NIF-06 BIS "A," section A. Notes 2 b) and 15 to the 2001 financial statements describe the inflation accounting rules that apply to PEMEX. Mexican GAAP differs in certain significant respects from United States generally accepted accounting principles, otherwise referred to as "U.S. GAAP." The differences that are material to the 2001 financial statements and to the condensed consolidated interim financial statements are described in Note 19 to the 2001 financial statements and Note 12 to the condensed consolidated interim financial statements. We also include summary financial data for the nine months ended September 30, 2002 of Petróleos Mexicanos, the subsidiary entities and the Pemex Project Funding Master Trust, but excluding the subsidiary companies, which is not audited and was prepared in accordance with Mexican GAAP, and as to the recognition of inflation, in accordance with the guidelines established in NIF-06 BIS "A," section A.

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PROSPECTUS SUMMARY

The following summary highlights selected information from this prospectus and may not contain all of the information that is important to you. This prospectus includes specific terms of the securities we are offering, as well as information regarding our business and detailed financial data. We encourage you to read this prospectus in its entirety.

The Issuer

        The issuer, Pemex Project Funding Master Trust, is a Delaware statutory trust established by Petróleos Mexicanos pursuant to the terms of a trust agreement dated as of November 10, 1998 among The Bank of New York, as Managing Trustee, The Bank of New York (Delaware), as Delaware Trustee and Petróleos Mexicanos, as sole beneficiary. The issuer is a financing vehicle for the long-term productive infrastructure projects of Petróleos Mexicanos, which we refer to as PIDIREGAS. The Delaware office of the issuer is The Bank of New York (Delaware), White Clay Center, Newark, DE 19711; the office of the Managing Trustee of the issuer is The Bank of New York, Corporate Trust Global Structured Finance Unit, 101 Barclay Street, Floor 21 West, New York, NY 10286.

PEMEX

        Petróleos Mexicanos is a decentralized public entity of the federal government of the United Mexican States ("Mexico"). The Mexican Congress established Petróleos Mexicanos on June 7, 1938 in conjunction with the nationalization of the foreign oil companies then operating in Mexico. Its operations are carried out through four principal subsidiary entities, which are Pemex-Exploración y Producción (Pemex-Exploration and Production), Pemex-Refinación (Pemex-Refining), Pemex-Gas y Petroquímica Básica (Pemex-Gas and Basic Petrochemicals) and Pemex-Petroquímica (Pemex-Petrochemicals). Petróleos Mexicanos and each of the subsidiary entities are decentralized public entities of Mexico and legal entities empowered to own property and carry on business in their own names. In addition, a number of subsidiary companies, including Pemex Project Funding Master Trust, are incorporated into the consolidated financial statements. We refer to Petróleos Mexicanos, the subsidiary entities and the consolidated subsidiary companies as PEMEX, and together they comprise Mexico's state oil and gas company.

The Exchange Offers

        On November 26, 2001 we issued U.S. $750,000,000 of 8.00% Notes due 2011. We refer to these securities as the "8.00% old notes." On February 1, 2002 we issued U.S. $1,000,000,000 of 7.875% Notes due 2009. We refer to these securities as the "7.875% old notes." On February 1, 2002 we also issued U.S. $500,000,000 of 8.625% Bonds due 2022. We refer to these securities as the "8.625% old bonds." On December 12, 2002 we issued U.S. $1,000,000,000 of 7.375% Notes due 2014. We refer to these securities as the "7.375% old notes."

        We are offering new, registered securities in exchange for the 8.00% old notes, the 7.875% old notes, the 8.625% old bonds and the 7.375% old notes, which were unregistered securities and which we issued and sold to certain initial purchasers. These initial purchasers sold the old securities in offshore transactions and to qualified institutional buyers in transactions that were exempt from the registration requirements of the Securities Act of 1933, as amended. In this prospectus, we refer to the unregistered securities that we have already issued as the old securities, and the securities that we are now offering as the new securities.

        The old securities and the new securities are guaranteed by Petróleos Mexicanos. Three of the subsidiary entities of Petróleos Mexicanos guarantee its obligations as guarantor of the securities. These subsidiary entities are Pemex-Exploration and Production, Pemex-Refining and Pemex-Gas and Basic Petrochemicals.

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Registration Rights Agreement

        Each time we issued the old securities, we also entered into a registration rights agreement with the initial purchasers of those old securities in which we agreed to do our best to complete the exchange offer of the old securities on or prior to a particular date. For the 8.00% old notes, 7.875% old notes and 8.625% old bonds, we agreed to do our best to complete the exchange offers on or prior to October 2, 2002. We were not able to complete the exchange offers by October 2, 2002 and, as a result, the old securities began to earn additional interest at the rate of 0.25% per year on September 3, 2002, and are now earning additional interest at the rate of 0.50% per year. This additional interest will stop when we complete the exchange offers. For the 7.375% old notes, we agreed to do our best to complete the exchange offer on or prior to October 2, 2003.

The Exchange Offers

        Under the terms of the exchange offers, holders of each series of old securities are entitled to exchange old securities for new securities with substantially identical terms.

        You should read the discussion under the heading "Description of the New Securities" for further information about the new securities and the discussion under the heading "The Exchange Offers" for more information about the exchange process. The 8.00% old notes may be tendered only in a principal amount of U.S. $10,000 and integral multiples thereof. The 7.875% old notes, 8.625% old bonds and 7.375% old notes may be tendered only in a principal amount of U.S. $10,000 and integral multiples of U.S. $1,000 in excess thereof.

        The series of new securities that we will issue in exchange for old securities will correspond to the series of old securities tendered as follows:

New Securities Series	Corresponding Old Securities Series
8.00% new notes due 2011	8.00% old notes due 2011
7.875% new notes due 2009	7.875% old notes due 2009
8.625% new bonds due 2022	8.625% old bonds due 2022
7.375% new notes due 2014	7.375% old notes due 2014

        As of the date of this prospectus, the following amounts of each series of old securities are outstanding:

•

$750,000,000 aggregate principal amount of 8.00% old notes due 2011;



•

$1,000,000,000 aggregate principal amount of 7.875% old notes due 2009;



•

$500,000,000 aggregate principal amount of 8.625% old bonds due 2022; and



•

$1,000,000,000 aggregate principal amount of 7.375% old notes due 2014.

Resale of New Securities

        We believe that you may offer the new securities issued in the exchange offers for resale, resell them or otherwise transfer them without compliance with the registration and prospectus delivery provisions of the Securities Act, as long as:

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you are acquiring the new securities in the ordinary course of your business;

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•

you are not participating, do not intend to participate, and have no arrangement or understanding with any person to participate, in the distribution of the new securities; and



•

you are not an "affiliate" of ours, as defined under Rule 405 of the Securities Act.

        If any statement above is not true and you transfer any new security without delivering a prospectus meeting the requirements of the Securities Act or without an exemption from the registration requirements of the Securities Act, you may incur liability under the Securities Act. We do not assume responsibility for or indemnify you against this liability.

        If you are a broker-dealer and receive new securities for your own account in exchange for old securities that you acquired as a result of market making or other trading activities, you must acknowledge that you will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of the new securities. We will make this prospectus available to broker-dealers for use in resales for 180 days after the expiration date of these exchange offers.

Consequences of Failure to Exchange Old Securities

        If you do not exchange your old securities for new securities, you will continue to hold your old securities. You will no longer be able to require that we register the old securities under the Securities Act and you will no longer be entitled to additional interest. In addition, you will not be able to offer or sell the old securities unless:

•

they are registered under the Securities Act, or



•

you offer or sell them under an exemption from the requirements of, or in a transaction not subject to, the Securities Act.

Expiration Date

        The exchange offers will expire at 5:00 p.m., New York City time, on March 25, 2003, unless we decide to extend the expiration date.

Interest on the New Securities

        The 8.00% new notes will accrue interest at 8.00% per year, accruing from November 15, 2002, the last date on which we paid interest on the 8.00% old notes you exchanged. In addition, the 8.00% new notes will bear additional interest during the period from November 15, 2002 until the date the exchange offer is completed, at the rate of 0.25% per year until December 2, 2002, and thereafter at the rate of 0.50% per year.

        The 7.875% new notes will accrue interest at 7.875% per year, accruing from February 1, 2003, the last date on which we paid interest on the 7.875% old notes you exchanged. In addition, the 7.875% new notes will bear additional interest during the period from February 1, 2003 until the date the exchange offer is completed, at the rate of 0.50% per year.

        The 8.625% new bonds will accrue interest at 8.625% per year, accruing from February 1, 2003, the last date on which we paid interest on the 8.625% old bonds you exchanged. In addition, the 8.625% new bonds will bear additional interest during the period from February 1, 2003 until the date the exchange offer is completed, at the rate of 0.50% per year.

        The 7.375% new notes will accrue interest at 7.375% per year, accruing from December 12, 2002, the date on which the 7.375% old notes were issued.

        We will pay interest on the 8.00% new notes on May 15 and November 15 of each year. We will pay interest on the 7.875% new notes and the 8.625% new bonds on February 1 and August 1 of each year. We will pay interest on the 7.375% new notes on June 15 and December 15 of each year.

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Conditions to the Exchange Offers

        We may terminate the exchange offers and refuse to accept any old securities for exchange if:

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there has been a change in applicable law or the SEC staff's interpretation of applicable law, and the exchange offers are not permitted under applicable law or applicable SEC staff interpretations of law; or



•

there is a stop order in effect or threatened with respect to the exchange offers or the indenture governing the securities.

        We have not made any of the exchange offers contingent on holders tendering any minimum principal amount of old securities for exchange.

Procedure for Tendering Old Securities

        If you wish to accept the exchange offers, you must:

•

complete, sign and date the letter of transmittal, and



•

deliver electronically the letter of transmittal together with the old securities through The Depository Trust Company's ("DTC") Automated Tender Offer Program ("ATOP") system.

        If you are not a direct participant in DTC, you must, in accordance with the rules of the DTC participant who holds your securities:

•

submit a completed, signed and dated letter of transmittal, and



•

deliver computerized instructions to that DTC participant so that it may follow the procedures described above before the expiration date.

Withdrawal Rights

        You may withdraw the tender of your old securities at any time prior to 5:00 p.m., New York City time, on the expiration date, unless we have already accepted your old securities. To withdraw, you must send a written notice of withdrawal to the exchange agent through the electronic submission of a message in accordance with the procedures of DTC's ATOP system by 5:00 p.m., New York City time, on the expiration date.

Acceptance of Old Securities and Delivery of New Securities

        If all of the conditions to the exchange offers are satisfied or waived, we will accept any and all old securities that are properly tendered in the exchange offers prior to 5:00 p.m., New York City time, on the expiration date. We will deliver the new securities as promptly as practicable after the expiration date.

Tax Considerations

        We believe that the exchange of old securities for new securities will not be a taxable exchange for U.S. federal and Mexican income tax purposes. You should consult your tax advisor about the tax consequences of this exchange as they apply to your individual circumstances.

Fees and Expenses

        We will bear all expenses related to consummating the exchange offers and complying with the registration rights agreement. The initial purchasers have agreed to reimburse us for certain of these expenses.

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Exchange Agent

        Deutsche Bank Trust Company Americas is serving as the exchange agent for the exchange offers. Deutsche Bank Luxembourg S.A. is serving as the exchange agent in Luxembourg. The exchange agents' addresses, telephone numbers and facsimile numbers are included under the heading "The Exchange Offers—The Exchange Agent; Luxembourg Listing Agent."

Description of the New Securities

Issuer

        Pemex Project Funding Master Trust.

Guarantors

        Petróleos Mexicanos will unconditionally guarantee the payment of principal and interest on the new securities. We call this the guarantee.

        Each of Pemex-Exploration and Production, Pemex-Refining and Pemex-Gas and Basic Petrochemicals will, jointly and severally, guarantee Petróleos Mexicanos' payment obligations under its guaranty of the new securities. We call these the subsidiary guaranties.

New Securities Offered

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U.S. $750,000,000 aggregate principal amount of 8.00% new notes due 2011,



•

U.S. $1,000,000,000 aggregate principal amount of 7.875% new notes due 2009,



•

U.S. $500,000,000 aggregate principal amount of 8.625% new bonds due 2022, and



•

U.S. $1,000,000,000 aggregate principal amount of 7.375% new notes due 2014.

        The form and terms of each series of new securities will be the same as the form and terms of the corresponding series of old securities, except that:

•

the new securities will be registered under the Securities Act and therefore will not bear legends restricting their transfer,



•

holders of the new securities will not be entitled to some of the benefits of the registration rights agreement, and



•

we will not issue the new securities under our medium-term note program.

        The new securities will evidence the same debt as the old securities.

Maturity Dates

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8.00% notes mature on November 15, 2011,



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7.875% notes mature on February 1, 2009,



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8.625% bonds mature on February 1, 2022, and



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7.375% notes mature on December 15, 2014.

Interest Payment Dates

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for the 8.00% notes, May 15 and November 15 of each year,



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for the 7.875% notes, February 1 and August 1 of each year,

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•

for the 8.625% bonds, February 1 and August 1 of each year, and



•

for the 7.375% notes, June 15 and December 15 of each year.

Further Issues

        We may, without your consent, increase the size of the issue of any of the series of new securities or create and issue additional securities with either the same terms and conditions or the same except for the amount of the first payment of interest. These additional securities may be consolidated to form a single series with the corresponding new securities.

Withholding Tax; Additional Amounts

        We will make all principal and interest payments on the new securities without any withholding or deduction for Mexican withholding taxes, unless we are required by law to do so. In some cases where we are obliged to withhold or deduct a portion of the payment, we will pay additional amounts so that you will receive the amount that you would have received had no tax been withheld or deducted. For a description of when you would be entitled to receive additional amounts, see "Description of the New Securities—Additional Amounts."

Tax Redemption

        If, as a result of certain changes in Mexican law, the issuer or Petróleos Mexicanos is obligated to pay additional amounts on interest payments on any of the series of the new securities at a rate in excess of 10% per year, then we may choose to redeem those new securities. If we redeem any new securities, we will pay 100% of their outstanding principal amount, plus accrued and unpaid interest and any additional amounts payable up to the date of our redemption.

Ranking of the New Securities and the Guaranties

        The new securities:

•

will be direct, unsecured and unsubordinated public external indebtedness of the issuer, and



•

will rank equally in right of payment with each other and with all other existing and future unsecured and unsubordinated public external indebtedness of the issuer.

        The guaranties of the new securities by Petróleos Mexicanos and the subsidiary guarantors will constitute direct, unsecured and unsubordinated public external indebtedness of Petróleos Mexicanos and each of the subsidiary guarantors, respectively, and will rank pari passu with each other and with all other present and future unsecured and unsubordinated public external indebtedness of Petróleos Mexicanos and each of the subsidiary guarantors.

        Petróleos Mexicanos and the subsidiary guarantors are party to certain financial leases which will, with respect to the assets securing those financial leases, rank prior to the new securities and the guaranties.

Negative Pledge

        None of the issuer, Petróleos Mexicanos or the subsidiary guarantors or their respective subsidiaries will create security interests in our crude oil and crude oil receivables to secure any public external indebtedness. However, we may enter into up to U.S. $4 billion of receivables financings and similar transactions in any year and up to U.S. $12 billion of receivables financings and similar transactions in the aggregate.

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We may pledge or grant security interests in any of our other assets or the assets of Petróleos Mexicanos or the subsidiary guarantors to secure our debts. In addition, we may pledge oil or oil receivables to secure debts payable in pesos or debts which are different than the new securities, such as commercial bank loans.

Indenture

        The new securities will be issued pursuant to an indenture dated as of July 31, 2000, among the issuer, Petróleos Mexicanos and the trustee.

Trustee

        Deutsche Bank Trust Company Americas.

Events of Default

        The new securities and the indenture under which the new securities will be issued contain certain events of default. If an event of default occurs and is continuing with respect to a series of securities, 20% of the holders of the outstanding securities of that series can require us to pay immediately the principal of and interest on all those securities. For a description of the events of default and their grace periods, you should read "Description of the New Securities—Events of Default; Waiver and Notice."

Governing Law

        The new securities and the indenture will be governed by New York law, except that the laws of Mexico will govern the authorization and execution of these documents by Petróleos Mexicanos.

Listing

        We will apply to list the new securities on the Luxembourg Stock Exchange.

Use of Proceeds

        We will not receive any cash proceeds from the issuance of the new securities.

Forward-Looking Statements

        This prospectus contains forward-looking statements. Statements that are not historical facts, including statements about our beliefs and expectations, are forward-looking statements. We have based these statements on current plans, estimates and projections and you should therefore not place undue reliance on them. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update publicly any of them in light of new information or future events. Forward-looking statements involve inherent risks and uncertainties.

        For a discussion of important factors that could cause actual results to differ materially from those contained in any forward-looking statement, you should read "Risk Factors" below.

Principal Executive Offices

        Our headquarters are located at:

Avenida Marina Nacional No. 329
Colonia Huasteca
México, D.F. 11311
Phone: (52-55) 5722-2500.

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SELECTED FINANCIAL DATA

        The selected financial data set forth below should be read in conjunction with, and are qualified in their entirety by reference to, the audited 2001 financial statements and the unaudited condensed consolidated interim financial statements of PEMEX, both included in this prospectus. The selected financial data set forth below as of the five years ended December 31, 2001 and as of June 30, 2002 have been derived from the consolidated financial statements of PEMEX for the years ended December 31, 1997 and 1998 (which are not included herein), the consolidated financial statements of PEMEX for the years ended December 31, 1999, 2000 and 2001 and the condensed consolidated financial statements of PEMEX for the six-month periods ended June 30, 2001 and 2002. The consolidated financial statements of PEMEX for the years ended December 31, 1999 and 2000 were audited by Mancera, S.C. (A Member Practice of Ernst & Young Global), and the consolidated financial statements of PEMEX for the year ended December 31, 2001 were audited by PricewaterhouseCoopers, S.C. See "Change in Independent Auditors" beginning on page 76. The condensed consolidated financial statements of PEMEX as of June 30, 2002 and for the six-month periods ended June 30, 2001 and 2002 have not been audited.

        The consolidated financial statements are prepared in accordance with Mexican GAAP and, as to the recognition of inflation, in accordance with the guidelines established in Financial Reporting Standard NIF-06 BIS "A," section A. See Notes 2 b) and 15 to the 2001 financial statements for a discussion of the inflation accounting rules applicable to PEMEX. Mexican GAAP differs in certain significant respects from U.S. GAAP. The most important of the material items generating a difference between operating results under U.S. GAAP and Mexican GAAP are the accounting methodologies for the treatment of exploration and drilling costs, pension premiums and post-retirement benefit obligations, financial instruments, inflation, foreign exchange losses, capitalized interest and depreciation and impairment of fixed assets, which are described in Note 19 to the 2001 financial statements and Note 12 to the condensed consolidated interim financial statements and are summarized below.

        Under Mexican GAAP, PEMEX charges exploration and drilling costs to the equity reserve for exploration and depletion of oil fields. Exploration and drilling costs related to successful oil wells are credited to the equity reserve and recorded as fixed assets. Cost of sales is recognized by recording a charge for each barrel of crude oil extracted in the statement of operations and recording a credit to the equity reserve. Under U.S. GAAP, PEMEX initially capitalizes the costs of drilling exploratory wells and exploratory-type stratigraphic test wells, which are subsequently charged to expense if proved reserves are not discovered. Development costs, including the costs of drilling development wells and development-type stratigraphic test wells, are capitalized.

        Seniority premiums and retirement plans generate a difference between U.S. GAAP and Mexican GAAP due to the different actuarial cost assumptions and implementation dates applied under Mexican GAAP Bulletin D-3, "Labor Obligations," and U.S. GAAP Statement of Financial Accounting Standards (SFAS) No. 87, "Employers Accounting for Pensions."

        Under Mexican GAAP, PEMEX accounts for supplemental payments under its Bulletin D-3 calculations. However, PEMEX accounts for other health service benefits on a pay-as-you-go basis under Mexican GAAP. Under U.S. GAAP, PEMEX follows the guidelines of SFAS No. 106, "Employers' Accounting for Post-Retirement Benefits Other than Pensions," in accounting for health service and other supplemental payments provided to retirees.

        On January 1, 2001, PEMEX adopted Bulletin C-2, "Financial Instruments," issued by the Mexican Institute of Public Accountants (MIPA), for Mexican GAAP purposes, and SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" (as amended by SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities—Deferral of the Effective Date of FASB Statement No. 133," and SFAS No. 138, "Accounting for Certain Derivative Instruments and

12

Certain Hedging Activities"), for U.S. GAAP purposes. The principal differences between the cumulative effect adjustment and current period income effect under Mexican GAAP and U.S. GAAP relate primarily to the accounting for cross currency swaps, foreign currency embedded derivatives and the accounting for equity swaps contracts related to shares of Repsol YPF, S.A., which we refer to as Repsol, described in Note 10 to the 2001 financial statements.

        PEMEX applies NIF-06 BIS "A," section A, to its financial statements to reflect the effects of inflation. NIF-06 BIS "A," section A, provides for the restatement of fixed assets, inventories and costs of sales by indexing and/or appraisals. Since NIF-06 BIS "A," section A, does not represent a comprehensive basis of inflation accounting, beginning with its 1992 fiscal year, PEMEX has reversed the effects of NIF-06 BIS "A," section A, on its consolidated financial statements from the U.S. GAAP reconciliation of income and equity. Under NIF-06 BIS "A," section A, a devaluation of the peso does not have a negative impact on PEMEX's income because exchange losses are capitalized into fixed assets. Furthermore, a devaluation of the peso relative to the dollar results in an increase in PEMEX's income to the extent that expenses remain relatively stable because they are incurred in pesos, while revenues, which are mostly denominated in dollars or linked to international dollar-denominated prices, increase in peso terms. In contrast, under U.S. GAAP, a devaluation of the peso has a negative impact on income because the exchange losses are not capitalized but are charged immediately to income. This one-time charge to income will be gradually offset by lower depreciation as the asset base is reduced. In any particular accounting period, the negative impact of a devaluation is, therefore, greater when the devaluation occurs at or near the end of the accounting period, as occurred with the peso at the end of 1994.

        With respect to foreign exchange losses, under Mexican GAAP, exchange losses arising from debt are capitalized as part of fixed assets, and any remaining net exchange differences are reflected in the statement of operations as either a debit to costs and operating expenses or a credit to revenues. Under U.S. GAAP, all exchange gains or losses are recognized in results of operations.

        The treatment of capitalized interest for Mexican GAAP purposes differs from the treatment of capitalized interest in the reconciliation of the financial statements to U.S. GAAP. For Mexican GAAP purposes, PEMEX capitalizes interest to property, plant and equipment based on the total interest cost incurred on loans allocated to construction projects, regardless of whether or not the amounts borrowed have been spent on such projects. For purposes of the U.S. GAAP reconciliation, PEMEX capitalizes interest based upon total interest incurred in proportion to additions to construction in progress.

        Under Mexican GAAP, PEMEX depreciates the book value of its fixed assets, which includes amounts capitalized for foreign exchange losses and restatements for inflation. For U.S. GAAP purposes, PEMEX has reversed this depreciation expense attributable to foreign exchange losses and restatements for inflation.

        PEMEX is required to evaluate its long-lived assets for impairment for U.S. GAAP purposes whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable or is permanently impaired. Such impaired assets must be permanently written down to fair value or the present value of expected future cash flows on related assets. This requirement does not exist under Mexican GAAP.

        For a further discussion of these and other adjustments, see "Item 5—Operating and Financial Review and Prospects—U.S. GAAP Reconciliation," Note 19 to the 2001 financial statements and Note 12 to the condensed consolidated interim financial statements.

13

Selected Financial Data of PEMEX

			Year Ended December 31,(1)														Six months ended June 30,(1)(2)
			1997		1998			1999			2000			2001			2001			2002			2002(3)
			(in millions of pesos or U.S. dollars)
Income Statement Data
	Amounts in accordance with Mexican GAAP:
		Net sales(4)	Ps.	264,030	Ps.	256,987		Ps.	334,814		Ps.	468,268		Ps.	445,330		Ps.	227,054		Ps.	222,645		$	22,361
		Total revenues(4)		269,507		265,749			344,979			478,688			457,385			236,239			226,485			22,747
		Total revenues net of the IEPS Tax		231,779		199,894			256,630			409,132			362,187			196,366			166,320			16,704
		Operating income		166,619		140,299			187,669			274,057			230,703			134,082			124,396			12,494
		Income (loss) for the period		7,133		(11,588	)		(21,157	)		(19,710	)		(34,091	)		(6,025	)		(6,361	)		(639	)
Balance Sheet Data (end of period)
	Amounts in accordance with Mexican GAAP:
		Cash and cash equivalents		17,429		14,631			23,987			27,827			14,442			N.A.			35,264			3,542
		Total assets		339,452		416,691			482,248			563,468			556,883			N.A.			613,046			61,571
		Long-term debt		56,339		87,615			83,127			104,370			123,170			N.A.			159,458			16,015
		Total long-term liabilities		132,814		206,728			236,599			317,096			362,069			N.A.			415,148			41,695
		Equity		153,123		167,138			161,469			150,605			122,866			N.A.			121,443			12,197
	Amounts in accordance with U.S. GAAP:
		Net sales(5)		226,302		191,132			246,465			398,711			350,131			187,182			162,481			16,319
		Operating income(5)		129,595		73,583			106,024			208,862			142,803			99,990			72,971			7,329
		Income (loss) for the period		9,177		(27,364	)		(15,370	)		(16,697	)		(25,444	)		(1,524	)		(4,800	)		(482	)
		Total assets		257,251		283,540			362,947			434,743			432,687			N.A.			474,462			47,652
		Equity (deficit)		59,951		29,735			12,904			(13,567	)		(42,331	)		N.A.			(51,928	)		(5,215	)
Other Financial Data
	Amounts in accordance with Mexican GAAP:
		Depreciation and amortization		11,482		15,697			23,941			26,061			28,453			13,963			14,262			1,432
		Investments at cost(6)		28,109		43,936			40,497			76,233			51,672			17,698			22,029			2,212
	Ratio of earnings to fixed charges:
		Mexican GAAP(7)		1.54		—			—			—			—			—			—			—
		U.S. GAAP(7)		1.81		—			—			—			—			—			—			—

Note: N.A. = Not Applicable.

(1)

Includes Petróleos Mexicanos, the subsidiary entities and the subsidiary companies. Beginning with the year ended December 31, 1998, we include the financial position and results of the Pemex Project Funding Master Trust. Beginning with the year ended December 31, 2000, we include the financial position and results of Mex Gas International, Ltd. For U.S. GAAP purposes, beginning with the year ended December 31, 2001, we include the financial position and results of Pemex Finance, Ltd.

Each of our financial statements for the five years ended December 31, 2001 and for the six-month periods ended June 30, 2001 and 2002 was prepared according to Mexican GAAP but recognizes the effect of inflation according to Mexican Financial Reporting Standard NIF-06 BIS "A," section A, which is different from Mexican GAAP Bulletin B-10. Mexican GAAP differs from U.S. GAAP. The most important of the material differences between U.S. GAAP and Mexican GAAP

14

affecting PEMEX are the accounting treatment of: (1) exploration and drilling costs, (2) pensions and post-retirement obligations, (3) financial instruments, (4) inflation, (5) foreign exchange losses, (6) capitalized interest, (7) depreciation and (8) impairment of fixed assets. For a further discussion of these and other differences, see Note 19 to the 2001 financial statements and Note 12 to the condensed consolidated interim financial statements.

(2)

Unaudited.

(3)

Conversions into U.S. dollars of amounts in pesos have been made at the established exchange rate for accounting purposes of Ps. 9.9568= U.S. $1.00 at June 30, 2002. Such conversions should not be construed as a representation that the peso amounts have been or could be converted into U.S. dollar amounts at the foregoing or any other rate.

(4)

Includes the IEPS Tax as part of the sales price of the products sold.

(5)

Figures do not include IEPS Tax as part of the sales price of the products sold.

(6)

Includes investments in fixed assets and capitalized interest, and excludes certain expenditures charged to the oil field exploration and depletion reserve. See "Item 5—Operating and Financial Review and Prospects—Liquidity and Capital Resources" in the Form 20-F included in this prospectus.

(7)

Under U.S. GAAP, earnings for the years ended December 31, 1998, 1999, 2000 and 2001, and for the six-month periods ended June 30, 2001 and 2002, were insufficient to cover fixed charges. The amount by which fixed charges exceeded earnings was Ps. 21,076 million for 1998, Ps. 5,253 million for 1999, Ps. 624 million for 2000, Ps. 10,857 million for 2001, Ps. 3,833 million for the six-month period ended June 30, 2001 and Ps. 8,023 million for the six-month period ended June 30, 2002. Under Mexican GAAP, earnings for the years ended December 31, 1998, 1999, 2000 and 2001, and for the six-month periods ended June 30, 2001 and 2002, were insufficient to cover fixed charges. The amount by which fixed charges exceeded earnings was Ps. 5,020 million for 1998, Ps. 11,310 million for 1999, Ps. 4,092 million for 2000, Ps. 18,258 million for 2001, Ps. 8,473 million for the six month period ended June 30, 2001 and Ps. 9,107 million for the six month period ended June 30, 2002.

Source: PEMEX's financial statements.

        PEMEX does not currently prepare comprehensive price-level adjusted financial statements in accordance with Bulletin B-10, "Recognition of the Effects of Inflation on Financial Information," under Mexican GAAP. For the years ended December 31, 1997 and 1998, Mexico was deemed to be a hyperinflationary economy. Pursuant to Rule 3-20(c) of Regulation S-X promulgated by the U.S. Securities and Exchange Commission, we have included unaudited selected financial data prepared on the basis of price-level adjusted financial information for these years reflecting the impact of U.S. GAAP adjustments and reclassifications. For the years ended December 31, 1999, 2000 and 2001, and for the six-month periods ended June 30, 2001 and 2002, Mexico was not considered a hyperinflationary economy. However, we have continued to provide supplemental unaudited price-level adjusted financial information for these subsequent years in lieu of a comprehensive price-level adjustment that would result from PEMEX's adoption of Bulletin B-10. In the opinion of PEMEX management, all adjustments that are necessary for a fair presentation of the price-level adjusted financial information have been included herein. This unaudited price-level adjusted financial data is derived from the supplemental price-level adjusted financial information included elsewhere in this prospectus and should also be read in conjunction the 2001 financial statements and condensed consolidated financial statements for the six-month periods ended June 30, 2001 and 2002.

15

Selected Financial Data of PEMEX
(continued)

	Years Ended December 31,														Six months ended June 30,
	1997		1998			1999			2000			2001			2001		2002
	(in millions of constant 2001 pesos)														(in millions of constant June 30, 2002 pesos)
Unaudited Price-level Adjusted Information
Income Statement Data
Amounts in accordance with U.S. GAAP:
Net sales(1)	Ps.	363,422	Ps.	264,769		Ps.	292,849		Ps.	432,680		Ps.	357,215		Ps.	198,001	Ps.	164,065
Total revenues(1)		372,747		275,646			301,461			443,037			372,425			208,965		169,374
Net income (loss)		23,316		(19,843	)		(21,069	)		(36,573	)		(17,251	)		7,752		(5,871	)
Balance Sheet Data (end of period)
Amounts in accordance with U.S. GAAP:
Cash and cash equivalents		26,413		18,694			27,287			29,052			14,488			N.A.		36,056
Total assets		485,938		517,330			555,136			590,540			576,220			N.A.		633,529
Long-term debt		85,380		111,947			94,563			108,966			162,291			N.A.		200,431
Total long-term liabilities		202,614		267,281			291,081			357,433			388,095			N.A.		448,584
Total equity		190,388		180,156			167,970			132,604			110,890			N.A.		102,432

Note:    N.A. = Not Applicable.
(1)    Total revenues and net sales figures do not include the IEPS Tax as part of the sales price of the products sold.
Source:    Petróleos Mexicanos.

16

RISK FACTORS

Risk Factors Related to the Operations of PEMEX

Crude oil prices are volatile, and low oil prices negatively affect PEMEX's income

        International crude oil prices fluctuate due to many factors, including:

•

changes in global supply and demand for crude oil and refined petroleum products;



•

availability and price of competing commodities;



•

international economic trends;



•

currency exchange fluctuations;



•

expectations of inflation;



•

actions of commodity markets participants;



•

domestic and foreign government regulations; and



•

political events in major oil producing and consuming nations.

        PEMEX has no control over these factors. Historically, the weighted average price of the crude oil that PEMEX exports has fluctuated from a high of U.S. $26.82 per barrel in 1984 to a low of U.S. $15.55 per barrel in 1999. In 2001, the weighted average price of PEMEX's crude oil exports was U.S. $18.57 per barrel, 24.6% lower than the weighted average price during 2000. On February 10, 2003, the weighted average spot price of PEMEX crude oil was U.S. $28.50.

        When international crude oil and natural gas prices are low, PEMEX earns less export sales revenue, and, therefore, lower income because its costs remain roughly constant. Conversely, when crude oil and natural gas prices are high, PEMEX earns more export sales revenue and its income increases. As a result, future fluctuations in international crude oil prices will directly affect its results of operations and financial condition.

Decreases in PEMEX's estimates from time to time of Mexico's hydrocarbon reserves could reduce PEMEX's potential future income

        The reserve data set forth in the Form 20-F included in this prospectus represent only estimates. Estimating quantities of proved hydrocarbon reserves and projecting future rates of production and timing of development expenditures is an inexact process and is subject to many factors beyond PEMEX's control. The accuracy of any reserve estimate depends on the quality of available data and engineering and geological interpretation and judgment. As a result, estimates of different engineers may vary. Additionally, the results of drilling, testing and production subsequent to the date of an estimate may justify revision of an estimate. Therefore, proved reserve estimates may be materially different from the quantities of crude oil and natural gas that PEMEX can ultimately recover.

        Pemex-Exploration and Production revises its estimates of Mexico's hydrocarbon reserves annually. This process may result in material revisions to PEMEX's estimates of Mexico's hydrocarbon reserves.

PEMEX is an integrated oil and gas company and is exposed to production, equipment and transportation risks

        PEMEX is subject to production, equipment and transportation risks that are common among oil and gas companies. For example, PEMEX encounters:

•

production risk—i.e., risk related to fluctuations in production that may be affected by reserve levels, accidents, mechanical difficulties, adverse natural conditions, such as bad

17

weather and other acts of God, as well as the inability to manage unforeseen production costs;

•

equipment risk—i.e., risk related to adequacy and condition of the production facilities, including equipment becoming obsolete; and



•

transportation risk—i.e., risk related to the condition of pipelines and vulnerability of other modes of transportation.

        In particular, PEMEX's business is subject to the risk of:

•

pipeline explosions (oil or natural gas);



•

explosions in refineries, petrochemical plants, storage and distribution terminals or buoys and monobuoys;



•

hurricanes in the Gulf of Mexico;



•

unexpected geological formations or pressures;



•

blow outs, which are sudden, violent explosions of oil, natural gas or water from a drilling well, followed by an uncontrolled flow from the well;



•

fires and cratering, which is the caving in and collapse of the earth's structure around a blow out well; and



•

mechanical failures and collapsed holes, particularly in horizontal wellbores.

        The occurrence of any of these events could result in:

•

personal injuries or loss of life;



•

environmental damage and the necessary clean-up costs and expenses; or



•

other damage to PEMEX's property or the property of others.

        In accordance with customary industry practice, PEMEX has purchased insurance policies covering some of these risks. However, these policies do not cover all potential liabilities that may result from these risks. In addition, insurance is not available for some of these risks. See "Item 4—Information on the Company—Business Overview—PEMEX Corporate Matters—Insurance" in the Form 20-F included in this prospectus.

PEMEX's compliance with environmental regulations in Mexico could result in material adverse effects on PEMEX's results of operations

        A wide range of general and industry-specific Mexican federal and state environmental laws and regulations apply to PEMEX's operations. Numerous Mexican Government agencies and departments issue rules and regulations which are often difficult and costly to comply with and which carry substantial penalties for non-compliance. This regulatory burden on PEMEX increases its cost of doing business and can:

•

require PEMEX to make significant capital expenditures on measures to protect the environment, including abandoning and dismantling onshore wells and offshore platforms;



•

reduce PEMEX's ability to extract hydrocarbons when extraction endangers the environment;



•

reduce PEMEX's sales revenues if production is reduced to meet environmental regulations;



•

increase production costs and make PEMEX's products relatively more expensive as compared to the hydrocarbon and refined products of PEMEX's competitors; and

18

•

reduce PEMEX's profitability through a combination of the above.

        At December 31, 2001, PEMEX's estimated and accrued environmental liabilities totaled Ps. 2,316 million. See "Item 4—Information on the Company—Environmental Regulation—Environmental Liabilities" in the Form 20-F included in this prospectus.

PEMEX publishes less financial information than U.S. companies are required to file with the SEC

        PEMEX prepares its financial statements according to Mexican GAAP, except as to the recognition of inflation, which is recognized in its financial statements according to the Mexican Financial Reporting Standards applicable to Mexican public sector companies. Mexican GAAP differs in certain significant respects from U.S. GAAP. See "Item 3—Key Information—Selected Financial Data" in the Form 20-F included in this prospectus and Note 19 to the 2001 financial statements. In addition, PEMEX generally only prepares U.S. GAAP information on a yearly basis. As a result, there may be less or different publicly available information about PEMEX than there is about U.S. issuers.

Risk Factors Related to the Relationship between PEMEX and the Mexican Government

The Mexican Government controls PEMEX, and the Mexican Congress approves the annual budget and financing program of Petróleos Mexicanos and the subsidiary entities

        Mexico is the sole owner of Petróleos Mexicanos and the subsidiary entities, and the Mexican Government closely regulates and supervises their operations. Mexican Government ministers control key executive decisions at Petróleos Mexicanos. The Secretary of Energy of Mexico is the Chairman of the Board of Directors of Petróleos Mexicanos. The Secretaría de la Contraloría y Desarrollo Administrativo (the General Comptroller's Office of the Mexican Government, which we refer to as SECODAM), appoints the external auditors of Petróleos Mexicanos and the subsidiary entities.

        The Mexican Government incorporates Petróleos Mexicanos and the subsidiary entities' annual budget and financing program into its consolidated annual budget, which it submits to the Mexican Congress for its approval. The Mexican Congress also designates certain of Petróleos Mexicanos' largest capital expenditures as PIDIREGAS. See "Item 4—Information on the Company—History and Development—Capital Expenditures and Investments" in the Form 20-F included in this prospectus.

        The Mexican Government has the power to intervene directly or indirectly in PEMEX's commercial affairs. Such an intervention could have an adverse effect on Petróleos Mexicanos or any of its subsidiaries and thereby adversely affect the ability of PEMEX or its subsidiaries to make payments under any securities issued or guaranteed by Petróleos Mexicanos or the subsidiary entities. For instance, if the Mexican Government were to cause PEMEX to reduce production or limit future capital expenditures, this could reduce PEMEX's ability to generate the necessary income to support payments on its debt, or to transfer the necessary funds between any of its subsidiaries to make payments on their debts.

The Mexican Government may privatize all or part of Petróleos Mexicanos and the subsidiary entities

        The Mexican Government would have the power, if federal law and the Constitución Política de los Estados Unidos Mexicanos (the Political Constitution of the United Mexican States) were amended, to privatize all or a portion of Petróleos Mexicanos and the subsidiary entities or its assets. The Mexican Government could also transfer the activities of PEMEX to another Mexican Government-controlled entity if these changes were made. These types of actions could adversely affect Petróleos Mexicanos' operations by affecting its workforce, causing an interruption in production that could decrease output and negatively affect its income from operations. In addition, the privatization could cause Petróleos Mexicanos to default on its obligations under certain of its indebtedness, including all of its publicly traded debt securities, which could entitle the holders of this indebtedness to declare it immediately

19

due and payable. In this case, investors in debt securities would be entitled to recover their entire investment and their only loss would be that attributable to future interest income. See also "—Considerations Related to Mexico" below.

The Mexican Government has entered into agreements with other nations to limit production

        Historically, member countries of the Organization of the Petroleum Exporting Countries, commonly referred to as OPEC, have entered into agreements to reduce their production of crude oil. These agreements have sometimes increased global crude oil prices by decreasing the global supply of crude oil. Although Mexico is not a member of OPEC, it has entered into agreements with OPEC and non-OPEC countries to reduce global crude oil supply.

        For example, following OPEC's announcement in January 2001 that it would reduce crude oil production by 1.5 million barrels per day, Mexico announced it would decrease its crude oil exports by 75 thousand barrels per day, beginning on February 1, 2001. Following a March 2001 announcement by OPEC of an additional 1.0 million barrel per day reduction in crude oil production, Mexico announced on March 25, 2001 that it would further reduce its crude oil exports by 40 thousand barrels per day, beginning on April 1, 2001. On January 2, 2002, following an OPEC announcement that it would reduce crude oil production by 1.5 million barrels per day, Mexico announced it would reduce its crude oil exports by 100,000 barrels per day to 1.66 million barrels per day for six months, beginning on January 1, 2002. On January 13, 2003, the Ministry of Energy of Mexico announced that, beginning on February 1, 2003, Mexico would increase its oil exports by 120,000 barrels per day, to 1.88 million barrels per day. Mexico agreed to increase its oil exports in conjunction with production increases by other oil producing countries in order to stabilize oil prices, which had increased significantly in recent weeks.

        PEMEX does not control the Mexican Government's international affairs and the Mexican Government could agree with OPEC or other countries to reduce PEMEX's crude oil production or exports in the future. To the extent that such international agreements restrict PEMEX's exports of crude oil, it is possible that Mexican domestic markets will not be able to consume additional amounts of crude oil that PEMEX is not allowed to export as a result of such agreements, thus reducing its revenues.

PEMEX does not own the hydrocarbon reserves in Mexico

        A guaranteed source of petroleum and other hydrocarbons is essential to an oil company's production and generation of income. As a result, many oil and gas companies own hydrocarbon reserves. The Political Constitution of the United Mexican States provides that the Mexican nation, not PEMEX, owns the petroleum and other hydrocarbon reserves located in Mexico. Although Mexican law gives Petróleos Mexicanos and the subsidiary entities the exclusive right to exploit Mexico's hydrocarbon reserves, it does not preclude the Mexican Government from changing current law and assigning these rights to another company. If the Mexican Government, by way of an amendment to the Ley Reglamentaria del Artículo 27 Constitucional en el Ramo del Petróleo(Regulatory Law to Article 27 of the Political Constitution of the United Mexican States Concerning Petroleum Affairs, which we refer to as the "Regulatory Law"), assigned the rights to exploit its hydrocarbon reserves to another company, PEMEX's ability to generate income would be adversely affected.

Petróleos Mexicanos and the subsidiary entities pay special taxes, duties and dividends to the Mexican Government

        Petróleos Mexicanos and the subsidiary entities pay a number of special taxes and duties to the Mexican Government. These taxes and duties totaled Ps. 208,137 million in 1999, Ps. 292,960 million in 2000 and Ps. 262,778 million in 2001. For 2002 and 2003, PEMEX expects the sum of these taxes and

20

duties to total approximately 60.8% of the revenue that PEMEX derives from sales through its subsidiary, P.M.I. Comercio Internacional, S.A. de C.V. ("PMI"), P.M.I. Trading Ltd. and their affiliates (together, the "PMI Group") and to third parties. In addition to these duties and taxes, the Mexican Government imposes an excess gains tax equal to 39.2% of the portion of Pemex-Exploration and Production's crude oil sales revenue in excess of a threshold price set by the Mexican Government, which in 2002 was U.S. $15.50 per barrel and in 2003 is U.S. $18.35 per barrel. See "Item 4—Information on the Company—Taxes and Duties" and "Item 5—Operating and Financial Review and Prospects—General—IEPS Tax, Excess Gains Duty, Hydrocarbon Duties and Other Taxes" in the Form 20-F included in this prospectus.

        The Mexican Government and PEMEX determine the rates of taxes and duties applicable to PEMEX from year to year depending on a variety of factors, including PEMEX's:

•

projected sales revenues;



•

operating program;



•

capital expenditures program; and



•

financing needs.

        Petróleos Mexicanos is also obligated to pay minimum guaranteed dividends to the Mexican Government. The minimum guaranteed dividends totaled Ps. 5,138 million in 1999, Ps. 5,564 million in 2000 and Ps. 2,153 million in 2001. For further information on how the minimum guaranteed dividend is determined, see "Item 5—Operating and Financial Review and Prospects—Liquidity and Capital Resources—Equity Structure and the Certificates of Contribution "A,"' and "Item 8—Financial Information—Dividends" in the Form 20-F included in this prospectus and Note 13 to the 2001 financial statements.

PEMEX must make significant capital expenditures to maintain its current production levels and increase Mexico's hydrocarbon reserves. Mexican Government budget cuts, reductions in PEMEX's income and inability to obtain financing may limit PEMEX's ability to make capital investments

        PEMEX invests funds to increase the amount of extractable hydrocarbon reserves in Mexico. PEMEX also continually invests capital to enhance its hydrocarbon recovery ratio and improve the reliability and productivity of its infrastructure. PEMEX estimates that it will need to make capital expenditures of approximately U.S. $45.3 billion in exploration and production over the next five years and an additional U.S. $16.1 billion to upgrade its refineries over the next ten years, in order to increase production to meet anticipated growth in domestic and international market demand.

        PEMEX's ability to make these capital expenditures is limited by the substantial taxes that it pays and cyclical decreases in its revenues primarily related to lower oil prices. In addition, budget cuts imposed by the Mexican Government and the availability of financing may also limit its ability to make capital investments. Because the non-PIDIREGAS portion of its investment budget is part of the Mexican Government's annual budget, when the Mexican Government reduces its annual budget, it may also reduce that portion of PEMEX's investment budget. For example, in 1998, low crude oil prices reduced PEMEX's income and the amount of taxes and duties that it paid to the Mexican Government. As a result, the Mexican Government imposed federal budget cuts that resulted in an 11.1% decrease in PEMEX's capital expenditures budget (excluding PIDIREGAS) in 1998.

        The Mexican Government has recently approved a PIDIREGAS investment budget that PEMEX believes will be sufficient to meet a large proportion of its capital expenditure needs for the next five years. However, under the PIDIREGAS program, PEMEX is required to obtain financing that can be supported by the project being funded. The availability of this financing is subject to factors beyond

21

PEMEX's control. Accordingly, PEMEX cannot guarantee that it will always have the funds necessary to continue capital investments at their current levels.

PEMEX's debt obligations may be affected by the Mexican Government's agreements with external creditors

        Petróleos Mexicanos and the subsidiary entities are decentralized public sector entities under the direct control of the Mexican Government; consequently, the Mexican Government's agreements with international creditors may affect PEMEX's external debt obligations. Since 1982, Mexico and its commercial bank creditors have concluded four debt restructurings and new money exercises. In these restructurings, Petróleos Mexicanos' external indebtedness was treated on the same terms as the debt of the Mexican Government and other public sector entities. In addition, Mexico has entered into agreements with official bilateral creditors to reschedule public sector external debt. Mexico has not requested restructuring of bonds or debt owed to multilateral agencies.

PEMEX may claim some immunities under the Foreign Sovereign Immunities Act and Mexican law

        Petróleos Mexicanos and the subsidiary entities are decentralized public entities of the Mexican Government. Because the Mexican Government is a foreign sovereign, you may not be able to obtain a judgment in a U.S. court against Petróleos Mexicanos or any of the subsidiary guarantors. In addition, Mexican law specifies that attachment prior to judgment and attachment in aid of execution may not be ordered by Mexican courts against Petróleos Mexicanos, the subsidiary guarantors or their respective assets and, as a result, your ability to enforce judgments against them in the courts of Mexico may be limited.

        Unless Petróleos Mexicanos and the subsidiary guarantors waive their immunity, you could obtain a U.S. court judgment against them only if a U.S. court were to determine that they are not entitled to sovereign immunity under the Foreign Sovereign Immunities Act of 1976 with respect to that action. PEMEX also does not know whether Mexican courts would enforce judgments of United States courts based on the civil liability provisions of the federal securities laws of the United States.

        Even if you were able to obtain a U.S. judgment against Petróleos Mexicanos or one or more of the subsidiary guarantors under their respective guaranties and subsidiary guaranties under the Foreign Sovereign Immunities Act, you might not be able to obtain a judgment in Mexico that is based on that U.S. judgment. Moreover, you may not be able to enforce a judgment against Petróleos Mexicanos' or any of the subsidiary guarantors' property in the United States except under the limited circumstances specified in the Foreign Sovereign Immunities Act.

Satisfaction of any judgment in Mexico against PEMEX may be made in pesos

        If you were to bring an action in Mexico seeking to enforce the obligations of Petróleos Mexicanos or any of the subsidiary guarantors under the securities, satisfaction of those obligations may be made in pesos. The Ley Monetaria de los Estados Unidos Mexicanos (Monetary Law of the United Mexican States) entitles Petróleos Mexicanos and the subsidiary guarantors to discharge foreign currency denominated obligations in Mexico with a payment in pesos at the exchange rate determined by Banco de México (Mexico's Central Bank) on the date payment is made. This rate is currently announced by Banco de México each banking day and published the following day in the Diario Oficial de la Federación (the Official Gazette of the Federation).

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Considerations Related to Mexico

Petróleos Mexicanos and the subsidiary entities are foreign companies, and as a result holders of PEMEX securities may not be able to effect service of process on, or enforce a judgment against, PEMEX

        Petróleos Mexicanos and the subsidiary entities are organized under the laws of Mexico and all of their directors and officers, as well as some of the experts named in this prospectus, reside outside the United States. Substantially all of the assets of Petróleos Mexicanos and the subsidiary guarantors, and those of most of their directors, officers and experts are located outside the United States. As a result, you may not be able to effect service of process on the directors or officers of Petróleos Mexicanos or any of the subsidiary guarantors or those experts within the United States. You also may not be able to enforce in Mexico judgments obtained in the United States against Petróleos Mexicanos or any of the subsidiary guarantors, or their directors or officers or the experts, if those judgments are not consistent with Mexican public policy and procedural rules.

Economic conditions and government policies in Mexico may have a material impact on PEMEX's operations

        A deterioration in Mexico's economic conditions, social instability, political unrest or other adverse social developments in Mexico could adversely affect PEMEX's business and financial condition. Those events could also lead to increased volatility in the foreign exchange and financial markets, thereby affecting PEMEX's ability to obtain and service foreign debt. In addition, the Mexican Government may cut spending in the future. These cuts could adversely affect PEMEX's business, financial condition and prospects.

        From 1982 to 1987 Mexico experienced several periods of slow or negative economic growth, high inflation, peso devaluations and limited availability of foreign exchange. Beginning in December 1994 and continuing through 1995, Mexico experienced an economic crisis characterized by exchange rate instability, devaluation of the peso, high inflation, high domestic interest rates, negative economic growth, reduced consumer purchasing power and high unemployment. Despite signs of economic recovery following the implementation of broad economic reforms in 1995, a combination of factors led to a slowdown in Mexico's economic growth in 1998. Notably, the decline in the price of crude oil resulted in a reduction of federal revenues, approximately one-third of which derive from petroleum taxes and duties. In addition, the economic crises in Asia and Russia and the financial turmoil in Brazil, Venezuela and elsewhere produced greater volatility in the international financial markets, which further slowed Mexico's recovery. The Mexican Government estimates that real Gross Domestic Product ("GDP") grew 4.9% in 1998, 3.7% in 1999 and 6.6% in 2000 but decreased 0.3% in 2001. The Mexican Government estimates that GDP grew 1.7% in 2002.

        Despite the slowdown in economic recovery and the significant devaluation of the peso in 1998 and the contraction in 2001, Mexico has managed to maintain a high level of gross international reserves, which totaled U.S. $48,537 million at January 24, 2003. In the future, however, the Mexican economy could continue to suffer from declines in foreign direct and portfolio investment due to international financial crises, inflationary pressures, high short-term interest rates and low oil prices.

Changes in exchange rates or in Mexico's exchange control laws may hamper the ability of PEMEX to service its foreign currency debt

        While the Mexican Government does not currently restrict the ability of Mexican companies or individuals to convert pesos into dollars or other currencies, in the future, the Mexican Government could impose a restrictive exchange control policy, as it has done in the past. Neither PEMEX nor the issuer can assure you that the Mexican Government will maintain its current policies with regard to the peso or that the peso's value will not fluctuate significantly in the future. The peso has been subject to significant devaluations against the U.S. dollar in the past and may be subject to significant fluctuations in the future. Mexican Government policies affecting the value of the peso could prevent PEMEX from

23

paying its foreign currency obligations, which in turn could prevent the issuer from paying its obligations.

        As of December 31, 2001, the total debt of PEMEX totaled Ps. 159.4 billion (or Ps. 156.8 billion excluding accrued interest), 84.2% of which was denominated in U.S. dollars. Of this amount, U.S. $7.5 billion (or Ps. 68.7 billion) was attributable to the indebtedness of the Pemex Project Funding Master Trust denominated in U.S. dollars, Euros and other currencies and guaranteed by Petróleos Mexicanos, Pemex-Exploration and Production, Pemex-Refining and Pemex-Gas and Basic Petrochemicals. In addition, Pemex Finance, Ltd., a Cayman Islands company with limited liability established to issue securities backed by PMI crude oil receivables to provide financing for investments in PIDIREGAS, had indebtedness totaling U.S. $5.3 billion at December 31, 2001. PEMEX does not guarantee Pemex Finance, Ltd.'s indebtedness. In the future, PEMEX, the issuer and Pemex Finance, Ltd. may incur additional indebtedness denominated in U.S. dollars or other currencies. Declines in the value of the peso relative to the U.S. dollar or other currencies may increase PEMEX's interest costs in pesos and result in foreign exchange losses.

        From October 1992 to December 21, 1994, Banco de México intervened in foreign exchange markets to maintain the peso-dollar exchange rate within a government-controlled range that widened daily. On December 21, 1994, the Mexican Government suspended Banco de México's foreign exchange market operations and allowed the peso to float freely against the U.S. dollar. The Mexican Government may introduce similar policies in the future that affect the exchange rate between the peso and other currencies.

        For a further discussion of historical peso/U.S. dollar exchange rates, see "Item 3—Key Information—Exchange Rates" in the Form 20-F included in this prospectus.

Political conditions in Mexico could materially and adversely affect Mexican economic policy and, in turn, PEMEX's operations

        The national elections held on July 2, 2000 ended 71 years of rule by the Institutional Revolutionary Party ("PRI") with the election of President Vicente Fox Quesada, a member of the National Action Party ("PAN"), and resulted in the increased representation of opposition parties in the Mexican Congress and in mayoral and gubernatorial positions. Neither the PRI nor the PAN currently has a majority in the Congress or Senate. This shift in political power has transformed Mexico from a one-party state to a pluralist democracy. Although there have not yet been any material adverse repercussions resulting from this political change, multiparty rule is still relatively new in Mexico and could result in economic or political conditions that could materially and adversely affect PEMEX's operations. The lack of a majority party in the legislature and the lack of alignment between the legislature and the President could result in deadlock and prevent the timely implementation of economic reforms, which in turn could have a material adverse effect on the Mexican economy and on PEMEX's business.

Risks Related to Non-Participation in the Exchange

If holders of old securities do not participate in the exchange offer, the old securities will continue to be subject to transfer restrictions

        Holders of old securities that do not exchange their old securities for new securities will continue to be subject to the restrictions on transfer that are listed on the legend of those old securities. These restrictions will make the old securities less liquid. To the extent that old securities are tendered and accepted in the exchange offer, the trading market, if any, for the old securities would also be reduced.

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Risks Related to the New Securities

There is no prior market for the new securities; if one develops, it may not be liquid

        There is currently no market for the new securities but application has been made to list the new securities on the Luxembourg Stock Exchange. The issuer cannot promise that such a market will develop, or, if it does develop, that it will continue to exist. If a market for the new securities were to develop, prevailing interest rates and general market conditions could affect the price of the new securities. This could cause the new securities to trade at prices that may be lower than their principal amount or their initial offering price.

USE OF PROCEEDS

        We will not receive any cash proceeds from the issuance of the new securities under the exchange offers. In consideration for issuing the new securities as contemplated in this prospectus, we will receive in exchange an equal principal amount of old securities, which will be cancelled. Accordingly, the exchange offers will not result in any increase in our indebtedness or our guarantors' indebtedness. The net proceeds we received from issuing the old securities were and are being used to finance our investment program.

RATIO OF EARNINGS TO FIXED CHARGES

        PEMEX's ratio of earnings to fixed charges is calculated as follows:

        Fixed charges for this purpose consist of the sum of interest expense plus interest capitalized during the period. Fixed charges do not take into account exchange gain or loss attributable to PEMEX's indebtedness. Mexican GAAP differs in certain significant respects from U.S. GAAP. The material differences as they relate to PEMEX's 2001 consolidated financial statements and the condensed consolidated interim financial statements are described in Note 19 to the 2001 financial statements and Note 12 to the condensed consolidated interim financial statements.

        The following table sets forth PEMEX's consolidated ratio of earnings to fixed charges for the five-year period ended December 31, 2001, and for the six-month periods ended June 30, 2001 and 2002, in accordance with Mexican GAAP and U.S. GAAP.

			Year Ended December 31,				Six Months Ended June 30, (1)
		1997	1998	1999	2000	2001	2001	2002
Ratio of Earnings to Fixed Charges, according to:
	Mexican GAAP(2)	1.54	—	—	—	—	—	—
	U.S. GAAP(3)	1.81	—	—	—	—	—	—

(1)

Unaudited.

(2)

Under Mexican GAAP, earnings for the years ended December 31, 1998, 1999, 2000 and 2001, and for the six-month periods ended June 30, 2001 and 2002, were insufficient to cover fixed charges. The amount by which fixed charges exceeded earnings was Ps. 5,020 million for 1998, Ps.

25

11,310 million for 1999, Ps. 4,092 million for 2000, Ps. 18,258 million for 2001, Ps. 8,473 million for the six month period ended June 30, 2001 and Ps. 9,107 million for the six month period ended June 30, 2002.

(3)

Under U.S. GAAP, earnings for the years ended December 31, 1998, 1999, 2000 and 2001, and for the six-month period ended June 30, 2001 and 2002, were insufficient to cover fixed charges. The amount by which fixed charges exceeded earnings was Ps. 21,076 million for 1998, Ps. 5,253 million for 1999, Ps. 624 million for 2000, Ps. 10,857 million for 2001, Ps. 3,833 million for the six-month period ended June 30, 2001 and Ps. 8,023 million for the six-month period ended June 30, 2002.

Source: PEMEX's financial statements.

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CAPITALIZATION OF PEMEX

        The following table sets forth:

•

the capitalization, at December 31, 2001, of PEMEX as calculated under Mexican GAAP except that the effects of inflation are recognized in accordance with the guidelines applicable to public sector entities of the Mexican Government, established in Financial Reporting Standard NIF-06 BIS "A", section A, which differs from Bulletin B-10 (see notes 2 b) and 15 to the 2001 financial statements); and



•

the unaudited capitalization, at June 30, 2002, of PEMEX as calculated under Mexican GAAP except that the effects of inflation are recognized in accordance with the guidelines applicable to public sector entities of the Mexican Government, established in Financial Reporting Standard NIF-06 BIS "A", section A, which differs from Bulletin B-10 (see notes 2 b) and 15 to the 2001 financial statements); and



•

the unaudited capitalization, at September 30, 2002, of Petróleos Mexicanos, the subsidiary entities and the issuer, but excluding the subsidiary companies, as calculated in accordance with Mexican GAAP except that (1) the effects of inflation are recognized in accordance with the guidelines established in Financial Reporting Standard NIF-06 BIS "A", section "A", which differs from Bulletin B-10 (see Notes 2 b) and 15 to the 2001 financial statements and Note 9 to the condensed consolidated interim financial statements), and (2) the capitalization of the subsidiary companies are excluded because the capitalization for those companies was not significant at September 30, 2002.

		At December 31, 2001		At June 30, 2002(1)		At September 30, 2002(1)(2)(3)
		(Including the Subsidiary Companies)		(Including the Subsidiary Companies)		(Excluding the Subsidiary Companies)
		(millions of nominal pesos or U.S. dollars)
Long-term external debt		Ps. 117,256		Ps. 153,092		Ps. 164,291		$	16,060
Long-term domestic debt		5,914		6,366		6,241			610
	Total long-term debt(4)	Ps. 123,170		Ps. 159,458		Ps. 170,532		$	16,670
Certificates of Contribution "A"(5)		Ps. 10,222		Ps. 10,222		Ps. 10,222		$	999
Reserve for oil-field exploration and depletion		16,279		12,188		15,075			1,474
Revaluation surplus		181,838		184,695		181,048			17,698
Retained earnings (prior years)		(51,382	)	(79,302	)	(81,178	)		(7,935	)
Income (loss) for the year		(34,091	)	(6,361	)	(11,055	)		(1,081	)
	Total equity	122,866		121,442		114,112			11,155
Total capitalization		Ps. 246,036		Ps. 280,900		Ps. 284,644		$	27,825

(1)

Unaudited.

(2)

Convenience conversions into U.S. dollars of amounts in pesos have been made at the established exchange rate for accounting purposes of Ps. 10.2299 = U.S. $1.00 at September 30, 2002. Such conversions should not be construed as a representation that the peso amounts have been or could be converted into U.S. dollar amounts at the foregoing or any other rate.

(3)

The only material change in the capitalization of PEMEX since September 30, 2002 relates to PEMEX's undertaking of new financings as disclosed in "Recent Developments" below.

(4)

Short-term indebtedness, including the short-term indebtedness of the subsidiary companies at December 31, 2001 and June 30, 2002 was Ps. 36,246 million and Ps. 30,051 million, respectively. Excluding the subsidiary companies, short-term indebtedness of PEMEX at September 30, 2002 was Ps. 27,691 million. See "Item 5—Operating and Financial Review and Prospects—Liquidity and Capital Resources—Financing Activities" in the Form 20-F included in this prospectus.

(5)

Equity instruments held by the Mexican Government.

Sources: PEMEX's Financial Statements. Petróleos Mexicanos for interim preliminary and unaudited information.

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OPERATING AND FINANCIAL REVIEW AND PROSPECTS

Results of Operations of PEMEX—First Six Months of 2002 Compared to First Six Months of 2001

Income/(Loss)

        During the first six months of 2002, PEMEX reported a loss of Ps. 6.4 billion on Ps. 166.3 billion in total revenues net of the IEPS Tax, as compared with a loss of Ps. 6.0 billion on Ps. 196.4 billion in total revenues net of the IEPS Tax in the first six months of 2001. This 6.7% increase in losses from the first six months of 2001 to the first six months of 2002 resulted primarily from:

•

a decrease in the export volumes and a 1.2% reduction in the weighted average price of crude oil sold by PMI for export, from U.S. $19.63 in the first six months of 2001 to U.S. $19.40 in the first six months of 2002;



•

an increase in the labor reserve for pension obligations, due to higher wages and benefits paid to employees;



•

an increase in depreciation and amortization charges; and



•

an increase in net interest expense, from Ps. 5.5 billion in the first six months of 2001 to Ps. 7.5 billion in the first six months of 2002.

        PEMEX's total sales, net of the IEPS Tax, were Ps. 162.5 billion in the first six months of 2002, a decrease of 13.2% from total sales, net of the IEPS Tax, of Ps. 187.2 billion in the first six months of 2001. The decrease in total sales from the first six months of 2001 to the first six months of 2002 resulted primarily from a decrease in the prices of the principal petroleum products that PEMEX sold in the domestic market.

Export Sales

        In the first six months of 2002, total consolidated export sales increased by 8.5% in peso terms (with dollar-denominated export revenues converted to pesos at the exchange rate for the date on which the export sale was made), from Ps. 71.0 billion in the first six months of 2001 to Ps. 77.0 billion in the first six months of 2002. Excluding the trading activities of the PMI Group, export sales by the subsidiary entities to the PMI Group and third parties decreased by 6.0% in peso terms, from Ps. 64.6 billion in the first six months of 2001 to Ps. 60.7 billion in the first six months of 2002, and increased as a percentage of total sales, net of the IEPS Tax, from 35.7% in the first six months of 2001 to 41.5% in the first six months of 2002. In dollar terms, excluding the trading activities of the PMI Group, export sales (which are dollar-denominated) decreased by 4.4% in the first six months of 2002, from U.S. $6.8 billion in the first six months of 2001 to U.S. $6.5 billion in the first six months of 2002. The trading and export activities of the PMI Group generated additional marginal revenues of Ps. 16.3 billion in the first six months of 2002, 154.9% higher in real peso terms than in the first six months of 2001, mainly due to an increase in trading activity of petroleum products.

        Crude oil sales by Pemex-Exploration and Production to PMI for export accounted for 90.7% of export sales (excluding the trading activities of the PMI Group) in the first six months of 2002, as compared to 91.3% in the first six months of 2001. These crude oil sales decreased in peso terms by 6.6% in the first six months of 2002, from Ps. 59.0 billion in the first six months of 2001 to Ps. 55.1 billion in the first six months of 2002, and decreased in dollar terms by 4.8% in the first six months of 2002, from U.S. $6.2 billion in the first six months of 2001 to U.S. $5.9 billion in the first six months of 2002. This decrease was due to a diminution in the volumes of crude oil sold, from 1,736 thousand barrels per day in the first six months of 2001 to 1,638 thousand barrels per day in the first six months of 2002, and a decrease of 1.2% in the weighted average price of crude oil. The weighted average price per barrel of crude oil that Pemex-Exploration and Production sold to PMI for

28

export in the first six months of 2002 was U.S. $19.40, 1.2% lower than the weighted average price of U.S. $19.63 in the first six months of 2001.

        Export sales of petroleum products by Pemex-Refining and Pemex-Gas and Basic Petrochemicals to the PMI Group and third parties, including natural gas liquids, increased from 7.8% of export sales (excluding the trading activities of the PMI Group) in the first six months of 2001 to 8.1% in the first six months of 2002. Export sales of petroleum products, including natural gas liquids, decreased by 2.0%, from Ps. 5.0 billion in the first six months of 2001 to Ps. 4.9 billion in the first six months of 2002, due to lower export volumes of gasoline, natural gas, liquefied petroleum gas and naphtha. In dollar terms, export sales of petroleum products, including natural gas liquids, decreased by 1.1%, from U.S. $532.8 million in the first six months of 2001 to U.S. $527.1 million in the first six months of 2002.

        Petrochemical products accounted for the remainder of export sales in the first six months of 2001 and the first six months of 2002. Export sales of petrochemical products (including certain by-products of the petrochemical process) increased by 13.9%, from Ps. 603.6 million in the first six months of 2001 to Ps. 687.3 million in the first six months of 2002, due to increases in exports of ammonia (a methane derivative) and polyethylenes (an ethane derivative). In dollar terms, export sales of petrochemical products (including certain by-products of the petrochemical process) increased by 5.9% in the first six months of 2002, from U.S. $69.9 million in the first six months of 2001 to U.S. $74.0 million in the first six months of 2002.

Domestic Sales

        Domestic sales, net of the IEPS Tax, decreased by 26.4% in the first six months of 2002, from Ps. 116.1 billion in the first six months of 2001 to Ps. 85.4 billion in the first six months of 2002. Domestic sales of petroleum products other than natural gas decreased by 26.6%, from Ps. 94.1 billion in the first six months of 2001 to Ps. 69.1 billion in the first six months of 2002, primarily due to a fall in the domestic prices of PEMEX's principal petroleum products, including gasoline, diesel and jet fuel, and a decrease in domestic demand for fuel oil. Domestic petrochemical sales (including sales of certain by-products of the petrochemical production process) decreased by 29.4%, from Ps. 5.1 billion in the first six months of 2001 to Ps. 3.6 billion in the first six months of 2002, due to a decrease in prices and domestic market demand for the principal petrochemical products. Sales of natural gas decreased by 24.7%, from Ps. 17.0 billion in the first six months of 2001 to Ps. 12.8 billion in the first six months of 2002, as a result of a decrease in sales prices.

Other Revenues

        Other revenues and exchange gains (losses) decreased by 58.7%, from Ps. 9.2 billion in the first six months of 2001 to Ps. 3.8 billion in the first six months of 2002, primarily due to a decrease in exchange gains. PEMEX recorded exchange loss of Ps. 1.4 billion in the first six months of 2002, as compared to exchange gains of Ps. 4.7 billion in the first six months of 2001, primarily due to the effects of fluctuations in the peso/dollar exchange rate on PEMEX's dollar-denominated indebtedness.

Costs and Operating Expenses; Other Income and Expenses

        Costs and operating expenses, which include costs of sales, transportation and distribution expenses and administrative expenses, decreased by 1.5%, from Ps. 94.4 billion in the first six months of 2001 to Ps. 93.0 billion in the first six months of 2002. This decrease was due to a reduction in import purchases and in the gains resulting from the fluctuation of product inventory, which was partially offset by an increase in the labor reserve for pension obligations, depreciation and amortization and other costs and expenses. Costs related to the labor reserve for pension obligations increased by 10.1%, from Ps. 16.9 billion in the first six months of 2001 to Ps. 18.6 billion in the first six months of 2002.

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Other expenses decreased by 27.3%, from Ps. 2.2 billion in the first six months of 2001 to Ps. 1.6 billion in the first six months of 2002, primarily due to a decrease in natural gas hedging operations.

Duties and Taxes

        Hydrocarbon extraction duties and other duties and taxes (including the IEPS Tax) decreased by 5.8%, from Ps. 138.8 billion in the first six months of 2001 to Ps. 130.8 billion in the first six months of 2002, largely because of the decrease in international crude oil prices in the first six months of 2002 and the resulting decrease in sales revenue. PEMEX paid Ps. 4.3 billion in excess gains duties in the first six months of 2002, representing 39.2% of the amount of sales revenue that PEMEX derived from the difference between actual crude oil prices at which Pemex-Exploration and Production sold to PMI, which averaged U.S. $19.40 per barrel for the Mexican weighted crude oil mix, and the Mexican Government's crude oil price budgetary assumption of U.S. $15.50 per barrel. PEMEX paid Ps. 1.9 billion in excess gains duties in the first six months of 2001.

Interest, net

        Net interest expense increased by 36.4%, from Ps. 5.5 billion in the first six months of 2001 to Ps. 7.5 billion in the first six months of 2002. This increase was mainly due to the recognition of the current period loss resulting from the application of Bulletin C-2, the new financial instrument standard, and an increase in the financial expenses of non-capitalized interest incurred as a result of PIDIREGAS completed in 2002.

Cumulative Effect of Adoption of New Financial Instruments Standard

        In 2001, PEMEX adopted Bulletin C-2, which resulted in a loss of Ps. 1.3 billion, primarily attributable to the accounting for the Repsol equity swap, as described in Notes 2 o) and 10(vi) to the 2001 financial statements.

U.S. GAAP Reconciliation

        Operating results under U.S. GAAP differ from operating results under Mexican GAAP due to several factors. The most important of these factors are differences in methods of accounting for exploration and drilling costs, pension and post-retirement obligations, financial instruments and fixed asset adjustments relating to inflation accounting, foreign exchange losses, capitalized interest, depreciation and impairment. For further information regarding these and other differences between Mexican and U.S. GAAP as they relate to PEMEX's operating results, see "Item 5—Operating and Financial Review and Prospects—U.S. GAAP Reconciliation" in the Form 20-F included in this prospectus, Note 19 to the 2001 financial statements and Note 12 to the condensed consolidated interim financial statements.

Income and Equity under U.S. GAAP

        For the first six months of 2002, PEMEX's loss under U.S. GAAP was approximately Ps. 4.8 billion, representing a Ps. 1.6 billion decrease from the loss recorded under Mexican GAAP. For the six months ended June 30, 2001, PEMEX's loss under U.S. GAAP was approximately Ps. 1.5 billion, representing a Ps. 4.5 billion decrease from the loss recorded under Mexican GAAP. For further information regarding the adjustments related to these amounts, see Note 19 to the 2001 financial statements and Note 12 to the condensed consolidated interim financial statements.

        PEMEX's equity (deficit) under U.S. GAAP was approximately Ps. (51.9) billion at June 30, 2002 as compared to Ps. (42.3) billion at December 31, 2001. For further information regarding the adjustments related to these amounts, see Note 19 to the 2001 financial statements and Note 12 to the condensed consolidated interim financial statements.

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RECENT DEVELOPMENTS

        The following discussion of PEMEX's recent results should be read in conjunction with "Item 5—Operating and Financial Review and Prospects" in the Form 20-F included in this prospectus, the 2001 financial statements and the unaudited condensed consolidated financial statements for the six-month periods ended June 30, 2001 and 2002.

Capital Expenditures and Investments

        The following table sets forth PEMEX's approved capital expenditures (excluding PIDIREGAS) budget for 2003.

Non-PIDIREGAS Capital Expenditures(1)

	Budget 2003
	(millions of pesos)
Pemex-Exploration and Production	Ps.	22,561
Pemex-Refining		8,319
Pemex-Gas and Basic Petrochemicals		2,941
Pemex-Petrochemicals		1,614
Petróleos Mexicanos corporate(2)		542
Total	Ps.	35,978
Amortization of PIDIREGAS included in total	Ps.	16,632

Note:    Numbers may not total due to rounding.

(1)

There are no capital expenditures at the subsidiary company level.

(2)

Petróleos Mexicanos corporate consists of the operations of the central management of Petróleos Mexicanos.

Source: Petróleos Mexicanos.

31

        The following table sets forth PEMEX's approved capital expenditures budget for PIDIREGAS for 2003 through 2006.

PIDIREGAS Approved Budget Capital Expenditures

			Year ended December 31,(1)(2)
			2003		2004		2005		2006
			(millions of constant 2003 pesos)
Pemex-Exploration and Production
	Cantarell		Ps.	25,882	Ps.	19,274	Ps.	11,505	Ps.	9,837
	Strategic Gas Program			23,369		20,626		21,722		7,156
	Burgos			9,180		19,498		16,089		17,201
	Antonio J. Bermúdez			3,946		4,095		4,478		4,314
	Ku-Maloob-Zaap			3,799		9,707		13,978		13,084
	Abkatún Integral			2,334		1,936		1,287		1,222
	Chuc			2,332		1,551		1,843		1,557
	Cactus-Sitio Grande			1,836		1,577		1,058		881
	Pol			1,696		1,682		1,327		1,448
	Bellota-Chinchorro			1,673		1,959		1,142		1,092
	Jujo-Tecominoacán			1,652		1,649		933		568
	Caan			1,528		1,391		931		887
	El Golpe-Puerto Ceiba			1,285		287		240		166
	Agua Fría-Coapechaca-Tajín(3)			1,169		1,593		503		114
	Taratunich			904		340		288		250
	Ek-Balam			878		615		479		405
	Amatitlán-Profeta-Tzapotempa-Vinazco(3)			872		1,504		642		309
	Carmito-Artesa			871		857		566		561
	Delta del Grijalva			755		316		244		203
	Arenque			656		800		734		695
	Cárdenas			593		570		163		236
	Och-Uech-Kax			520		102		72		117
	Integral Batab			433		292		87		64
	Integral Poza Rica			385		315		332		353
	Integral Kaanab			231		8		6		40
	Ayín-Alux			179		703		1,928		1,269
	Integral Yaxche			12		447		381		254
		Total		88,968		93,695		82,957		64,282
Pemex-Refining
	Madero			816		—		—		—
	Salamanca			—		—		—		—
	Tula			—		—		—		—
	Minatitlán			1,442		5,867		6,267		2,362
	Salina Cruz			—		2,274		9,064		3,817
		Total		2,258		8,141		15,331		6,179
Pemex-Gas and Basic Petrochemicals
	Modular Cryogenic Plants in Reynosa			1,460		86		—		—
		Total		1,460		86		—		—
Total PIDIREGAS Budget			Ps.	92,685	Ps.	101,922	Ps.	98,288	Ps.	70,462

Note: Numbers may not total due to rounding.

32

(1)

Amounts based on cash basis method of accounting.

(2)

Includes capitalized interest.

(3)

PIDIREGAS relating to the development of the Chicontepec field.

Source: Petróleos Mexicanos.

Petrochemicals

Private Sector Participation in Petrochemicals Sector

        On August 28, 2002, the board of directors of Petróleos Mexicanos approved the merger of the seven subsidiaries of Pemex-Petrochemicals into Pemex-Petrochemicals. The merger is subject to the review of the Secretary of Energy of Mexico and the fulfillment of other legal requirements.

Results of Operations of Petróleos Mexicanos and the Subsidiary Entities—First Nine Months of 2002 Compared to First Nine Months of 2001

        The interim financial information set forth below has been derived from the unaudited summary consolidated financial statements of Petróleos Mexicanos, the subsidiary entities and the Pemex Project Funding Master Trust for the nine-month periods ended September 30, 2001 and 2002. The selected financial data were prepared in accordance with Mexican GAAP, except that (1) the effects of inflation are recognized in accordance with Financial Reporting Standard NIF-06 BIS "A", section A, which differs from Bulletin B-10 (see notes 2 b) and 15 to the 2001 financial statements), and (2) the accounts of the subsidiary companies are not consolidated.

			Nine months ended September 30,
			2001(1)		2002(1)(2)
			(millions of nominal pesos or U.S. dollars)
Net Sales
	Domestic(3)		Ps. 229,178		Ps. 227,161		$	22,206
	Export		95,956		99,969			9,772
		Total	325,134		327,130			31,978
Other Revenues(4)			7,599		7,288			712
Total Revenues(3)			332,733		334,418			32,690
Costs and Operating Expenses			133,396		122,053			11,931
Operating Income			199,337		212,365			20,759
	Interest, net		7,462		10,354			1,012
	Other expenses		3,976		3,831			374
		Income before taxes and duties	187,899		198,180			19,373
Taxes and Duties
	Hydrocarbon extraction duties and other		138,454		121,167			11,845
	Special tax on production and services (IEPS Tax)		65,450		88,068			8,609
		Total	203,904		209,235			20,454
Cumulative effect of adoption of new financial instruments standard(5)			(1,331	)	—			—
Net loss for the period			Ps. (17,336	)	Ps. (11,055	)	$	(1,081	)

(1)

Unaudited.

33

(2)

Convenience conversions into U.S. dollars of amounts in pesos have been made at the established exchange rate for accounting purposes of Ps. 10.2299 = U.S. $1.00 at September 30, 2002. Such conversions should not be construed as a representation that the peso amounts have been or could be converted into U.S. dollars at the foregoing or any other rate.

(3)

Includes the IEPS Tax, which is described in "Item 5—Operating and Financial Review and Prospects—IEPS Tax, Excess Gains Duty, Hydrocarbon Duties and Other Taxes" in the Form 20-F included in this prospectus, as part of the sales price of products sold.

(4)

Includes exchange rate gains in the amount of Ps. 1,336 million and Ps. 582 million in the first nine months of 2001 and 2002, respectively.

(5)

As described in "Item 5—Operating and Financial Review and Prospects—U.S. GAAP Reconciliation—Recently Issued Accounting Standards" in the Form 20-F included in this prospectus, requirements of the new Mexican accounting Bulletin C-2, Financial Instruments, went into effect on January 1, 2001. The new bulletin establishes the basic rules to be observed by the issuers of, and the investors in, financial instruments when valuing, presenting and disclosing these instruments in financial information. This bulletin also establishes the rules and conditions that must be met to offset financial assets and liabilities and requires that financial instruments and derivatives be valued at their fair value, except those classified as "held to maturity," which are to be presented at cost.

Source: Petróleos Mexicanos.

Income (Loss)

        During the first nine months of 2002, the net loss of Petróleos Mexicanos, the Subsidiary Entities and the Pemex Project Funding Master Trust amounted to Ps. 11.1 billion as compared with net loss during the first nine months of 2001 of Ps. 17.3 billion. This decrease in loss was due primarily to a reduction in costs and expenses, which was partially offset by decreased domestic demand and lower domestic prices for petroleum and petrochemical products and a decrease in crude oil export volumes, as well as to the recognition in 2001 of the cumulative effect of the adoption by Petróleos Mexicanos of Mexican Accounting Bulletin C-2, Financial Instruments. During this period, operating income before taxes and duties increased 5.5% from Ps. 188.0 billion on total sales revenues (net of the IEPS Tax) of Ps. 259.7 billion during the first nine months of 2001, to Ps. 198.2 billion on total sales revenues (net of the IEPS Tax) of Ps. 239.1 billion during the first nine months of 2002. For the first nine months of 2002, total sales revenues (net of the IEPS Tax) decreased by 7.9% as compared to the first nine months of 2001, primarily as a result of a decrease in the average price of principal trading products (including natural gas, gasoline, liquefied petroleum gas, diesel and jet fuel) in the domestic market.

Export Sales

        Export sales by the Subsidiary Entities to the PMI Group and third parties increased by 4.2% in peso terms (with dollar-denominated export revenues converted to pesos at the exchange rate on the date on which the export sale was made), from Ps. 96.0 billion in the first nine months of 2001 to Ps. 100.0 billion in the first nine months of 2002. For information on peso/dollar exchange rates, see "United Mexican States—Exchange Controls and Foreign Exchange Rates" below. The increase in export sales was attributable mainly to an increase in the average price of crude oil exports. Export sales increased as a percentage of total net sales (net of the IEPS Tax) from 37.0% in the first nine months of 2001 to 41.8% in the first nine months of 2002. Crude oil exports accounted for 90.8% of export sales, refined products accounted for 8.4% of export sales and natural gas and petrochemical products accounted for the remainder of export sales in the first nine months of 2002.

34

Domestic Sales

        Domestic sales (net of the IEPS Tax) decreased by 15.0%, from Ps. 163.7 billion in the first nine months of 2001 to Ps. 139.1 billion in the first nine months of 2002. Domestic sales of refined products (other than natural gas) decreased by 15.6% from Ps. 133.5 billion in the first nine months of 2001 to Ps. 112.6 billion in the first nine months of 2002 primarily due to decreases in sales prices of refined products (including gasoline, diesel and jet fuel) and a decrease in the demand for fuel oil. Domestic petrochemical sales (including sales of certain by-products of the petrochemical production process) decreased by 20.3% from Ps. 7.1 billion in the first nine months of 2001 to Ps. 5.6 billion in the first nine months of 2002, primarily as a result of a decrease in the price of and the demand for petrochemical products. Sales of natural gas decreased by 10.1%, from Ps. 23.1 billion in the first nine months of 2001 to Ps. 20.8 billion in the first nine months of 2002, due to a decrease in sales prices.

Costs and Operating Expenses; Other Income and Expenses

        Costs and operating expenses decreased by 8.5%, from Ps. 133.4 billion in the first nine months of 2001 to Ps. 122.1 billion in the first nine months of 2002. Costs and operating expenses as a percentage of total sales (net of the IEPS Tax) decreased from 51.4% in the first nine months of 2001 to 51.1% in the first nine months of 2002. This decrease was due to a decrease in import purchases and a decrease in the value of product inventory, which was partially offset by an increase in depreciation and amortization, costs related to labor reserves for pension obligations and increases in salaries and wages. Other revenues decreased from Ps. 7.6 billion in the first nine months of 2001 to Ps. 7.3 billion in the first nine months of 2002, primarily due to a decrease in foreign exchange rates. Interest, net, increased from Ps. 7.5 billion in the first nine months of 2001 to Ps. 10.4 billion in the first nine months of 2002, primarily due to an increase in 2002 in the financial expense of non-capitalized interest incurred in relation to PIDIREGAS that were completed in 2001. Other expenses decreased by 3.6% from Ps. 4.0 billion in the first nine months of 2001 to Ps. 3.8 billion in the same period of 2002.

Cumulative Effect of Adoption of New Financial Instruments Standard

        In 2001, PEMEX adopted Bulletin C-2, which resulted in a loss of Ps. 1.3 billion, primarily attributable to the accounting for the Repsol equity swap, as described in Note 2 o) to the 2001 financial statements.

Liquidity and Capital Resources

Recent Financing Activities

        During the period from October 1, 2002 to December 31, 2002, Petróleos Mexicanos obtained direct credits in the amount of U.S. $250 million to finance the working capital requirements of PEMEX, and the Pemex Project Funding Master Trust obtained U.S. $2.0 billion in commercial bank loans for use in financing PIDIREGAS. In addition, Petróleos Mexicanos and the Pemex Project Funding Master Trust participated in the following financings:

•

Petróleos Mexicanos obtained loans from export credit agencies totaling U.S. $33 million;



•

Petróleos Mexicanos obtained foreign trade financing in the amount of U.S. $100 million;



•

Petróleos Mexicanos obtained U.S. $785 million through bankers' acceptances;



•

the Pemex Project Funding Master Trust obtained loans from export credit agencies totaling U.S. $293 million;



•

On December 3, 2002, the Pemex Project Funding Master Trust increased its Medium-Term Note program, Series A, from U.S. $6,000,000,000 to U.S. $11,000,000,000;

35

•

On December 5, 2002, the Pemex Project Funding Master Trust issued JP¥30,000,000,000 (approximately U.S. $241 million) of 3.50% Notes due 2023, guaranteed by Petróleos Mexicanos, under the Master Trust's Medium-Term Note program, Series A;



•

On December 12, 2002, the Pemex Project Funding Master Trust issued U.S. $1,000,000,000 of 7.375% Global Notes due 2014, guaranteed by Petróleos Mexicanos, under the Master Trust's Medium-Term Note program, Series A;



•

On January 27, 2003, the Pemex Project Funding Master Trust issued £250,000,000 of 7.50% Notes due 2013, guaranteed by Petróleos Mexicanos, under the Master Trust's Medium-Term Note program, Series A; and



•

On February 6, 2003, the Pemex Project Funding Master Trust issued U.S. $750,000,000 of its 6.125% Notes due 2008, guaranteed by Petróleos Mexicanos, under the Master Trust's Medium-Term Note program, Series A.

Change in Accounting Policy

        In January 2003, the Ministry of Finance and Public Credit informed PEMEX that, beginning with fiscal year 2003, PEMEX will recognize the effects of inflation in accordance with NIF 06 BIS "A" section C, which establishes the obligation for PEMEX to adopt Bulletin B-10, "Recognition of the Effects of Inflation on Financial Information." Among other things, Bulletin B-10 requires restatement of all comparative financial statements to constant Mexican pesos of the date of the most recent balance sheet presented. PEMEX is currently evaluating the impact that the adoption of Bulletin B-10 will have on its consolidated financial statements. This adoption will not impact PEMEX's financial statements for the fiscal year ended December 31, 2002.

Directors, Senior Management and Employees

        On February 3, 2003, Juan Bueno Torio replaced Armando Leal Santa Ana as the Director General of Pemex-Refining.

Legal Proceedings

U.S. Anti-dumping Dispute

        On December 17, 2002, the U.S. Court of International Trade upheld the U.S. Department of Commerce's decision not to initiate antidumping and countervailing duty investigations on crude oil from Mexico, Saudi Arabia and Iraq and dismissed the complaint filed by Save Domestic Oil, Inc., a group of independent oil producers in the United States. Save Domestic Oil, Inc. has appealed this decision.

Export Agreements

        Although Mexico is not a member of the Organization of Petroleum Exporting Countries ("OPEC"), since 1998 it has entered into agreements with OPEC and non-OPEC members to reduce its oil exports in order to stabilize international oil prices.

        On January 13, 2003, the Ministry of Energy of Mexico announced that, beginning on February 1, 2003, Mexico would increase its oil exports by 120,000 barrels per day, to 1.88 million barrels per day. Mexico agreed to increase its oil exports in conjunction with production increases by other oil producing countries in order to stabilize oil prices, which had increased significantly in recent weeks.

36

United Mexican States

The Economy

Prices and Wages

        Inflation during 2002 was 5.70%, 1.3 percentage points higher than in 2001. Inflation during 2001 was 4.40%.

Interest Rates

        During 2002, interest rates on 28-day Cetes averaged 7.08% and interest rates on 91-day Cetes averaged 7.44%, as compared with average rates on 28-day and 91-day Cetes of 11.30% and 12.24%, respectively, during 2001. On January 15, 2003, the 28-day Cetes rate was 8.19% and the 91-day Cetes rate was 8.56%.

Financial System

Central Bank and Monetary Policy

        At January 10, 2003, the monetary base totaled Ps. 249.98 billion, as compared to Ps. 263.94 billion at December 31, 2002.

        Banco de México utilizes the "short" mechanism as its principal monetary policy instrument. Banco de México increased the "short" on December 6, 2002, from Ps. 400 million to Ps. 475 million, and on January 10, 2003, Banco de México further increased the "short" to Ps. 550 million. These increases in the "short" were made in response to internal and external factors that could have threatened the achievement of the inflation target for 2003.

The Securities Market

        At December 31, 2002, the Stock Market Index stood at 6,127.09 points, representing a 3.8% decrease in nominal peso terms and a 9.0% decrease in real peso terms from the level at December 31, 2001.

External Sector of the Economy

Foreign Trade

        During the first eleven months of 2002, Mexico registered a trade deficit of U.S. $6,772.8 million as compared with a trade deficit of U.S. $8,615.3 million for the same period of 2001. Merchandise exports increased by 0.7% during the first eleven months of 2002, to U.S. $147,325.8 million, as compared with U.S. $146,318.2 million in the first eleven months of 2001. During the first eleven months of 2002, petroleum exports increased by 8.8% and non-petroleum exports experienced zero growth, in each case as compared with the same period of 2001. Exports of manufactured goods, which represented 88.6% of total merchandise exports, increased by 0.1% during the first eleven months of 2002, as compared with the same period of 2001. Total imports were U.S. $154,098.6 million during the first eleven months of 2002, a 0.5% decrease as compared with the same period of 2001. Imports of intermediate goods decreased by 0.5%, imports of capital goods decreased by 7.1% and imports of consumer goods increased by 6.6% during the first eleven months of 2002, each as compared with the first eleven months of 2001.

Balance of International Payments

        At December 31, 2002, Mexico's international reserves totaled U.S. $47,984 million, as compared to U.S. $40,880 million at December 31, 2001. The net international assets of Banco de México totaled

37

U.S. $50,722 million at December 31, 2002, as compared to U.S. $44,857 million at December 31, 2001. At January 10, 2003, Mexico's international reserves totaled U.S. $48,119 million, an increase of U.S. $135 million from the level at December 31, 2002. The net international assets of Banco de México totaled U.S. $50,716 million at January 10, 2003, reflecting a decrease of U.S. $6 million from the level at December 31, 2002.

Exchange Controls and Foreign Exchange Rates

        During 2002, the average peso/U.S. dollar exchange rate was Ps. 9.4164 = U.S. $1.00. The peso/U.S. dollar exchange rate established by Banco de México on January 15, 2003 (to take effect on the second business day thereafter) was Ps. 10.4875 = U.S. $1.00.

Public Finance

2002 Budget

        On December 12, 2002, Congress approved the dissolution and liquidation of Banco Nacional de Crédito Rural, S.N.C., a governmental development bank, which will create an estimated extraordinary expenditure of Ps. 48.9 billion. This expenditure will be offset by an estimated Ps. 11 billion to be gained from an amendment to the Retirement Systems Savings Law approved by Congress on December 15, 2002, which will allow the Government to use a portion of the workers' unclaimed retirement funds for this purpose. The Government will be contingently liable to return these funds, with interest, if and when claimed by the workers entitled to them.

2003 Budget and Fiscal Package

        On December 14, 2002, Congress approved the Federal Annual Revenue Law for 2003 and on December 15, 2002, Congress approved the Federal Expenditure Decree for 2003 (as approved, together with the Federal Annual Revenue Law for 2003 as approved, the "2003 Budget"). The 2003 Budget maintains fiscal discipline as the cornerstone of the economic program, and contemplates a public sector deficit of 0.50% of GDP for 2003.

        The 2003 Budget is based upon an estimated weighted average price of Mexico's oil exports of U.S. $18.35 per barrel and an estimated volume of oil exports of 1.86 million barrels per day. The budget as originally proposed to Congress was based upon an estimated weighted average price of Mexico's oil exports of U.S. $17.00 per barrel. Congress' upward revision resulted in Ps. 24.7 billion of additional revenues with respect to the original proposal.

        The 2003 Budget includes the following tax measures, among others:

•

continuation of a gradual decline in income tax rates, introduced at the end of 2001, as well as new tax deductions for individuals and immediate deduction of investment expenditures outside of the metropolitan areas of Mexico City, Guadalajara and Monterrey; and



•

elimination of the luxury goods tax.

        The results for 2001 and the first nine months of 2002, the revised budget assumptions and targets for 2002 and the budget assumptions and targets for 2003 are set forth below.

38

2001 and First Nine Months of 2002 Results;
2002 Revised Budget Assumptions and Targets;
2003 Budget Assumptions and Targets

	2001 Results		2002 Budget		First Nine Months of 2002 Results(1)	2003 Budget
Real GDP growth (%)	(0.3	)(1)	1.7		1.2	3.0
Increase in the national consumer price index (%)	4.4		4.5		3.9	3.0
Average export price of Mexican crude oil mix (U.S.$/barrel)	18.57		15.50		21.17	18.35
Current account deficit as % of GDP	2.9	(1)	3.4		2.0	2.8
Average exchange rate (Ps./$1.00)	9.339		10.1		9.486	10.1
Average rate on 28-day Cetes (%)	11.3		9.7		7.0	7.5
Public sector balance as % of GDP	(0.7	)	(0.7	)	0.3	(0.5	)
Primary balance as % of GDP	2.6		2.7		3.8	N/A

(1)

Preliminary.

N/A = Not available.

Source: Ministry of Finance and Public Credit.

Public Debt

        Subsequent to September 30, 2002:

•

The Pemex Project Funding Master Trust issued: (i) 30,000,000,000 yen of its 3.50% Notes due 2023 on December 5, 2002; (ii) U.S. $1,000,000,000 of its 7.375% Global Notes due 2014 on December 12, 2002; (iii) £250,000,000 of its 7.50% Notes due 2013 on January 27, 2003; and (iv) U.S. $750,000,000 of its 6.125% Notes due 2008 on February 6, 2003;



•

Banco Nacional de Comercio Exterior, S.N.C. issued Ps. 1,000,000,000 of its 11.0% Notes due 2005 in the international markets on December 12, 2002;



•

Mexico issued U.S. $750,000,000 of its 8.30% Global Notes due 2031 on December 19, 2002; and



•

Mexico issued U.S. $2,000,000,000 of its 6.375% Global Notes due 2013 on January 16, 2003.

39

Business

		Nine months ended September 30,
		2001		2002
Operating Highlights
Monthly average production
	Crude oil (tbpd)		3,121		3,168
	Natural gas production (mmcfpd)		4,532		4,431
	Refined products(1) (tbpd)		1,310		1,313
	Petrochemicals(2) (mtpy)		7,755		7,409
Monthly average of types of crude oil exports (tbpd)
	Olmeca		317		254
	Isthmus		82		45
	Maya(4)		1,315		1,357
	Total		1,714		1,656
Monthly average crude oil exports (value in millions of U.S. dollars)		$	9,257	$	9,586
Monthly average PEMEX crude oil export prices per barrel(3)(5)
	Olmeca	$	25.45	$	24.27
	Isthmus		23.75		23.05
	Maya		18.24		20.58
	Weighted average price	$	19.79	$	21.21
Monthly average West Texas Intermediate crude oil average price per barrel(6)		$	27.77	$	25.45

        tbpd = thousands of barrels per day.

        mmcfpd = millions of cubic feet per day

        mtpy = thousands of tons per year

(1)

Includes natural gas liquids.



(2)

Excludes ethane and butane gases.



(3)

Subject to adjustment to reflect the percentage of water in each shipment.



(4)

Includes Altamira crude oil, which is recorded as a separate category for annual, but not interim, sales.



(5)

Average price during period indicated.



(6)

On February 10, 2003 the spot price for West Texas Intermediate crude oil was U.S. $34.48 per barrel and the spot price for the PEMEX crude oil basket (the weighted average price of the crude oil that PEMEX exports) was an estimated U.S. $28.50 per barrel.

Sources: September 2001 and September 2002 Indicadores Petroleros and P.M.I. Comercio Internacional, S.A. de C.V.

40

PEMEX PROJECT FUNDING MASTER TRUST

        The Pemex Project Funding Master Trust was organized as a statutory trust under Delaware law on November 10, 1998. The Bank of New York acts as managing trustee and The Bank of New York (Delaware) acts as Delaware trustee of the issuer. The Pemex Project Funding Master Trust's purpose is to administer certain financial resources earmarked for PIDIREGAS, which are described below.

        Petróleos Mexicanos is the sole beneficiary of the Pemex Project Funding Master Trust and controls the Pemex Project Funding Master Trust in all of its activities.

PIDIREGAS Projects

        Under Mexico's General Law of Public Debt, a PIDIREGAS must be a long-term productive infrastructure project which is:

•

related to an economic activity identified as a priority by the Mexican Government,



•

expected to generate funds sufficient to repay the financing incurred for the project, and



•

previously approved by the Mexican Government.

        Petróleos Mexicanos or a subsidiary guarantor negotiates and enters into turn-key and other contracts for the construction of PIDIREGAS. PEMEX subsequently delegates to the Pemex Project Funding Master Trust the payment obligations under the related project contracts and transfers any funds obtained through related financing transactions. Accordingly, upon receipt by PEMEX of invoices under the project contracts, Petróleos Mexicanos instructs the Pemex Project Funding Master Trust to make payment to the appropriate contractors.

        Financings for PIDIREGAS are either entered into by Petróleos Mexicanos and assigned to the Pemex Project Funding Master Trust or arranged by Petróleos Mexicanos and entered into directly by the Pemex Project Funding Master Trust, as is the case with the old securities and the new securities. In either case, funds obtained through these financings are transferred to The Bank of New York as managing trustee, whose decisions are, in turn, dictated by Petróleos Mexicanos. All payments under financings entered into by or assigned to the Pemex Project Funding Master Trust are unconditionally guaranteed by Petróleos Mexicanos. The subsidiary guarantors jointly and severally guarantee Petróleos Mexicanos' payment obligations under its guaranties of these financings.

        The Pemex Project Funding Master Trust has been consolidated with PEMEX and its subsidiary companies in the audited financial statements included in the Form 20-F and in the interim financial information set forth under "Operating and Financial Review and Prospects" and "Recent Developments" in this prospectus.

Assignment and Indemnity Agreement

        Under an Assignment and Indemnity Agreement dated November 10, 1998, among Petróleos Mexicanos, The Bank of New York and the subsidiary guarantors, Petróleos Mexicanos and the subsidiary guarantors have assumed certain obligations of the Pemex Project Funding Master Trust with respect to the liabilities incurred or assumed by the Pemex Project Funding Master Trust in connection with PIDIREGAS. These obligations include:

•

the obligation of Petróleos Mexicanos to guarantee the repayment of the debt obligations undertaken by the Pemex Project Funding Master Trust to finance PIDIREGAS;



•

the obligation of Petróleos Mexicanos and the particular subsidiary guarantor that is sponsoring a PIDIREGAS to make payments to the issuer as may be necessary for the Pemex Project Funding Master Trust to fulfill its payment obligations in respect of any financing that the issuer has entered into in connection with the PIDIREGAS; and

41

•

the joint and several obligations of Petróleos Mexicanos and each of the subsidiary guarantors to indemnify the Pemex Project Funding Master Trust with respect to any liability incurred by the Pemex Project Funding Master Trust in connection with PIDIREGAS.

Liquidity and Capital Resources

        Petróleos Mexicanos makes decisions to draw-down funds under PIDIREGAS-related financings on the basis of the short-term obligations of the issuer under PIDIREGAS construction contracts. The issuer invests any excess liquidity in short-term investments, including interest-bearing deposits at Banco de México and Mexican commercial banks.

        At December 31, 2001, cash and cash equivalents of the issuer totaled U.S. $578 million, its total assets were U.S. $13,370 million; its long-term indebtedness totaled U.S. $11,334 million, its short-term indebtedness (including interest payable of U.S. $160 million) totaled U.S. $952 million and its other short-term liabilities totaled U.S. $1,083 million.

        At September 30, 2002, cash and cash equivalents of the issuer totaled U.S. $511 million, its total assets were U.S. $17,180 million, its long-term indebtedness totaled U.S. $14,061 million, its short-term indebtedness (including interest payable of U.S. $192 million) totaled U.S. $1,414 million and its other short-term liabilities totaled U.S. $1,705 million.

        The assets of the issuer consist primarily of the funds it receives through various PIDIREGAS financings incurred directly or indirectly by the issuer, earnings from the short-term investment of its excess liquidity and its rights to receive payment from the Guarantor and the Subsidiary Guarantors.

        On December 31, 1998, the Guarantor transferred assets and liabilities related to PIDIREGAS totaling Ps. 12,104 million (U.S. $1,227 million) to the issuer.

        Future amortization of the issuer's indebtedness is scheduled as follows:

Pemex Project Funding Master Trust
Indebtedness Amortization Schedule

	Maturities
Outstanding Amount at September 30, 2002
	2002	2003	2004	2005	2006	Over 5 years
(in millions of dollars)
U.S. $15,283	U.S. $547	U.S. $1,138	U.S. $1,595	U.S. $2,094	U.S. $1,135	U.S. $8,774

42

THE EXCHANGE OFFERS

        This is a summary of the exchange offers and the material provisions of the registration rights agreements that we entered into on November 26, 2001 with the initial purchasers of the 8.00% old notes, on February 1, 2002 with the initial purchasers of the 7.875% old notes and the 8.625% old bonds, and on December 12, 2002 with the initial purchasers of the 7.375% old notes. This section may not contain all the information that you should consider regarding the exchange offers and the registration rights agreements before participating in the exchange offers. For more detail you should refer to the letter of transmittal and the registration rights agreements, which we have filed with the SEC as exhibits to the registration statement. You can obtain copies of these documents by following the instructions under the heading "Where You Can Find More Information."

Background and Purpose of the Exchange Offers

        We sold the old securities to their initial purchasers pursuant to terms agreements dated November 14, 2001 for the November 2001 issuance of the 8.00% old notes, January 25, 2002 for the February 2002 issuance of the 7.875% old notes and the 8.625% old bonds and December 3, 2002 for the December 2002 issuance of the 7.375% old notes. In each case, the initial purchasers then resold the old securities to other purchasers in offshore transactions in reliance on Regulation S of the Securities Act and to qualified institutional buyers in reliance on Rule 144A under the Securities Act.

        We also entered into registration rights agreements with the initial purchasers of the 8.00% old notes, the 7.875% old notes, the 8.625% old bonds and the 7.375% old notes. As long as we determine that applicable law permits us to make the exchange offers, the registration rights agreements require that we use our best efforts to:

	Action	Date Required for the 8.00% old notes, 7.875% old notes and 8.625% old bonds	Date Required for 7.375% old notes
1.	File a registration statement for a registered exchange offer relating to an issue of new securities with terms substantially similar to the old securities	September 2, 2002	September 2, 2003
2.	Cause the registration to be declared effective by the SEC and promptly begin the exchange offer after the registration statement is declared effective	September 2, 2002	September 2, 2003
3.	Issue the new securities in exchange for all old securities tendered in the exchange offer	October 2, 2002	October 2, 2003

        We were not able to complete the exchange offers for the 8.00% old notes, 7.875% old notes and 8.625% old bonds by October 2, 2002 and, as a result, the 8.00% old notes, 7.875% old notes and 8.625% old bonds began to earn additional interest at the rate of 0.25% per year on September 3, 2002, and are now earning additional interest at the rate of 0.50% per year. This additional interest will stop when we complete the exchange offers. The exchange offers described in this prospectus will cure our defaults under the registration rights agreement.

        For the 7.375% old notes, the exchange offer described in this prospectus, if commenced and completed within the time limits described above, will satisfy the requirements under the registration rights agreements.

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General Terms of the Exchange Offers

        We are offering, upon the terms and subject to the conditions set forth in this prospectus, and in the accompanying letters of transmittal, to exchange the old securities for new securities as follows:

New Securities Series	Corresponding Old Securities Series
8.00% new notes due 2011	8.00% old notes due 2011
7.875% new notes due 2009	7.875% old notes due 2009
8.625% new bonds due 2022	8.625% old bonds due 2022
7.375% new notes due 2014	7.375% old notes due 2014

        As of the date of this prospectus, the following amounts of each series of old securities are outstanding:

•

U.S. $750,000,000 aggregate principal amount of 8.00% old notes due 2011



•

U.S. $1,000,000,000 aggregate principal amount of 7.875% old notes due 2009



•

U.S. $500,000,000 aggregate principal amount of 8.625% old bonds due 2022



•

U.S. $1,000,000,000 aggregate principal amount of 7.375% old notes due 2014

        Upon the terms and subject to the conditions set forth in this prospectus and in the letters of transmittal, we will accept for exchange all old securities that are validly tendered and not withdrawn before 5:00 p.m., New York City time, on the expiration date. We will issue new securities in exchange for an equal principal amount of outstanding old securities accepted in the exchange offers. Holders may only tender 8.00% old notes in a principal amount of U.S. $10,000 and integral multiples thereof. Holders may only tender 7.875% old notes, 8.625% old bonds and 7.375% old notes in a principal amount of U.S. $10,000 and integral multiples of U.S. $1,000 in excess thereof. Subject to these requirements, you may tender less than the aggregate principal amount of any series of old securities you hold, as long as you appropriately indicate this fact in the letter of transmittal accompanying the old securities you are tendering.

        We are sending this prospectus, together with the letter of transmittal, to all holders of record of old securities as of February 12, 2003. However, we have chosen this date solely for administrative purposes, and there is no fixed record date for determining which holders of old securities are entitled to participate in the exchange offers. Only holders of old securities, their legal representatives or their attorneys-in-fact may participate in the exchange offers.

        The exchange offers are not conditioned upon any minimum principal amount of old securities being tendered for exchange. However, our obligation to accept old securities for exchange is subject to certain conditions as set forth below under "—Conditions to the Exchange Offers."

        Any holder of old securities that is an "affiliate" of the Pemex Project Funding Master Trust or an "affiliate" of any of the guarantor or the subsidiary guarantors may not participate in the exchange offers. We use the term "affiliate" as defined in Rule 405 of the Securities Act. We believe that, as of the date of this prospectus, no such holder is an "affiliate" as defined in Rule 405.

        Before the exchange offers commence, we will publish a notice in Luxembourg announcing the date of the commencement of the exchange offers and the expiration date. Upon completion of the exchange offers, we will publish the results of the exchange offers in Luxembourg, and we will file with the Luxembourg Stock Exchange a supplemental prospectus that specifies the results of the exchange offers, including the amount exchanged and information regarding the new securities.

        We will have formally accepted validly tendered old securities when we give written notice of our acceptance to the exchange agent. The exchange agent will act as our agent for the purpose of receiving old securities from holders and delivering new securities to them in exchange.

44

        The new securities issued pursuant to the exchange offers will be delivered as promptly as practicable following the expiration date. If we do not extend the expiration date, then we would expect to deliver the new securities on or about March 25, 2003.

Representations upon Tender of Old Securities

        By tendering old securities in exchange for new securities, each holder will represent to us that:

•

any new securities you receive will be acquired in the ordinary course of your business;



•

if you are not a broker-dealer, you are not engaged in, and do not intend to engage in, a distribution of the new securities;



•

neither you nor any person who will receive the new securities has any arrangement or understanding with any person to participate in a distribution of the new securities;



•

you are not an "affiliate" of ours or any of the guarantor or the subsidiary guarantors, as that term is defined in Rule 405 of the Securities Act; and



•

if you are a broker-dealer, (a) you will receive new securities for your own account in exchange for old securities that were acquired as a result of market-making activities or other trading activities and (b) you will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such new securities.

Resale of New Securities

        Based on interpretations by the staff of the SEC set forth in no-action letters issued to other issuers, we believe that you may offer for resale, resell or otherwise transfer the new securities issued in the exchange offers without compliance with the registration and prospectus delivery provisions of the Securities Act. However, this right to freely offer, resell and transfer exists only if:

•

you are not a broker-dealer who purchased the old securities directly from us for resale pursuant to Rule 144A under the Securities Act or any other available exemption under the Securities Act;



•

you are not an "affiliate" of the Pemex Project Funding Master Trust or one of the guarantors, as the term "affiliate" is defined in Rule 405 under the Securities Act; and



•

you are acquiring the new securities in the ordinary course of your business, you are not participating in, and do not intend to participate in, a distribution of the new securities and you have no arrangement or understanding with any person to participate in a distribution of the new securities.

        If you acquire new securities in the exchange offers for the purpose of distributing or participating in a distribution of the new securities or you have any arrangement or understanding with respect to the distribution of the new securities, you may not rely on the applicable interpretations of the staff of the SEC and you must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any secondary resale transaction.

        Each broker-dealer participating in the exchange offers must deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of the new securities received in exchange for old securities that were acquired as a result of market-making activities or other trading activities. The letter of transmittal that all holders must complete in order to participate in the exchange states that by acknowledging this obligation and delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act.

        A broker-dealer may use this prospectus, as it may be amended or supplemented from time to time, in connection with resales of new securities received in exchange for old securities where the

45

broker-dealer acquired the old securities as a result of market-making activities or other trading activities. We have agreed to make this prospectus available to any broker-dealer for up to 180 days after the registration statement is declared effective (subject to extension under certain circumstances) for use in connection with any such resale. See "Plan of Distribution."

Expiration Date; Extensions; Amendments

        The exchange offers will expire on March 25, 2003, at 5:00 p.m., New York City time, unless we extend the exchange offers. If we extend them, the exchange offers will expire on the latest date and time to which they are extended.

        If we elect to extend the expiration date, we will notify the exchange agent of the extension by written notice and will make a public announcement regarding the extension prior to 9:00 a.m., New York City time, on the first business day after the previously scheduled expiration date.

        We reserve the right, in our sole discretion, to:

•

delay accepting any old securities tendered,



•

extend the exchange offers, and



•

amend the terms of the exchange offers in any manner.

        If we amend the exchange offers and we determine that the change is material, we will promptly disclose the amendments in a prospectus supplement that we will distribute to the registered holders of the old securities. The term "registered holder" as used in this prospectus with respect to the old securities means any person in whose name the old securities are registered on the books of the trustee.

        If the exchange offers are extended, we will publish a notice in Luxembourg, and we will notify the Luxembourg Stock Exchange of the new expiration date.

Procedures for Tendering Old Securities

        Old securities can only be tendered by a financial institution that is a participant in the book entry transfer system of The Depository Trust Company ("DTC").

        If you are a DTC participant and you wish to tender your old securities in the exchange offers, you must:

1.

transmit your old securities by book-entry transfer to the account maintained by the exchange agent at the book-entry transfer facility system maintained by DTC before 5:00 p.m., New York City time, on the expiration date; and



2.

acknowledge and agree to be bound by the terms of the letter of transmittal through electronic transmission of an agent's message via DTC's Automated Tender Offer Program ("ATOP") system.

        The term "agent's message" means a computer-generated message that DTC's book-entry transfer facility has transmitted to the exchange agent and that the exchange agent has received. The agent's message forms part of a book-entry transfer confirmation, which states that DTC has received an express acknowledgement from you as the participating holder tendering old securities that you have received the letter of transmittal and agree to be bound by its terms. We may enforce this agreement against you.

46

        If you are not a direct participant in DTC and hold your old securities through a DTC participant or the facilities of Euroclear or Clearstream Banking, société anonyme ("Clearstream, Luxembourg"), you must:

1.

submit in accordance with the procedures of the DTC participant, Euroclear or Clearstream, Luxembourg a completed and executed letter of transmittal with respect to the old securities being tendered; and



2.

deliver computerized instructions to the DTC participant, Euroclear or Clearstream, Luxembourg to transfer your old securities to the exchange agent's account at DTC.

        You must be sure to take these steps sufficiently in advance of the expiration date to allow enough time for the DTC participant, Euroclear or Clearstream, Luxembourg to arrange for the timely electronic submission of the letter of transmittal, as well as delivery of your old securities, through DTC's ATOP system.

Delivery of documents to Euroclear or Clearstream, Luxembourg does not constitute delivery to the exchange agent through DTC's ATOP system. You may not send any old securities, letters of transmittal or other documents to us.

        You can obtain copies of the letter of transmittal at the offices of the exchange agent and our Luxembourg listing agent, whose addresses are set forth below.

        In the unlikely event that your old securities are issued in definitive certificated form, you may tender your certificated securities by delivering them duly endorsed with a properly executed letter of transmittal, by hand or overnight courier, to the exchange agent at its address set forth under "—Exchange Agent" or to the exchange agent in Luxembourg at:

Deutsche Bank Luxembourg S.A.
2 Boulevard Konrad Adenauer
L-1115 Luxembourg
Phone: (352) 42122-1
Fax: (352) 42122-449

on or before 5:00 p.m., New York City time, on the expiration date.

47

        If you are a beneficial owner whose old securities are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and you wish to tender old securities in the exchange offers, you should contact the registered holder promptly and instruct the registered holder to tender on your behalf.

        Your tender of old securities and our acceptance of them as part of the exchange offers will constitute an agreement between you and the Pemex Project Funding Master Trust under which both of us accept the terms and conditions contained in this prospectus and in the letter of transmittal.

        We will determine in our sole discretion all questions as to the validity, form, eligibility, time of receipt, acceptance and withdrawal of old securities tendered for exchange, and our determinations will be final and binding. We reserve the absolute right to reject any and all old securities that are not properly tendered or any old securities which we cannot, in our opinion or that of our counsel, lawfully accept. We also reserve the absolute right to waive any defects or irregularities or conditions of the exchange offers as to particular old securities or particular holders of old securities either before or after the expiration date.

        Our interpretation of the terms and conditions of the exchange offers (including the letter of transmittal and accompanying instructions) will be final and binding on all parties. Unless we waive them, any defects or irregularities in connection with tenders of old securities for exchange must be cured within a period of time that we will determine. While we will use reasonable efforts to notify holders of defects or irregularities with respect to tenders of old securities for exchange, we will not incur any liability for failure to give notification. We will not consider old securities to have been tendered until any defects or irregularities have been cured or waived.

        If any letter of transmittal or any other documents required by the letter of transmittal are signed by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, that person must indicate his status when signing and must submit proper evidence that satisfies us that he has the authority to act in this capacity, unless we waive this requirement.

Acceptance of Old Securities for Exchange; Delivery of New Securities

        After all the conditions to the exchange offers have been satisfied or waived, we will accept any and all old securities that are properly tendered before 5:00 p.m., New York City time, on the expiration date. We will deliver the new securities that we issue in the exchange offers as promptly as practicable after the expiration date. For purposes of the exchange offers, we will have formally accepted validly tendered old securities when we give written notice of acceptance to the exchange agent.

        We will issue new securities in exchange for old securities only after the exchange agent's timely receipt of:

•

a confirmation of a book-entry transfer of the old securities into the exchange agent's DTC account; and



•

an agent's message transmitted through DTC's ATOP system in which the tendering holder acknowledges and agrees to be bound by the letter of transmittal.

        However, we reserve the absolute right to waive any defects or irregularities in the tender or conditions of the exchange offers. If we do not accept any tendered old securities for any reason, they will be returned, without expense to the tendering holder, as promptly as practicable after the expiration or termination of the exchange offers.

48

Withdrawal of Tenders

        Unless we have already accepted the old securities under the exchange offers, you may withdraw your tendered old securities at any time before 5:00 p.m., New York City time, on the expiration date.

        For a withdrawal to be effective, the exchange agent must receive a written notice through the electronic submission of an agent's message through, and in accordance with, the withdrawal procedures applicable to DTC's ATOP system, before we have accepted the old securities for exchange and before 5:00 p.m., New York City time, on the expiration date. Notices of withdrawal must:

1.

specify the name of the person who deposited the old securities to be withdrawn,



2.

identify the series of old securities to be withdrawn, including the principal amount of such old securities, and



3.

be signed electronically by the holder in the same manner as the original signature on the letter of transmittal by which the holder tendered the old securities.

        We will determine in our sole discretion all questions relating to the validity, form, eligibility and time of receipt of withdrawal notices. We will consider old securities that are properly withdrawn as not validly tendered for exchange for purposes of the exchange offers. Any old securities that are tendered for exchange but are withdrawn will be returned to their holder, without cost, as soon as practicable after their valid withdrawal. You may retender any old securities that have been properly withdrawn at any time on or before the expiration date by following the procedures described under "—Procedures for Tendering Old Securities" above.

Conditions to the Exchange Offers

        Notwithstanding any other terms of the exchange offers or any extension of the exchange offers, there are some circumstances in which we are not required to accept old securities for exchange or issue new securities in exchange for them. In these circumstances, we may terminate or amend the exchange offers as described above before accepting old securities. We may take these steps if:

•

we determine that we are not permitted to effect the exchange offers because of any change in law or applicable interpretations by the SEC;



•

a stop order is in effect or has been threatened with respect to the exchange offers or the qualification of the indenture under the Trust Indenture Act of 1939, as amended; provided that we use our best efforts to prevent the stop order from being issued, or if it has been issued, to have it withdrawn as promptly as practicable; or



•

we determine in our reasonable judgment that our ability to proceed with the exchange offers may be materially impaired because of changes in the SEC staff's interpretations.

        If we determine, in good faith, that any of the foregoing conditions are not satisfied, we have the right to:

•

refuse to accept any old securities and return all tendered securities to the tendering holders,



•

extend the exchange offers and retain all old securities that were tendered prior to the expiration date, unless the holders exercise their right to withdraw them (see "—Withdrawal of Tenders"), or



•

waive the unsatisfied conditions of the exchange offers and accept all validly tendered old securities that have not been withdrawn. If a waiver of this type constitutes a material change to the exchange offers, we will promptly disclose the waiver in a supplement to this prospectus that will be distributed to the registered holders. We may also extend the exchange offers for a

49

period of time, depending on the waiver's significance and the manner in which it was disclosed to the registered holders, if the exchange offers would otherwise expire during that period.

Consequences of Failure to Exchange

        You will not be able to exchange old securities for new securities under the exchange offers if you do not tender your old securities by the expiration date. After the exchange offers expire, holders may not offer or sell their untendered old securities in the United States except in accordance with an applicable exemption from the registration requirements of the Securities Act. However, subject to some conditions, we have an obligation to file a shelf registration statement covering resales of untendered old securities, as discussed below under "—Shelf Registration Statement."

The Exchange Agent; Luxembourg Listing Agent

        Deutsche Bank Trust Company Americas is the exchange agent. All tendered old securities, executed letters of transmittal and other related documents should be directed to the exchange agent, by book-entry transfer as detailed under "—Procedures for Tendering Old Securities." You should address questions, requests for assistance and requests for additional copies of this prospectus, the letter of transmittal and other related documents to the exchange agent as follows:

DB Services Tennessee, Inc.
Corporate Trust & Agency Services
Reorganization Unit
648 Grassmere Park Road
Nashville, Tennessee 37211
Phone: (800) 735-7777

or

Deutsche Bank Luxembourg S.A.
2 Boulevard Konrad Adenauer
L-1115 Luxembourg
Phone: (352) 42122-1
Fax: (352) 42122-449

        You may also obtain copies of the letter of transmittal from our Luxembourg listing agent at the following address:

Kredietbank S.A., Luxembourgeoise
43 Boulevard Royal
L-2955 Luxembourg

Fees and Expenses

        We will pay all expenses related to our performance of the exchange offers, including:

•

all SEC registration and filing fees and expenses,



•

all costs related to compliance with federal securities and state "blue sky" laws,



•

all printing expenses,



•

all fees and disbursements of our attorneys, and



•

all fees and disbursements of our independent certified public accountants.

        The initial purchasers have agreed to reimburse us for some of these expenses.

50

        We will not make any payments to brokers, dealers or other persons soliciting acceptances of the exchange offers. However, we will pay the exchange agent reasonable and customary fees for its services and will reimburse it for its reasonable out-of-pocket expenses incurred in connection with the exchange offers.

Transfer Taxes

        We will pay all transfer taxes incurred by you as a holder tendering your old securities for exchange under the exchange offers. However, you will be responsible for paying any applicable transfer taxes on those transactions if:

•

you instruct us to register the new securities in someone else's name, or



•

you request that we return untendered or withdrawn old securities or old securities not accepted in the exchange offer to someone else.

Shelf Registration Statement

        Under the registration rights agreements, we are obligated in some situations to file a shelf registration statement under the Securities Act covering holders' resales of old securities. We will use our best efforts to cause a shelf registration statement to become effective if:

1.

we cannot file the exchange offers registration statement or issue the new securities because the exchange offers are no longer permitted by applicable law or applicable SEC policy;



2.

for any other reason, we fail to complete the exchange offers within the time period set forth in the applicable registration rights agreement; or



3.

any holder notifies us less than 20 days after the exchange offers are completed that:



•

a change in applicable law or SEC policy prevents it from reselling the new securities to the public without delivering a prospectus, and this prospectus is not appropriate or available for such resales;



•

it is an initial purchaser and owns old securities purchased directly from us or an affiliate of ours; or



•

the holders of a majority of the relevant series of old securities are not allowed to resell to the public the new securities acquired in the exchange offers without restriction under the Securities Act or applicable "blue sky" or state securities laws.

        If we are obligated to file a shelf registration statement, we will at our own expense use our best efforts to file it within 30 days after the filing obligation arises (but in no event before August 1 or after September 30 of any calendar year).

        We will use our best efforts to have the SEC declare the shelf registration statement effective within 60 days after we are required to file the shelf registration statement, and to keep the shelf registration statement effective and to amend and supplement the prospectus contained in it to permit any holder of securities covered by it to deliver that prospectus for use in connection with any resale until the earlier of two years after the issue date of the old securities (or a shorter period under certain circumstances) or such time as all of the securities covered by the shelf registration statement have been sold. Nonetheless, we will not be required to cause the shelf registration statement to be declared effective by the SEC or keep it effective, supplemented or amended during any period prior to August 1 or after September 30 of any calendar year.

        In the event that a shelf registration statement is filed, we will provide each holder of old securities that cannot be transferred freely with copies of the prospectus that is part of the shelf

51

registration statement, notify each holder when the shelf registration statement has become effective and take certain other actions that are required to permit unrestricted resales of the new securities. A holder that sells old securities pursuant to the shelf registration statement will be required to be named as a selling security holder in the related prospectus and to deliver a prospectus to purchasers, will be subject to certain of the civil liability provisions under the Securities Act in connection with its sales and will be bound by the provisions of the registration rights agreement that are applicable to that holder (including certain indemnification rights and obligations).

        In order to be eligible to sell its securities pursuant to the shelf registration statement, a holder must comply with our request for information about the holder which we may, as required by the SEC, include in the shelf registration statement within 15 days after receiving our request.

Additional Interest

        Under the registration rights agreements, we must pay additional interest as liquidated damages to holders of old securities of the relevant series in the event of any of the following registration defaults:

1.

we do not file the registration statement or shelf registration statement in lieu thereof, on or before September 2, 2002 for the 8.00% old notes, 7.875% old notes and 8.625% old bonds, and on or before September 2, 2003 for the 7.375% old notes,



2.

the registration statement or shelf registration statement in lieu thereof is not declared effective by the SEC on or before September 2, 2002 for the 8.00% old notes, 7.875% old notes and 8.625% old bonds, and on or before September 2, 2003 for the 7.375% old notes,



3.

we fail to consummate the exchange offers by October 2, 2002 for the 8.00% old notes, 7.875% old notes and 8.625% old bonds, and by October 2, 2003 for the 7.375% old notes,



4.

a shelf registration statement required to be filed pursuant to a registration rights agreement is not filed on or before the date specified for its filing,



5.

a shelf registration statement otherwise required to be filed is not declared effective on or before the date specified in the relevant registration rights agreement, or



6.

the shelf registration statement is declared effective but subsequently, subject to certain limited exceptions, ceases to be effective at any time that we and the guarantors are obligated to maintain its effectiveness.

        After a registration default occurs, we will increase the interest rate on the old securities of the affected series (or in the case of a default under clause 4, 5 or 6 above, the interest rate on the old securities of the affected series to which the default relates) by 0.25% per year over the rate stated on the face of the securities for each 90-day period during which the registration default continues, up to a maximum increase of 1.00% over the original rate. We call this increase in the interest rate "additional interest." Because we were not able to file the exchange offer registration statement for the 8.00% old notes, 7.875% old notes and 8.625% old bonds by September 2, 2002 and consummate those exchange offers by October 2, 2002, the 8.00% old notes, 7.875% old notes and 8.625% old bonds earned additional interest at the rate of 0.25% per year during the period from September 3, 2002 until December 2, 2002, and since December 2, 2002, have been earning additional interest at the rate of 0.50% per year. Our obligation to pay additional interest will cease once we have cured the registration defaults, and the applicable interest rate will revert to the original rate.

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DESCRIPTION OF THE NEW SECURITIES

General

        This is a summary of the material terms of the new securities and the indenture dated July 31, 2000 among the Pemex Project Funding Master Trust, Petróleos Mexicanos and the trustee. Because this is a summary, it does not contain the complete terms of the new securities and the indenture, and may not contain all the information that you should consider before investing in the new securities. A copy of the indenture has been filed as an exhibit to the registration statement, which includes this prospectus. We urge you to closely examine and review the indenture itself. See "Where You Can Find More Information" for information on how to obtain a copy. You may also inspect a copy of the indenture at the corporate trust office of the trustee, which is currently located at:

Deutsche Bank Trust Company Americas
280 Park Avenue
9^th Floor
New York, NY 10017
Phone: (212) 454-4217
Fax: (212) 454-2223

and at the office of the Luxembourg paying and transfer agent and exchange agent in Luxembourg, which is located at:

Deutsche Bank Luxembourg S.A.
2 Boulevard Konrad Adenauer
L-1115 Luxembourg
Phone: (352) 42122-1
Fax: (352) 42122-449

        We will issue the new securities under the indenture. The form and terms of the new securities will be identical in all material respects to the form and terms of the old securities except that:

•

we will register the new securities under the Securities Act and therefore they will not bear legends restricting their transfer;



•

holders of the new securities will not receive some of the benefits of the registration rights agreements; and



•

we will not issue the new securities under our medium-term note program.

        The 8.00% new notes we are offering and the 8.00% old notes we previously sold will collectively be a single series for all purposes under the indenture, including waivers, amendments, redemption, offers to purchase and acceleration. Similarly, the 7.875% new notes we are offering and the 7.875% old notes we previously sold will collectively be a single series for all purposes under the indenture. The 8.625% new bonds we are offering and the 8.625% old bonds we previously sold will be a single series for all purposes under the indenture. The 7.375% new notes we are offering and the 7.375% old notes we previously sold also will be a single series for all purposes under the indenture.

        We will issue the 8.00% new notes only in fully registered form, without coupons and in denominations of U.S. $10,000 and integral multiples thereof. We will issue the 7.875% new notes, 8.625% new bonds and 7.375% new notes only in fully registered form, without coupons and in denominations of U.S. $10,000 and integral multiples of U.S. $1,000 in excess thereof. One or more registered securities in global form will represent the new securities, and in certain circumstances, new securities in definitive form may represent the new securities. See "Book Entry; Delivery and Form."

        The new securities will be issued in four series which will mature on November 15, 2011, in the case of the 8.00% new notes, February 1, 2009, in the case of the 7.875% new notes, February 1, 2022,

53

in the case of the 8.625% new bonds and December 15, 2014 in the case of the 7.375% new notes. The new securities of each series will bear interest at the relevant rate that is stated on the cover page of this prospectus. In addition, the 8.00% new notes, 7.875% new notes and 8.625% new bonds will bear additional interest during the period from the last day on which interest was paid until the date the exchange is completed. The additional interest on the 8.00% new notes will accrue from November 15, 2002 until December 2, 2002 at the rate of 0.25% per year, and from December 2, 2002 until the exchange offers are completed at the rate of 0.50% per year. The additional interest on the 7.875% new notes and 8.625% new bonds will accrue from February 1, 2003 until the exchange offers are completed at the rate of 0.50% per year. We will compute the amount of each interest payment on the basis of a 360-day year consisting of twelve 30-day months.

        We will pay interest on the following dates:

•

for the 8.00% new notes, May 15 and November 15 of each year, commencing on May 15, 2003,



•

for the 7.875% new notes, February 1 and August 1 of each year, commencing on August 1, 2003,



•

for the 8.625% new bonds, February 1 and August 1 of each year, commencing on August 1, 2003, and



•

for the 7.375% new notes, June 15 and December 15 of each year, commencing on June 15, 2003.

Principal and Interest Payments

        We will make payments of principal of and interest on the new securities represented by a global note by wire transfer of U.S. dollars to DTC or to its nominee as the registered owner of the new securities, which will receive the funds for distribution to the holders. We expect that the holders will be paid in accordance with the procedures of DTC and its participants. Neither we nor the trustee or any paying agent shall have any responsibility or liability for any of the records of, or payments made by, DTC or its nominee.

        If the new securities are represented by definitive securities, we will make interest and principal payments to you, as a holder, by wire transfer if:

•

you own at least $10,000,000 aggregate principal amount of new securities; and



•

not less than 15 days before the payment date, you notify the trustee of your election to receive payment by wire transfer and provide it with your bank account information and wire transfer instructions.

        OR

•

we are making the payments at maturity; and



•

you surrender the new securities at the corporate trust office of the trustee or at the offices of the other paying agents that we appoint pursuant to the indenture.

        If we do not pay interest by wire transfer for any reason, we will, subject to applicable laws and regulations, mail a check to you on or before the due date for the payment at your address as it appears on the register maintained by the trustee on the applicable record date.

        We will pay interest payable on the new securities, other than at maturity, to the registered holders at the close of business on the 15th day (whether or not a business day) (a "regular record date") before the due date for the payment. Should we not make punctual interest payments, such payments

54

will no longer be payable to the holders of the new securities on the regular record date. Under such circumstances, we may either:

•

pay interest to the persons in whose name the new securities are registered at the close of business on a special record date for the payment of defaulted interest. The trustee will fix the special record date and will provide notice of that date to the holders of the new securities not less than ten days before the special record date; or



•

pay interest in any other lawful manner not inconsistent with the requirements of any securities exchange on which the new securities are then listed.

        Interest payable at maturity will be payable to the person to whom principal of the new securities is payable.

        If any money that the issuer, the guarantor or a subsidiary guarantor pays to the trustee for principal or interest is not claimed at the end of two years after the payment was due and payable, the trustee will repay that amount to the issuer upon its written request. After that repayment, the trustee will not have any further liability with respect to the payment. However, the issuer's obligation to pay the principal of and interest on the new securities, and the obligations of the guarantor and the subsidiary guarantors on their respective guaranties and subsidiary guaranties with respect to that payment, will not be affected by that repayment. Unless otherwise provided by applicable law, your right to receive payment of principal of any new security (whether at maturity or otherwise) or interest will become void at the end of five years after the due date for that payment.

        If the due date for the payment of principal, interest or additional amounts with respect to any new security falls on a Saturday or Sunday or another day on which the banks in New York are authorized to be closed, then holders will have to wait until the next business day to receive payment. You will not be entitled to any extra interest or payment as a result of that delay.

Paying and Transfer Agents

        We will pay principal of the new securities, and holders of the new securities may present them for registration of transfer or exchange, at:

•

the corporate trust office of the trustee,



•

the office of the Luxembourg paying and transfer agent, or



•

the office of any other paying agent or transfer agent that we appoint.

        With certain limitations that are detailed in the indenture, we may, at any time, change or end the appointment of any paying agent or transfer agent with or without cause. We may also appoint another, or additional, paying agent or transfer agent, as well as approve any change in the specified offices through which those agents act. In any event, however:

•

at all times we must maintain a paying agent, transfer agent and registrar in New York, New York, and



•

if and for as long as the new securities are listed on the Luxembourg Stock Exchange, and if the rules of that stock exchange require, we must have a paying agent and a transfer agent in Luxembourg.

        We have initially appointed the trustee at its corporate trust office as principal paying agent, transfer agent, authenticating agent and registrar for all of the new securities. The trustee will keep a register in which we will provide for the registration of transfers of the new securities.

        We will give you notice of any of these terminations or appointments or changes in the offices of the agents in accordance with "—Notices" below.

55

Guaranties

        Guaranty.    Pursuant to the Indenture, Petróleos Mexicanos has unconditionally guaranteed the due and punctual payment of all amounts payable by the issuer in respect of the securities, as and when the same shall become due and payable, whether at maturity, by declaration of acceleration or otherwise.

        Subsidiary Guaranties.    In a guaranty agreement dated July 29, 1996, which we refer to as the subsidiary guaranty agreement, among Petróleos Mexicanos and the subsidiary guarantors, each of the subsidiary guarantors will be jointly and severally liable with Petróleos Mexicanos for all payment obligations of Petróleos Mexicanos under international financing agreements entered into by Petróleos Mexicanos. This liability extends only to those payment obligations that Petróleos Mexicanos designates as being entitled to the benefit of the subsidiary guaranty agreement in a certificate of designation.

        Petróleos Mexicanos has designated both the indenture and the new securities as benefiting from the guaranty agreement in certificates of designation, dated November 26, 2001 for the 8.00% notes, February 1, 2002 for the 7.875% notes and the 8.625% bonds and December 12, 2002 for the 7.375% notes. Accordingly, each of the subsidiary guarantors will be unconditionally liable for Petróleos Mexicanos' obligations under its guaranty of all amounts payable by the issuer in respect of the new securities as and when they become due and payable.

        Under the terms of the subsidiary guaranty agreement, each of the subsidiary guarantors will be jointly and severally liable for the full amount of each payment under the guaranty by the guarantor. Although the issuer, the guarantor and the subsidiary guarantors may terminate the guaranty agreement in the future, the guaranties of the subsidiary guarantors on all obligations designated before termination will remain in effect until all amounts payable with respect to such obligations have been paid in full. These designated amounts will include the entire principal of and interest on the new securities.

        Any amendment to the subsidiary guaranty agreement which would affect the rights of any party to, or beneficiary of, the indenture and the new securities will be valid only with the consent of the same parties, or percentage of holders, as is required to amend the indenture or the new securities.

Ranking of New Securities and Guaranties

        The new securities will be direct, unsecured and unsubordinated Public External Indebtedness of the issuer. All of the new securities will be equal in the right of payment with each other.

        The payment obligations of the Pemex Project Funding Master Trust under the new securities will rank equally with all of its other present and future unsecured and unsubordinated Public External Indebtedness for borrowed money. The guaranty of the new securities by Petróleos Mexicanos and the guaranties by the subsidiary guarantors of Petróleos Mexicanos' payment obligations under its guaranty will be direct, unsecured and unsubordinated Public External Indebtedness of the guarantor and the subsidiary guarantors and will rank equal in the right of payment with each other and with all other present and future unsecured and unsubordinated Public External Indebtedness for borrowed money of Petróleos Mexicanos and the subsidiary guarantors, respectively.

The new securities are not obligations of, or guaranteed by, Mexico.

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Additional Amounts

        When the issuer, the guarantor or the subsidiary guarantors make a payment on the new securities or its respective guaranty, we may be required to deduct or withhold present or future taxes, assessments or other governmental charges imposed by Mexico or a political subdivision or taxing authority of or in Mexico (we call these Mexican withholding taxes). If this happens, the issuer, the guarantor or the subsidiary guarantors will pay the holders of the new securities additional amounts as may be necessary to insure that every net payment made by the issuer, the guarantor or the subsidiary guarantors, after deduction or withholding for Mexican withholding taxes, will not be less than the amount actually due and payable on the new securities. However, this obligation to pay additional amounts will not apply to:

1.

any Mexican withholding taxes which would not have been imposed on a holder of new securities were there not some past or present connection between the holder and Mexico or any of its political subdivisions, territories, possessions or areas subject to its jurisdiction, including, but not limited to, that holder:



•

being or having been a citizen or resident of Mexico,



•

maintaining or having maintained an office, permanent establishment, fixed base or a branch in Mexico,



•

being or having been present or engaged in trade or business in Mexico, except for a connection arising solely from the ownership of, or the receipt of payment under, the new securities; or




2.

any estate, inheritance, gift, sales, transfer, personal property or similar tax, assessment or other governmental charge;



3.

any Mexican withholding taxes that are imposed because the holder failed to comply with any certification, identification, information, documentation, declaration or other reporting requirement that is imposed or required by a statute, treaty, regulation, general rule or administrative practice as a precondition to exemption from, or reduction in the rate of, the imposition, withholding or deduction of any Mexican withholding taxes, but only if we have given written notice to the trustee with respect to these reporting requirements at least 60 days before:



•

the first payment date to which this paragraph (3) applies; and



•

in the event the requirements change, the first payment date after a change in the reporting requirements to which this paragraph (3) applies;




4.

any Mexican withholding taxes imposed at a rate greater than 4.9%, if a holder has failed to provide, on a timely basis at our reasonable request, any information or documentation (not included in paragraph (3) above) concerning the holder's eligibility, if any, for benefits under an income tax treaty that Mexico is a party to that is necessary to determine the appropriate deduction or withholding rate of Mexican withholding taxes under that treaty;



5.

any Mexican withholding taxes that would not have been imposed if the holder had presented its new security for payment within 15 days after the date when the payment became due and payable or the date payment was provided for, whichever is later; or



6.

any payment to a holder who is a fiduciary, partnership or someone other than the sole beneficial owner of the payment, to the extent that the beneficiary or settlor with respect to the fiduciary, a member of the partnership or the beneficial owner of the payment would not have been entitled to the payment of the additional amounts had the beneficiary, settlor, member or beneficial owner actually been the holder of the new security.

57

        All references in this prospectus to principal of and interest on new securities, unless the context otherwise requires, mean and include all additional amounts, if any, payable on the new securities.

        Paragraphs (3) and (4) above will not apply if the reporting requirements described in those paragraphs would be materially more onerous, in form, procedure or the substance of the information disclosed, to the holder or beneficial owner of the new securities, than comparable information or other applicable reporting requirements under United States federal income tax law (including the United States-Mexico income tax treaty), enacted or proposed regulations and administrative practice. When looking at the comparable burdens, we will take into account the relevant differences between United States and Mexican law, regulations and administrative practice.

        In addition, paragraphs (3) and (4) will not apply if Rule 3.25.15, published in the Official Gazette of the Federation on May 30, 2002, or a substantially similar future rule, is in effect, unless:

•

the reporting requirements in paragraphs (3) and (4) are expressly required by statute, regulation, general rules or administrative practice in order to apply Rule 3.25.15 or a substantially similar future rule, and we cannot get the necessary information or satisfy any other reporting requirements on our own through reasonable diligence and we would otherwise meet the requirements to apply Rule 3.25.15 or a substantially similar future rule; or



•

in the case of a holder or beneficial owner that is a pension fund or other tax exempt organization, if that entity would be subject to a lesser Mexican withholding tax than provided in Rule 3.25.15 if the information required in paragraph (4) were furnished.

        We will not interpret paragraph (3) or (4) above to require a holder or beneficial owner of the new securities to register with the Ministry of Finance and Public Credit for the purpose of establishing eligibility for an exemption from or reduction of Mexican withholding taxes.

        Upon written request, we will provide the trustee, the holders and the paying agent with a certified or authenticated copy of an original receipt of the payment of Mexican withholding taxes which the issuer, the guarantor or a subsidiary guarantor has withheld or deducted from any payments made under or with respect to the new securities or the guaranty of the new securities.

        If we pay additional amounts with respect to the new securities that are based on rates of deduction or withholding of Mexican withholding taxes that are higher than the applicable rate, and the holder is entitled to make a claim for a refund or credit of this excess, then by accepting the new security, the holder shall be deemed to have assigned and transferred all right, title and interest to any claim for a refund or credit of this excess to the issuer, the guarantor or the applicable subsidiary guarantor, as the case may be. However, by making this assignment, you do not promise that we will be entitled to that refund or credit and you will not incur any other obligation with respect to that claim.

Tax Redemption

        The issuer has the option to redeem either (or both) series of the new securities in whole, but not in part, at par at any time, together with, if applicable, interest accrued to, but excluding, the date fixed for redemption, if:

1.

the issuer or the guarantor certifies to the trustee immediately prior to giving the notice that it has or will become obligated to pay greater additional amounts than we would have been obligated to pay if payments (including payments of interest) on the new securities or payments under the guaranties with respect to interest on the new securities were subject to withholding tax at a rate of 10%, because of a change in, or amendment to, or lapse of, the laws, regulations or rulings of Mexico or any of its political subdivisions or taxing authorities affecting taxation, or any change in, or amendment to, an official interpretation or application

58

of laws, regulations or rulings, that becomes effective on or after the date of issuance of such securities; and

2.

before publishing any notice of redemption, the issuer shall deliver to the trustee a certificate signed by the issuer or the guarantor stating that the issuer or the guarantor cannot avoid the obligation referred to in paragraph (1) above, despite taking reasonable measures available to it. The trustee is entitled to accept this certificate as sufficient evidence of the satisfaction of the requirements of paragraph (1) above.

        We can exercise our redemption option by giving the holders of the new securities irrevocable notice not less than 30 but not more than 60 days before the date of redemption. Once accepted, a notice of redemption will be conclusive and binding on the holders of the new securities. We may not give a notice of redemption earlier than 90 days before the earliest date on which we would have been obligated to pay additional amounts as described in paragraph (1) above, and at the time we give that notice, our obligation to pay additional amounts must still be in effect.

Assumption of Issuer's Obligations by the Guarantor

        Petróleos Mexicanos may at any time directly assume the payment and performance obligations of the issuer under any of the series of the securities and the issuer's obligations under the indenture with respect to the same series of securities without the consent of the holders, but only if, after giving effect to this assumption, no event of default under the relevant securities has occurred and is continuing. Upon the assumption, the guarantor will execute a supplemental indenture evidencing this assumption and the issuer will be released from its obligations with respect to the securities.

Negative Pledge

        Petróleos Mexicanos will not create or permit to exist, and will not allow the issuer, Petróleos Mexicanos' subsidiaries or the subsidiary guarantors or any of their respective subsidiaries to create or permit to exist, any Security Interest in their crude oil or receivables in respect of crude oil to secure:

•

any of its or their Public External Indebtedness,



•

any of its or their guarantees of Public External Indebtedness, or



•

any Public External Indebtedness or guarantees of any other person,

Unless at the same time or before creating such Security Interest the securities are secured equally and ratably by the same Security Interest or are given another Security Interest approved by the holders of at least 66²/3% in aggregate principal amount of the securities of each series.

        However, the issuer, the guarantor, the subsidiary guarantors and their respective subsidiaries may create Security Interests in their crude oil and crude oil receivables if:

1.

on the date the Security Interest is created, the total of:



•

the amount of principal and interest payments secured by Oil Receivables due during that calendar year under Receivable Financings entered into on or before that date; plus



•

the total revenues in that calendar year from the sale of crude oil or natural gas transferred, sold, assigned or disposed of in Forward Sales that are not Government Forward Sales entered into on or before that date; and



•

the total amount of payments of the purchase price of crude oil, natural gas or Petroleum Products foregone in that calendar year as a result of all Advance Payment Arrangements entered into on or before that date;

59

is not greater than $4,000,000,000 (or the equivalent in other currencies) minus the amount of Government Forward Sales in that calendar year;

2.

the total outstanding amount at any one time of all Receivables Financings, Forward Sales (other than Government Forward Sales) and Advance Payment Arrangements is not greater than $12,000,000,000 (or its equivalent in other currencies); and



3.

the guarantor furnishes a certificate to the trustee that certifies that, on the date of the creation of the Security Interest there is no default under any of the financing documents that are identified in the indenture resulting from a failure to pay principal or interest.

        For a more detailed description of paragraph (3) above, you may look to the indenture.

The negative pledge does not restrict the issuer, the guarantor, the subsidiary guarantors or any of their respective subsidiaries from creating Security Interests over any of their assets, other than their crude oil and receivables in respect of crude oil. Under Mexican law, all domestic reserves of crude oil belong to Mexico and not to PEMEX, but the guarantor and the subsidiary guarantors have been established with the exclusive purpose of exploiting the Mexican petroleum and gas reserves, including the production of oil and gas, oil products and basic petrochemicals.

In addition, the negative pledge does not restrict the issuer, the guarantor, the subsidiary guarantors or their respective subsidiaries from creating Security Interests to secure any of their obligations that are payable in pesos. Nor does it restrict any of them from creating Security Interests to secure any type of obligation (e.g., commercial bank borrowings) regardless of the currency, other than obligations similar to the new securities (e.g., issuances of debt securities).

Events of Default; Waiver and Notice

        If an Event of Default with respect to any series of securities occurs and is not remedied, then the trustee, if requested by the holders of at least 20% in principal amount of the outstanding securities of that series, will give notice to the issuer that the securities of that series are immediately due and payable at their principal amount, together with accrued interest. Each of the following is an Event of Default with respect to a series of securities:

1.

Non-Payment: any payment of principal of any of the securities of that series is not made when due and the default continues for seven days after the due date, or any payment of interest on the securities of that series is not made when due and the default continues for fourteen days after the due date;



2.

Breach of Other Obligations: the issuer or the guarantor fails to perform, observe or comply with any of its other obligations under the securities of that series, which cannot be remedied, or if it can be remedied, is not remedied within 30 days after the issuer, the guarantor and the subsidiary guarantors receive notice of the default from the trustee;



3.

Cross-Default: the issuer, the guarantor, the subsidiary guarantors or any of their respective Material Subsidiaries defaults in the payment of principal of or interest on any of their Public External Indebtedness or on any Public External Indebtedness guaranteed by them in an aggregate principal amount exceeding U.S. $40,000,000 or its equivalent in other currencies, and such default continues past any applicable grace period;



4.

Enforcement Proceedings: any execution or other legal process is enforced or levied on or against any substantial part of the property, assets or revenues of the issuer, the guarantor, the subsidiary guarantors or any of their respective Material Subsidiaries, and that execution or other process is not discharged or stayed within 60 days;

60

5.

Security Enforced: an encumbrancer takes possession of, or a receiver, manager or other similar officer is appointed for, all or any substantial part of the property, assets or revenues of the issuer, the guarantor, the subsidiary guarantors or any of their respective Material Subsidiaries;



6.

The issuer, the guarantor, the subsidiary guarantors or any of their respective Material Subsidiaries:



•

becomes insolvent;



•

is generally not able to pay its debts as they mature;



•

applies for, or consents to or permits the appointment of, an administrator, liquidator, receiver or similar officer of it or of all or any substantial part of its property, assets or revenues;



•

institutes any proceeding under any law for a readjustment or deferment of all or a part of its obligations for bankruptcy, reorganization, dissolution or liquidation;



•

enters into a general assignment, arrangement or composition with, or for the benefit of, its creditors; or



•

stops or threatens to cease carrying on its business or any substantial part of its business;




7.

Winding Up: an order is entered for, or the issuer, the guarantor, the subsidiary guarantors or any of their respective Material Subsidiaries passes an effective resolution for winding up, any such entity;



8.

Moratorium: a general moratorium is agreed or declared with respect to any of the External Indebtedness of the issuer, the guarantor, the subsidiary guarantors or any of their respective Material Subsidiaries;



9.

Authorizations and Consents: the issuer, the guarantor, or any of the subsidiary guarantors does not take, fulfill or obtain, within 30 days of its being so required, any action, condition or thing (including obtaining or effecting of any necessary consent, approval, authorization, exemption, filing, license, order, recording or registration) that is required in order:



•

to enable the issuer lawfully to enter into, exercise its rights and perform and comply with its obligations under the new securities and the indenture,



•

to enable the guarantor lawfully to enter into, exercise its rights and perform and comply with its obligations under the indenture or the subsidiary guaranty agreement with respect to the new securities and its guaranties of the new securities,



•

to enable any of the subsidiary guarantors lawfully to enter into, perform and comply with its obligations under the subsidiary guaranty agreement relating to the new securities, the related guaranties or the indenture, and



•

to ensure that the obligations of the issuer, the guarantor and the subsidiary guarantors under the new securities, the indenture and the guaranty agreement are legally binding and enforceable;




10.

Illegality: it is or becomes unlawful for:



•

the issuer to perform or comply with one or more of its obligations under the new securities or the indenture,



•

the guarantor to perform or comply with any of its obligations under the indenture or the subsidiary guaranty agreement relating to the new securities or the indenture; or

61

•

any of the subsidiary guarantors to perform or comply with any of its obligations under the subsidiary guaranty agreement relating to the new securities or the indenture;




11.

Control, dissolution, etc.: the guarantor ceases to be a decentralized public entity of the Mexican Government or the Mexican Government otherwise ceases to control the guarantor or any subsidiary guarantor; or the issuer, the guarantor or any of the subsidiary guarantors is dissolved, disestablished or suspends its operations, and that dissolution, disestablishment, or suspension is material in relation to the business of the issuer, the guarantor and the subsidiary guarantors taken as a whole; or the guarantor and the subsidiary guarantors cease to be the entities that have the exclusive right and authority to conduct on behalf of Mexico the activities of exploration, exploitation, refining, transportation, storage, distribution and first-hand sale of crude oil and exploration, exploitation, production and first-hand sale of natural gas, as well as the transportation and storage linked with that exploitation and production; or the issuer ceases to be controlled by the guarantor;



12.

Disposals:

(A)

the guarantor ceases to carry on all or a substantial part of its business, or sells, transfers or otherwise voluntarily or involuntarily disposes of all or substantially all of its assets, either by one transaction or a series of related or unrelated transactions, other than:



•

solely in connection with the implementation of the Organic Law of PEMEX, or



•

to a subsidiary guarantor;




(B)

any subsidiary guarantor ceases to carry on all or a substantial part of its business, or sells, transfers or otherwise voluntarily or involuntarily disposes of all or substantially all of its assets, either by one transaction or a series of related or unrelated transactions, and that cessation, sale, transfer or other disposal is material in relation to the business of the guarantor and the subsidiary guarantors taken as a whole;




13.

Analogous Events: any event occurs which under the laws of Mexico has an analogous effect to any of the events referred to in paragraphs (4) to (7) above; or



14.

Guaranties: the guaranty of the new securities by the guarantor or the subsidiary guaranty agreement is not in full force and effect or the guarantor or any of the subsidiary guarantors claims that it is not in full force and effect.

        If any Event of Default results in the acceleration of the maturity of the securities of any series, the holders of a majority in aggregate principal amount of the outstanding securities of that series may rescind and annul that acceleration at any time before the trustee obtains a judgment for the payment of the money due based on that acceleration. Prior to the rescission and annulment, however, all Events of Default, other than nonpayment of the principal of the securities of that series which became due only because of the declaration of acceleration, must have been cured or waived as provided for in the indenture.

        Under the indenture, the holders of the securities must agree to indemnify the trustee before the trustee is required to exercise any right or power under the indenture at the request of the holders. The trustee is entitled to this indemnification, provided that its actions are taken with the requisite standard of care during an Event of Default. The holders of a majority in principal amount of the securities of a series may direct the time, method and place of conducting any proceedings for remedies available to the trustee or exercising any trust or power given to the trustee. However, the trustee may refuse to follow any direction that conflicts with any law and the trustee may take other actions that are not inconsistent with the holders' direction.

62

        No holder of any security may institute any proceeding with respect to the indenture or any remedy under the indenture, unless:

1.

that holder has previously given written notice to the trustee of a continuing Event of Default;

2.

the holders of at least 20% in aggregate principal amount of the securities of that series have made a written request to the trustee to institute proceedings relating to the Event of Default;

3.

those holders have offered to the trustee reasonable indemnity against any costs, expenses or liabilities it might incur;

4.

the trustee has failed to institute the proceeding within 60 days after receiving the written notice; and

5.

during the 60-day period in which the trustee has failed to take action, the holders of a majority in principal amount of the securities of that series have not given any direction to the trustee which is inconsistent with the written request.

These limitations do not apply to a holder who institutes a suit for the enforcement of the payment of principal of or interest on a security on or after the due date for that payment.

        The holders of a majority in principal amount of the securities of any series may, on behalf of the holders of all securities, waive any past default and any Event of Default that arises, except a default in the payment of the principal of or interest on the securities that has not been cured, or a default in respect of a covenant or provision in the indenture that cannot be modified or amended without the consent of each affected holder of the securities.

        Petróleos Mexicanos is required to furnish annually to the trustee a statement regarding the performance of the issuer's and the guarantor's obligations under the indenture and any default in that performance.

Purchase of New Securities

        The issuer, the guarantor or any of the subsidiary guarantors may at any time purchase new securities at any price in the open market, in privately negotiated transactions or otherwise. The issuer, the guarantor, or any subsidiary guarantor may hold, resell or surrender to the trustee for cancellation any new securities purchased by it.

Modification and Amendment

        The issuer and the trustee may modify, amend or supplement the terms of the securities of any series or the indenture in any way, and the holders of a majority in aggregate principal amount of the securities of any series may make, take or give any request, demand, authorization, direction, notice, consent, waiver or other action that the indenture or the securities allow a holder to make, take or give, when authorized:

•

at a meeting of holders that is properly called and held by the affirmative vote, in person or by proxy (authorized in writing), of the holders of a majority in aggregate principal amount of the outstanding securities of that series represented at the meeting; or

•

with the written consent of the holders of the majority (or of such other percentage as stated in the text of the securities with respect to the action being taken) in aggregate principal amount of the outstanding securities.

        However, without the consent of the holder of each affected security, no action may:

1.

change the due date for any payment of principal of or interest on that security;

2.

reduce the principal amount of that new security, the portion of the principal amount that is payable upon acceleration of the maturity of that security or the interest rate on the new security;

63

3.

change U.S. dollars as the currency in which, or change the required places at which, payment with respect to principal of or interest on that security is payable;

4.

permit the issuer to redeem that security prior to maturity, except as permitted under "—Tax Redemption" above;

5.

modify the guarantor's guaranty of the new securities or the subsidiary guaranty agreement in any manner adverse to the holder of any security;

6.

reduce the percentage of the principal amount of the securities, the vote or consent of the holders of which is necessary to modify, amend or supplement the indenture or the securities, or for waiver of compliance with certain provisions thereof or for waiver of certain defaults, except to increase any related percentage or to provide that certain other provisions of the indenture cannot be modified or waived without the consent of the holder of each outstanding security affected by such action; or

7.

change the obligation of the issuer, the guarantor or any subsidiary guarantor to pay additional amounts in respect of Mexican withholding taxes.

        The issuer and the trustee may, without the vote or consent of any holder of the securities of a series, modify or amend the indenture or the securities of that series for the purpose of:

1.

adding to the covenants of indenture or the securities for the benefit of the holders of the securities;

2.

surrendering any right or power conferred upon the issuer or the guarantor;

3.

securing the securities as required in the securities or otherwise;

4.

curing any ambiguity or curing, correcting or supplementing any defective provision of the indenture or the securities;

5.

reflecting the succession of another corporation to Petróleos Mexicanos or the issuer and the successor corporation's assumption of the covenants and obligations of Petróleos Mexicanos or the issuer, as the case may be, under the new securities and the indenture;

6.

amending the indenture or the new securities in any manner which the issuer and the trustee may determine and that will not adversely affect the rights of any holder of new securities in any material respect; or

7.

modifying, eliminating or adding to the provisions of the indenture to the extent necessary to qualify the indenture under the Trust Indenture Act or under any similar U.S. federal statute enacted in the future or adding to the indenture any additional provisions that are expressly permitted by the Trust Indenture Act.

        The consent of the holders is not necessary under the indenture to approve the particular form of any proposed amendment. It is sufficient if the consent approves the substance of the proposed amendment. After an amendment under the indenture becomes effective, we will mail to the holders a notice briefly describing the amendment. However, the failure to give this notice to all the holders, or any defect in the notice, will not impair or affect the validity of the amendment.

No Personal Liability of Directors, Officers, Employees and Stockholders

        No director, officer, employee or stockholder of the issuer, the guarantor or any of the subsidiary guarantors, as such, will have any liability for any obligations of the issuer, the guarantor or any of the subsidiary guarantors under the new securities, the indenture, the guaranty agreement or the subsidiary guaranty agreement or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each holder by accepting its new securities waives and releases all such liability. The waiver and release are part of the consideration for issuance of the new securities. This waiver may not be

64

effective to waive liabilities under the federal securities laws and it is the view of the SEC that such a waiver is against public policy.

Governing Law, Jurisdiction and Waiver of Immunity

        The new securities and the indenture will be governed by, and construed in accordance with, the laws of the State of New York, except that authorization and execution of the new securities and the indenture by the guarantor will be governed by the laws of Mexico. The payment obligations of the guarantors under the guaranty agreement and the payment obligations of the subsidiary guarantors under the subsidiary guarantee agreement will be governed by and construed in accordance with the laws of the State of New York.

        The guarantor and the subsidiary guarantors have appointed the Consul General of Mexico in New York as their authorized agent for service of process in any action based on the new securities that a holder may institute in any state or federal court in the Borough of Manhattan, The City of New York. The issuer, the guarantors, each subsidiary guarantor and the trustee have submitted to the jurisdiction of these courts and have waived any objection which they may have to the venue of these courts. In addition, the guarantor and each of the subsidiary guarantors have waived any rights to which they may be entitled on account of place of residence or domicile.

        The guarantor and each of the subsidiary guarantors reserve the right to plead sovereign immunity under the Immunities Act in actions brought against them under U.S. federal securities laws or any state securities laws. The guarantor's and each of the subsidiary guarantors' appointment of the Consul General as their agent for service of process does not include service of process for these types of actions. Without the guarantor's and the each of the subsidiary guarantors' waiver of immunity regarding these actions, you will not be able to obtain a judgment in a U.S. court against any of them unless such a court determines that the guarantor or a subsidiary guarantor is not entitled to sovereign immunity under the Immunities Act. However, even if you obtain a U.S. judgment under the Immunities Act, you may not be able to enforce this judgment in Mexico. In addition, you may not be able to execute on the guarantor's or any of the subsidiary guarantors' property in the United States to enforce a judgment except under the limited circumstances specified in the Immunities Act.

        Mexican law, including Article 27 of the Political Constitution of the United Mexican States, Articles 2, 16 and 60 of the General Law on National Patrimony (and other related articles), Articles 1, 2, 3, 4 (and related articles) of the Regulatory Law, Articles 15, 16 and 19 of the Regulations to the Regulatory Law, Articles 1, 2, 3, 4 (and other related articles) of the Organic Law and Article 4 of the Federal Code of Civil Procedure of Mexico provide, among other things, that

1.

attachment prior to judgment, attachment in aid of execution and execution of a final judgment may not be ordered by Mexican courts against property of the guarantor or any subsidiary guarantor;

2.

all domestic petroleum and hydrocarbon resources (whether in solid, liquid, gas or intermediate form) are permanently and inalienably vested in Mexico (and, to that extent, subject to immunity);

3.

the rights to:

•

the exploration, exploitation, refining, transportation, storage, distribution and first-hand sale of crude oil;

•

the exploration, exploitation, production and first-hand sale of gas, as well as the transportation and storage inextricably linked with such exploitation and production; and

•

the production, storage, transportation, distribution and first-hand sale of the derivatives of petroleum (including petroleum products) and of gas used as basic industrial raw materials and considered basic petrochemicals (the "Petroleum Industry");

65

        are reserved exclusively to Mexico and, to that extent, the related assets are entitled to immunity; and

4.

the public entities created and appointed by the Federal Congress of Mexico to conduct, control, develop and operate the Petroleum Industry of Mexico are the guarantor and the subsidiary guarantors which are, therefore, entitled to immunity with respect to these exclusive rights and powers.

As a result, regardless of the guarantor's and the subsidiary guarantors' waiver of immunity, a Mexican court may not enforce a judgment against the guarantor or any of the subsidiary guarantors by ordering the attachment of its assets in aid of execution.

Meetings

        The indenture has provisions for calling a meeting of the holders of the securities. Under the indenture, the trustee may call a meeting at any time. The issuer or the guarantor also may request a meeting by sending a written request to the trustee detailing the proposed action to be taken at the meeting. In addition, the holders of at least 10% of the principal amount of the outstanding securities of a series may call for a meeting in accordance with the procedures described in the indenture while an Event of Default is continuing.

        At any meeting, a quorum exists if the holders of the aggregate principal amount of a series of securities the vote of which is required to take action on the business for which the meeting was called are present.

        Any holders' meeting that has properly been called and that has a quorum can be adjourned from time to time by those who are entitled to vote a majority in principal amount of the securities of the series that are represented at the meeting. The adjourned meeting may be held without further notice.

        Any resolution passed, or decision made, at a holders' meeting that has been properly held in accordance with the indenture is binding on all holders of the securities.

Notices

        All notices will be given to the holders of the new securities by mail to their addresses as they are listed in the trustee's register. In addition, for so long as the new securities are listed on the Luxembourg Stock Exchange and the rules of the exchange require, all notices will be published in a daily newspaper of general circulation in Luxembourg (expected to be the Luxemburger Wort). If publication is not practicable, notice will be considered to be validly given if made in accordance with the rules of the Luxembourg Stock Exchange.

Certain Definitions

        "Advance Payment Arrangement" means any transaction in which the issuer, the guarantor, the subsidiary guarantors or any of their subsidiaries receives a payment of the purchase price of crude oil or gas or Petroleum Products that is not yet earned by performance.

"External Indebtedness" means Indebtedness which is payable, or at the option of its holder may be paid, (1) in a currency or by reference to a currency other than the currency of Mexico, (2) to a person resident or having its head office or its principal place of business outside Mexico and (3) outside the territory of Mexico.

        "Forward Sale" means any transaction that involves the transfer, sale, assignment or other disposition by the issuer, the guarantor, the subsidiary guarantors or any of their subsidiaries of any right to payment under a contract for the sale of crude oil or gas that is not yet earned by performance, or any interest in such a contract, whether in the form of an account receivable, negotiable instrument or otherwise.

66

        "Government Forward Sale" means a Forward Sale to:

•

Mexico or Banco de México,

•

the Bank for International Settlements, or

•

any other multilateral monetary authority or central bank or treasury of a sovereign state.

        "Guarantee" means any obligation of a person to pay the Indebtedness of another person, including, without limitation:

1.

an obligation to pay or purchase that Indebtedness;

2.

an obligation to lend money or to purchase or subscribe for shares or other securities, or to purchase assets or services in order to provide money to pay the Indebtedness; or

3.

any other agreement to be responsible for the Indebtedness.

"Indebtedness" means any obligation (whether present or future, actual or contingent) for the payment or repayment of money which has been borrowed or raised (including money raised by acceptances and leasing).

        "Material Subsidiaries" means, at any time, (1) each of the subsidiary guarantors and (2) any subsidiary of the guarantor or any of the subsidiary guarantors having, as of the end of the most recent fiscal quarter of the guarantor, total assets greater than 12% of the total assets of the guarantor, the subsidiary guarantors and their respective Subsidiaries on a consolidated basis. As of the date of this prospectus, there were no Material Subsidiaries other than the subsidiary guarantors.

        "Oil Receivables" means amounts payable to the issuer, the guarantor, the subsidiary guarantors or any of their respective subsidiaries for the sale, lease or other provision of crude oil or gas, whether or not they are already earned by performance.

        "Person" means any individual, company, corporation, firm, partnership, joint venture, association, organization, state or agency of a state, or other entity, whether or not having a separate legal personality.

"Petroleum Products" means the derivatives and by-products of crude oil and gas (including basic petrochemicals).

"Public External Indebtedness" means any External Indebtedness which is in the form of, or represented by, notes, bonds or other securities which are at that time being quoted, listed or traded on any stock exchange.

"Receivables Financings" means any transaction resulting in the creation of a Security Interest on Oil Receivables to secure new External Indebtedness incurred by, or the proceeds of which are paid to or for the benefit of, the issuer, the guarantor, the subsidiary guarantor or any of their respective Subsidiaries.

"Security Interest" means any mortgage, pledge, lien, hypothecation, security interest or other charge or encumbrance, including without limitation any equivalent thereof created or arising under the laws of Mexico.

        "Subsidiary" means, in relation to any person, any other person which is controlled directly or indirectly, or which has more than 50% of its issued capital stock (or equivalent) held or beneficially owned by, the first person or any one or more of the first person's subsidiaries. In this case, "control" means the power to appoint the majority of the members of the governing body or management of, or otherwise to control the affairs and policies of, that person.

67

BOOK ENTRY; DELIVERY AND FORM

Form

        One or more permanent global notes (in the case of the 8.00% new notes, the 7.875% new notes and the 7.375% new notes), or global bonds (in the case of the 8.625% new bonds), in fully registered form without coupons, will represent the new securities. We refer to the global notes and global bonds collectively as the "global securities." We will deposit each global security with the trustee at its corporate trust office as custodian for DTC. We will register each global security in the name of Cede & Co., as nominee of DTC, for credit to the respective accounts at DTC, Euroclear and Clearstream, Luxembourg of the holders of old securities participating in the exchange offers or to whichever accounts they direct.

        Except in the limited circumstances described below under "—Certificated Securities", owners of beneficial interests in a global security will not receive physical delivery of new securities in registered, certificated form. We will not issue the new securities in bearer form.

        When we refer to a new security in this prospectus, we mean any certificated security and any global security. Under the indenture, only persons who are registered on the books of the trustee as the owners of a new security are considered the holders of the new security. Cede & Co., or its successor, as nominee of DTC, is considered the only holder of a new security represented by a global security. The issuer, the guarantor, the subsidiary guarantors and the trustee and any of our respective agents may treat the registered holder of a new security as the absolute owner, for all purposes, of that new security whether or not it is overdue.

Global Securities

        The statements below include summaries of certain rules and operating procedures of DTC, Euroclear and Clearstream, Luxembourg that affect transfers of interests in the global securities.

        Except as set forth below, a global security may be transferred, in whole or part, only to DTC, another nominee of DTC or a successor of DTC or that nominee.

        Financial institutions will act on behalf of beneficial owners as direct and indirect participants in DTC. Beneficial interests in a global security will be represented, and transfers of those beneficial interests will be effected, through the accounts of those financial institutions. The interests in the global security may be held and traded in denominations of U.S. $10,000 and integral multiples of U.S. $10,000 (in the case of the 8.00% new notes) and in denominations of U.S. $10,000 and integral multiples of U.S. $1,000 in excess of that amount (in the case of the 7.875% new notes, the 8.625% new bonds and the 7.375% new notes). If investors participate in the DTC, Euroclear or Clearstream, Luxembourg systems, they may hold interests directly in DTC, Euroclear or Clearstream, Luxembourg. If they do not participate in any of those systems, they may indirectly hold interests through an organization that does participate.

        At their respective depositaries, both Euroclear and Clearstream, Luxembourg have customers' securities accounts in their names through which they hold securities on behalf of their participants. In turn, their respective depositaries have, in their names, customers' securities accounts at DTC through which they hold Euroclear's and Clearstream, Luxembourg's respective securities.

        DTC has advised us that it is:

•

a limited-purpose trust company organized under New York State laws;



•

a member of the Federal Reserve System;

68

•

a "clearing corporation" within the meaning of the New York Uniform Commercial Code; and



•

a "clearing agency" registered as required by Section 17A of the Exchange Act.

        DTC's participants include:

•

securities brokers and dealers;



•

banks (including the trustee);



•

trust companies;



•

clearing corporations; and



•

certain other organizations.

        Some of DTC's participants or their representatives own DTC. These participants created DTC to hold their securities and to use electronic book-entry changes to facilitate clearing and settling securities transactions in the participants' accounts so as to eliminate the need for the physical movement of certificates.

        Access to DTC's book-entry system is also available to others that clear through or maintain a direct or indirect custodial relationship with a participant. Persons who are not participants may beneficially own securities held by DTC only through participants.

        When we issue the global securities, DTC will use its book-entry registration and transfer system to credit the respective principal amounts of the new securities represented by the global securities to the accounts of the participants designated by the holders of the old securities participating in the exchange offers.

        Any person owning a beneficial interest in any of the global securities must rely on the procedures of DTC and, to the extent relevant, Euroclear or Clearstream, Luxembourg. If that person is not a participant, that person must rely on the procedures of the participant through which that person owns its interest to exercise any rights of a holder. Owners of beneficial interests in the global securities, however, will not:

•

be entitled to have new securities that represent those global notes registered in their names, receive or be entitled to receive physical delivery of the new securities in certificate form; or



•

be considered the holders under the indenture or the new securities.

        We understand that it is existing industry practice that if an owner of a beneficial interest in a global security wants to take any action that Cede & Co., as the holder of the global security, is entitled to take, Cede & Co. would authorize the participants to take the desired action, and the participants would authorize the beneficial owners to take the desired action or would otherwise act upon the instructions of the beneficial owners who own through them.

        DTC may grant proxies or otherwise authorize DTC participants (or persons holding beneficial interests in the new securities through DTC participants) to exercise any rights of a holder or to take any other actions which a holder is entitled to take under the indenture or the new securities. Under its usual procedures, DTC would mail an omnibus proxy to us assigning Cede & Co.'s consenting or voting rights to the DTC participants to whose accounts the new securities are credited.

        Euroclear or Clearstream, Luxembourg will take any action a holder may take under the indenture or the new securities on behalf of its participants, but only in accordance with their relevant rules and procedures, and subject to their depositaries' ability to effect any actions on their behalf through DTC.

69

        We will allow owners of beneficial interests in the global securities to attend holders' meetings and to exercise their voting rights in respect of the principal amount of new securities that they beneficially own, if they:

1.

obtain a certificate from DTC, a DTC participant, a Euroclear participant or a Clearstream, Luxembourg participant stating the principal amount of new securities beneficially owned by such person; and



2.

deposit that certificate with us at least three business days before the date on which the relevant meeting of holders is to be held.

Certificated Securities

        If DTC or any successor depositary is at any time unwilling or unable to continue as a depositary for a global security, or if it ceases to be a "clearing agency" registered under the Securities Exchange Act, and we do not appoint a successor depositary within 90 days after we receive notice from the depositary to that effect, then we will issue or cause to be issued, authenticate and deliver certificated securities, in registered form, in exchange for the global securities. In addition, we may determine that any global security will be exchanged for certificated securities. In that case, we will mail the certificated securities to the addresses that are specified by the registered holder of the global securities. If the registered holder so specifies, the certificated securities may be available for pick-up at the office of the trustee or any transfer agent (including the Luxembourg transfer agent), in each case not later than 30 days following the date of surrender of the relevant global security, endorsed by the registered holder, to the Trustee or any transfer agent.

        A holder of certificated securities may transfer those certificated securities or exchange them for certificated securities of any other authorized denomination by returning them to the office or agency that we maintain for that purpose in the Borough of Manhattan, The City of New York, which initially will be the office of the trustee, or at the office of any transfer agent. No service charge will be imposed for any registration of transfer of new securities, but we may require the holder of a new security to pay a fee to cover any related tax or other governmental charge.

        Neither the registrar nor any transfer agent will be required to register the transfer or exchange of any certificated securities for a period of 15 days before any interest payment date, or to register the transfer or exchange of any certificated securities that have been called for redemption.

        If any certificated security is mutilated, defaced, destroyed, lost or stolen, we will execute and we will request that the trustee authenticate and deliver a new certificated security. The new certificated security will be of like tenor (including the same date of issuance) and equal principal amount, registered in the same manner, dated the date of its authentication and bearing interest from the date to which interest has been paid on the original certificated security, in exchange and substitution for the original certificated security (upon its surrender and cancellation) or in lieu of and substitution for the certificated security. If a certificated security is destroyed, lost or stolen, the applicant for a substitute certificated security must furnish us and the trustee with whatever security or indemnity we may require to hold each of us harmless. In every case of destruction, loss or theft of a certificated security, the applicant must also furnish us with satisfactory evidence of the destruction, loss or theft of the certificated security and its ownership. Whenever we issue a substitute certificated security, we may require the registered holder to pay a sum sufficient to cover related fees and expenses.

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TAXATION

        The following is a summary of the principal Mexican and U.S. federal income tax considerations that may be relevant to the exchange of old securities and ownership and disposition of the new securities. This summary is based on the U.S. federal and Mexican tax laws in effect on the date of this prospectus. These laws are subject to change. Any change could apply retroactively and could affect the continued validity of the summary. This summary does not describe any tax consequences arising under the laws of any state, locality or taxing jurisdiction other than Mexico and the United States.

This summary does not describe all of the tax considerations that may be relevant to your situation, particularly if you are subject to special tax rules. Each holder or beneficial owner of old securities considering an exchange of old securities for new securities should consult its own tax advisor as to the Mexican, United States or other tax consequences of the ownership and disposition of new securities and the exchange of old securities for new securities, including the effect of any foreign, state or local tax laws.

        The United States and Mexico entered into a Convention for the Avoidance of Double Taxation and a Protocol thereto (which we refer to as the tax treaty) which became effective on January 1, 1994. This summary describes the provisions of the tax treaty that may affect the taxation of certain U.S. holders of new securities. The United States and Mexico have also entered into an agreement that covers the exchange of information with respect to tax matters.

        Mexico has also entered into, or is registering, tax treaties with various other countries that may have effects on holders of new securities. This summary does not discuss the consequences of such treaties.

Mexican Taxation

        This summary of certain Mexican federal tax considerations refers only to potential holders of the new securities who are not residents of Mexico for Mexican tax purposes and who do not conduct a trade or business in Mexico through a permanent establishment. We refer to such non-resident holders as foreign holders. For purposes of Mexican taxation, an individual is a resident of Mexico if:

•

he has established his domicile in Mexico, which under Mexican federal tax law, is the place where he makes his home, unless he has resided in another country for more than 183 calendar days, whether consecutive or not, in any one calendar year and can demonstrate that he has become a resident of that other country for tax purposes.

        OR

•

he is a Mexican national who is presumed to be a resident of Mexico for tax purposes unless such person can demonstrate otherwise.

        A legal entity is a resident of Mexico if:

•

it has been incorporated under the laws of Mexico,

•

maintains its principal place of business in Mexico, or

•

it has established its effective management in Mexico.

        If a person has a permanent establishment in Mexico, such permanent establishment shall be required to pay taxes in Mexico on income attributable to such permanent establishment in accordance with Mexican federal tax law.

        Taxation of Interest and Principal.    Under the Mexican income tax law, a Mexican issuer's payments of interest in respect of notes, bonds and other debt securities to a foreign holder will generally be subject to a Mexican withholding tax assessed at a rate of 10% applicable until December 31, 2003. This rate is applicable only if the relevant securities are registered with the Special

71

Section of the National Registry of Securities maintained by the National Banking and Securities Commission. We have made this registration.

        Pursuant to the Mexican income tax law in effect until December 31, 2003, payments of interest made by the guarantor or the subsidiary guarantors in respect of the new securities to a foreign holder will be subject to a reduced 4.9% Mexican withholding tax rate. This reduced rate applies if:

1.

the effective beneficiary is a resident, for tax purposes, of a country which has entered into a treaty to avoid double taxation with Mexico which is in effect;


2.

the requirements for the application of a lower rate established in the applicable treaty are satisfied; and


3.

the old securities are registered with the Special Section of the National Registry of Securities, which registration has been made.

        The Ministry of Finance and Public Credit has issued reduced rate regulations which will apply a reduced tax rate to the interest payments to foreign holders subject to withholding tax regardless of the place of residence of, or tax regime applicable to, the foreign holder. This reduced rate will apply to a foreign holder of the new securities if:

1.

we have the old securities registered with the Special Section of the National Registry of Securities;


2.

we timely file with the Ministry of Finance and Public Credit certain information relating to the issuance of the old securities;


3.

we timely file with the Ministry of Finance and Public Credit, after the date of each interest payment on the new securities, information representing that no party related to us, directly or indirectly, is the effective beneficiary of 5% or more of the aggregate amount of each such interest payment; and


4.

we maintain records that evidence compliance with 3 above.

        The Ministry of Finance and Public Credit promulgates the reduced rate regulations, together with other tax regulations on an annual basis. The current reduced rate will expire on February 28, 2003. We cannot assure you that the reduced rate regulations described above for the application of the reduced rate will be extended beyond February 28, 2003.

        Apart from the reduced rate, other special rates of Mexican withholding tax may apply to you. In particular, under the tax treaty, the Mexican withholding tax rate was reduced to a treaty rate of 4.9%, effective January 1, 1999, for payments of interest to certain residents of the United States who are holders of debt securities.

        Payments of interest that we make in respect of the new securities to non-Mexican pension or retirement funds will be exempt from Mexican withholding taxes, if such a fund:

1.

is the effective beneficiary of the interest;


2.

is duly organized pursuant to the laws of its country of origin;


3.

is exempt from income tax in its country of origin; and


4.

is registered with the Ministry of Finance and Public Credit for that purpose.

        Additional Amounts.    We have agreed, subject to specified exceptions and limitations, to pay additional amounts, which are specified and defined in the indenture, to the holders of the new securities to cover Mexican withholding taxes. If we pay these additional amounts to cover Mexican withholding taxes, you will give us any refunds that you receive of such paid additional amounts.

        We may ask you and other holders or beneficial owners of the new securities to provide certain information or documentation necessary to enable us to determine the appropriate Mexican withholding tax rate applicable to such holders or beneficial owners. In the event that you do not

72

provide the requested information or documentation on a timely basis, our obligation to pay additional amounts may be limited.

        Taxation of Dispositions.    Capital gains resulting from the sale or other disposition of new securities (including an exchange of old securities for new securities pursuant to the exchange offers), by a Foreign Holder will not be subject to Mexican taxation.

Transfer and Other Taxes. A foreign holder does not need to pay any Mexican stamp, registration or similar taxes in connection with the purchase, ownership or disposition of the new securities. A foreign holder of the new securities will not be liable for Mexican estate, gift, inheritance or similar tax with respect to the new securities.

United States Federal Income Taxation

        The following discussion summarizes certain U.S. federal income tax considerations that may be relevant to investors considering the exchange offers. Except for the discussion under "Non-United States Persons" and "Information Reporting and Backup Withholding," the discussion generally applies only to holders of new securities that are U.S. holders. You will be a U.S. holder if you are an individual who is a citizen or resident of the United States, a U.S. domestic corporation, or any other person that is subject to U.S. federal income tax on a net income basis in respect of an investment in the new securities. This summary applies to you only if you own your new securities as capital assets. It does not address considerations that may be relevant to you if you are an investor to which special tax rules apply, such as a bank, tax-exempt entity, insurance company, dealer in securities or currencies, trader in securities that elects mark-to-market treatment, person that will hold new securities as a position in a "straddle" or conversion transaction, or as part of a "synthetic security" or other integrated financial transaction or a person whose "functional currency" is not the U.S. dollar.

        Exchange of Old Securities and New Securities.    You will not realize any gain or loss upon the exchange of your old securities for new securities. Your tax basis in the new securities will be the same as your tax basis in the old securities.

        Taxation of Interest and Additional Amounts.    The gross amount of interest and additional amounts (that is, without reduction for Mexican withholding taxes, determined utilizing the appropriate Mexican withholding tax rate applicable to you) you receive will be treated as ordinary interest income in respect of the new securities. Mexican withholding taxes paid at the appropriate rate applicable to you will be treated as foreign income taxes eligible for credit against your U.S. federal income tax liability, subject to generally applicable limitations and conditions, or, at your election, for deduction in computing your taxable income. Interest and additional amounts will constitute income from sources without the United States for U.S. foreign tax credit purposes. Furthermore, interest and additional amounts generally will constitute "passive income" or, in the case of certain U.S. holders, "financial services income" for U.S. foreign tax credit purposes unless the Mexican withholding tax applicable to you is imposed at a rate of 5% or more, in which case the income will generally constitute "high withholding tax interest."

        The calculation of foreign tax credits and, in case you elect to deduct foreign taxes, the availability of deductions, involves the application of rules that depend on your particular circumstances. You should consult your own tax advisor regarding the availability of foreign tax credits and the treatment of additional amounts.

        Taxation of Dispositions.    Upon the sale, exchange or retirement of a new security, you will generally recognize gain or loss equal to the difference between the amount realized (not including any amounts attributable to accrued and unpaid interest) and your tax basis in the new security. Gain or loss recognized on the sale, redemption or other disposition of a new security generally will be long-term capital gain or loss if, at the time of the disposition, the new security has been held for more

73

than one year. Long term capital gains recognized by an individual holder generally are subject to a maximum tax rate of 20%.

        Non-United States Persons.    The following summary applies to you if you are not a United States person for U.S. federal income tax purposes. You are a United States person, and therefore this summary does not apply to you, if you are:

•

a citizen or resident of the United States or its territories, possessions or other areas subject to its jurisdiction,


•

a corporation, partnership or other entity organized under the laws of the United States or any political subdivision,


•

an estate, the income of which is subject to U.S. federal income taxation regardless of its source, or


•

a trust if (1) a U.S. court is able to exercise primary supervision over the trust's administration and (2) one or more United States persons have the authority to control all of the trust's substantial decisions.

        If you are not a United States person, the interest income that you derive in respect of the new securities generally will be exempt from U.S. federal income taxes, including withholding tax. However, to receive this exemption you may be required to satisfy certification requirements, which are described below under the heading "—Information Reporting and Backup Withholding," to establish that you are not a United States person.

        Even if you are not a United States person, U.S. federal income taxation may still apply to any interest income you derive in respect of the new securities if:

•

you are an insurance company carrying on a U.S. insurance business, within the meaning of the Internal Revenue Code, or


•

you have an office or other fixed place of business in the United States that receives the interest and you earn the interest in the course of operating (1) a banking, financing or similar business in the United States or (2) a corporation the principal business of which is trading in stock or securities for its own account, and certain other conditions exist.

        If you are not a United States person, any gain you realize on a sale or exchange of new securities generally will be exempt from U.S. federal income tax, including withholding tax, unless:

•

your gain is effectively connected with your conduct of a trade or business in the United States or


•

you are an individual holder and are present in the United States for 183 days or more in the taxable year of the sale, and either (1) your gain is attributable to an office or other fixed place of business that you maintain in the United States or (2) you have a tax home in the United States.

        U.S. federal estate tax will not apply to a new security held by an individual holder who at the time of death is a non-resident alien.

        Information Reporting and Backup Withholding.    The paying agent must file information returns with the U.S. Internal Revenue Service in connection with new security payments made to certain United States persons. If you are a United States person, you generally will not be subject to U.S. backup withholding tax on such payments if you provide your taxpayer identification number to the paying agent. You may also be subject to information reporting and backup withholding tax requirements with respect to the proceeds from a sale of the new securities. If you are not a United States person, in order to avoid information reporting and backup withholding tax requirements you may have to comply with certification procedures to establish that you are not a United States person.

74

PLAN OF DISTRIBUTION

        Each broker-dealer must acknowledge that it will deliver a prospectus in connection with any resale of new securities that it receives for its own account in exchange for old securities pursuant to the exchange offers if such broker-dealer acquired such old securities as a result of market-making activities or other trading activities. A broker-dealer may use this prospectus, as amended or supplemented, in connection with resales of new securities that it receives in exchange for old securities if such broker-dealer acquired such old securities as a result of market-making activities or other trading activities. We have agreed that for a period of 180 days following the expiration date, we will make this prospectus, as amended or supplemented, available to any such broker-dealer for use in connection with any such resale.

        None of the issuer, the guarantor or any of the subsidiary guarantors will receive any proceeds from any sale of new securities by broker-dealers. New securities that broker-dealers receive for their own account pursuant to the exchange offers may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the new securities or a combination of such methods of resale, at market prices prevailing at the time of resale. These transactions may be at market prices prevailing at the time of resale, at prices related to such prevailing market prices or at negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer or the purchasers of any such new securities. Any broker-dealer that resells new securities that were received by it for its own account pursuant to the exchange offers and any broker or dealer that participates in a distribution of such new securities may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of new securities and any commission or concessions that any such persons receive may be deemed to be underwriting compensation under the Securities Act. The letter of transmittal states that by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act.

        For a period of 180 days after the expiration date, we will promptly send additional copies of this prospectus and any amendment or supplement to this prospectus to any broker-dealer that requests such documents in its letter of transmittal. We have agreed to pay all expenses incidental to the exchange offers, but we will not pay any broker-dealer commissions or concessions. We will indemnify the holders of the old securities, including any broker-dealers, against certain liabilities, including liabilities under the Securities Act.

        By accepting the exchange offers, each broker-dealer that receives new securities in the exchange offers agrees that it will stop using the prospectus if it receives notice from us of any event which makes any statement in this prospectus false in any material respect or which requires any changes in this prospectus in order to make the statements true.

        The new securities are a new issue of securities with no established trading market. We have applied to have the new securities listed on the Luxembourg Stock Exchange, but we cannot assure you that an active market for the new securities will exist at any time and, if any such market develops, we cannot assure you as to the liquidity of such a market.

        We have registered the new securities with the Special Section of the National Registry of Securities of Mexico, which is maintained by the National Banking and Securities Commission of Mexico. This registration does not imply that the new securities are investment quality, that the guarantor or the subsidiary guarantors will be solvent or that the information in this prospectus is accurate or complete.

        The new securities may not be publicly offered or sold in Mexico.

75

VALIDITY OF SECURITIES

        Cleary, Gottlieb, Steen & Hamilton, our United States counsel, will pass upon the validity under New York law of the new securities and the guaranties for the guarantor and the subsidiary guarantors. The General Counsel and Head of the Legal Department of the guarantor, will pass upon certain legal matters governed by Mexican law for guarantor and the subsidiary guarantors. Certain legal matters governed by Delaware law will be passed upon by Richards, Layton & Finger, Delaware counsel to the Pemex Project Funding Master Trust.

PUBLIC OFFICIAL DOCUMENTS AND STATEMENTS

        The information that appears under the headings "Exchange Rates" and "United Mexican States" in the Form 20-F has been extracted or derived from publications of, or sourced from, Mexico or one of its agencies or instrumentalities. We have included other information that we have extracted, derived or sourced from official publications of PEMEX, which is a Mexican governmental agency. We have included this information on the authority of such publication or source as a public official document of Mexico. We have included all other information herein as a public official statement made on the authority of the Director General of Petróleos Mexicanos, Raúl Muñoz Leos.

CHANGE IN INDEPENDENT AUDITORS

        The Secretaría de la Contraloría y Desarollo Administrativo (the General Comptroller's Office of the Mexican Government, which we refer to as SECODAM) periodically assigns new independent auditors to PEMEX. Pursuant to actions by SECODAM, in 1998 PricewaterhouseCoopers, S.C. ceased to be the independent auditors of PEMEX at the end of fiscal year ended December 31, 1997, and Mancera, S.C. (A Member Practice of Ernst & Young Global) were assigned as the independent auditors for PEMEX on September 25, 1998 for the fiscal years ended December 31, 1998, 1999, and 2000. Pursuant to actions by SECODAM, on October 5, 2001, Mancera, S.C. ceased to be the independent auditors of PEMEX at the end of fiscal year ended December 31, 2000, and Ruiz, Urquiza y Cía., S.C. (formerly a member firm of Andersen Worldwide S.C.) was initially assigned as PEMEX's new auditors beginning in the fiscal year ended December 31, 2001. On May 9, 2002, due to the indictment of Arthur Andersen LLP, SECODAM decided to terminate the engagement of Ruiz, Urquiza y Cía., S.C. for the auditing of PEMEX's financial statements to be included in its annual report on Form 20-F for the fiscal year ended December 31, 2001, and instead appointed PricewaterhouseCoopers, S.C. as the current independent auditors to audit those financial statements. As of that date, Ruiz, Urquiza y Cía., S.C. delivered only an audit report on PEMEX's financial statements prepared in accordance with Mexican Financial Reporting Standards applicable to Mexican public-sector entities.

        The independent auditors' reports on the financial statements for the 1999, 2000 and 2001 fiscal years have no adverse opinions or disclaimer of opinions, nor do such reports modify or qualify as to uncertainty, audit scope or accounting principles. For the 1997 and 2001 fiscal years, PEMEX had no disagreements with PricewaterhouseCoopers, S.C. on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure. For the 1998, 1999 and 2000 fiscal years, PEMEX had no disagreements with Mancera, S.C. on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure. Ruiz, Urquiza y Cía., S.C. did not and will not deliver an audit report on PEMEX's consolidated financial statements included in its annual report on Form 20-F for the 2001 fiscal year because its engagement was terminated before those financial statements were completed. For the 2001 fiscal year, PEMEX had no disagreements with Ruiz, Urquiza y Cía., S.C. on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure with respect to its report on our financial statements prepared in accordance with Mexican Financial Reporting Standards applicable to Mexican public-sector entities. SECODAM made the decision to change accountants in each of the above instances.

76

EXPERTS

        The consolidated financial statements of PEMEX as of December 31, 2000 and for the years ended December 31, 2000 and 1999 appearing in this prospectus and registration statement were audited by Mancera, S.C. (A Member Practice of Ernst & Young Global), independent auditors, as set forth in their report thereon, appearing elsewhere in this prospectus and registration statement, which is based on part on the reports of other independent auditors. The financial statements referred to above are included in this prospectus in reliance upon such reports given on the authority of such firm as experts is accounting and auditing.

        The consolidated financial statements of PEMEX as of December 31, 2001 and for the year then ended included in this prospectus and registration statement have been so included in reliance on the report of PricewaterhouseCoopers, S.C., independent accountants, given on the authority of said firm as experts in auditing and accounting.

77

GENERAL INFORMATION

        1. The new securities have been accepted for clearance through Clearstream, Luxembourg and Euroclear. The securities codes for the new securities are:

Series	CUSIP	ISIN	Common Code
8.00% new notes	706451 AF 8	US706451AF82	015327812
7.875% new notes	706451 AE 1	US706451AE18	015327928
8.625% new bonds	706451 AG 6	US706451AG65	015327561
7.375% new notes	706451 AH 4	US706451AH49	016323322

        2. In connection with the application to list the new securities on the Luxembourg Stock Exchange, we will deposit, through our agent, a legal notice relating to the issue of the new securities and copies of the trust agreement establishing the issuer with the Greffier en Chef du Tribunal d' Arrondissement de et à Luxembourg (Chief Registrar of the District Court in Luxembourg), where you may examine or obtain copies of such documents.

        3. We have obtained the authorization of the Ministry of Finance and Public Credit and all necessary consents, approvals and authorizations in Mexico in connection with the issue of, and performance of our rights and obligations under, the new securities, including the registration of the indenture, the subsidiary guaranty agreement and the forms of securities attached to the indenture. The board of directors of Petróleos Mexicanos approved resolutions on February 18, 1998, June 25, 1998, May 3, 1999, May 7, 2001 and April 24, 2002, authorizing issuance of the notes. On June 19, 1996 and June 25, 1996, the board of directors of each of Pemex-Refining, Pemex-Gas and Basic Petrochemicals and Pemex-Exploration and Production authorized the signing of the subsidiary guaranty agreement.

        4. Except as disclosed in this document, there has been no material adverse change in the financial position of the issuer, the guarantor or the subsidiary guarantors since the date of the latest financial statements included in this prospectus.

        5. Except as disclosed under "Legal Proceedings" in "Item 8—Financial Information—Legal Proceedings" in the Form 20-F included in this prospectus, none of the issuer, the guarantor or any of the subsidiary guarantors are involved in any litigation or arbitration proceedings relating to claims or amounts which are material in the context of the issue of the new securities. None of the issuer, the guarantor or any of the subsidiary guarantors are aware of any such pending or threatened litigation or arbitration.

        6. You may obtain the following documents during usual business hours on any day (except Saturday and Sunday and legal holidays) at the specified offices of Deutsche Bank Trust Company Americas and the paying agent and transfer agent in Luxembourg, so long as any of the new securities are outstanding:

•

copies of the latest annual report and consolidated accounts of PEMEX;



•

copies of the annual report dated December 31, 2002 will be available on or about July 2003;



•

copies of the trust agreement establishing the issuer and the Organic Law constituting Petróleos Mexicanos and the subsidiary guarantors; and



•

copies of the indenture, including the form of the new securities, the guaranty agreement, and the subsidiary guaranty agreement.

78

        We are not required to, and do not, publish non-consolidated financial statements. Neither the issuer nor the subsidiary guarantors publish their own accounts and will not publish interim financial statements. None of the issuer, Petróleos Mexicanos or the subsidiary guarantors publish interim consolidated financial statements on a regular basis, and they prepared the figures set forth on page 13-16 of this prospectus only for the purpose of the exchange offers.

        7. The principal offices of PricewaterhouseCoopers, S.C., auditors of PEMEX for fiscal year ended December 31, 2001 are located at Mariano Escobedo No. 573, Colonia Rincón del Bosque, Mexico D.F. 11580, telephone: (52-55) 5263-6000.

        8. The Mexican Government is not legally liable for, and is not a guarantor of, the new securities.

        9. Under Mexican law, all domestic hydrocarbon reserves are permanently and inalienably vested in Mexico and Mexico can exploit such hydrocarbon reserves only through Petróleos Mexicanos and the guarantors.

        10. Article 27 of the Constitution, Articles 1, 2, 3 and 4 (and related Articles) of the Regulatory Law, Articles 15, 16 and 19 of the Regulations to the Regulatory Law, Articles 2, 16 and 60 (and other related Articles) of the General Law on National Patrimony, Articles 1, 2, 3 and 4 (and other related Articles) of the Organic Law and Article 4 of the Federal Code of Civil Procedure of Mexico, set forth, inter alia, that:

•

attachment prior to judgment, attachment in aid of execution and execution of a final judgment may not be ordered by Mexican courts against property of the guarantor and the subsidiary entities;



•

all domestic petroleum and hydrocarbon resources (whether in solid, liquid, gas or intermediate form) are permanently and inalienably vested in Mexico and, to that extent, are subject to immunity;



•

(1) the exploration, exploitation, refining, transportation, storage, distribution and first-hand sale of crude oil, (2) the exploration, exploitation, production and first-hand sale of natural gas, as well as the transportation and storage inextricably linked with such exploitation and production, and (3) the production, transportation, storage, distribution and first-hand sale of the derivatives of petroleum (including petroleum products) and of gas used as basic industrial raw materials and that constitute Basic Petrochemicals (the "Petroleum Industry"), are reserved exclusively to Mexico (and, to that extent, assets related thereto are entitled to immunity); and



•

Petróleos Mexicanos and the subsidiary guarantors are the public entities created and appointed by the Federal Congress of Mexico to conduct, control, develop and operate the Petroleum Industry of Mexico and are, therefore, entitled to immunity in respect of such exclusive rights and powers.

Except for the rights of immunity granted to Petróleos Mexicanos and to the subsidiary guarantors by the provisions above, neither Petróleos Mexicanos nor the subsidiary guarantors nor their respective properties or assets has any immunity in Mexico from jurisdiction of any court or from set-off or any legal process whether such jurisdiction is through process, notice or otherwise.

        11. In the event that you bring proceedings in Mexico seeking performance of Petróleos Mexicanos' or the subsidiary guarantors' obligations in Mexico, pursuant to the Mexican Monetary Law, Petróleos Mexicanos or any of the subsidiary guarantors may discharge its obligations by paying any sum due in currency other than Mexican pesos, in Mexican pesos at the rate of exchange prevailing in Mexico on the date when payment is made. Banco de México currently determines such rate every business day in Mexico and publishes it in the Official Gazette of the Federation on the following business day.

79

As filed with the Securities and Exchange Commission on December 2, 2002

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 20-F

ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2001
Commission File Number: 0-99

PETROLEOS MEXICANOS
(Exact name of registrant as specified in its charter)

Mexican Petroleum
(Translation of registrant's name into English) United Mexican States
(Jurisdiction of incorporation or organization)

Avenida Marina Nacional No. 329
Colonia Huasteca
Mexico, D.F. 11311
Mexico
(Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act.

None

Securities registered or to be registered pursuant to Section 12(g) of the Act.

None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

Title of Each Class

8.85% Global Guaranteed Notes due 2007
9.50% Global Guaranteed Bonds due 2027
8³/8% Global Guaranteed Notes due 2005
9¹/4% Global Guaranteed Bonds due 2018
9³/8% Notes due December 2, 2008, Puttable at Par on December 2, 2001
9.50% Puttable or Mandatorily Exchangeable Securities (POMES^SM) due 2027
8.50% Notes due 2008
9.125% Notes due 2010

Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report:

None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes ý    No o

Indicate by check mark which financial statement item the registrant has elected to follow:

                                                                                                          Item 17 o    Item 18 ý

TABLE OF CONTENTS

Item 1.	Identity of Directors, Senior Management and Advisers*	84
Item 2.	Offer Statistics and Expected Timetable*	84
Item 3.	Key Information	85
Item 4.	Information on the Company	97
Item 5.	Operating and Financial Review and Prospects	173
Item 6.	Directors, Senior Management and Employees	207
Item 7.	Major Shareholders and Related Party Transactions	230
Item 8.	Financial Information	230
Item 9.	The Offer and Listing	234
Item 10.	Additional Information	234
Item 11.	Quantitative and Qualitative Disclosures About Market Risk	242
Item 12.	Description of Securities Other than Equity Securities*	247
Item 13.	Defaults, Dividend Arrearages and Delinquencies*	247
Item 14.	Material Modifications to the Rights of Security Holders and Use of Proceeds*	247
Item 15.	Controls and Procedures	247
Item 16.	[Reserved]*	248
Item 17.	Financial Statements*	248
Item 18.	Financial Statements	248
Item 19.	Exhibits	248

(*)

Omitted because the item is inapplicable or the answer is negative.

81

        Petróleos Mexicanos and its four subsidiary entities, Pemex-Exploración y Producción (Pemex-Exploration and Production), Pemex-Refinación (Pemex-Refining), Pemex-Gas y Petroquímica Básica (Pemex-Gas and Basic Petrochemicals) and Pemex-Petroquímica (Pemex-Petrochemicals), comprise Mexico's state oil and gas company. Each of Petróleos Mexicanos and the subsidiary entities is a decentralized public entity of the Mexican Government and is a legal entity empowered to own property and carry on business in its own name. In addition, a number of subsidiary companies that are defined in Note 1 and listed in Note 2 c) to our financial statements included in Item 18 (the "Financial Statements"), including the Pemex Project Funding Master Trust, are incorporated into the consolidated financial statements; these subsidiary companies are also identified with the corresponding ownership percentages in "Consolidated Structure of PEMEX" on page 3. Petróleos Mexicanos, the subsidiary entities and the consolidated subsidiary companies are collectively referred to as "PEMEX" or "we."

        References herein to "U.S. $," "$," "U.S. dollars" or "dollars" are to United States dollars. References herein to "pesos" or "Ps." are to the lawful currency of the United Mexican States ("Mexico"). The term "billion" as used herein means one thousand million. We maintain our consolidated financial statements and records in nominal or current pesos. Unless otherwise indicated, we have converted all peso amounts to U.S. dollars in this Form 20-F, including all convenience conversions of the Financial Statements, at an exchange rate of Ps. 9.1423 = $1.00, which is the exchange rate that the Ministry of Finance and Public Credit provided us on December 31, 2001. You should not construe these conversions from pesos into dollars as actually representing such U.S. dollar amounts or meaning that you could convert such amounts into U.S. dollars at the rates indicated. The peso has depreciated substantially in relation to the U.S. dollar since the end of 1994, when the Mexican Government allowed the peso to float freely against the U.S. dollar and the Mexican Government established a broad economic reform program in response to these and other events. Due to the volatility of the peso/dollar exchange rate, the exchange rate on any date subsequent to the date hereof could be materially different from the rate indicated above. See "Item 3—Key Information—Exchange Rates" for information regarding the rates of exchange between pesos and U.S. dollars.

        The Private Securities Litigation Reform Act of 1995 provides for a safe harbor for forward-looking statements. This Form 20-F contains words, such as "believe," "expect" and "anticipate" and similar expressions that identify forward-looking statements, which reflect our views about future events and financial performance. Actual results could differ materially from those projected in such forward-looking statements as a result of various factors that may be beyond our control, including, but not limited to, effects on us from competition, changes in the limitations on our access to sources of financing on competitive terms, significant economic or political developments in Mexico, particularly developments affecting the energy sector, and changes in our regulatory environment. Accordingly, you should not place undue reliance on these forward-looking statements. In any event, these statements speak only as of their dates, and we undertake no obligation to update or revise any of them, whether as a result of new information, future events or otherwise.

82

CONSOLIDATED STRUCTURE OF PEMEX

83

PART I

Item 1. Identity of Directors, Senior Management and Advisers

        Not applicable.

Item 2. Offer Statistics and Expected Timetable

        Not applicable.

84

Item 3. Key Information

SELECTED FINANCIAL DATA

        The selected financial data set forth below should be read in conjunction with, and are qualified in their entirety by reference to, the Financial Statements included in Item 18. The selected financial data set forth below as of the five years ended December 31, 2001 have been derived from the consolidated financial statements of PEMEX for the years ended December 31, 1997 and 1998 (which are not included herein) and the consolidated financial statements of PEMEX for the years ended December 31, 1999, 2000 and 2001. The consolidated financial statements of PEMEX for the years ended December 31, 1999 and 2000 were audited by Mancera, S.C. (a Member Practice of Ernst & Young Global), and the consolidated financial statements of PEMEX for the year ended December 31, 2001 were audited by PricewaterhouseCoopers, S.C. See "Item 5—Operating and Financial Review and Prospects—Change in Independent Auditors."

        The Financial Statements are prepared in accordance with Mexican Generally Accepted Accounting Principles (which we refer to as "Mexican GAAP") and, as to the recognition of inflation, in accordance with the guidelines established in Financial Reporting Standard NIF-06 BIS "A," section A. See Notes 2b) and 15 to the Financial Statements for a discussion of the inflation accounting rules applicable to us. Mexican GAAP differs in certain significant respects from United States Generally Accepted Accounting Principles (which we refer to as "U.S. GAAP"). The most important of the material items generating a difference between operating results under U.S. and Mexican GAAP are the accounting methodologies for the treatment of exploration and drilling costs, pension premiums and post-retirement benefit obligations, financial instruments, inflation, foreign exchange losses, capitalized interest, and depreciation and impairment of fixed assets, which are described in Note 19 to the Financial Statements and are summarized below.

        Under Mexican GAAP, we charge exploration and drilling costs to the equity reserve for exploration and depletion of oil fields. Exploration and drilling costs related to successful oil wells are credited to the equity reserve and recorded as fixed assets. Cost of sales is recognized by recording a charge for each barrel of crude oil extracted in the statement of operations and recording a credit to the equity reserve. Under U.S. GAAP, we initially capitalize the costs of drilling exploratory wells and exploratory-type stratigraphic test wells, which are subsequently charged to expense if proved reserves are not discovered. Development costs, including the costs of drilling development wells and development-type stratigraphic test wells, are capitalized.

        Seniority premiums and retirement plans generate a difference between U.S. and Mexican GAAP due to the different actuarial cost assumptions and implementation dates applied under Mexican GAAP Bulletin D-3, "Labor Obligations," and Statement of Financial Accounting Standards (SFAS) No. 87, "Employers Accounting for Pensions."

        Under Mexican GAAP, we account for supplemental payments under our Bulletin D-3 calculations. However, we account for other health service benefits on a pay-as-you-go basis under Mexican GAAP. Under U.S. GAAP, we follow the guidelines of SFAS No. 106, "Employers' Accounting for Post-Retirement Benefits Other than Pensions," in accounting for health service and other supplemental payments provided to retirees.

        On January 1, 2001, we adopted Bulletin C-2, "Financial Instruments," issued by the Mexican Institute of Public Accountants (MIPA), for Mexican GAAP purposes, and SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" (as amended by SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities—Deferral of the Effective Date of FASB Statement No. 133," and SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities"), for U.S. GAAP purposes. The principal differences between the cumulative effect

85

adjustment and current period income effect under Mexican GAAP and U.S. GAAP relate primarily to the accounting for cross currency swaps, foreign currency embedded derivatives and the accounting for equity swaps contracts related to shares of Repsol YPF, S.A., which we refer to as "Repsol," described in Note 10 to the Financial Statements.

        We apply NIF-06 BIS "A," section A, to our financial statements to reflect the effects of inflation. NIF-06 BIS "A," section A, provides for the restatement of fixed assets, inventories and costs of sales by indexing and/or appraisals. Since NIF-06 BIS "A," section A, does not represent a comprehensive basis of inflation accounting, beginning with our 1992 fiscal year, we have reversed the effects of NIF-06 BIS "A," section A, on our financial statements from the U.S. GAAP reconciliation of income and equity. Under NIF-06 BIS "A," section A, a devaluation of the peso does not have a negative impact on our income because exchange losses are capitalized into fixed assets. Furthermore, a devaluation of the peso relative to the dollar results in an increase in our income to the extent that our expenses remain relatively stable because they are incurred in pesos, while our revenues, which are mostly denominated in dollars or linked to international dollar-denominated prices, increase in peso terms. In contrast, under U.S. GAAP, a devaluation of the peso has a negative impact on our income because the exchange losses are not capitalized but are charged immediately to income. This one-time charge to income will be gradually offset by lower depreciation as the asset base is reduced. In any particular accounting period, the negative impact of a devaluation is, therefore, greater when the devaluation occurs at or near the end of the accounting period, as occurred with the peso at the end of 1994.

        With respect to foreign exchange losses, under Mexican GAAP, exchange losses arising from debt are capitalized as part of fixed assets, and any remaining net exchange differences are reflected in the statement of operations as either a debit to costs and operating expenses or a credit to revenues. Under U.S. GAAP, all exchange gains or losses have been recognized in results of operations.

        The treatment of capitalized interest for Mexican GAAP purposes differs from the treatment of capitalized interest in the reconciliation of the financial statements to U.S. GAAP. For Mexican GAAP purposes, we capitalize interest to property, plant and equipment based on the total interest cost incurred on loans allocated to construction projects, regardless of whether or not the amounts borrowed have been spent on such projects. For purposes of the U.S. GAAP reconciliation, we capitalize interest based upon total interest incurred in proportion to additions to construction in progress.

        Under Mexican GAAP, we depreciate the book value of its fixed assets, which includes amounts capitalized for foreign exchange losses and restatements for inflation. For U.S. GAAP purposes, we have reversed this depreciation expense attributable to foreign exchange losses and restatements for inflation.

        Under SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of," we are required to evaluate our long-lived assets for impairment for U.S. GAAP purposes whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable or is permanently impaired. Such impaired assets must be permanently written down to fair value or the present value of expected future cash flows on related assets. This requirement does not exist under Mexican GAAP.

        For a further discussion of these and other adjustments, see "Item 5—Operating and Financial Review and Prospects—U.S. GAAP Reconciliation" and Note 19 to the Financial Statements.

86

Selected Financial Data of PEMEX

			Year Ended December 31,(1)(2)
			1997		1998			1999			2000			2001			2001(3)
			(in millions of pesos or U.S. dollars)
Income Statement Data
	Amounts in accordance with Mexican GAAP:
		Net sales(4)	Ps.	264,030	Ps.	256,987		Ps.	334,814		Ps.	468,268		Ps.	445,330		$	48,711
		Total revenues(4)		269,507		265,749			344,979			478,688			457,385			50,030
		Total revenues net of the IEPS Tax		231,779		199,894			256,630			409,132			362,187			39,617
		Operating income		166,619		140,299			187,669			274,057			230,703			25,235
		Income (loss) for the period		7,133		(11,588	)		(21,157	)		(19,710	)		(34,091	)		(3,729	)
Balance Sheet Data (end of period)
	Amounts in accordance with Mexican GAAP:
		Cash and cash equivalents		17,429		14,631			23,987			27,827			14,442			1,580
		Total assets		339,452		416,691			482,248			563,468			556,883			60,913
		Long-term debt		56,339		87,615			83,127			104,370			123,170			13,473
		Total long-term liabilities		132,814		206,728			236,599			317,096			362,069			39,603
		Equity		153,123		167,138			161,469			150,605			122,866			13,439
	Amounts in accordance with U.S. GAAP:
		Net sales(5)		226,302		191,132			246,465			398,711			350,131			38,298
		Operating income(5)		129,595		73,583			106,024			208,862			142,803			15,620
		Income (loss) for the period		9,177		(27,364	)		(15,370	)		(16,697	)		(25,444	)		(2,783	)
		Total assets		257,251		283,540			362,947			434,743			432,687			47,328
		Equity (deficit)		59,951		29,735			12,904			(13,567	)		(42,331	)		(4,630	)
Other Financial Data
	Amounts in accordance with Mexican GAAP:
		Depreciation and amortization		11,482		15,697			23,941			26,061			28,453			3,112
		Investments at cost(6)		28,109		43,936			40,497			76,233			51,672			5,652
	Ratio of earnings to fixed charges:
		Mexican GAAP(7)		1.54		—			—			—			—			—
		U.S. GAAP(7)		1.81		—			—			—			—			—

Note: N.A. = not available

(1)

Includes Petróleos Mexicanos, the subsidiary entities and the subsidiary companies. Beginning with the year ended December 31, 1998, we include the financial position and results of the Pemex Project Funding Master Trust. Beginning with the year ended December 31, 2000, we include the financial position and results of Mex Gas International, Ltd. For U.S. GAAP purposes, beginning with the year ended December 31, 2001, we include the financial position and results of Pemex Finance, Ltd.

(2)

Each of our financial statements for the five years ended December 31, 2001 was prepared according to Mexican GAAP but recognizes the effect of inflation according to Mexican Financial Reporting Standard NIF-06 BIS "A," section A, which is different from Mexican GAAP Bulletin B-10. Mexican GAAP differs from U.S. GAAP. The most important of the material differences between U.S. GAAP and Mexican GAAP affecting PEMEX are the accounting treatment of: (1) exploration and drilling costs, (2) pensions and post-retirement obligations, (3) financial instruments, (4) inflation, (5) foreign exchange losses, (6) capitalized interest, (7) depreciation and (8) impairment of fixed assets. For a further discussion of these and other differences, see Note 19 to the Financial Statements.

(3)

Conversions into U.S. dollars of amounts in pesos have been made at the established exchange rate for accounting purposes of Ps. 9.1423 = U.S. $1.00 at December 31, 2001.

(4)

Includes the IEPS Tax as part of the sales price of the products sold.

(5)

Figures do not include IEPS Tax as part of the sales price of the products sold.

(6)

Includes investments in fixed assets and capitalized interest, and excludes certain expenditures charged to the oil field exploration and depletion reserve. See "Item 5—Operating and Financial Review and Prospects—Liquidity and Capital Resources."

(7)

Under U.S. GAAP, earnings for the years ended December 31, 1998, 1999, 2000 and 2001 were insufficient to cover fixed charges. The amount by which fixed charges exceeded earnings was Ps. 21,076 million for 1998, Ps. 5,253 million for 1999, Ps. 624 million for 2000 and Ps. 10,857 million for 2001. Under Mexican GAAP, earnings for the years ended December 31, 1998, 1999, 2000 and 2001 were insufficient to cover fixed charges; the amount by which fixed charges exceeded earnings was 5,020 million for 1998, Ps. 11,310 million for 1999, Ps. 4,092 million for 2000 and Ps. 18,258 million for 2001.

Source: PEMEX's financial statements

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        PEMEX does not prepare comprehensive price-level adjusted financial statements in accordance with Bulletin B-10, "Recognition of the Effects of Inflation on Financial Information," under Mexican GAAP. For the years ended December 31, 1997 and 1998, Mexico was deemed to be a hyperinflationary economy. Pursuant to Rule 3-20(c) of Regulation S-X promulgated by the U.S. Securities and Exchange Commission, PEMEX has included unaudited selected financial data prepared on the basis of price-level adjusted financial information for these years reflecting the impact of U.S. GAAP adjustments and reclassifications. For the years ended December 31, 1999, 2000 and 2001, Mexico was not considered a hyperinflationary economy. However, we have continued to provide supplemental unaudited price-level adjusted financial information for these subsequent years in lieu of a comprehensive price-level adjustment that would result from our adoption of Bulletin B-10. In the opinion of PEMEX management, all adjustments that are necessary for a fair presentation of the price-level adjusted financial information have been included herein. This unaudited price-level adjusted financial data is derived from the supplemental price-level adjusted financial information included elsewhere and should also be read in conjunction with the Financial Statements included herein.

Selected Financial Data of PEMEX
(continued)

	Years Ended December 31,
	1997		1998			1999			2000			2001
	(in millions of constant 2001 pesos)
Unaudited Price-level Adjusted Information
Income Statement Data
Amounts in accordance with U.S. GAAP:
Net sales(1)	Ps.	363,422	Ps.	264,769		Ps.	292,849		Ps.	432,680		Ps.	357,215
Total revenues(1)		372,747		275,646			301,461			443,037			372,425
Net income (loss)		23,316		(19,843	)		(21,069	)		(36,573	)		(17,251	)
Balance Sheet Data (end of period)
Amounts in accordance with U.S. GAAP:
Cash and cash equivalents		26,413		18,694			27,287			29,052			14,488
Total assets		485,938		517,330			555,136			590,540			576,220
Long-term debt		85,380		111,947			94,563			108,966			162,291
Total long-term liabilities		202,614		267,281			291,081			357,433			388,095
Total equity		190,388		180,156			167,970			132,604			110,890

(1)

Total revenues and net sales figures do not include the IEPS Tax as part of the sales price of the products sold.

Source: Petróleos Mexicanos

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EXCHANGE RATES

        The following table sets forth, for the periods indicated, the high, low, average and period-end exchange rate for the purchase of U.S. dollars, expressed in pesos per U.S. dollar.

	Exchange Rate
Period	High	Low	Average(1)	Period End
Year Ended December 31,
1997	8.410	7.717	7.967	8.070
1998	10.630	8.040	9.243	9.901
1999	10.600	9.243	9.563	9.480
2000	10.087	9.183	9.472	9.618
2001	9.972	8.946	9.337	9.156
2002:
January	9.250	9.095	9.164	9.152
February	9.170	9.048	9.105	9.130
March	9.114	9.001	9.064	9.001
April	9.375	9.002	9.165	9.375
May	9.713	9.408	9.510	9.653
June	9.980	9.605	9.767	9.980
July	9.970	9.613	9.779	9.800
August	9.962	9.738	9.839	9.919
September	10.350	9.955	10.071	10.212
October	10.222	9.947	10.094	10.150

(1)

Average of month-end rates.

Source: Noon buying rate for cable transfers in New York reported by the Federal Reserve Bank of New York

        The noon buying rate for cable transfers in New York reported by the Federal Reserve Bank of New York on November 26, 2002 was Ps. 10.1590 = U.S. $1.00.

RISK FACTORS

Risk Factors Related to the Operations of PEMEX

Crude oil prices are volatile, and low oil prices negatively affect PEMEX's income

        International crude oil prices fluctuate due to many factors, including:

•

changes in global supply and demand for crude oil and refined petroleum products;



•

availability and price of competing commodities;



•

international economic trends;



•

currency exchange fluctuations;



•

expectations of inflation;



•

actions of commodity markets participants;



•

domestic and foreign government regulations; and



•

political events in major oil producing and consuming nations.

        We have no control over these factors. Historically, the weighted average price of the crude oil that we export has fluctuated from a high of U.S. $26.82 per barrel in 1984 to a low of U.S. $15.55 per barrel in 1999. In 2001, the weighted average price of PEMEX crude oil was U.S. $18.57 per barrel, 24.6% lower than the weighted average price during 2000. On November 25, 2002, the weighted average spot price of PEMEX crude oil was U.S. $19.99.

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        When international crude oil and natural gas prices are low, we earn less export sales revenue, and, therefore, lower income because our costs remain roughly constant. Conversely, when crude oil and natural gas prices are high, we earn more export sales revenue and our income increases. As a result, future fluctuations in international crude oil prices will directly affect our results of operations and financial condition. We do not enter into transactions to hedge against fluctuations in crude oil prices.

Decreases in PEMEX's estimates from time to time of Mexico's hydrocarbon reserves could reduce PEMEX's potential future income

        The reserve data set forth in this Form 20-F represent only estimates. Estimating quantities of proved hydrocarbon reserves and projecting future rates of production and timing of development expenditures is an inexact process and is subject to many factors beyond our control. The accuracy of any reserve estimate depends on the quality of available data and engineering and geological interpretation and judgment. As a result, estimates of different engineers may vary. Additionally, the results of drilling, testing and production subsequent to the date of an estimate may justify revision of an estimate. Therefore, proved reserve estimates may be materially different from the quantities of crude oil and natural gas that we can ultimately recover.

        Pemex-Exploration and Production revises its estimates of Mexico's hydrocarbon reserves annually. This process may result in material revisions to our estimates of Mexico's hydrocarbon reserves.

PEMEX is an integrated oil and gas company and is exposed to production, equipment and transportation risks

        We are subject to production, equipment and transportation risks that are common among oil and gas companies. For example, we encounter:

•

production risk—i.e., risk related to fluctuations in production that may be affected by reserve levels, accidents, mechanical difficulties, adverse natural conditions, such as bad weather and other acts of God, as well as the inability to manage unforeseen production costs;



•

equipment risk—i.e., risk related to adequacy and condition of the production facilities, including equipment becoming obsolete; and



•

transportation risk—i.e., risk related to the condition of pipelines and vulnerability of other modes of transportation.

        In particular, our business is subject to the risk of:

•

pipeline explosions (oil or natural gas);



•

explosions in refineries, petrochemical plants, storage and distribution terminals or buoys and monobuoys;



•

hurricanes in the Gulf of Mexico;



•

unexpected geological formations or pressures;



•

blow outs, which are sudden, violent explosions of oil, natural gas or water from a drilling well, followed by an uncontrolled flow from the well;



•

fires and cratering, which is the caving in and collapse of the earth's structure around a blow out well; and



•

mechanical failures and collapsed holes, particularly in horizontal wellbores.

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        The occurrence of any of these events could result in:

•

personal injuries or loss of life;



•

environmental damage and the necessary clean-up costs and expenses; or



•

other damage to our property or the property of others.

        In accordance with customary industry practice, we have purchased insurance policies covering some of these risks. However, these policies do not cover all potential liabilities that may result from these risks. In addition, insurance is not available for some of these risks. See "Item 4—Information on the Company—Business Overview—PEMEX Corporate Matters—Insurance."

PEMEX's compliance with environmental regulations in Mexico could result in material adverse effects on its results of operations

        A wide range of general and industry-specific Mexican federal and state environmental laws and regulations apply to our operations. Numerous Mexican Government agencies and departments issue rules and regulations which are often difficult and costly to comply with and which carry substantial penalties for non-compliance. This regulatory burden on us increases our cost of doing business and can:

•

require us to make significant capital expenditures on measures to protect the environment, including abandoning and dismantling onshore wells and offshore platforms;



•

reduce our ability to extract hydrocarbons when extraction endangers the environment;



•

reduce our sales revenues if production is reduced to meet environmental regulations;



•

increase production costs and make our products relatively more expensive as compared to the hydrocarbon and refined products of our competitors; and



•

reduce our profitability through a combination of the above.

        At December 31, 2001, our estimated and accrued environmental liabilities totaled Ps. 2,316 million. See "Item 4—Information on the Company—Environmental Regulation—Environmental Liabilities."

PEMEX publishes less financial information than U.S. companies are required to file with the U.S. Securities and Exchange Commission

        We prepare our financial statements according to Mexican GAAP, except as to the recognition of inflation, which is recognized in our financial statements according to the Mexican Financial Reporting Standards applicable to Mexican public sector companies. Mexican GAAP differs in certain significant respects from U.S. GAAP. See "Item 3—Key Information—Selected Financial Data" and Note 19 to the Financial Statements. In addition, we generally only prepare U.S. GAAP information on a yearly basis. As a result, there may be less or different publicly available information about us than there is about U.S. issuers.

Risk Factors Related to the Relationship between PEMEX and the Mexican Government

The Mexican Government controls PEMEX, and the Mexican Congress approves the annual budget and financing program of Petróleos Mexicanos and the subsidiary entities

        Mexico is the sole owner of Petróleos Mexicanos and the subsidiary entities, and the Mexican Government closely regulates and supervises our operations. Mexican Government ministers control key executive decisions at Petróleos Mexicanos. The Secretary of Energy of Mexico is the Chairman of the Board of Directors of Petróleos Mexicanos. The Secretaría de la Contraloría y Desarrollo

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Administrativo (the General Comptroller's Office of the Mexican Government, which we refer to as "SECODAM"), appoints the external auditors of Petróleos Mexicanos and the subsidiary entities.

        The Mexican Government incorporates Petróleos Mexicanos and the subsidiary entities' annual budget and financing program into its consolidated annual budget, which it submits to the Mexican Congress for its approval. The Mexican Congress also designates certain of our largest capital expenditures as long-term productive infrastructure projects (which we refer to as "PIDIREGAS"). See "Item 4—Information on the Company—History and Development—Capital Expenditures and Investments."

        The Mexican Government has the power to intervene directly or indirectly in our commercial affairs. Such an intervention could have an adverse effect on us and thereby adversely affect our or our subsidiaries' ability to make payments under any securities issued or guaranteed by us. For instance, if the Mexican Government were to cause us to reduce production or limit future capital expenditures, this could reduce our ability to generate the necessary income to support payments on our debt, or to transfer the necessary funds between any of our subsidiaries to make payments on their debts.

The Mexican Government may privatize all or part of Petróleos Mexicanos and the subsidiary entities

        The Mexican Government would have the power, if federal law and the Constitución Política de los Estados Unidos Mexicanos (the Political Constitution of the United Mexican States) were amended, to privatize all or a portion of Petróleos Mexicanos and the subsidiary entities or its assets. The Mexican Government could also transfer the activities of PEMEX to another Mexican Government-controlled entity if these changes were made. These types of actions could adversely affect our operations by affecting our workforce, causing an interruption in production that could decrease output and negatively affect our income from operations. In addition, the privatization could cause us to default on our obligations under certain of our indebtedness, including all of our publicly traded debt securities, which could entitle the holders of this indebtedness to declare it immediately due and payable. In this case, investors in debt securities would be entitled to recover their entire investment and their only loss would be that attributable to future interest income. See also "—Considerations Related to Mexico" below.

The Mexican Government has entered into agreements with other nations to limit production

        Historically, member countries of the Organization of the Petroleum Exporting Countries, commonly referred to as OPEC, have entered into agreements to reduce their production of crude oil. These agreements have sometimes increased global crude oil prices by decreasing the global supply of crude oil. Although Mexico is not a member of OPEC, it has entered into agreements with OPEC and non-OPEC countries to reduce global crude oil supply.

        For example, following OPEC's announcement in January 2001 that it would reduce crude oil production by 1.5 million barrels per day, Mexico announced it would decrease its crude oil exports by 75 thousand barrels per day, beginning on February 1, 2001. Following a March 2001 announcement by OPEC of an additional 1.0 million barrel per day reduction in crude oil production, Mexico announced on March 25, 2001 that it would further reduce its crude oil exports by 40 thousand barrels per day, beginning on April 1, 2001. On January 2, 2002, following an OPEC announcement that it would reduce crude oil production by 1.5 million barrels per day, Mexico announced it would reduce its crude oil exports by 100 thousand barrels per day to 1.66 million barrels per day for six months, beginning on January 1, 2002. Most recently, following an OPEC announcement that it would maintain current crude oil production levels through fourth quarter 2002, Mexico affirmed that it would maintain its crude oil exports at their present levels for the same period.

        We do not control the Mexican Government's international affairs and the Mexican Government could agree with OPEC or other countries to reduce our crude oil production or exports in the future.

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To the extent that such international agreements restrict our exports of crude oil, it is possible that Mexican domestic markets will not be able to consume additional amounts of crude oil that we are not allowed to export as a result of such agreements, thus reducing our revenues.

PEMEX does not own the hydrocarbon reserves in Mexico

        A guaranteed source of petroleum and other hydrocarbons is essential to an oil company's production and generation of income. As a result, many oil and gas companies own hydrocarbon reserves. The Political Constitution of the United Mexican States provides that the Mexican nation, not PEMEX, owns the petroleum and other hydrocarbon reserves located in Mexico. Although Mexican law gives Petróleos Mexicanos and the subsidiary entities the exclusive right to exploit Mexico's hydrocarbon reserves, it does not preclude the Mexican Government from changing current law and assigning these rights to another company. If the Mexican Government, by way of an amendment to the Ley Reglamentaria del Artículo 27 Constitucional en el Ramo del Petróleo (Regulatory Law to Article 27 of the Political Constitution of the United Mexican States Concerning Petroleum Affairs, which we refer to as the "Regulatory Law"), assigned the rights to exploit its hydrocarbon reserves to another company, our ability to generate income would be adversely affected.

Petróleos Mexicanos and the subsidiary entities pay special taxes, duties and dividends to the Mexican Government

        Petróleos Mexicanos and the subsidiary entities pay a number of special taxes and duties to the Mexican Government. These taxes and duties totaled Ps. 208,137 million in 1999, Ps. 292,960 million in 2000 and Ps. 262,778 million in 2001. For 2002, we expect the sum of these taxes and duties to total approximately 60.8% of the revenue that we derive from sales to the PMI Group and third parties. In addition to these duties and taxes, the Mexican Government imposes an excess gains tax equal to 39.2% of the portion of Pemex-Exploration and Production's crude oil sales revenue in excess of a threshold price set by the Mexican Government, which in 2002 is U.S. $15.50 per barrel. See "Item 4—Information on the Company—Taxes and Duties" and "Item 5—Operating and Financial Review and Prospects—General—IEPS Tax, Excess Gains Duty, Hydrocarbon Duties and Other Taxes."

        The Mexican Government and PEMEX determine the rates of taxes and duties applicable to PEMEX from year to year depending on a variety of factors, including our:

•

projected sales revenues;



•

operating program;



•

capital expenditures program; and



•

financing needs.

        Petróleos Mexicanos is also obligated to pay minimum guaranteed dividends to the Mexican Government. The minimum guaranteed dividends totaled Ps. 5,138 million in 1999, Ps. 5,564 million in 2000 and Ps. 2,153 million in 2001. For further information on how the minimum guaranteed dividend is determined, see "Item 5—Operating and Financial Review and Prospects—Liquidity and Capital Resources—Equity Structure and the Certificates of Contribution 'A,"' "Item 8—Financial Information—Dividends" and Note 13 to the Financial Statements.

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PEMEX must make significant capital expenditures to maintain its current production levels and increase Mexico's hydrocarbon reserves. Mexican Government budget cuts, reductions in PEMEX's income and inability to obtain financing may limit PEMEX's ability to make capital investments

        We invest funds to increase the amount of extractable hydrocarbon reserves in Mexico. We also continually invest capital to enhance our hydrocarbon recovery ratio and improve the reliability and productivity of our infrastructure. We estimate that we will need to make capital expenditures of approximately U.S. $45.3 billion in exploration and production over the next five years and an additional U.S. $16.1 billion to upgrade our refineries over the next ten years, in order to increase production to meet anticipated growth in domestic and international market demand.

        Our ability to make these capital expenditures is limited by the substantial taxes that we pay and cyclical decreases in our revenues primarily related to lower oil prices. In addition, budget cuts imposed by the Mexican Government and the availability of financing may also limit our ability to make capital investments. Because the non-PIDIREGAS portion of our investment budget is part of the Mexican Government's annual budget, when the Mexican Government reduces its annual budget, it may also reduce that portion of our investment budget. For example, in 1998, low crude oil prices reduced our income and the amount of taxes and duties that we paid to the Mexican Government. As a result, the Mexican Government imposed federal budget cuts that resulted in an 11.1% decrease in our capital expenditures budget (excluding PIDIREGAS) in 1998.

        The Mexican Government has recently approved a PIDIREGAS investment budget that we believe will be sufficient to meet a large proportion of our capital expenditure needs for the next five years. However, under the PIDIREGAS program, we are required to obtain financing that can be supported by the project being funded. The availability of this financing is subject to factors beyond our control. Accordingly, we cannot guarantee that we will always have the funds necessary to continue capital investments at their current levels.

PEMEX's debt obligations may be affected by the Mexican Government's agreements with external creditors

        Petróleos Mexicanos and the subsidiary entities are decentralized public sector entities under the direct control of the Mexican Government; consequently, the Mexican Government's agreements with international creditors may affect our external debt obligations. Since 1982, Mexico and its commercial bank creditors have concluded four debt restructurings and new money exercises. In these restructurings, Petróleos Mexicanos' external indebtedness was treated on the same terms as the debt of the Mexican Government and other public sector entities. In addition, Mexico has entered into agreements with official bilateral creditors to reschedule public sector external debt. Mexico has not requested restructuring of bonds or debt owed to multilateral agencies.

PEMEX may claim some immunities under the Foreign Sovereign Immunities Act

        Petróleos Mexicanos and the subsidiary entities are decentralized public entities of the Mexican Government. Because the Mexican Government is a foreign sovereign, you may not be able to obtain a judgment in a U.S. court against us. In addition, Mexican law specifies that attachment prior to judgment and attachment in aid of execution may not be ordered by Mexican courts against us or our assets and, as a result, your ability to enforce judgments against us in the courts of Mexico may be limited.

        Unless we waive our immunity, you could obtain a U.S. court judgment against us only if a U.S. court were to determine that we are not entitled to sovereign immunity under the Foreign Sovereign Immunities Act of 1976 with respect to that action. We also do not know whether Mexican courts would enforce judgments of United States courts based on the civil liability provisions of the federal securities laws of the United States.

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        Even if you were able to obtain a U.S. judgment against us under the Foreign Sovereign Immunities Act, you might not be able to obtain a judgment in Mexico that is based on that U.S. judgment. Moreover, you may not be able to enforce a judgment against our property in the United States except under the limited circumstances specified in the Foreign Sovereign Immunities Act.

Satisfaction of any judgment in Mexico against PEMEX may be made in pesos

        If you were to bring an action in Mexico seeking to enforce our obligations under any of our securities, satisfaction of those obligations may be made in pesos. The Ley Monetaria de los Estados Unidos Mexicanos (Monetary Law of the United Mexican States) entitles us to discharge foreign currency denominated obligations in Mexico with a payment in pesos at the exchange rate determined by Banco de México (Mexico's Central Bank) on the date payment is made. This rate is currently announced by Banco de México each banking day and published the following day in the Diario Oficial de la Federación (the Official Gazette of the Federation).

Considerations Related to Mexico

Petróleos Mexicanos and the subsidiary entities are foreign companies, and as a result holders of PEMEX securities may not be able to effect service of process on, or enforce a judgment against, PEMEX

        Petróleos Mexicanos and the subsidiary entities are organized under the laws of Mexico and all of its directors and officers, as well as some of the experts named in this annual report, reside outside the United States. Substantially all of our assets and those of most of our directors, officers and experts are located outside the United States. As a result, you may not be able to effect service of process on our directors or officers or those experts within the United States. You also may not be able to enforce in Mexico judgments obtained in the United States against us, our directors or officers or the experts, if those judgments are not consistent with Mexican public policy and procedural rules.

Economic conditions and government policies in Mexico may have a material impact on PEMEX's operations

        A deterioration in Mexico's economic conditions, social instability, political unrest or other adverse social developments in Mexico could adversely affect our business and financial condition. Those events could also lead to increased volatility in the foreign exchange and financial markets, thereby affecting our ability to obtain and service foreign debt. In addition, the Mexican Government may cut spending in the future. These cuts could adversely affect our business, financial condition and prospects.

        From 1982 to 1987 Mexico experienced several periods of slow or negative economic growth, high inflation, peso devaluations and limited availability of foreign exchange. Beginning in December 1994 and continuing through 1995, Mexico experienced an economic crisis characterized by exchange rate instability, devaluation of the peso, high inflation, high domestic interest rates, negative economic growth, reduced consumer purchasing power and high unemployment. Despite signs of economic recovery following the implementation of broad economic reforms in 1995, a combination of factors led to a slowdown in Mexico's economic growth in 1998. Notably, the decline in the price of crude oil resulted in a reduction of federal revenues, approximately one-third of which derive from petroleum taxes and duties. In addition, the economic crises in Asia and Russia and the financial turmoil in Brazil, Venezuela and elsewhere produced greater volatility in the international financial markets, which further slowed Mexico's recovery. The Mexican Government estimates that real Gross Domestic Product ("GDP") grew 4.9% in 1998, 3.7% in 1999 and 6.6% in 2000 but decreased 0.3% in 2001. The Mexican Government estimates that GDP growth for 2002 will be approximately 1.7%.

        Despite the slowdown in economic recovery and the significant devaluation of the peso in 1998 and the contraction in 2001, Mexico has managed to maintain a high level of gross international reserves, which totaled U.S. $45,312 million at November 8, 2002. In the future, however, the Mexican

95

economy could continue to suffer from declines in foreign direct and portfolio investment due to international financial crises, inflationary pressures, high short-term interest rates and low oil prices.

Changes in exchange rates or in Mexico's exchange control laws may hamper the ability of PEMEX to service its foreign currency debt

        While the Mexican Government does not currently restrict the ability of Mexican companies or individuals to convert pesos into dollars or other currencies, in the future, the Mexican Government could impose a restrictive exchange control policy, as it has done in the past. We cannot assure you that the Mexican Government will maintain its current policies with regard to the peso or that the peso's value will not fluctuate significantly in the future. The peso has been subject to significant devaluations against the U.S. dollar in the past and may be subject to significant fluctuations in the future. Mexican Government policies affecting the value of the peso could prevent us from paying our foreign currency obligations.

        As of December 31, 2001, the total debt of PEMEX totaled Ps. 159.4 billion (or Ps. 156.8 billion excluding accrued interest), 84.2% of which was denominated in U.S. dollars. Of this amount, U.S. $7.5 billion (or Ps. 68.7 billion) was attributable to the indebtedness of the Pemex Project Funding Master Trust denominated in U.S. dollars, Euros and other currencies and guaranteed by Petróleos Mexicanos, Pemex-Exploration and Production, Pemex-Refining and Pemex-Gas and Basic Petrochemicals. In addition, Pemex Finance, Ltd., a Cayman Islands company with limited liability established to issue securities backed by PMI crude oil receivables to provide financing for investments in PIDIREGAS, had indebtedness totaling U.S. $5.3 billion at December 31, 2001. We do not guarantee Pemex Finance, Ltd.'s indebtedness. In the future, PEMEX and Pemex Finance, Ltd. may incur additional indebtedness denominated in U.S. dollars or other currencies. Declines in the value of the peso relative to the U.S. dollar or other currencies may increase our interest costs in pesos and result in foreign exchange losses.

        From October 1992 to December 21, 1994, Banco de México intervened in foreign exchange markets to maintain the peso-dollar exchange rate within a government-controlled range that widened daily. On December 21, 1994, the Mexican Government suspended Banco de México's foreign exchange market operations and allowed the peso to float freely against the U.S. dollar. The Mexican Government may introduce similar policies in the future that affect the exchange rate between the peso and other currencies.

        For a further discussion of historical peso/U.S. dollar exchange rates, see "—Exchange Rates" above.

Political conditions in Mexico could materially and adversely affect Mexican economic policy and, in turn, PEMEX's operations

        The national elections held on July 2, 2000 ended 71 years of rule by the Institutional Revolutionary Party ("PRI") with the election of President Vicente Fox Quesada, a member of the National Action Party ("PAN") and resulted in the increased representation of opposition parties in the Mexican Congress and in mayoral and gubernatorial positions. Neither the PRI nor the PAN currently has a majority in the Congress or Senate. This shift in political power has transformed Mexico from a one-party state to a pluralist democracy. Although there have not yet been any material adverse repercussions resulting from this political change, multiparty rule is still relatively new in Mexico and could result in economic or political conditions that could materially and adversely affect our operations. The lack of a majority party in the legislature and the lack of alignment between the legislature and the President could result in deadlock and prevent the timely implementation of economic reforms, which in turn could have a material adverse effect on the Mexican economy and on our business.

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Item 4. Information on the Company

HISTORY AND DEVELOPMENT

        We are the largest company in Mexico, and according to Petroleum Intelligence Weekly, we were the sixth largest oil and gas company in the world in 2000, accounting for nearly 5% of the world's crude oil and condensates production in 2000. In 1938, the President of Mexico nationalized foreign-owned oil companies which were then operating in Mexico and the Mexican Congress established Petróleos Mexicanos by a decree, effective on July 20, 1938. Since 1938, Mexican federal laws and regulations have entrusted Petróleos Mexicanos with the central planning and management of Mexico's petroleum industry. On July 17, 1992, the Mexican Congress created the subsidiary entities out of operations that had previously been directly managed by Petróleos Mexicanos. Petróleos Mexicanos and its four subsidiary entities, Pemex-Exploration and Production, Pemex-Refining, Pemex-Gas and Basic Petrochemicals and Pemex-Petrochemicals, are decentralized public entities of the Mexican Government, and each is a legal entity empowered to own property and carry on business in its own name.

        PEMEX's executive offices are located at Avenida Marina Nacional No. 329, Colonia Huasteca, Mexico, D.F. 11311, Mexico. PEMEX's telephone number is (52-55) 5722-2500.

Organizational Laws

        The activities of Petróleos Mexicanos and the subsidiary entities are regulated primarily by:

•

the Regulatory Law; and



•

the Ley Orgánica de Petróleos Mexicanos y Organismos Subsidiarios (the Organic Law of Petróleos Mexicanos and Subsidiary Entities, which we refer to as the "Organic Law").

        The Organic Law and related regulations grant Petróleos Mexicanos and certain of the subsidiary entities the exclusive right to:

•

explore, exploit, refine, transport, store, distribute and sell (first-hand) crude oil;



•

explore, exploit, produce and sell (first-hand) natural gas and transport and store natural gas, to the extent the transportation and storage activities are inextricably linked with such exploitation and production; and



•

produce, store, transport, distribute and sell (first-hand) the derivatives of petroleum (including petroleum products) and natural gas used as basic industrial raw materials that constitute basic petrochemicals, which include ethane, propane, butanes, pentanes, hexanes, heptanes, naphthas, carbon black feedstocks and methane, but in the case of methane, only if obtained from hydrocarbons used as basic raw materials by the petrochemical industry and obtained from deposits located in Mexico.

        The Organic Law allocates the operating functions of Petróleos Mexicanos among the four subsidiary entities, each of which has the characteristics of a subsidiary of Petróleos Mexicanos. The principal objectives of the subsidiary entities are as follows:

•

Pemex-Exploration and Production explores for and exploits crude oil and natural gas and transports, stores and markets these hydrocarbons;



•

Pemex-Refining refines petroleum products and derivatives that may be used as basic industrial raw materials and stores, transports, distributes and markets these products and derivatives;



•

Pemex-Gas and Basic Petrochemicals processes natural gas, natural gas liquids and derivatives that may be used as basic industrial raw materials and stores, transports, distributes and markets

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these products and produces, stores, transports, distributes and markets basic petrochemicals; and

•

Pemex-Petrochemicals engages in industrial petrochemical processes and stores, distributes and markets petrochemicals other than basic petrochemicals.

        In 1995, the Mexican Congress amended the Regulatory Law to allow private and social sector companies, which include labor-controlled organizations and industries, to participate, with the Mexican Government's approval, in the storage, distribution and transportation of natural gas. The new regulation allows these types of companies to construct, own and operate pipelines, installations and equipment. Since 1997, the Mexican Government has required PEMEX to divest its existing natural gas distribution assets but has allowed PEMEX to retain exclusive authority over the exploration, exploitation, production and first-hand sale of natural gas, as well as the transportation and storage inextricably linked with this type of exploitation and production. See "—Gas and Basic Petrochemicals—Private Sector Participation in Natural Gas Distribution" below.

Capital Expenditures and Investments

        PEMEX funds its annual budget (not including PIDIREGAS) through revenue generated by its operations and financing activities. Capital expenditures are undertaken by Petróleos Mexicanos and the subsidiary entities. Capital expenditures and operating expenses must be authorized in our annual budget, which is approved by the Mexican Congress. PIDIREGAS are off-balance sheet long-term productive infrastructure projects funded through financing activities of the Pemex Project Funding Master Trust or directly by a contractor and must also be authorized in a budget approved by the Mexican Congress. Thus, each year, we submit proposals to and negotiate with the Mexican Government regarding how our after-tax funds should be allocated.

        PIDIREGAS.    An important component of our capital expenditures are PIDIREGAS. Because of federal budgetary constraints, the Mexican Government has sought private sector participation in the building and financing of PIDIREGAS. The Mexican Government approves the designation of certain infrastructure projects as PIDIREGAS. This designation means that such projects are treated as off-balance sheet items for annual budgetary purposes, until delivery of the completed project to us or until our payment obligations begin under the contract.

        The Ley General de Deuda Pública (General Law of Public Debt) and the Ley de Presupuesto, Contabilidad y Gasto Público Federal (Federal Law of Budget, Accounting and Public Expenditure) define the PIDIREGAS legal framework. Article 18 of the General Law of Public Debt outlines the treatment of financial obligations under PIDIREGAS, defining as a direct liability the amounts payable under a financing during the current and immediately following fiscal years, and the remaining amounts as a contingent liability until its full payment. Article 30 of the Federal Law of Budget, Accounting and Public Expenditure grants PIDIREGAS preferential and priority treatment for inclusion in the Mexican Government's budget in future years, until the full payment of a project's costs.

        PIDIREGAS have three stages:

•

The Mexican Government identifies a project as a PIDIREGAS and authorizes expenditures related to their development by the private sector;



•

Private sector companies, in cooperation with PEMEX, build and deliver the project to PEMEX; and



•

PEMEX, with the Mexican Government's authorization, pays all amounts owing to contractors and makes final payments to receive delivery of the completed project and then records as a liability the full principal amount of all indebtedness incurred to finance the project.

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        Compliance with the Mexican Government's Financial Reporting Standards and the Guidelines for the Accounting Treatment of Investments in Long-Term Productive Infrastructure Projects (Technical Release NIF-09), which outlines the accounting and budgetary treatment applicable to PIDIREGAS, is mandatory during the construction period and after delivery of the PIDIREGAS. The distinction between the PIDIREGAS and non-PIDIREGAS expenditures is an important one for budgetary purposes, as a project's designation as a PIDIREGAS guarantees that its financing is immune from across-the-board budget cuts.

        In recent years, PIDIREGAS have represented a significant portion of our total annual capital expenditures. PIDIREGAS expenditures alone totaled Ps. 36.6 billion in 2001 (53% of our total capital expenditures), Ps. 42.4 billion in 2000 (57% of our total capital expenditures) and Ps. 27.3 billion in 1999 (52% of our total capital expenditures). For 2002, PEMEX has budgeted approximately Ps. 104.4 billion for PIDIREGAS expenditures (or approximately 70% of our total budgeted capital expenditures), including payment of 100% of the Madero, Salamanca and Tula projects. While PIDIREGAS expenditures are considered off-balance sheet items under Mexican Financial Reporting Standards applicable to Mexican public sector entities, all of these expenditures are included in our Mexican GAAP financial statements.

        The following table sets forth our capital expenditures for PIDIREGAS for the five years ended December 31, 2001 and the budget for such expenditures for 2002.

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PIDIREGAS Capital Expenditures
Year ended December 31,(1)

			1997		1998(2)		1999(2)		2000(2)		2001(2)		Budget 2002(2)(3)
			(millions of pesos)
Pemex-Exploration and Production
Cantarell			Ps.	3,147	Ps.	12,979	Ps.	18,337	Ps.	20,210	Ps.	25,867	Ps.	30,709
Burgos				1,684		4,826		7,307		5,596		7,018		12,500
Delta del Grijalva				—		795		982		1,431		1,466		1,469
Strategic Gas Program(4)				—		—		—		—		1,594		16,569
Ku-Maloob-Zaap				—		—		—		—		—		3,953
Antonio J. Bermúdez				—		—		—		—		—		1,520
Jujo-Tecominoacán				—		—		—		—		—		1,205
Bellota-Chinchorro				—		—		—		—		—		1,074
Cactus-Sitio Grande				—		—		—		—		—		1,219
Abkatún Integral				—		—		—		—		—		1,806
Ek-Balam				—		—		—		—		—		589
El Golpe-Puerto Ceiba				—		—		—		—		—		638
Taratunich				—		—		—		—		—		465
Och-Uech-Kax				—		—		—		—		—		660
Carmito-Artesa				—		—		—		—		—		642
Arenque				—		—		—		—		—		428
Cárdenas				—		—		—		—		—		292
Amatitlán-Profeta- Tzapotempa-Vinazco				—		—		—		—		—		170
Ayín-Alux				—		—		—		—		—		90
Pol				—		—		—		—		—		1,492
Chuc				—		—		—		—		—		1,764
Agua Fría-Coapechaca-Tajín				—		—		—		—		—		377
Caan				—		—		—		—		—		1,417
Integral Batab				—		—		—		—		—		572
Integral Kaanab				—		—		—		—		—		313
Integral Poza Rica				—		—		—		—		—		294
Integral Yaxche				—		—		—		—		—		5
		Total		4,831		18,599		26,626		27,236		35,945		82,234
Pemex-Refining(5)
	Cadereyta			—		—		—		15,198		684		—
	Madero			—		—		—		—		—		17,225
	Salamanca			—		—		—		—		—		2,600
	Tula			—		—		—		—		—		1,621
		Total		—		—		—		15,198		684		21,445
Pemex-Gas and Basic Petrochemicals
	Cryogenic Plant No. 2			—		890		653		—		—		—
	Modular Cryogenic Plants in Reynosa			—		—		—		—		—		734
		Total		—		890		653		—		—		734
	Total PIDIREGAS Budget		Ps.	4,831	Ps.	19,489	Ps.	27,279	Ps.	42,435	Ps.	36,629	Ps.	104,414

Notes: Numbers may not total due to rounding.

(1)

Amounts based on cash basis method of accounting.

(2)

Includes capitalized interest during construction period.

(3)

Approved budget.

(4)

The Strategic Gas Program includes 19 different natural gas projects.

(5)

The Cadereyta project of Pemex-Refining was partially accepted at the end of 2001. As of December 31, 2001, the project was certified as 99.31% complete. The Madero project was completed on October 24, 2002, and the Tula project was completed on August 27, 2002. The Salamanca project is expected to be completed in the second half of 2002.

Source: Petróleos Mexicanos

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        For 2002, the Mexican Government has approved an additional 24 new PIDIREGAS, 23 of which will be carried out by Pemex-Exploration and Production, and one of which will be carried out by Pemex-Gas and Basic Petrochemicals. The following table sets forth our approved capital expenditures budget for PIDIREGAS for 2002 through 2006.

PIDIREGAS Approved Budget Capital Expenditures

			Year ended December 31, (1)(2)
			2002		2003		2004		2005		2006
					(millions of constant 2002 pesos)
Pemex-Exploration and Production
	Cantarell		Ps.	30,709	Ps.	20,778	Ps.	12,215	Ps.	7,392	Ps.	6,914
	Burgos			12,500		17,099		14,492		14,128		10,124
	Delta del Grijalva			1,469		184		—		—		—
	Strategic Gas Program			16,569		17,360		18,047		20,481		5,249
	Ku-Maloob-Zaap			3,953		9,279		8,763		5,308		4,315
	Antonio J. Bermúdez			1,520		2,170		2,414		2,780		2,630
	Jujo-Tecominoacán			1,205		1,197		1,621		934		614
	Bellota-Chinchorro			1,074		1,986		1,442		1,015		582
	Cactus-Sitio Grande			1,219		1,453		1,347		1,053		580
	Abkatún Integral			1,806		2,134		1,459		1,148		1,024
	Ek-Balam			589		661		578		468		302
	El Golpe-Puerto Ceiba			638		751		640		342		187
	Taratunich			465		736		296		265		260
	Och-Uech-Kax			660		333		162		115		100
	Carmito-Artesa			642		882		712		576		354
	Arenque			428		876		678		659		444
	Cárdenas			292		540		407		310		117
	Amatitlán-Profeta-Tzapotempa-Vinazco(3)			170		476		557		638		675
	Ayín-Alux			90		420		1,256		1,865		869
	Pol			1,492		1,976		1,182		1,137		1,117
	Chuc			1,764		1,942		1,159		1,241		1,401
	Agua Fría-Coapechaca-Tajín(3)			377		777		1,060		1,071		349
	Caan			1,417		1,145		1,049		939		927
	Integral Batab			572		228		90		122		86
	Integral Kaanab			313		32		2		2		2
	Integral Poza Rica			294		370		310		355		273
	Integral Yaxche			5		104		644		288		22
		Total		82,234		85,890		72,582		64,630		39,515
Pemex-Refining
	Madero			17,225		—		—		—		—
	Salamanca			2,600		—		—		—		—
	Tula			1,621		—		—		—		—
	Minatitlán			—		—		13,488		—		—
	Salina Cruz			—		—		—		13,632		—
		Total		21,445		—		13,488		13,632		—
Pemex-Gas and Basic Petrochemicals
	Modular Cryogenic Plants in Reynosa			734		882		—		—		—
		Total		734		882		—		—		—
Total PIDIREGAS Budget			Ps.	104,414	Ps.	86,771	Ps.	86,069	Ps.	78,262	Ps.	39,515

Note: Numbers may not total due to rounding.

(1)

Amounts based on cash basis method of accounting.

(2)

Includes capitalized interest.

(3)

PIDIREGAS relating to the development of the Chicontepec field.

Source: Petróleos Mexicanos

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        Non-PIDIREGAS Capital Expenditures.    In addition to the Ps. 36.6 billion spent on PIDIREGAS in 2001, we spent Ps. 32.5 billion in 2001 for other capital expenditures, which represents a 3% increase from the Ps. 31.6 billion in non-PIDIREGAS capital expenditures in 2000. Of the Ps. 32.5 billion in non-PIDIREGAS capital expenditures during 2001, we directed Ps. 21.4 billion (or 66% of total non-PIDIREGAS capital expenditures) to exploration and production programs. Of the Ps. 31.6 billion in non-PIDIREGAS capital expenditures in 2000 and the Ps. 25.5 billion in non-PIDIREGAS capital expenditures in 1999, we directed Ps. 19.4 billion (or 61% of total non-PIDIREGAS capital expenditures) in 2000 and Ps. 14.6 billion (or 57% of total non-PIDIREGAS capital expenditures) in 1999 to exploration and production programs.

        Excluding PIDIREGAS expenditures, we have budgeted a total of Ps. 44.8 billion for capital expenditures in 2002. Of this amount, we expect to direct Ps. 27.5 billion (or 61% of total non-PIDIREGAS capital expenditures) to exploration and production programs in 2002.

        Our capital expenditures (excluding PIDIREGAS) for the five years ended December 31, 2001 and budgeted for 2002 and 2003 were distributed and budgeted among the subsidiary entities as follows:

Non-PIDIREGAS Capital Expenditures(1)

	Year ended December 31,
	1997		1998		1999		2000		2001		Budget 2002(3)		Budget 2003(4)
	(millions of pesos)
Pemex-Exploration and Production	Ps.	19,385	Ps.	19,103	Ps.	14,600	Ps.	19,390	Ps.	21,357	Ps.	27,512	Ps.	35,931
Pemex-Refining		5,506		7,162		6,608		6,874		6,538		8,942		11,200
Pemex-Gas and Basic Petrochemicals		3,021		3,334		2,777		3,719		2,676		4,758		6,405
Pemex-Petrochemicals		724		1,431		1,214		1,143		1,541		2,704		4,118
Petróleos Mexicanos corporate(2)		287		262		319		429		366		834		4,521
Total	Ps.	28,923	Ps.	31,293	Ps.	25,518	Ps.	31,554	Ps.	32,478	Ps.	44,750	Ps.	62,174
Amortization of PIDIREGAS included in total	Ps.	0	Ps.	39	Ps.	146	Ps.	2,585	Ps.	5,003	Ps.	11,110	Ps.	15,189

Note: Numbers may not total due to rounding.

(1)

There are no capital expenditures at the subsidiary company level.

(2)

Petróleos Mexicanos corporate consists of the operations of the central management of Petróleos Mexicanos.

(3)

Approved budget.

(4)

Subject to approval by the Mexican Congress.

Source: Petróleos Mexicanos

102

        Our principal objectives for upstream investment are to increase and improve the quality of Mexico's reserves, enhance Pemex-Exploration and Production's recovery ratio and improve the reliability of its production and transportation infrastructure for crude oil and natural gas operations. In 2002, Pemex-Exploration and Production plans to continue its Strategic Gas Program to increase the supply of natural gas for the domestic market in the medium to long term. The 23 new PIDIREGAS primarily focus on the production of Isthmus and Olmeca crude oil, in order to improve the quality of the Mexican mixture of crude oil processed in our refineries and available for export.

        Our downstream investment program seeks to improve the quality of our product selection, to achieve a level of efficiency similar to that of our international competitors and to continue to emphasize industrial safety and environmental compliance.

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BUSINESS OVERVIEW

Overview by Business Segment

Exploration and Production

        Pemex-Exploration and Production explores for and produces crude oil and natural gas, primarily in the northeastern and southeastern regions of Mexico and offshore in the Gulf of Mexico. Measured in U.S. dollars, we increased our capital investment in exploration and production activities by 14% in 2001 by financing an array of programs to expand production capacity and efficiency. As a result of our investments in previous years, our total hydrocarbon production reached a level of approximately 4.1 million barrels of oil equivalent per day in 2001. Pemex-Exploration and Production's crude oil production increased by 3.8% from 2000 to 2001, averaging 3,127 thousand barrels per day in 2001. Pemex-Exploration and Production's natural gas production (excluding natural gas liquids) decreased by 3.6% from 2000 to 2001, averaging 4,511 million cubic feet per day in 2001.

Refining

        Pemex-Refining converts crude oil into gasoline, jet fuel, diesel, fuel oil, asphalts and lubricants. It also distributes and markets most of these products throughout Mexico, where it experiences a significant demand for its refined products. Pemex-Refining's atmospheric distillation refining capacity remained constant from 2000 to 2001 at approximately 1,560 thousand barrels per day. In 2001, Pemex-Refining produced 1,267 thousand barrels per day of refined products as compared to 1,246 thousand barrels per day of refined products in 2000.

Gas and Basic Petrochemicals

        Pemex-Gas and Basic Petrochemicals processes natural gas and natural gas liquids, transports, distributes and sells natural gas and liquefied petroleum gas throughout Mexico and produces and sells several basic petrochemical feedstocks. Pemex-Gas and Basic Petrochemicals' total sour natural gas processing capacity increased from 3,753 million cubic feet per day in 2000 to 3,923 million cubic feet per day in 2001. Pemex-Gas and Basic Petrochemicals processed 3,179 million cubic feet per day of sour natural gas in 2001, a 0.41% increase from the 3,166 million cubic feet per day of sour natural gas produced in 2000. It produced 443 thousand barrels per day of natural gas liquids in 2001, a 0.45% decrease from 2000 natural gas liquid production of 445 thousand barrels per day.

Petrochemicals

        Pemex-Petrochemicals manufactures 39 different petrochemical products, including: (1) methane and its derivatives such as ammonia and methanol; (2) ethane and its derivatives, such as polyethylenes, as well as other olefins; (3) aromatics and their derivatives; (4) propylene and its derivatives; and (5) oxygen, nitrogen and other products. Pemex-Petrochemicals' total annual production (excluding ethane and butane gases) decreased by 12.3% in 2001, from 6,836 thousand tons in 2000 to 5,994 thousand tons in 2001.

International Trading

        In 2001, we sold 1,755 thousand barrels per day of crude oil through our subsidiary, P.M.I. Comercio Internacional, S.A. de C.V. ("PMI"). PEMEX is a major supplier of crude oil to the United States. PMI, P.M.I. Trading Ltd. ("PMI Trading") and their affiliates (together, the "PMI Group") provide PEMEX and a number of independent customers with international trading, distribution and related services. PMI and PMI Trading sell, buy and transport crude oil, refined products and petrochemicals in world markets. The PMI Group also provides related risk management, insurance, transportation and storage services to PEMEX. The PMI Group has offices in Mexico City, Houston

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and London. The PMI Group's trading volume of sales and imports totaled U.S. $17,161 million in 2001, including U.S. $11,896 million in crude oil sales.

Infrastructure of PEMEX

Exploration and Production

Reserves

        Under the Political Constitution of the United Mexican States and the Regulatory Law, all oil and other hydrocarbon reserves within Mexico are owned by the Mexican nation and not by PEMEX. Under the Organic Law, Petróleos Mexicanos and the subsidiary entities, except for Pemex-Petrochemicals, have the exclusive right to produce, not own, these reserves, and sell the production. The exploration and development activities of Petróleos Mexicanos and the subsidiary entities are limited to reserves located in Mexico.

        Proved oil and natural gas reserves are those estimated quantities of crude oil, natural gas and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions—i.e., prices and costs at the date of estimation. Mexico's proved reserves are estimated by Pemex-Exploration and Production's technical staff.

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        Pemex-Exploration and Production estimates Mexico's reserves using standard geological and engineering methods generally accepted by the petroleum industry. The choice of method or combinations of methods employed in the analysis of each reservoir is determined by:

•

experience in the area;



•

stage of development;



•

quality and completeness of basic data; and



•

production and pressure histories.

        The reserves data set forth herein represent only estimates. Reserves valuation is a subjective process of estimating underground accumulations of crude oil and natural gas that cannot be measured in an exact manner. The accuracy of any reserve estimate depends on the quality of available data, engineering and geological interpretation and judgment. As a result, estimates of different engineers may vary. In addition, the results of drilling, testing and production subsequent to the date of an estimate may justify revision of an estimate.

        Mexico's total proved developed and undeveloped reserves of crude oil and condensates decreased by 6.2% in 2000, from 21.5 billion barrels of oil equivalent at December 31, 1999 to 20.2 billion barrels of oil equivalent at December 31, 2000, and decreased by 7.0% in 2001, from 20.2 billion barrels of oil equivalent at December 31, 2000 to 18.8 billion barrels of oil equivalent at December 31, 2001. Mexico's dry gas reserves decreased by 6.0% in 2000, from 18.5 trillion cubic feet at December 31, 1999 to 17.4 trillion cubic feet at December 31, 2000, and decreased by 6.4%, from 17.4 trillion cubic feet at December 31, 2000 to 16.3 trillion cubic feet at December 31, 2001.

        The following two tables of crude oil and dry gas reserves set forth our estimates of Mexico's proved reserves determined in accordance with Rule 4-10(a) of Regulation S-X of the Securities Act of 1933.

Crude Oil and Condensate Reserves
(including natural gas liquids)(1)

			1999		2000		2001
			(in millions of barrels)
Proved developed and undeveloped reserves
	At January 1		21,638		21,519		20,186
		Revisions	775		(180	)	(144	)
		Extensions and discoveries(2)	311		91		2
		Production	(1,205	)	(1,244	)	(1,277	)
	At December 31		21,519		20,186		18,767
Proved developed reserves at December 31			11,414		12,312		12,622

Note: Numbers may not total due to rounding.

(1)

Crude oil and condensate reserves include the fraction of liquefiable hydrocarbons recoverable in natural gas processing plants.

(2)

Extensions include positive and negative changes due to new data gathered through drilling of extension wells.

Source: Pemex-Exploration and Production

106

Dry Gas Reserves

			1999		2000		2001
			(in billions of cubic feet)
Proved developed and undeveloped reserves
	At January 1		17,054		18,471		17,365
		Revisions	2,427		3		(78	)
		Extensions and discoveries(1)	176		58		98
		Production(2)	(1,186	)	(1,167	)	(1,129	)
	At December 31		18,471		17,365		16,256
Proved developed reserves at December 31			11,127		9,713		8,776

Note: Numbers may not total due to rounding.

(1)

Extensions include positive and negative changes due to new data gathered through drilling of extension wells.

(2)

Natural gas production reported in other tables refers to wet, sour gas. There is a shrinkage in volume when natural gas liquids and impurities are extracted to obtain dry gas. Therefore, reported natural gas volumes are greater than dry gas volumes.

Source: Pemex-Exploration and Production

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The following table sets forth the number of proved developed and undeveloped reserves, the number of producing wells, and the number of proved undeveloped locations for the fields that contain over 85% of Mexico's proved reserves, as of December 31, 2001.

Field		Proved Reserves		Developed Reserves		Undeveloped Reserves		Producing Wells	Undeveloped Locations
		(in millions of barrels of crude oil equivalent)
	Akal	9,160.5		7,467.6		1,692.9		178	61
	Ku-Maloob-Zaap	1,575.2		526.8		1,048.4		40	64
	Samaria	1,280.3		844.7		435.6		41	13
	Jujo-Tecominoacán	1,260.2		589.1		671.1		47	22
	Chicontepec	670.1		46.9		623.1		361	1,408
	Iride	648.6		425.9		222.7		17	12
	Cunduacán	497.6		301.2		196.4		15	11
	Sihil	428.2		0.0		428.2		0	13
	Caan	270.1		258.2		11.9		27	1
	Chuc	269.0		239.3		29.6		16	6
	Oxiacaque	265.0		160.4		104.5		9	4
	Cárdenas	114.4		66.9		47.6		15	2
	Sinán	235.8		0.0		235.8		0	22
	Muspac	313.6		207.3		106.4		15	10
	Poza Rica	214.3		196.4		18.0		138	20
	Paredón	165.3		31.0		134.3		7	0
	Ayín	188.5		0.0		188.5		0	13
	Cactus	97.6		66.7		30.9		14	13
	Abkatún	125.3		103.5		21.7		21	2
	Culebra	72.3		41.2		31.1		275	33
	Balam	117.3		117.3		0.0		7	2
	Sen	110.5		108.6		1.9		13	3
	Nohoch	69.1		69.1		0.0		4	0
	Pol	65.7		65.7		0.0		17	0
	Kutz	91.1		91.1		0.0		2	0
	Caparroso-Pijije-Escuintle	68.3		68.3		0.0		10	0
	Luna-Palapa	65.9		59.4		6.6		9	2
	Cuitláhuac	55.1		33.6		21.5		153	27
	Chac	37.6		37.6		0.0		2	0
	Arcos	31.8		21.5		10.3		117	10
	Arcabuz	19.9		10.9		9.0		73	7
	Lum	41.6		0.0		41.6		0	3
	Ek	45.6		45.6		0.0		0	0
	Ixtoc	32.1		32.1		0.0		2	0
	Bacab	24.9		24.9		0.0		3	0
	Platanal	24.7		17.0		7.7		2	1
	Escarbado	21.6		16.0		5.6		1	1
	Tizón	7.2		1.6		5.6		2	0
	Carrizo	4.5		4.5		0.0		2	0
Total		18,786.4		12,397.8		6,388.6		1,655	1,786
Mexico's proved reserves		21,892.7		14,309.4		7,583.3
Percentage		86	%	87	%	84	%

Source: Pemex-Exploration and Production

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Exploration and Drilling

        We seek to identify new oil reservoirs through our exploration program in order to maintain an adequate level of reserves. From 1990 through 2001, we completed 2,039 exploration and development wells. During 2001, the average success rate for exploration wells was 53%, and the average success rate for development wells was 91%. From 1997 to 2001, we discovered five new crude oil fields and 27 new natural gas fields, bringing the total number of our crude oil and natural gas fields in production to 301 at the end of 2001.

        While most of our offshore production in the Gulf of Mexico occurs in waters less than 100 meters deep, the 2001 exploration program included exploration of regions located in deeper waters. Our most productive crude oil and natural gas fields in the Gulf of Mexico are in the Cantarell complex, Ku-Maloob-Zaap in the Northeast Marine region and Caan, Abkatun and Chuc in the Southwest Marine region. The Cantarell complex, for example, produced 1,673 thousand barrels per day of crude oil in 2001, or 53.5% of our total 2001 crude oil production, and 610 million cubic feet per day of natural gas in 2001, or 13.5% of our total 2001 natural gas production.

        The following table summarizes our drilling activity for the five years ended December 31, 2001.

			Year Ended December 31,
			1997	1998	1999	2000	2001
Wells drilled			130	233	234	285	449
Wells completed			121	203	234	247	459
	Exploratory wells		10	21	22	37	53
		Success rate %	70	62	41	57	53
	Development wells		111	182	212	210	406
		Success rate %	96	98	91	95	91
Producing wells at end of period(1)			4,663	4,551	4,269	4,184	4,185
	Marine Region(1)		354	336	302	310	312
	Southern Region(1)		1,323	1,260	1,125	1,113	1,015
	Northern Region(1)		2,986	2,955	2,842	2,761	2,858
Fields in production			339	324	313	299	301
	Marine Region		19	19	19	18	19
	Southern Region		106	105	106	104	96
	Northern Region		214	200	188	177	186
Drilling Rigs			48	60	42	43	50
Kilometers drilled			527	728	706	782	1,098
Average depth by well (meters)			3,507	3,907	3,062	2,838	2,359
Discovered Fields			—	6	5	6	23
	Crude Oil		—	2	—	1	2
	Natural gas		—	4	5	5	21
Crude oil and natural gas output by well (barrels per day)			852	897	920	959	978

(1)

Figures for the years ended 2000 and 2001 represent annual averages.

Source: Pemex-Exploration and Production

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        The following table sets forth our lifting costs (the average amount in U.S. dollars that it costs us to extract a barrel of oil equivalent) for each of the last three years.

Average Lifting Costs Year Ended December 31,
1999	2000	2001
(U.S. dollars per barrel)
$2.21	$2.97	$3.34
Source: Pemex-Exploration and Production

        Lifting costs increased by 12.5% from 2000 to 2001 as a result of an increase in the price of gas for pneumatic pumping, an increase in maintenance expenses and an increase in purchases of nitrogen.

New Discoveries

        During the year 2001, we discovered new sources of crude oil and natural gas reserves in the Southwestern Marine region and the Burgos fields of Northern Mexico. The new discoveries yielded a total of 20.8 million barrels of crude oil equivalent reserves.

        In the Southwestern Marine region, drilling of the Kopó 1 well led to the addition of 21.2 billion cubic feet of proved natural gas reserves, and the drilling of wells in Burgos led to the addition of 69.0 billion cubic feet of proved natural gas reserves. The main discoveries in the Arabe, Kripton and Sigma fields in Burgos during 2001 account for 31.9 billion cubic feet of proved natural gas reserves. In addition, new discoveries in Veracruz led to an addition of 13.9 billion cubic feet of natural gas.

Investment in Exploration and Production

        In 2001, we invested Ps. 57,302 million in exploration and production, as compared to Ps. 46,626 million in 2000, representing a 22.9% increase in investment in exploration and production. An important component of our investment budget consists of projects financed under the Mexican Government's program for PIDIREGAS. In 2001, Pemex-Exploration and Production's PIDIREGAS investments totaled approximately Ps. 35,945 million, consisting of Ps. 25,867 million in investments in the Cantarell fields, Ps. 7,018 million for development of the Burgos natural gas fields, Ps. 1,466 million in the Delta del Grijalva project and Ps. 1,594 million in the Strategic Gas Program. These PIDIREGAS are described below.

        Cantarell.    Pemex-Exploration and Production invested Ps. 18,337 million in 1999, Ps. 20,210 million in 2000, and Ps. 25,867 million in 2001 in the development of the Cantarell reservoirs in the Marine region. For 2002, we have budgeted Ps. 30,709 million for Cantarell investments. By the end of 2002, we expect our investments in the Cantarell project to total approximately U.S. $11.6 billion.

        On October 10, 1997, we awarded a build-own-operate contract for a nitrogen cryogenic plant at the Cantarell oil and natural gas field to a consortium formed by BOC Holdings, Linde, Marubeni, West Coast Energy and ICA Fluor Daniel. Under this contract, the consortium is responsible for the financing, design, construction and operation of the plant. The plant will cost an estimated Ps. 10,131 million. Pursuant to the terms of the agreement, the consortium has legal ownership of the plant, and Pemex-Exploration and Production has committed to buy from the consortium 1.2 billion cubic feet per day of nitrogen for a period of 15 years. The plant began operations in 2000, and is not yet working at full capacity. During 2001, Pemex-Exploration and Production paid approximately U.S.

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$186 million under this contract for a total volume of approximately 390.8 billion cubic feet of nitrogen. As of June 2002, the amount of the nitrogen to be supplied during the remaining life of the agreement amounted to approximately 1,200 million cubic feet per day. We expect this project to increase our crude oil recovery rates by injecting nitrogen into the Cantarell reservoirs, which should help maintain pressure during crude oil extraction. By maintaining favorable crude oil recovery rates at Cantarell, we expect that the injection program will yield long-term benefits, including an increase in exploitable hydrocarbon reserves at Cantarell. In the event that the agreement is rescinded due to a cause imputed to us, we will be obligated under the agreement to purchase the nitrogen production plant, the estimated value of which is approximately Ps. 8,310 million.

        Burgos.    In 1997, Pemex-Exploration and Production initiated a 15-year, U.S. $5.7 billion project to develop the Burgos natural gas fields in Northern Mexico, which accounted for 11% of our total natural gas production in 1997. We expect that the Burgos project will better enable us to meet increasing domestic demand for natural gas and thereby reduce our imports of natural gas in the future. Three major turn-key contracts have been awarded to Dowell-Schlumberger México (worth U.S. $108 million), Industrial Perforadora de Campeche (worth U.S. $96.4 million) and Halliburton International Inc. (worth U.S. $71 million) for this project. Exploratory activities and field reentrance and maintenance activities in the Burgos region increased estimated reserves by 66.8 million barrels of oil equivalent in 1998 and decreased estimated reserves by 24.4 million barrels of oil equivalent in 1999. We invested Ps. 7,307 million in 1999, Ps. 5,596 million in 2000 and Ps. 7,018 million in 2001 in the Burgos project. For 2002, we anticipate that our investments in this project will amount to Ps. 12,500 million and that our total accumulated investments will reach approximately U.S. $4.1 billion.

        Delta del Grijalva.    In 1998, Pemex-Exploration and Production initiated a 15-year, U.S. $600 million investment project named Delta del Grijalva, which represents the continuation of development and optimization of a group of fields in the state of Tabasco in southeastern Mexico. These fields produce Olmeca light crude oil, which is the highest value crude oil that PMI sells in international markets on behalf of PEMEX. We invested Ps. 982 million in 1999, Ps. 1,431 million in 2000 and Ps. 1,466 million in 2001 in the Delta del Grijalva project. In 2002, we expect to invest Ps. 1,469 million in this project, bringing our total investment in Delta del Grijalva to U.S. $642 million.

        Strategic Gas Program.    In 2001, Pemex-Exploration and Production initiated a nine-year, U.S. $8,105 million investment project named the Strategic Gas Program. The purpose of the program is to increase the supply of natural gas and develop a reserve that would satisfy the domestic demand for natural gas, thereby reducing future reliance on imports. Field development and optimization of production will represent 39% of investments, with the goal of increasing the production of natural gas to 883 million cubic feet per day by 2007. Exploration activities will represent 49% of investments with the goal of increasing proved reserves in the nineteen different natural gas projects by 2,412 million barrels per year of oil equivalent, from current levels. Finally, development of newly discovered fields will represent 12% of the investment amount. In 2001, total investment for the program was U.S. $283 million and average production was 19 million cubic feet per day of natural gas.

        Non-PIDIREGAS Investments.    In addition to PIDIREGAS investments, Pemex-Exploration and Production invested Ps. 21,357 million in 2001, of which 81% was invested in general operating improvements and 19% was invested in strategic projects. Our investments in strategic projects consisted of Ps. 1,385 million in oil and gas exploration and Ps. 2,764 million in general field development and facilities.

        2002 Exploration and Production Investment Budget.    For 2002, Pemex-Exploration and Production anticipates investing Ps. 27,512 million, excluding PIDIREGAS expenditures. Approximately 9% of this amount is to be allocated to investments in projects relating to field development, pipelines and exploration activities, including the continuation of certain projects that began during the period from 1997 to 2001. The remaining 91% will be allocated to operating projects as well as to projects relating

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to maintenance facilities, industrial safety and environmental matters. In addition to these non-PIDIREGAS investments, the 2002 budget includes 23 new PIDIREGAS strategic exploration and production projects for a total PIDIREGAS budget for 2002 of approximately Ps. 82,234 million. This amount includes Ps. 30,709 million for Cantarell, Ps. 12,500 million for Burgos, Ps. 16,569 million for the Strategic Gas Program, Ps. 1,469 million for Delta del Grijalva and Ps. 20,987 million for the 23 new PIDIREGAS.

Multiple Services Contracts

        In December 2001, we announced our Multiple Services Contracts program to provide financing for the development and exploitation of certain hydrocarbon reserves. The goal of the program is to increase the supply of natural gas in Mexico through a transparent process that permits contracts under the program to be executed quickly. Under this program, we will, in consultation with private sector companies, develop a generic model services contract and solicit bids from a variety of contractors for the performance of various high-technology services including seismic reservoir characterization, implementation of new well logging technology and other high-technology methods of enhancing well performance and analysis. We published the generic model services contract in June 2002 and expect to begin to solicit bids in the first half of 2003.

Crude Oil Production

        In 2001, we produced an average of 3,127 thousand barrels per day of crude oil, 3.8% greater than our average daily production in 2000. The increase was mainly due to an increase in production of crude oil by the Cantarell project of 261 thousand barrels per day (or 18% greater than its average daily production for 2000), which was only partially offset by a decrease in production of light crude oil in other regions.

        Crude oil can be classified by sulphur content. "Sour" crudes contain 3.4% or greater sulphur content by weight and "sweet" crudes contain less than 1.0% sulphur content by weight. Most of our production is classified as sour crudes.

        Pemex-Exploration and Production produces four types of crude oil:

•

Altamira, a heavy crude oil;



•

Maya, a heavy crude oil;



•

Isthmus, a light crude oil; and



•

Olmeca, a very light crude oil.

        Most of Pemex-Exploration and Production's production consists of Isthmus and Maya crude oil. In 2001, 63.9% of Pemex-Exploration and Production's total production of crude oil consisted of heavy crudes and 36.1% consisted of light and very light crudes. The Marine region yields mostly heavy crude oil (62.5% of overall production), although significant volumes of light crude oil are also produced (18.7% of overall production). The Southern region yields mainly light and very light crudes (together, 16.3% of overall production), whereas the Northern region yields mostly heavy crude oil (together, 2.5% of overall production).

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        The following table sets forth our annual crude oil production rates for the five years ended December 31, 2001.

			Year Ended December 31,
								2001 vs. 2000
			1997	1998	1999	2000	2001
			(in thousands of barrels per day)					(%)
Marine region
	Heavy crude oil		1,511.0	1,605.4	1,516.3	1,730.5	1,953.6	12.9
	Light crude oil		788.1	751.8	721.5	654.4	586.2	(10.4	)
		Total	2,299.1	2,357.2	2,237.8	2,384.9	2,539.8	6.5
Southern region
	Heavy crude oil		0.6	0.2	—	—	—	—
	Light crude oil		626.3	620.6	587.2	549.6	508.7	(7.4	)
		Total	626.9	620.8	587.2	549.6	508.7	(7.4	)
Northern region
	Heavy crude oil		55.5	53.3	47.2	43.7	43.3	(0.9	)
	Light crude oil		40.8	39.1	33.9	33.7	35.2	4.4
		Total	96.3	92.4	81.1	77.5	78.5	1.4
Total heavy crude oil			1,567.1	1,658.9	1,563.5	1,774.3	1,997.0	12.6
Total light crude oil			1,455.2	1,411.5	1,342.6	1,237.7	1,130.1	(8.7	)
	Total crude oil		3,022.2	3,070.5	2,906.0	3,012.0	3,127.0	3.8

Note: Numbers may not total due to rounding.

Source: Pemex-Exploration and Production

        In 2001, the Marine region's offshore facilities, which are located in the Campeche Sound in the Gulf of Mexico, produced approximately 81% of Mexico's crude oil. Approximately 16% of crude oil production came from onshore facilities in the Southern region. Inland facilities in the Northern region accounted for the remaining 3% of total crude oil production. Due to the high productivity of certain wells, 15 fields accounted for 85.6% of Mexico's crude oil production in 2001.

        The Marine region is an area of approximately 21,000 square kilometers in the Campeche Sound in the Gulf of Mexico. Our production area covers 9,000 square kilometers of the Marine region. We began geophysical operations in this region in 1972, commenced drilling in 1974 and began production in June 1979. In 2001, the average production level for this region was 2,540 thousand barrels per day. The Marine region's oil fields are less than 100 meters below sea level and have an average well depth of 3,500 meters.

        The Southern region covers an area of approximately 23,000 square kilometers, with our production area in this region comprising 9,000 square kilometers in the states of Chiapas and Tabasco. In 2001, production in the Southern region totaled 509 thousand barrels per day. This production area included 104 oil fields with an average well depth of 5,500 meters.

        The Northern region covers an area of approximately 2 million square kilometers, with our production area in this region located in the states of Veracruz, Tamaulipas, Nuevo León, Coahuila, San Luis Potosí and the continental platform in the Gulf of Mexico. In 2001, production in the Northern region totaled 78 thousand barrels of crude oil per day and 1,238 million cubic feet of natural gas per day. This production area included 177 oil fields with an average well depth of 2,100 meters.

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Production by Fields

        We conduct exploration, production and development activities in fields throughout Mexico. Mexico's main fields are described below.

        Cantarell Complex.    Cantarell is located on the continental shelf of the Gulf of Mexico and is the eighth largest petroleum complex of fields in the world in terms of proved reserves. It consists of the Akal, Chac, Kutz and Nohoch fields, which extend over an area of 162 square kilometers. As of December 31, 2001, there were a total of 347 wells drilled, 186 of which were producing. During 2001, the complex produced an average of 1.7 million barrels of crude oil and 621.5 million cubic feet of natural gas per day. As of December 31, 2001, cumulative production was 8.5 billion barrels of crude oil and 3.6 trillion cubic feet of natural gas. Proved hydrocarbon reserves totaled 8.3 billion barrels of crude oil and 4.1 trillion cubic feet of natural gas. Total proved reserves were 9.4 billion barrels of crude oil equivalent, of which 7.7 billion were developed.

        Burgos Project.    The Burgos fields of Northern Mexico produced an average of 1.0 billion cubic feet of natural gas per day in 2001. This complex of fields is the largest producer of non-associated gas in Mexico. The most important producers are the Arcabuz-Culebra, Arcos and Cuitláhuac fields.

•

Arcabuz-Culebra. This field covers an area of 380 square kilometers. As of December 31, 2001, there were a total of 481 wells drilled, 348 of which were producing. During 2001, the field produced an average of 330.4 million cubic feet of natural gas per day. As of December 31, 2001, cumulative production was 979.4 billion cubic feet of natural gas, and proved hydrocarbon reserves totaled 473.4 billion cubic feet of natural gas, of which 275.6 billion were developed.



•

Cuitláhuac. This field covers an area of 190 square kilometers. As of December 31, 2001, there were a total of 210 wells drilled, 153 of which were producing. During 2001, the field produced an average of 126.5 million cubic feet of natural gas per day. As of December 31, 2001, cumulative production was 279.5 billion cubic feet of natural gas, and proved hydrocarbon reserves totaled 272.2 billion cubic feet of natural gas, of which 166.2 billion were developed.



•

Arcos. This field covers an area of 45 square kilometers. As of December 31, 2001, there were a total of 124 wells drilled, 117 of which were producing. During 2001, the field produced an average of 180.6 million cubic feet of natural gas per day. As of December 31, 2001, cumulative production was 335.7 billion cubic feet of natural gas, and proved hydrocarbon reserves totaled 172.0 billion cubic feet of natural gas, of which 116.1 billion were developed.

        Delta del Grijalva Project.    In terms of production, this project is the third most important in the Southern region. It includes the fields of Caparroso-Pijije-Escuintle, Escarbado, Luna-Palapa, Sen and Tizón. During 2001, the fields produced an average of 67.8 thousand barrels of crude oil and 239.1 million cubic feet of natural gas per day. The most important producers are Caparroso-Pijije-Escuintle, Luna-Palapa and Sen.

•

Sen. This field covers an area of 41 square kilometers. As of December 31, 2001, there were a total of 27 wells drilled, 14 of which were producing. During 2001, the field produced an average of 32.5 thousand barrels of crude oil and 92.3 million cubic feet of natural gas per day. As of December 31, 2001, cumulative production was 153.5 million barrels of crude oil and 420.6 billion cubic feet of natural gas, and proved hydrocarbon reserves totaled 64.5 million barrels of crude oil and 191.1 billion cubic feet of natural gas. Total proved reserves were 110.5 million barrels of crude oil equivalent, of which 108.6 million were developed.



•

Luna-Palapa. This field covers an area of 17 square kilometers. As of December 31, 2001, there were a total of 40 wells drilled, 10 of which were producing. During 2001, the field produced an average of 16.6 thousand barrels of crude oil and 90.0 million cubic feet of natural gas per day. As of December 31, 2001, cumulative production was 104.9 million barrels of crude oil and

114

567.8 billion cubic feet of natural gas, and proved hydrocarbon reserves totaled 30.2 million barrels of crude oil and 149.0 billion cubic feet of natural gas. Total proved reserves were 65.9 million barrels of crude oil equivalent, of which 59.4 million were developed.

•

Caparroso-Pijije-Escuintle. This field covers an area of 16.6 square kilometers. As of December 31, 2001, there were a total of 32 wells drilled, 12 of which were producing. During 2001, the field produced an average of 14.7 thousand barrels of crude oil and 43.7 million cubic feet of natural gas per day. As of December 31, 2001, cumulative production was 87.0 million barrels of crude oil and 249.0 billion cubic feet of natural gas, and proved hydrocarbon reserves totaled 40.2 million barrels of crude oil and 116.9 billion cubic feet of natural gas. Total proved reserves were 68.3 million barrels of crude oil equivalent, all of which were developed.

        Antonio J. Bermúdez Complex.    This complex of fields is the largest crude oil producer in the Southern region and the fourth largest in Mexico. It consists of the Samaria, Cunduacan, Oxiacaque, Iride, Platanal and Carrizo fields and covers an area of 192 square kilometers. As of December 31, 2001, there were a total of 379 wells drilled, 87 of which were producing. During 2001, the complex produced an average of 158.5 thousand barrels of crude oil and 275.9 million cubic feet of natural gas per day. As of December 31, 2001, cumulative production was 2.4 billion barrels of crude oil and 3.2 trillion cubic feet of natural gas, and proved hydrocarbon reserves totaled 1.9 billion barrels of crude oil and 3.5 trillion cubic feet of natural gas. Total proved reserves were 2.7 billion barrels of crude oil equivalent, of which 1.8 billion were developed.

        Jujo-Tecominoacán Field.    This field is the second largest crude oil producer in the Southern region and the eighth largest producer in Mexico and covers an area of 74 square kilometers. As of December 31, 2001, there were a total of 101 wells drilled, 48 of which were producing. During 2001, the field produced an average of 84.8 thousand barrels of crude oil and 118.5 million cubic feet of natural gas per day. As of December 31, 2001, cumulative production was 910.9 million barrels of crude oil and 1.2 trillion cubic feet of natural gas, and proved hydrocarbon reserves totaled 810.3 million barrels of crude oil and 1.8 trillion cubic feet of natural gas. Total proved reserves were 1.3 billion barrels of crude oil equivalent, of which 589.1 million were developed.

        Muspac Field.    Muspac is the most important gas producer in the Southern region and the fifth most important in the country, covering an area of 17 square kilometers. As of December 31, 2001, there were a total of 24 wells drilled, 15 of which were producing. During 2001, the field produced an average of 5.8 thousand barrels of crude oil and 212.2 million cubic feet of natural gas per day. As of December 31, 2001, cumulative production was 87.1 million barrels of crude oil and 1,283.6 billion cubic feet of natural gas. Total proved reserves were 313.6 million barrels of crude oil equivalent, of which 207.3 million were developed, and proved hydrocarbon reserves totaled 17.4 million barrels of crude oil and 1,213.4 trillion cubic feet of natural gas.

        Abkatún-Pol-Chuc Complex.    This area is made up of three fields in the Southwestern offshore region which extend over an area of 198 square kilometers. As of December 31, 2001, there were a total of 188 wells drilled, 35 of which were injectors. Currently, there are 54 producing wells. During 2001, the complex produced an average of 283.4 thousand barrels of crude oil and 290.8 million cubic feet of natural gas per day. As of December 31, 2001, cumulative production was 3.6 billion barrels of crude oil and 3.2 billion cubic feet of natural gas, and proved hydrocarbon reserves totaled 392.0 million barrels of crude oil and 292.2 billion cubic feet of natural gas. Total proved reserves were 460.0 million barrels of crude oil equivalent, of which 408.5 million were developed.

        Caan Field.    This field is located in the Southwestern offshore region and covers an area of 46 square kilometers. As of December 31, 2001, there were a total of 41 wells drilled, 27 of which were producing. During 2001, the field produced an average of 163.3 thousand barrels of crude oil and 258.4 million cubic feet of natural gas per day. As of December 31, 2001, cumulative production was

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585.1 million barrels of crude oil and 993.7 billion cubic feet of natural gas, and proved hydrocarbon reserves totaled 174.5 million barrels of crude oil and 429.3 billion cubic feet of natural gas. Total proved reserves were 270.1 million barrels of crude oil equivalent, of which 258.2 million were developed.

        Ku-Maloob-Zaap Complex.    This complex of fields is located off the coast of Campeche in Mexican territorial waters in the Gulf of Mexico. This is Mexico's fourth most important complex of fields in terms of total remaining hydrocarbon reserves. It is composed of the Ku, Maloob and Zaap fields, and extends over an area of 121 square kilometers. As of December 31, 2001, there were a total of 61 wells drilled, 40 of which were producing. During 2001, this complex produced an average of 247.0 thousand barrels of crude oil and 152.5 million cubic feet of natural gas per day. As of December 31, 2001, cumulative production was 1.6 billion barrels of crude oil and 850.9 billion cubic feet of natural gas, and proved hydrocarbon reserves totaled 1.3 billion barrels of crude oil and 891.2 billion cubic feet of natural gas. Total proved reserves were 1,575.2 million barrels of crude oil equivalent, of which 526.8 million were developed.

        Ek and Balam Fields.    This complex of fields is located off the coast of Campeche in Mexican territorial waters in the Gulf of Mexico. It is made up of two fields extending over an area of 43 square kilometers. As of December 31, 2001, there were a total of 35 wells drilled, 7 of which were producing. During December 31, 2001, the fields produced an average of 21.3 thousand barrels of crude oil and 5.2 million cubic feet of natural gas per day. As of December 31, 2001, cumulative production was 103.2 million barrels of crude oil and 25.4 billion cubic feet of natural gas, and proved hydrocarbon reserves totaled 152.1 million barrels of crude oil and 42.5 billion cubic feet of natural gas. Total proved reserves were 162.8 million barrels of crude oil equivalent, all of which were developed.

        Paleocanal de Chicontepec.    This complex of fields (which we refer to as "Chicontepec") is part of the northern region of our operations and is divided into 29 areas, which extend over an area of 3,731 square kilometers. As of December 31, 2001, there were a total of 1,138 wells drilled, 361 of which were producing. During 2001, Chicontepec produced an average of 7.4 thousand barrels of crude oil and 19.5 million cubic feet of natural gas per day. As of December 31, 2001, cumulative production was 110.9 million barrels of crude oil and 195.0 billion cubic feet of natural gas, and proved hydrocarbon reserves totaled 479.8 million barrels of crude oil and 1,040.5 billion cubic feet of natural gas. Total proved reserves were 670.1 million barrels of crude oil equivalent, of which 46.9 million were developed.

Pipelines

        The crude oil and natural gas pipeline network owned by Pemex-Exploration and Production connects crude oil and natural gas producing centers with refineries and petrochemical plants. At the end of 2001, this pipeline network consisted of approximately 28,285 kilometers of pipe, of which 2,537 kilometers were located in the Marine region, 12,085 kilometers were located in the Southern region and 13,663 kilometers were located in the Northern region. For a description of products transported by the pipeline network, see "—Transportation and Distribution" below.

Crude Oil Sales

        During 2001, domestic consumption of crude oil amounted to approximately 1,349 thousand barrels per day, which represented 43% of our total crude oil production. Through PMI's activities, we sold the remainder of our crude oil production abroad. See "—International Trading" below. Maya crude oil accounted for 76% of exported crude oil volume sold by PMI in 2001, but only 29% of domestic consumption.

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        The following table sets forth crude oil distribution.

Crude Oil Distribution

			At December 31,
								2001 vs. 2000
			1997	1998	1999	2000	2001
			(in thousands of barrels per day)					(%)
Production			3,022.2	3,070.5	2,906.0	3,012.0	3,127.0	3.8
Distribution
	Refineries		1,072.6	1,154.5	1,132.5	1,126.9	1,140.4	1.2
	Products under processing agreements(1)		—	—	56.7	103.7	62.3	(39.9	)
	Petrochemicals		194.3	163.4	149.6	136.0	146.2	7.5
	Exports(2)		1,730.5	1,738.0	1,551.2	1,619.8	1,756.6	8.4
		Total	2,997.3	3,055.8	2,890.0	2,986.4	3,105.6	4.0
Stock changes, statistical differences			24.9	14.6	16.1	25.6	21.4	(16.4	)

Note: Numbers may not total due to rounding.

(1)

Represents exports to third-party processors for re-import into Mexico.

(2)

Includes barrels of crude oil held in inventories designated for export as well as crude oil sold to the U.S. Department of Energy Strategic Petroleum Reserve (the "SPR") in the 1980s, which PEMEX recovered in August 1998 as part of an unrelated swap arrangement with the SPR. Although PEMEX obtained rights to the crude oil in August 1998, the crude oil was held in the SPR until December 1999. These exports are included in PEMEX's 1999 and 2000 export figures.

Source: Pemex-Exploration and Production

        Because of its higher sulphur content, Maya crude oil requires extra processing and has lower refining yields than do more valuable sweet crudes, and thus requires extra investment by the purchaser to refine. Because of this, we receive a lower price for Maya crude oil than we do for sweeter crude oils that cost less to refine. In addition, because of this price difference, we must continue to support the export value of sour crude oil such as Maya crude oil in relation to other grades of crude oil by creating incentives for refiners to invest in high-conversion refineries capable of upgrading the relatively large proportion of residue produced from processing sour crude oil in less efficient refining complex configurations. We may do this by entering into long-term Maya crude oil supply agreements pursuant to which purchasers agree to undertake projects to expand the capacity of their respective refineries to upgrade residue from Maya crude oil.

Refining

Refining Processes and Capacity

        Pemex-Refining's production processes include the following:

•

Atmospheric distillation. This process heats crude oil in a tube furnace at atmospheric pressure to distill refined products. The primary products produced are gasoline, kerosene, jet fuel, diesel, atmospheric gas oil and atmospheric reduced crude oil.



•

Vacuum distillation. This process heats crude oil or other feedstock in a vacuum distillation column, which is operated at low pressures. The objective of this process is to maximize production of heavy vacuum gas oil, which is produced by boiling crude oil.



•

Cracking. This process uses either heat and pressure or a catalytic agent to increase gasoline yields from crude oil.



•

Visbreaking. This is a thermal cracking process, which uses a horizontal-tube heater fired to a high temperature. Visbreaking reduces flasher bottom viscosity and produces some heavy gas oil.

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•

Reforming processes. These processes use heat and catalysts to transform smaller or unstable hydrocarbon molecules into larger, more useful refining or blending products. For example, Pemex-Refining uses reforming processes to convert low-octane gasoline into higher-octane stocks that are suitable for blending into finished gasoline and to convert naphthas into more volatile, higher-octane products.



•

Hydrotreatment or resid hydrocracking. This process uses a catalyst and hydrogen at high temperature and pressure to remove sulphur, nitrogen and some aromatic compounds. Hydrotreatment also processes some lighter liquid product off-take.



•

Alkylation and isomerization. This polymerization process unites olefins and isoparaffins. Butylenes and isobutanes are combined with sulphuric acid or hydrofluoric acid to rearrange straight-chain hydrocarbon molecules into branched-chain products. Pentanes and hexanes, which are difficult to reform, are isomerized through the use of aluminum chloride and other precious-metal catalysts. Normal butane may be isomerized to provide a portion of the isobutane feed needed for the alkylation process. The process produces a high octane, low sensitivity blending agent for gasoline.

•

Natural gas liquid fractionation. These processing methods heat natural gas liquids in a fractionating tower, which is a tall cylindrical refining vessel. The heating first drives off light ends and gases, followed by progressively heavier molecular fractions or cuts. Cooling processes then condense those fractions or cuts. As of 1998, Pemex-Refining no longer uses this production process.

        These production processes together constitute Pemex-Refining's production capacity as set forth in the table below.

Refining Capacity by Production Process

		At December 31,
		1997	1998	1999	2000	2001
		(in thousands of barrels per day)
Production Process
	Atmospheric distillation	1,525.0	1,525.0	1,525.0	1,559.0	1,559.0
	Vacuum distillation	761.7	757.1	757.1	774.8	773.8
	Cracking	368.0	368.0	368.0	375.0	375.0
	Visbreaking	141.0	141.0	141.0	141.0	141.0
	Reforming	227.8	226.0	226.0	268.8	268.8
	Hydrotreatment	698.0	748.0	748.0	808.0	848.0
	Alkylation and isomerization	113.0	120.7	120.7	109.0	109.0
	Natural gas liquid fractionation(1)	71.0	—	—	—	—

(1)

Propane, butanes and naphthas.

Source: Base de Datos Institucional (Pemex BDI)

        At the end of 2001, Pemex-Refining owned and operated six refineries, Cadereyta, Madero, Minatitlán, Salamanca, Salina Cruz and Tula, and one topping unit located in the petrochemical complex of La Cangrejera. Our refineries are comprised of atmospheric and vacuum distillation units, where the bulk of crude oil input is processed. Secondary processing facilities include desulphurization units and facilities for catalytic cracking, reforming and hydrotreating. During 2001, our refineries processed 1,252 thousand barrels per day of crude oil (200 thousand barrels at Cadereyta, 106 thousand barrels at Madero, 177 thousand barrels at Minatitlán, 186 thousand barrels at Salamanca,

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293 thousand barrels at Salina Cruz and 290 thousand barrels at Tula), which consisted of 829 thousand barrels per day of Olmeca and Isthmus crude oil and 423 thousand barrels per day of Maya crude oil.

        Since 1993, through our subsidiary company, P.M.I. Norteamérica, S.A. de C.V., we have participated in a limited partnership with Shell Oil Company in a refinery located in Deer Park, Texas. Under the Deer Park Limited Partnership agreement, P.M.I. Norteamérica, S.A. de C.V. and Shell Oil Company each provides 50% of the refinery's crude oil input and owns 50% of the refinery's output. The partnership completed a substantial upgrading program in mid-1995 to enable it to process Maya crude oil. PEMEX and Shell Oil Company completed an expansion project at the Deer Park Refinery in April 2001 thereby increasing the capacity of the refinery by 60 thousand barrels per day to 340 thousand barrels per day. The expansion project includes an expansion of the refinery's existing coking unit, a new sulphur plant and upgrades to the crude distillation, distillates hydrotreating and hydrocracking units.

Production

        Pemex-Refining produces a wide range of products derived from crude oil and natural gas, including liquefied petroleum gas, gasoline, jet fuel, diesel, fuel oil, asphalts, lubricants and other refined oil and natural gas products. Pemex-Refining produced 1,267 thousand barrels per day of refined products (including dry gas by-products of the refining process) in 2001, an increase of 1.7% from 2000 levels.

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        The following table sets forth, by category, Pemex-Refining's production of refined products from 1997 through 2001.

Pemex-Refining Production

				Year Ended December 31,
									2001 vs. 2000
				1997	1998	1999	2000	2001
				(in thousands of barrels per day)					(%)
Refinery runs
	Crude oil			1,242.3	1,283.0	1,228.0	1,227.4	1,251.9	2.0
	Liquids			0.2	0.0	0.0	0.0	0.0	—
			Total	1,242.5	1,283.0	1,228.0	1,227.4	1,251.9	2.0
Refined products
	Liquefied petroleum gas			38.3	28.8	31.0	24.9	27.8	11.6
	Gasoline
		Nova (leaded)/Base(1)		102.8	52.5	46.5	27.9	22.4	(19.7	)
		Pemex Magna		282.5	347.9	346.6	346.0	349.4	1.0
		Pemex Premium		1.1	9.7	11.2	17.9	17.3	(3.4	)
		Others		1.9	1.8	1.6	1.2	1.2	—
			Total	388.3	411.9	405.9	393.0	390.3	(0.7	)
	Kerosenes
		Jet fuel		56.0	57.1	57.8	55.3	56.7	2.5
		Other kerosenes		3.1	1.9	0.8	0.3	0.3	0.0
			Total	59.1	59.0	58.6	55.6	57.0	2.5
	Diesel
		Pemex Diesel		242.2	250.7	248.4	254.5	266.6	4.8
		Low sulphur diesel		22.8	23.0	6.9	1.2	1.1	(8.3	)
		Others		10.4	16.3	16.6	9.7	13.9	43.3
			Total	275.4	290.0	271.9	265.4	281.6	6.1
	Fuel oil			426.2	445.8	427.9	422.6	435.9	3.1
	Other refined products
		Industrial gas oil		4.6	5.7	3.8	2.4	0.0	(100.0	)
		Asphalts		25.8	29.7	30.3	31.1	28.7	(7.7	)
		Lubricants		5.6	5.4	8.3	6.0	5.2	(13.3	)
		Paraffins		1.7	1.8	1.9	1.3	1.2	(7.7	)
		Still gas		49.6	49.2	43.3	41.8	39.0	(6.7	)
		Other refined products(2)		1.1	1.7	1.5	1.9	0.6	(68.4	)
			Total	88.4	93.5	89.0	84.5	74.7	(11.6	)
	Total refined products			1,275.7	1,329.0	1,284.4	1,246.0	1,267.3	1.7

Note: Numbers may not total due to rounding.

(1)

For 1997, figure refers to Nova (leaded) only. As of 1998, data refers to production of base gasoline only.

(2)

Includes aeroflex 1-2, coke and furfural extract.

Source: Pemex BDI

        Fuel oil, automotive gasoline and diesels represented the bulk of Pemex-Refining's production. In 2001, fuel oil represented 34%, gasoline represented 31% and diesels represented 22% of total refined product production. Jet fuel represented 4% and liquefied petroleum gas represented 2% of total production of refined products in 2001. The remainder of Pemex-Refining's production consisted of a variety of other refined products.

        As a result of our strategy of investing in technology to improve the quality of our fuels, over the past few years Pemex-Refining has increased its production of unleaded gasoline (including Pemex Premium) in relation to leaded gasoline. The share of unleaded gasoline as a percentage of our total

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automotive gasoline production has increased from 73% in 1997 to 100% since 1998. We also introduced new environmentally sound products such as Pemex Diesel, with 0.05% sulphur content. The share of Pemex Diesel as a percentage of total diesel produced by Pemex-Refining has increased from 88% in 1997 to 95% in 2001. We have also promoted liquefied petroleum gas as an environmentally sound substitute fuel for gasoline in motor vehicles.

Domestic Sales

        We market a full range of refined products, including gasoline, jet fuel, diesel, fuel oil and petrochemicals. We are one of a few major producers of crude oil worldwide that experiences significant domestic demand for our refined products.

        Over the five years ended December 31, 2001, the value of Pemex-Refining's domestic sales of refined products was as follows:

Value of Domestic Sales(1)

			Year Ended December 31,
													2001 vs. 2000
			1997		1998		1999		2000		2001
			(in millions of pesos)										(%)
Oil Products
Gasoline
	Nova (leaded)(2)		Ps.	6,469.3	Ps.	0.0	Ps.	0.0	Ps.	0.0	Ps.	0.0	—
	Pemex Magna			35,710.8		36,426.3		40,946.8		65,334.6		60,734.8	(7.0	)
	Pemex Premium			1,213.5		3,012.5		4,793.6		9,584.4		10,910.1	13.8
	Aviation fuels			90.7		98.9		115.3		113.0		112.3	(0.6	)
	Others			161.6		132.5		124.7		152.1		138.5	(8.9	)
		Total		43,645.9		39,670.2		45,980.3		75,184.0		71,895.6	(4.4	)
Kerosenes
	Jet fuel			3,232.7		2,856.4		3,800.2		6,681.6		5,681.6	(15.0	)
	Other kerosenes			97.9		80.8		99.7		99.3		125.0	25.9
		Total		3,330.6		2,937.2		3,899.9		6,780.9		5,806.6	(14.4	)
Diesel
	Pemex Diesel			17,685.7		15,018.1		18,406.1		30,386.3		27,589.3	(9.2	)
	Low sulphur(3)			74.8		—		—		—		—	—
	Others			3,315.5		3,400.3		4,262.9		7,531.0		6,203.6	(17.6	)
		Total		21,076.0		18,418.3		22,669.0		37,917.3		33,793.0	(10.9	)
Fuel oil
		Total		18,312.4		16,388.6		20,250.4		33,521.7		27,653.0	(17.5	)
Other refined products
	Industrial gas oil			347.3		349.7		284.0		317.4		9.3	(97.1	)
	Asphalts			725.3		808.9		988.2		1,648.5		1,513.7	(8.2	)
	Lubricants			670.9		626.2		705.0		999.0		1,008.2	0.9
	Paraffins			178.4		153.8		154.1		157.2		141.2	(10.2	)
	Others			2.0		1.1		1.2		2.0		0.5	(75.0	)
		Total		1,923.9		1,939.7		2,132.5		3,124.1		2,672.9	(14.4	)
Total oil products			Ps.	88,288.7	Ps.	79,354.0	Ps.	94,932.2	Ps.	156,527.9	Ps.	141,821.1	(9.4	)
Petrochemicals(4)			Ps.	284.7	Ps.	151.9	Ps.	256.1	Ps.	545.4	Ps.	687.5	26.0

Notes: Numbers may not total due to rounding.

(1)

Excludes IEPS Tax and value added tax. See "—Taxes and Duties" below.

(2)

Pemex-Refining ceased selling leaded gasoline at the end of 1997.

(3)

Beginning in 1998, low sulphur diesel sales are included in Pemex Diesel sales figures.

(4)

Includes petrochemical products produced at refineries operated by Pemex-Refining.

Source: Pemex BDI

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        The largest consumers of fuels in Mexico are the Federal Electricity Commission and our subsidiary entities. The Federal Electricity Commission consumed approximately 80% of our fuel oil production during 2001 pursuant to a fuel oil supply contract entered into in November 1995 under which we agreed to supply a minimum of 270,000 barrels of fuel oil per day to the Federal Electricity Commission. The price per cubic meter of the fuel oil supplied to the Federal Electricity Commission is based on the three-month average spot price per cubic meter of Fuel Oil No. 6 (3% sulphur) at Houston, Texas, as quoted in Platt's U.S. Marketscan and adjusted for quality and transportation cost differentials. In addition, the price of the fuel oil is discounted by a commercial margin on each cubic meter of fuel oil. In 2001, this volume discount amounted to approximately 2.5% of total fuel oil sales to the Federal Electricity Commission. The contract can be terminated by either party upon six months' notice. The total amount paid to us by the Federal Electricity Commission under this contract in 2001 was Ps. 22,286 million and represented 4.9% of our total consolidated sales revenues.

        The value of our domestic sales of refined oil products decreased by 9.4% (or Ps. 14,706.8 million) in 2001 from 2000 levels, primarily due to the decrease in international prices of refined products by 8% over the year. In particular, the price of automotive gasoline fell 7.3%, the price of diesel gas fell by 7.6% and the price of fuel oil fell by 14% during 2001.

        The volume of our domestic gasoline sales in 2001 increased by 3.6% from 2000 levels, from 532.7 thousand barrels per day in 2000 to 551.8 thousand barrels per day in 2001. By the end of 1997, we stopped selling Nova low-octane leaded gasoline in Mexico. The volume of our domestic diesel sales decreased by 3.1%, from 284.7 thousand barrels per day in 2000 to 275.8 thousand barrels per day in 2001, due to a decrease in industrial demand as a result of a reduction in Mexico's industrial activity. In addition, the volume of our domestic sales of fuel oil decreased by 3.6%, from 492.4 thousand barrels per day to 474.9 thousand barrels per day, primarily due to a decrease in demand from the Federal Electricity Commission and a decrease in industrial demand as a result of a decrease in Mexico's industrial production.

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        The volume of Pemex-Refining's domestic sales of refined products for the five-year period ended December 31, 2001 was distributed as follows:

Volume of Domestic Sales

				Year Ended December 31,
									2001 vs. 2000
				1997	1998	1999	2000	2001
				(in thousands of barrels per day, except where otherwise indicated)					(%)
Oil Products
	Gasoline
		Nova (leaded)(1)		78.4	0.0	0.0	0.0	0.0	—
		Pemex Magna		408.2	481.2	468.0	472.3	476.5	0.9
		Pemex Premium		11.2	30.5	43.0	59.1	74.1	25.4
		Aviation fuels		0.6	0.5	0.5	0.4	0.4	—
		Others		1.2	1.1	1.0	0.8	0.8	—
			Total	499.6	513.4	512.6	532.7	551.8	3.6
	Kerosenes
		Jet fuel		47.2	52.4	55.3	55.5	55.3	(0.4	)
		Other kerosenes		1.2	0.8	0.8	0.7	0.8	14.3
			Total	48.4	53.2	56.1	56.2	56.1	(0.2	)
	Diesel
		Pemex Diesel		218.9	225.8	224.9	228.6	226.4	(1.0	)
		Low sulphur(2)		0.8	—	—	—	—	—
		Others		42.7	50.4	49.8	56.1	49.4	(11.9	)
			Total	262.5	276.2	274.7	284.7	275.8	(3.1	)
	Fuel oil
			Total	453.9	489.1	470.8	492.4	474.9	(3.6	)
	Other oil products
		Industrial gas oil		5.5	6.5	4.3	2.3	0.0	(100.0	)
		Asphalts		16.3	17.1	19.5	20.6	20.9	1.5
		Lubricants		5.7	5.2	5.8	6.4	5.5	(14.1	)
		Paraffins		1.6	1.3	1.3	1.3	1.2	(7.7	)
		Others		1.5	1.0	1.1	1.8	0.4	(77.8	)
			Total	30.6	31.1	32.0	32.4	28.0	(13.6	)
	Total oil products			1,295.0	1,363.0	1,346.1	1,398.4	1,386.7	(0.8	)
Petrochemicals(3)				90.6	51.0	84.5	201.1	301.6	50.0

Note: Numbers may not total due to rounding

(1)

Pemex-Refining ceased selling leaded gasoline at the end of 1997.

(2)

Since 1998, low sulphur diesel sales volumes are included in Pemex Diesel sales volumes.

(3)

In thousands of metric tons per day. Includes petrochemical by-products of the refining process produced and sold by Pemex-Refining.

Source: Pemex BDI

        At the retail level, we now offer standard and premium grades of unleaded gasoline throughout the country. Our efforts to build and enhance our brands have also progressed during 2000 and 2001. More than 99% of Mexico's independent gasoline service stations now participate in our franchise program, which provides financial assistance to upgrade equipment and facilities and technical assistance in the development of marketing and customer service programs. At the end of 2001, there were 5,139 retail service stations in Mexico, of which 5,113 were privately owned and operated as franchises.

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Investments

        Over the last six years, Pemex-Refining has focused its investment program on enhancing the quality of gasoline and diesel to meet new environmental standards in Mexico, improving its ability to process heavy crudes in order to optimize the crude oil blend in the refineries and increasing the production of unleaded gasoline and diesel to supply growing demand at low cost, as opposed to increasing its overall crude oil processing capacity. In the medium-term, Pemex-Refining will continue to import unleaded gasoline to satisfy domestic demand. During 2001, Pemex-Refining imported approximately 121 thousand barrels per day of unleaded gasoline, which represented 22% of total domestic demand for unleaded gasoline in that year.

        In 2001, Pemex-Refining invested Ps. 7,222 million, as compared to Ps. 22,072 million in 2000, representing a 67% decrease in investment in combined PIDIREGAS and non-PIDIREGAS capital expenditures due to the partial recognition of the Cadereyta project as a capital expenditure in 2000, although the project had not yet been completed. Of the Ps. 7,222 million, we invested Ps. 684 million in the Cadereyta PIDIREGAS. Amounts that were originally budgeted for investment in the Madero, Salamanca and Tula PIDIREGAS in 2001 were allocated to the 2002 budget, as these projects are expected to be completed in 2002.

        Cadereyta Project.    In November 1997, Pemex-Refining awarded a U.S. $1.6 billion contract to upgrade and revamp the Cadereyta refinery to Consorcio Proyecto Cadereyta (CONPROCA) a consortium formed by SK Engineering & Construction Co., Ltd., Siemens AG and Triturados Basálticos y Derivados, S.A. de C.V. We expect the project to increase clean fuel production substantially, specifically gasoline and diesel, which will enable Pemex-Refining to fulfill future demand requirements in northern Mexico and comply with future environmental regulations. As of December 2001, the project was certified as 99.31% complete. Pemex-Refining made the first amortization payment of U.S. $121.2 million on December 15, 2000. During 2001, Pemex-Refining made the second and third amortization payments of U.S. $121.2 million each on June 15, 2001 and December 15, 2001.

        Madero Project.    In February 1999, Pemex-Refining awarded a U.S. $1.2 billion contract for the Madero refinery upgrading project to another consortium, PEMOPRO, S.A. de C.V., led by SK Engineering & Construction Co., Ltd., Siemens AG and Triturados Basálticos y Derivados, S.A. de C.V. The total cost of the project is an estimated U.S. $1.6 billion and will involve the construction of 10 new plants and the upgrading of five others at the Madero complex in the state of Tamaulipas in northeastern Mexico. The project is expected to increase the Madero refinery's processing capacity for heavy crude oil (Maya) by 125,000 barrels per day, increase gasoline production by 34,000 barrels per day, increase middle distillates (diesel and jet fuel) production by 15,000 barrels per day and reduce production of high sulphur fuel oil by 13,000 barrels per day. As of December 2001, 95.11% of the total work for the Madero project had been completed. The project was completed on October 24, 2002.

        Tula and Salamanca Projects.    On November 11, 1999, Pemex-Refining awarded the Tula and Salamanca projects to Samsung Co. through an international bidding process. These projects are dedicated exclusively to increasing gasoline production, whereas the Cadereyta and Madero projects are dedicated to increasing heavy crude oil processing capacities through residual conversion. Upon the successful arrangement of a U.S. $333.5 million credit facility on March 10, 2000, Samsung Co. began construction on both projects. The construction period for both the Tula and Salamanca projects lasted 27 months. Total costs are expected to be U.S. $139.0 million for the Tula Project and U.S. $194.5 million for the Salamanca project. As of December 2001, the Tula project was 97.87% complete and the Salamanca project was 95.23% complete. The Tula project was completed on August 27, 2002, and the Salamanca project is expected to be delivered in the second half of 2002.

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        Minatitlán and Salina Cruz Projects.    These refining projects are intended to increase production of high quality gasoline and middle distillates and to improve the crude oil blend. The bidding packages for these projects are ready and are pending final approval. The construction period is expected to last approximately 36 months following the financial closing.

        Non-PIDIREGAS Investments.    Pemex-Refining invested Ps. 6,537.7 million in 2001, not including expenditures relating to the Cadereyta, Madero, Tula and Salamanca PIDIREGAS. Strategic projects, in addition to those described above, comprised Ps. 2,282.7 million of the total investment, operating projects represented Ps. 2,836.5 million of the total investment and the remaining Ps. 1,418.5 million was dedicated mainly to acquisitions of equipment, research and development and complementary investments.

        2002 Refining Investment Budget.    For 2002, Pemex-Refining has budgeted Ps. 21,445 million for investment in PIDIREGAS. In addition, Pemex-Refining has budgeted Ps. 8,942.2 million for investments in 2002, not including expenditures related to PIDIREGAS. This non-PIDIREGAS budget includes Ps. 1,707.6 million in amortization payments for PIDIREGAS or 19% of the total budget. Pemex-Refining will invest 23% of the total amount to expand and upgrade refineries, 13% in environmental and industrial safety projects, 2% in pipeline systems and distribution terminals, 22% in maintenance and rehabilitation projects and 21% in other projects and acquisitions.

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Gas and Basic Petrochemicals

Natural Gas and Condensates

        Pemex-Exploration and Production's average natural gas production decreased by 3.6%, from 4,679 million cubic feet per day in 2000 to 4,511 million cubic feet per day in 2001, while the average natural gas production of Pemex-Gas and Basic Petrochemicals increased by 0.5%, from 2,791 million cubic feet per day in 2000 to 2,804 million cubic feet per day in 2001. Natural gas production associated with crude oil production accounted for 71.8% of production of natural gas in 2001, with the remainder of natural gas production consisting of extraction from fields holding natural gas reserves. Although natural gas production is more geographically diverse than crude oil production, 36 fields (or 12% of the 301 fields) accounted for 78% of all production in 2001. Of the total production, 34% originated in the Marine region, 39% in the Southern region and the remainder in the Northern region.

        All natural gas production is directed to Pemex-Gas and Basic Petrochemical's gas processing facilities. At the end of 2001, Pemex-Gas and Basic Petrochemicals owned ten facilities.

        The following facilities are located in the Southern region:

•

Cactus: This facility contains 22 plants that together produced 728.3 million cubic feet per day of dry gas, 24.7 thousand barrels per day of ethane, 41.7 thousand barrels per day of liquid gas, 23.0 thousand barrels per day of naphtha and 312.6 thousand tons of sulphur at December 31, 2001.



•

Ciudad Pemex: This facility contains eight plants that together produced 642.6 million cubic feet per day of dry gas and 186.3 thousand tons of sulphur at December 31, 2001.



•

La Cangrejera: This facility contains two plants that together produced 34.4 thousand barrels per day of ethane, 38.0 thousand barrels per day of liquid gas and 9.3 thousand barrels per day of naphtha at December 31, 2001.



•

Morelos: This facility contains one plant that produced 34.0 thousand barrels per day of ethane, 42.1 thousand barrels per day of liquid gas and 10.3 thousand barrels per day of naphtha at December 31, 2001.



•

Nuevo Pemex: This facility contains 13 plants that together produced 861.7 million cubic feet per day of dry gas, 37.6 thousand barrels per day of ethane, 74.4 thousand barrels per day of liquid gas, 39.7 thousand barrels per day of naphtha and 163.2 thousand tons of sulphur at December 31, 2001.



•

Pajaritos: This facility contains one plant that produced 11.8 thousand barrels per day of ethane at December 31, 2001.



•

La Venta: This facility contains two plants that together produced 134.1 million cubic feet per day of dry gas at December 31, 2001.



•

Matapionche: This facility contains five plants that together produced 88.7 million cubic feet per day of dry gas, 2.6 thousand barrels per day of liquid gas, 1.1 thousand barrels per day of naphtha and 12.5 thousand tons of sulphur at December 31, 2001.



•

Poza Rica: This facility contains four plants that together produced 83.6 million cubic feet per day of dry gas, 3.6 thousand barrels per day of ethane, 2.2 thousand barrels per day of liquid gas, 0.8 thousand barrels per day of naphtha and 9.5 thousand tons of sulphur at December 31, 2001.

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        The following facility is located in the Northern region:

•

Reynosa: This facility contains two plants that together produced 265.4 million cubic feet per day of dry gas, 1.1 thousand barrels per day of ethane, 4.4 thousand barrels per day of liquid gas, 4.1 thousand barrels per day of naphtha and 1.7 thousand barrels per day of other products at December 31, 2001.

        The following tables set forth Pemex-Gas and Basic Petrochemicals' total natural gas processing and production, as well as processing capacity, for the five years ended December 31, 2001.

Natural Gas and Condensates Processing and Production(1)

			Year Ended December 31,
								2001 vs. 2000
			1997	1998	1999	2000	2001
			(in millions of cubic feet per day, except where otherwise indicated)					(%)
Processing
	Wet gas		3,338	3,568	3,527	3,637	3,629	(0.2	)
		Sour gas	3,088	3,177	3,071	3,166	3,179	0.4
		Sweet gas(2)	250	391	456	471	450	(4.5	)
	Condensates(3)		102	98	96	101	105	4.0
	Gas to natural gas liquids extraction		3,389	3,716	3,612	3,710	3,693	(0.5	)
		Wet gas	3,191	3,416	3,378	3,536	3,526	(0.3	)
		Reprocessing streams(4)	198	300	234	174	166	(4.6	)
Production
	Dry gas(5)		2,799	2,816	2,709	2,791	2,804	0.5
	Natural gas liquids(6)(7)		400	439	447	445	443	(0.4	)
	Liquefied petroleum gas(6)		177	196	201	204	206	1.0
	Ethane(6)		125	145	160	156	147	(5.8	)
	Naphtha(6)(8)		84	88	84	85	88	3.5
	Sulphur(9)		750	739	687	661	684	3.5

(1)

Excludes operations of Pemex-Exploration and Production. Pemex-Exploration and Production produced a total of 4,511 million cubic feet per day of natural gas in 2001.

(2)

Includes sweet vapor from condensates.

(3)

Includes internal streams.

(4)

Reprocessing of pipeline gas at various cryogenic plants.

(5)

Does not include ethane reinjected into the natural gas stream.

(6)

In thousands of barrels per day.

(7)

Includes stabilized condensates, reprocessing streams from La Cangrejera petrochemical complex and other streams for fractionating.

(8)

Includes pentanes.

(9)

In thousands of tons per day.

Source: Pemex-Gas and Basic Petrochemicals

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Processing Capacity

			Year Ended December 31,
			1997	1998	1999	2000	2001
			(in millions of cubic feet per day, except where otherwise indicated)
Sweetening plants
	Sour condensates(1)(2)		192	192	192	192	144
	Sour natural gas(2)		3,553	3,753	3,753	3,753	3,923
Natural gas liquids recovery plants
	Cryogenics(3)		3,234	3,959	4,559	4,559	4,559
	Absorption(4)		750	750	475	475	475
		Total	3,984	4,709	5,034	5,034	5,034
Natural gas liquids fractionating(1)(5)			450	554	554	554	554
Sulphur recovery plants(6)			216	216	216	216	219

(1)

In thousands of barrels per day.

(2)

In 2001, two sour condensates sweetening plants were converted into sour natural gas sweetening plants.

(3)

Includes the cryogenic plant located in La Cangrejera.

(4)

Since the beginning of 1999, the absorption plant at Ciudad Pemex has been out of service.

(5)

Includes liquid recovery plants.

(6)

Processing of hydrosulphuric acid.

Source: Pemex BDI

        Domestic consumption of dry gas, which is natural gas with a methane content of more than 90%, totaled 3,823 million cubic feet per day in 2001, a 0.3% decrease from the 2000 domestic consumption of 3,836 million cubic feet per day. The subsidiary entities consumed approximately 48% of the total domestic dry gas consumed in 2001, while the industrial sector consumed 23%, the electrical sector consumed 26% and residential consumers consumed the remaining 3%.

        We import dry gas to satisfy shortfalls in our production and to meet demand in areas of northern Mexico which, due to the distance from the fields, can be supplied more efficiently by importing natural gas from the United States. We imported 292 million cubic feet per day of dry gas in 2001, a 26% increase from 231 million cubic feet per day imported in 2000.

        Pemex-Gas and Basic Petrochemicals also produces liquid hydrocarbons obtained from sweet natural gas and recovered in surface separating facilities and liquid hydrocarbons condensed in natural gas pipelines. Our production of natural gas liquids, including stabilized condensates and reprocessing and other fractionating streams, decreased by 0.5%, from 445 thousand barrels per day in 2000 to 443 thousand barrels per day in 2001, as our capacity recovered due to repairs and improvements.

        Pemex-Gas and Basic Petrochemicals processes sweet and sour condensates and uses sweet condensates at its Reynosa facilities to produce solvents and naphtha. It also uses sour condensates, which have a higher sulphur content, to produce stabilized sweet condensates. The volume of sour condensates we processed from Pemex-Exploration and Production and internal streams of Pemex-Gas and Basic Petrochemicals amounted to 101 thousand barrels per day in 2001 and 98 thousand barrels per day in 2000. Of these amounts, 87 thousand barrels per day (86%) resulted in stabilized condensates during 2001, and 84 thousand barrels per day (86%) resulted in stabilized condensates during 2000.

        Pemex-Gas and Basic Petrochemicals began operations of its Sulphur Plant No. 1 in November 2000, its Sulphur Plant No. 2 in December 2000 and its Sulphur Plant No. 3 in

128

January 2001, in the Cactus complex, each with a processing capacity of 24.2 million cubic feet per day of hydrosulphuric acid (291 tons per day of sulphur). In June 2001, Pemex-Gas and Basic Petrochemicals began operating its Sulfur Plant No. 4 and in May 2001, it began operating its Sulphur Plant No. 5 in the Cactus complex, each with a capacity of 17.8 million cubic feet per day of hydrosulphuric acid (320 tons per day of sulphur). In March 2001, Sour Condensate Plants No. 1 and 2 were converted to process sour gas (120 millions cubic feet per day each) in Ciudad Pemex complex. In July 2001, Sulphur Plants No. 1 and 2 in Nuevo Pemex and in October 2001 Sulphur Plant No. 2 in Ciudad Pemex, were revamped and as a result, capacity increased to 400 tons per day of sulphur recovery in Sulphur Plant No. 1 and 407 tons per day of sulphur recovery in Sulphur Plant No. 2. In 2002 and 2003, Pemex-Gas and Basic Petrochemicals expects to begin operations in two additional plants at Matapionche, one additional plant at Poza Rica and two cryogenic plants in a new facility near Reynosa. Matapionche is expected to have a processing capacity of 40 tons per day of sulphur recovery. Poza Rica is expected to have a processing capacity of 64 tons per day of sulphur recovery. The two cryogenic plants near Reynosa are expected to produce a total of 374 million cubic feet per day of dry gas, 9.6 thousand barrels per day of liquefied petroleum gas and 6.5 thousand barrels per day of naphtha, and the facility will contain storage for 65 thousand barrels per day of liquefied petroleum gas and naphtha.

        In July 1996, three accidental explosions occurred at the Cactus natural gas processing complex in Reforma, Chiapas, which destroyed one natural gas liquid recovery plant, damaged a second natural gas liquid recovery plant and damaged the system of pipelines connecting these plants with other facilities. Since the explosions, our liquids recovery capacity has been steadily recovering. We completed the repair and upgrade of the damaged plants in April 1999.

        Over the five years ended December 31, 2001, the value of Pemex-Gas and Basic Petrochemicals' domestic sales were distributed as follows:

Value of Domestic Sales of Pemex-Gas and Basic Petrochemicals(1)

			Year Ended December 31,
													2001 vs. 2000
			1997		1998		1999		2000		2001
			(in millions of pesos)										(%)
Natural gas			Ps.	12,553.6	Ps.	13,203.9	Ps.	15,557.5	Ps.	27,594.9	Ps.	28,914.1	4.8
Liquefied petroleum gas				14,004.1		16,389.9		17,597.6		28,469.2		29,327.2	3.0
Petrochemicals
	Hexane			135.7		143.5		121.2		115.1		142.6	23.9
	Dissolving agents			—		—		19.5		260.5		377.0	44.7
	Sulphur			171.1		142.9		148.1		130.6		72.8	(44.3	)
	Carbon black			108.8		90.5		117.5		210.3		120.1	(42.9	)
	Pentanes			26.8		22.0		31.6		29.4		2.7	(90.8	)
	Heptane			22.9		24.1		23.1		22.3		24.7	(10.8	)
	Butane			9.9		11.9		20.7		35.3		39.2	11.0
	Propane			10.0		9.2		16.0		25.3		23.3	(7.9	)
	Isobutane			6.2		3.7		4.4		7.5		6.3	(16.0	)
	Others			9.8		9.6		31.5		128.1		157.3	22.8
		Total Petrochemicals		501.2		457.4		533.4		964.4		966.0	0.2
Total			Ps.	27,058.9	Ps.	30,051.2	Ps.	33,688.5	Ps.	57,028.5	Ps.	59,207.3	3.8

Note: Numbers may not total due to rounding

(1)

Excludes value added tax.

Source: Pemex BDI

129

Subsidiaries of Pemex-Gas and Basic Petrochemicals

        Pemex-Gas and Basic Petrochemicals conducts certain management, real estate and distribution activities through its subsidiaries. The following table lists Pemex-Gas and Basic Petrochemicals' subsidiaries, their principal operating activities and Pemex-Gas and Basic Petrochemicals' ownership interest:

Subsidiaries of Pemex-Gas and Basic Petrochemicals(1)

Subsidiary	Principal Activity	Ownership Interest
Gasoductos de Chihuahua, S. de R.L. de C.V	Transport of gas	50.00%
Mexgas International, Ltd.	Holding company	100.00
Pasco Terminals, Inc.	Storage and distribution of liquid sulphur	100.00
Pasco International, Ltd.	Holding company	100.00
Pan American Sulphur, Ltd.	Storage and distribution of liquid sulphur	100.00
Terrenos para Industrias, S.A.	Real estate holding company	100.00
CH4 Energía, S.A. de C.V.	Trading of Gas	50.00

(1)

As of December 31, 2001.

Source: Pemex-Gas and Basic Petrochemicals

Private Sector Participation in Natural Gas Distribution

        The Regulatory Law, as amended effective May 12, 1995, provides that private and "social sector" companies may, with governmental authorization, store, distribute and transport natural gas, and may construct, own and operate natural gas pipelines, facilities and equipment. The regulations implementing this amendment entered into effect on November 9, 1995. The primary purpose of the change in the law is to increase the use of natural gas, which is a clean-burning fuel, among industrial users that currently burn fuel oil. Natural gas is a particularly practical substitute for fuel oil due to the low cost of converting existing equipment from fuel oil to natural gas and the existence of significant natural gas reserves in Mexico. In addition, we believe that the increased use of natural gas will promote economies of scale, which should tend to lower natural gas prices and enable the Mexican natural gas industry to comply with the stricter environmental standards that went into effect in 1998.

        Notwithstanding these regulatory changes, we retain the exclusive right to explore, exploit, produce and sell to the initial purchaser natural gas, as well as to transport and store natural gas when those activities are inextricably linked with such exploitation and production. In addition, we retain exclusive right over the production of petroleum and natural gas derivatives classified as basic petrochemicals. Due to the amendment of the Regulatory Law, we are experiencing competition from the private sector in natural gas distribution. However, private sector distribution has increased use of natural gas (for which we remain the sole producer), which may offset the negative effect of the new competition.

        The Comisión Reguladora de Energía (Energy Regulatory Commission), which is a technical agency with operational and budgetary autonomy within the Ministry of Energy:

•

regulates the activities of both public and private operators in the electricity and natural gas industries;



•

establishes pricing and tariff methodologies and general contractual terms; and



•

resolves disputes between regulated parties and users of their services.

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        Under the regulatory framework, we maintain an important role in the supply of natural gas given our position as the sole domestic producer of this product. We must apply the Energy Regulatory Commission's methodologies for establishing our initial domestic sales prices for natural gas that we produce (price regulation does not affect imported natural gas) and calculating our transportation rates. We then must submit those prices and rates to the Energy Regulatory Commission for its approval. Since 1997, the Regulatory Law has required us to provide the private sector with open access to our transportation system for distribution, ending our prior exclusive rights over the lines of distribution. We continue to market natural gas and may develop natural gas storage systems.

        In 1996, the Energy Regulatory Commission approved the Gradual Access Program for 1996-1997 which allowed for subsequent private sector access to the domestic natural gas market as well as to natural gas imports of more than 5 million cubic feet per day in northern Mexico. As part of this program, PEMEX opened the Naco-Hermosillo pipeline for private sector use in September 1996 and granted the first permit for private sector distribution pipelines in Mexicali in August 1996. The Gradual Access Program of 1996-1997 also required that we open access to certain distribution assets to the private sector. As a result, Pemex-Gas and Basic Petrochemicals' distribution assets located in Chihuahua, Cuauhtémoc-Anáhuac, Ciudad Juárez, Hermosillo, Toluca, Río Pánuco, Norte de Tamaulipas, Distrito Federal, Valle Cuautitlán-Texcoco, Saltillo, Nuevo Laredo, Querétaro and Monterrey have been privatized. As of 1999, all of our natural gas distribution pipelines were opened to private sector use and there were no further distribution assets left to divest pursuant to the program, although a portion of these assets are still held in trust (see Note 16 c) to the Financial Statements).

Hedging Operations

        We are an importer of natural gas and have prepared our budget for 2002 based on a natural gas import price assumption of U.S. $2.92 per million British Thermal Units ("BTUs"). To cover our exposure to fluctuations in international natural gas prices, which may affect our budget assumptions, we have entered into and will continue to enter into contracts that hedge against such price fluctuations. As part of the Mexican Government's policy of promoting economic growth, on January 17, 2001, the Ministry of Finance and Public Credit, the Ministry of Economy, the Ministry of Energy and PEMEX announced a natural gas pricing program for certain industrial consumers of natural gas in Mexico. Under that program, Mexican industrial consumers that hold outstanding natural gas price hedging instruments may enter into a three-year agreement with us to purchase natural gas from us at a fixed reference price of U.S. $4.00 per million BTUs. The purchase price represents approximately a 58% discount on spot prices offered in the market as of January 17, 2001 and 14% greater than spot prices offered in the market during September 2002. We entered into a number of such contracts in 2001. As part of our risk management strategy, we have also entered into a number of derivative instruments, primarily swaps and futures, for hedging purposes.

        For more information on these fixed price sales, see "Item 11—Quantitative and Qualitative Disclosures About Market Risk—Commodity Instruments."

Investments

        Pemex-Gas and Basic Petrochemicals invested Ps. 2,676 million in 2001, as compared to Ps. 3,719 million in 2000, in projects primarily related to natural gas and condensates processing, transportation and storage. In 2002, the Mexican Government approved Ps. 734 million of capital expenditures for investment in a new PIDIREGAS for Pemex-Gas and Basic Petrochemicals at the modular cryogenic plants in Reynosa. In addition to this, Ps. 4,758 million has been budgeted for Pemex-Gas and Basic Petrochemicals' other non-PIDIREGAS-related expenditures.

131

Petrochemicals

Capacity

        At the end of 2001, we operated 114 industrial plants and auxiliary units located in six petrochemical complexes and one petrochemical unit which is presently not in operation. Pemex-Gas and Basic Petrochemicals operated 63 of these plants and auxiliary units, and Pemex-Petrochemicals operated the remaining 51 plants. Pemex-Petrochemicals had total installed capacity sufficient to produce 11.2 million tons per year of petrochemical products in 2001, 3.9% less than its 2000 installed capacity of 11.6 million tons per year. Pemex-Petrochemicals' total production capacity for the last five years was distributed among its facilities as follows:

		Pemex-Petrochemicals' Total Capacity Year ended December 31,
		1997	1998	1999	2000	2001
		(In thousands of tons)
Petrochemical Facility
Cosoleacaque		4,817	4,817	4,696	4,696	4,736
La Cangrejera		3,749	3,073	2,973	2,873	2,297
Morelos		2,059	2,059	2,031	2,031	2,134
Pajaritos		1,472	1,361	1,066	1,066	1,066
Escolín		333	333	333	333	337
San Martín Texmelucan		393	387	231	246	260
Others		402	402	402	402	359	(1)
	Total	13,225	12,432	11,732	11,647	11,189

Note: Numbers may not total due to rounding.

(1)

Reflects the shutting down of two plants in our Reynosa unit in 2001.

Source: Pemex BDI

Production

        We manufacture 39 different petrochemical products, including:

•

methane and its derivatives, such as ammonia and methanol;



•

ethane and its derivatives, such as polyethylenes, as well as other olefins;



•

aromatics and their derivatives;



•

propylene and its derivatives; and



•

oxygen, nitrogen and other products.

132

        Pemex-Gas and Basic Petrochemicals produces certain basic petrochemicals, such as sulphur and hexanes, while Pemex-Petrochemicals produces non-basic petrochemicals and Pemex-Refining produces a limited amount of non-basic petrochemicals as part of the crude oil refining process. Pemex-Petrochemicals' and Pemex-Gas and Basic Petrochemicals' combined annual total petrochemical production (excluding ethane and butane gases) decreased by 10.0%, from 10,733 thousand tons in 2000 to 9,664 thousand tons in 2001. This decrease was caused primarily by a reduction in the production of methane and its derivatives and propylene and its derivatives. Pemex-Petrochemicals alone produced 5,994 thousand tons of petrochemicals in 2001, a 12.3% decrease from the 6,836 thousand tons it produced in 2000. The remainder was produced by Pemex-Gas and Basic Petrochemicals.

        Over the past five years, Pemex-Petrochemicals' petrochemical production has decreased. This is primarily due to steadily decreasing petrochemical prices in international markets, contraction in demand in Mexico for petrochemicals and increasing competition in petrochemical production. These factors, together with increasing prices in raw materials, resulted in high production costs that caused Pemex-Petrochemicals to downsize some of its operations. The following table summarizes the annual production associated with the principal petrochemical activities of Pemex-Petrochemicals for the five years ended December 31, 2001.

Pemex-Petrochemicals Production

			Year Ended December 31,
								2001 vs. 2000
			1997	1998	1999	2000	2001
			(in thousands of tons per year)					(%)
Liquids
	Pentanes		589	92	0	0	0	0.0
	Hexanes		64	68	61	54	62	14.8
	Heptanes		19	20	21	15	13	(13.3	)
		Total	672	180	82	69	75	8.7
Other inputs
	Oxygen		496	488	453	413	380	(8.0	)
	Nitrogen		110	108	112	105	96	(8.6	)
	Hydrogen		15	12	15	2	0	(100.0	)
		Total	621	608	580	520	476	(8.5	)
Petrochemicals
	Methane derivatives		5,067	4,374	3,019	2,271	1,752	(22.9	)
	Ethane derivatives		3,089	2,945	2,696	2,636	2,408	(8.6	)
	Aromatics and derivatives		1,461	1,402	1,235	667	642	(3.7	)
	Propylene and derivatives		377	243	193	180	127	(29.4	)
	Others		56	56	56	359	396	10.3
		Total	10,050	9,020	7,199	6,113	5,325	(12.9	)
Other products
	Hydrochloric acid		131	116	105	107	87	(18.7	)
	Muriatic acid		39	34	25	27	31	14.8
		Total	170	150	130	134	118	(11.9	)
Total			11,513	9,958	7,991	6,836	5,994	(12.3	)

Note: Numbers may not total due to rounding.

Source: Pemex BDI

133

Investments

        Including the expenditures related to the Morelos petrochemical facility (which is indirectly controlled by Pemex-Petrochemicals and has its own budget), Pemex-Petrochemicals invested Ps. 1,541 million in 2001, as compared to Ps. 1,143 million in 2000, in projects primarily related to natural gas and condensates processing, transportation and storage. For 2002, Pemex-Petrochemicals expects to invest Ps. 2,704 million on these projects.

Domestic Sales

        In 2001, domestic sales of petrochemical products by Pemex-Petrochemicals by value decreased by 20.2% from Ps. 9,954 million in 2000 to Ps. 7,948 million in 2001. This decrease is primarily attributable to the overall decrease in domestic demand for petrochemicals, as described above under "—Production," and was driven mainly by a decline in value of domestic sales of ethane and its derivatives.

        Over the five years ended December 31, 2001, the value of Pemex-Petrochemicals' domestic sales were distributed as set forth in the table below. The sales of petrochemical products by Pemex-Gas and Basic Petrochemicals and Pemex-Refining are included under "—Gas and Basic Petrochemicals" and "—Refining" above.

Value of Domestic Sales(1)

		Year Ended December 31,
												2001 vs. 2000
		1997		1998		1999		2000		2001
		(in millions of pesos)										(%)
Petrochemical Product
Methane derivatives		Ps.	2,875	Ps.	2,093	Ps.	1,559	Ps.	1,549	Ps.	1,438	(7.2	)
Ethane derivatives			6,035		5,309		5,495		5,906		4,775	(19.2	)
Aromatics and derivatives			1,894		1,513		1,654		1,661		1,238	(25.5	)
Propylene and derivatives			1,385		810		599		806		458	(43.2	)
Others			4		19		23		32		39	21.9
	Total	Ps.	12,193	Ps.	9,744	Ps.	9,330	Ps.	9,954	Ps.	7,948	(20.2	)

Note: Numbers may not total due to rounding.

(1)    Excludes value added tax.

Source: Pemex BDI

Private Sector Participation in Petrochemicals Sector

        Since the end of 1993, foreign and domestic private investors have been allowed to own 100% of any petrochemical plant producing non-basic petrochemicals. However, under Mexican law, only PEMEX may produce and engage in the first-hand sale of basic petrochemicals. Before the amendment to the Regulatory Law on November 14, 1996, the Ministry of Energy was responsible for determining which petrochemical products were classified as "basic" and nearly all petrochemicals were classified as such. In that regulatory environment, we expanded our petrochemical division rapidly. The amendment to the Regulatory Law limited basic petrochemicals to nine products (down from 34 products in 1986 and 19 products in 1989) that are used in the petrochemical production process. The amendment further allowed companies that produce basic petrochemicals as by-products of non-basic petrochemical production to sell these basic petrochemicals internally within plants in the same unit or complex or to sell those basic petrochemicals to PEMEX.

134

        In October 1992, PEMEX and the Mexican Government announced a plan to privatize the non-basic petrochemical plants owned and operated by Pemex-Petrochemicals. In 1997, the Board of Directors of Petróleos Mexicanos approved a secondary petrochemical private-sector participation plan authorizing the creation of seven new subsidiaries of Pemex-Petrochemicals, which were created in 1997. The seven subsidiaries listed below hold the assets and liabilities associated with the production of non-basic petrochemicals, as well as the real estate corresponding to each complex or plant:

•

Petroquímica Cosoleacaque, S.A. de C.V.;



•

Petroquímica Escolín, S.A. de C.V.;



•

Petroquímica Tula, S.A. de C.V.;



•

Petroquímica Camargo, S.A. de C.V.;



•

Petroquímica Cangrejera, S.A. de C.V.;



•

Petroquímica Morelos, S.A. de C.V.; and



•

Petroquímica Pajaritos, S.A. de C.V.

        Currently, Pemex-Petrochemicals is the sole shareholder of these seven subsidiaries, which own and operate our secondary petrochemical facilities at Cosoleacaque, Escolín (including the assets of Reynosa), Tula, Camargo, Cangrejera, Morelos and Pajaritos. On June 28, 2002, the board of directors of Pemex-Petrochemicals approved the merger of the seven subsidiaries into Pemex-Petrochemicals. In July 2002, the shareholders and the boards of directors of the seven subsidiaries approved the merger. The merger is subject to the approval of the Board of Directors of Petróleos Mexicanos.

International Trading

The PMI Group

        The PMI Group includes PMI and the other PEMEX subsidiaries and affiliates that conduct international commercial activities for our products, except for natural gas, which is marketed directly by Pemex-Gas and Basic Petrochemicals. The PMI Group's main objective is to assist in maximizing our profitability and optimizing our operations through the use of international trade, facilitating the link between the international markets and us and pursuing new business opportunities in marketing our products. The PMI Group manages the international sales of our crude oil and petroleum products and acquires in the international markets those petroleum products that we import to satisfy domestic demand. Sales and purchases of petroleum products (refined products, petrochemical products and liquefied petroleum gas) in the international markets are carried out through PMI Trading. PMI Trading also performs third-party trading, chartering and risk-management activities.

Exports and Imports

        PMI purchases crude oil from Pemex-Exploration and Production and then sells it to PMI's customers. PMI sold an average of 1,755 thousand barrels per day of crude oil in 2001, which constituted 56.1% of our total crude oil production.

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        The following tables set forth the composition and average prices of our crude oil exports for the periods indicated:

			Year Ended December 31,
			1997		1998		1999		2000		2001
			(tbpd)	(%)	(tbpd)	(%)	(tbpd)	(%)	(tbpd)	(%)	(tbpd)	(%)
Crude oil exports (by volume)(1)
	Olmeca (API gravity of 38°-39°)		485	28	457	27	434	28	398	25	317	18
	Isthmus (API gravity of 32°-33°)		216	13	196	11	190	12	110	7	87	5
	Maya (API gravity of 21°-22°)		1,020	59	1,053	62	920	59	1,086	68	1,331	76
	Altamira (API gravity 15.0°-16.5°)(2)		—	—	6	—	9	1	11	1	20	1
		Total	1,721	100	1,712	100	1,554	100	1,604	100	1,755	100

Notes:

Numbers may not total due to rounding.
tbpd = thousand barrels per day.
API gravity refers to the specific gravity, or density, of liquid petroleum products measured in degrees on the American Petroleum Institute scale.
On the API scale, oil with the least specific gravity has the highest API gravity. In addition, if all other things are equal, the higher the API gravity, the greater the value of the crude oil.

(1)

Includes sales of crude oil of 108 thousand barrels per day to affiliated companies in 1997.

(2)

PEMEX began selling Altamira crude oil in late 1998 and recorded Altamira crude oil sales separately beginning in 1999.

Sources: 1997 figures: PEMEX's 1999 Statistical Yearbook
1998, 1999, 2000 and 2001 figures: PMI operating statistics, which are based on information in bills of lading

			Year Ended December 31,
			1997		1998		1999		2000		2001
					(U.S. dollars per barrel)
Crude Oil Prices
	Olmeca		$	19.52	$	13.15	$	17.85	$	29.00	$	23.96
	Isthmus			18.19		11.87		17.45		27.87		22.27
	Maya			14.65		8.56		14.08		22.98		17.13
	Altamira(1)			—		7.20		12.94		19.67		12.75
		Weighted average realized price	$	16.46	$	10.16	$	15.55	$	24.78	$	18.57

(1)

PEMEX began selling Altamira crude oil in 1998.

Sources: 1997 figures: PEMEX's 1999 Statistical Yearbook
1998, 1999, 2000 and 2001 figures: PMI operating statistics, which are based on information in bills of lading

Geographic Distribution of Export Sales

        In 2001, 98% of PMI's sales of our crude oil exports were to countries in the western hemisphere. As of December 31, 2001, PMI had 45 customers in 16 countries. Among these countries, the United States, Spain, the Netherlands Antilles, Canada and Japan have consistently been our largest customers.

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        The following table sets forth crude oil export sales by country.

Crude Oil Exports by Country

		Percentage of Exports
		1997		1998		1999		2000		2001
United States		77.6	%	77.0	%	75.4	%	75.0	%	75.3	%
Spain		7.1		7.7		7.8		8.7		8.4
Japan		3.6		1.8		2.7		2.2		1.0
Netherlands Antilles		3.4		5.0		6.6		6.7		7.6
Canada		1.8		1.9		1.5		1.7		1.6
Others		6.5		6.6		6.0		5.7		6.1
	Total	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%

Note: Numbers may not total due to rounding.

Sources: 1997 figures: PEMEX's 1999 Statistical Yearbook
1998, 1999, 2000 and 2001 figures: PMI operating statistics, which are based on information in bills of lading

        The following table sets forth the geographic distribution of PMI's sales of crude oil exports from January 1, 1997 through December 31, 2001. The table also presents the distribution of exports among PMI's crude oil types for those years.

Composition and Geographic Distribution of Crude Oil Export Sales

		At December 31,
		1997		1998		1999		2000		2001
		(tbpd)	(%)	(tbpd)	(%)	(tbpd)	(%)	(tbpd)	(%)	(tbpd)	(%)
PMI Crude Oil Export Sales to:
United States and Canada		1,365	79	1,347	79	1,196	77	1,230	77	1,349	77
Europe		176	10	190	11	177	11	185	12	184	10
Central and South America		104	6	130	8	134	9	149	9	179	10
Far East		63	4	32	2	42	3	40	2	37	2
Africa		13	1	13	1	5	0	—	—	6	1
	Total	1,721	100	1,712	100	1,554	100	1,604	100	1,755	100
Olmeca (API gravity of 38°-39°)
United States and Canada		465	27	452	26	432	28	378	24	292	17
Others		20	1	5	0	2	0	19	1	25	1
	Total	485	28	457	27	434	28	398	25	317	18
Isthmus (API gravity of 32°-33°)
United States and Canada		99	6	82	5	109	7	68	4	56	3
Others		116	7	114	7	81	5	41	3	31	2
	Total	215	13	196	12	190	12	110	7	87	5
Maya (API gravity of 21°-22°)
United States and Canada		802	47	807	47	646	42	773	48	981	56
Others		218	12	246	14	274	18	313	20	350	20
	Total	1,020	59	1,052	61	920	59	1,086	68	1,331	76
Altamira (API gravity of 15.0°-16.5°)
United States and Canada		—	—	6	—	9	1	11	1	20	1
Others		—	—	0	—	—	—	—	—	—	—
	Total	—	—	6	—	9	1	11	1	20	1

Notes:

Numbers may not total due to rounding.
tbpd = thousand barrels per day.
API gravity refers to the specific gravity, or density, of liquid petroleum products measured in degrees on the American Petroleum Institute scale.
On the API scale, oil with the least specific gravity has the highest API gravity. In addition, if all other things are equal, the higher the API gravity, the greater the value of the crude oil.

Sources: 1997 figures: PEMEX's 1999 Statistical Yearbook
1998, 1999, 2000 and 2001 figures: PMI operating statistics, which are based on information in bills of lading

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        PMI makes a significant percentage of crude oil sales under evergreen contracts, which can be terminated by either party pursuant to a three month phase-out clause. PMI sells most of its remaining exports to the same customers that purchase under evergreen contracts, but PMI makes these sales pursuant to separate supply contracts, which apply the pricing formulas included in the evergreen contracts. PMI generally sells crude oil on a Free On Board basis. In practically all cases, PMI sells refined products on Free on Board and Cost and Freight bases and buys refined products on Delivery Ex-ship or Delivery at Frontier and Cost and Freight bases.

        PMI has entered into several long-term Maya crude oil supply agreements pursuant to which the purchasers have agreed to undertake projects to expand the capacity of their respective refineries to upgrade residue from Maya crude oil. Under these agreements, PMI will provide the purchasers with certain support mechanisms that will protect, under certain adverse market conditions, the investments that the purchasers have to undertake in accordance with the agreements. These agreements include:

•

an agreement with Clark Refining & Marketing, Inc., signed on March 10, 1998, to supply its Port Arthur, Texas refinery with approximately 158 thousand barrels per day of Maya crude oil for a period of seven years following project completion, which occurred in April 2001;



•

an agreement with Coastal Aruba Refining Company N.V., signed on July 30, 1998, to supply its refinery in Aruba with approximately 100 thousand barrels per day of Maya crude oil for a period of five years following project completion, which occurred in April 2000;



•

an agreement with Exxon Company U.S.A. and Exxon Trading Company International, signed on September 25, 1998, to supply its Baytown, Texas refinery with approximately 65 thousand barrels per day of Maya crude oil for a period of five years following project completion, which occurred in December 2001;



•

an agreement with Pecten Trading Company, which is a trading subsidiary of Shell Oil Company, signed on May 1, 1999, and an agreement with P.M.I. Norteamérica, S.A. de C.V., signed on the same date, to supply the Deer Park refinery joint venture with a total of approximately 50 thousand barrels per day of Maya crude oil following project completion, which occurred in April 2001, and up to 200 thousand barrels per day thereafter;



•

an agreement with Marathon Ashland Supply LLC, signed on May 1, 1999, to supply its Garyville, Louisiana refinery with approximately 100 thousand barrels per day of Maya crude oil for a period of five years following project completion, which occurred in December 2001;



•

an agreement with Valero Marketing and Supply Company and Valero Refining—Texas, L.P., signed on December 17, 2001, to supply their Texas City, Texas refinery with approximately 90 thousand barrels per day of Maya crude oil for a period of five years following project completion, which is scheduled to occur on or before October 1, 2003; and



•

an agreement with Chevron Products Company, a division of Chevron U.S.A. Inc., signed on March 6, 2002, to supply its Pascagoula, Mississippi refinery with approximately 130 thousand barrels per day of Maya crude oil for a period of five years following project completion, which is scheduled to occur in April 2003.

        These long-term Maya crude oil supply agreements further our strategy to support the export value of Maya crude oil in relation to the value of other grades of crude oil by creating incentives for refiners to invest in new high-conversion refineries, which will be capable of upgrading the relatively large proportion of residue produced from processing Maya crude oil in less-efficient refining complex configurations.

        The Ministry of Energy has entered into certain agreements to reduce and increase exports of crude oil as discussed below in "—Trade Regulations and Export Agreements."

        The following table sets forth the average volume of exports and imports of crude oil, natural gas and petroleum products for the five years ended December 31, 2001.

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Volume of Exports and Imports

				Year Ended December 31,
									2001 vs. 2000
				1997	1998	1999	2000	2001
				(in thousands of barrels per day, except as noted)					(%)
Exports
	Crude Oil
		Olmeca		485.2	457.1	434.4	397.5	317.4	(20.2	)
		Isthmus		215.8	195.9	190.1	109.7	86.8	(20.9	)
		Maya(1)		1,019.7	1,058.7	929.1	1,096.4	1,350.7	23.2
			Total crude oil	1,720.7	1,711.7	1,553.6	1,603.6	1,754.9	9.4
	Natural gas(2)			6.3	5.9	20.4	3.5	3.7	5.7
	Refined products			93.0	120.0	149.7	112.5	102.5	(8.9	)
	Petrochemical products(3)			1,062.3	1,025.4	785.0	1,123.8	794.0	(29.4	)
Imports
	Natural gas(2)			16.9	22.6	22.0	34.1	43.1	26.4
	Refined products			298.6	335.2	365.3	445.5	382.1	(14.3	)
	Petrochemical products(3)			164.7	130.8	214.9	444.4	280.3	(36.9	)

Note: Numbers are subject to adjustment because the volume of crude oil exports actually sold during December 2000 may be adjusted to reflect the percentage of water in each shipment.

(1)

In 1998, 1999, 2000 and 2001, numbers include six, nine, eleven and twenty thousand barrels per day, respectively, of Altamira crude oil.

(2)

Fuel oil equivalent.

(3)

Thousands of metric tons.

Sources:	1997 figures: PEMEX's 1998 Statistical Yearbook
	1998, 1999, 2000 and 2001 figures: PMI operating statistics, which are based on information in bills of lading

        Natural gas imports increased by 26.4% in 2001, from 231.4 million cubic feet per day in 2000 to 292.2 million cubic feet per day in 2001 primarily due to an increase in domestic demand for natural gas. In 2001, total exports and imports of petrochemical products by volume decreased by 31.5%, from 1,568.2 thousand metric tons in 2000 to 1,074.3 thousand metric tons in 2001. In 2001, total exports and imports of refined products by volume decreased by 13.2%, from 558.0 thousand barrels per day in 2000 to 484.5 thousands barrel per day in 2001. This decrease was mainly due to an increase in production of refined products by Pemex-Refining accompanied by a slight decrease in domestic demand for refined products. Coupled with the decrease in exports of petrochemical products, this decrease in imports helped improve the external trade balance.

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        The following table sets forth the value of exports and imports of crude oil, natural gas and petroleum products for the five years ended December 31, 2001.

Value of Exports and Imports(1)

			Year ended December 31,
													2001 vs. 2000
			1997		1998		1999		2000		2001
			(in millions of U.S. dollars)										(%)
Exports
	Olmeca		$	3,457.0	$	2,194.4	$	2,830.7	$	4,219.9	$	2,775.7	(34.2	)
	Isthmus			1,432.0		848.9		1,211.2		1,119.5		705.9	(36.9	)
	Maya(2)			5,451.0		3,306.7		4,774.3		9,206.8		8,414.1	(8.6	)
		Total crude oil(3)	$	10,340.0	$	6,350.0	$	8,816.2	$	14,546.2	$	11,895.7	(18.2	)
	Natural gas			37.0		30.9		114.3		48.8		47.8	(2.0	)
	Refined products			646.0		560.7		899.6		1,167.8		896.5	(23.2	)
	Petrochemical products			186.5		143.3		133.3		280.3		145.2	(48.2	)
		Total products	$	869.5	$	734.9	$	1,147.2	$	1,496.9	$	1,089.5	(27.2	)
		Total exports	$	11,209.5	$	7,084.9	$	9,963.4	$	16,043.1	$	12,985.2	(19.1	)
Imports
	Natural gas			107.9		121.7		132.2		366.5		423.8	15.6
	Refined products			2,506.3		2,109.3		2,889.1		5,411.8		4,139.2	(23.5	)
	Petrochemical products			51.8		33.8		55.2		125.2		83.9	(33.0	)
		Total imports	$	2,666.0	$	2,264.8	$	3,076.5	$	5,903.5	$	4,646.9	(21.3	)
Net exports			$	8,543.5	$	4,820.1	$	6,886.9	$	10,139.6	$	8,338.3	(17.8	)

Note: Numbers may not total due to rounding.

(1)

Does not include crude oil, refined products, petrochemicals and natural gas purchased by PMI Trading or P.M.I. Norteamérica, S.A. de C.V. from third parties outside of Mexico and resold in the international markets. The figures expressed in this table differ from the amounts contained in the financial statements under "Net Sales" because of the differences in methodology associated with the calculation of the exchange rates and other minor adjustments.

(2)

In 1998, 1999, 2000 and 2001, numbers include six, nine, eleven and twenty thousand barrels per day, respectively, of Altamira crude oil.

(3)

Crude oil exports are subject to adjustment to reflect the percentage of water in each shipment.

Sources: 1997 figures: PEMEX's 1999 Statistical Yearbook
1998, 1999, 2000 and 2001 figures: PMI operating statistics, which are based on information in bills of lading

        Since 1989, increasing domestic demand has led to a deficit in the petroleum products trade balance. Nevertheless, in 2001, exports and imports of petroleum products decreased at comparable rates, primarily due to a decrease in domestic demand for petroleum products. Taking into account trading activities on behalf of third parties in 2001, PMI marketed more than 373.5 thousand barrels per day of petroleum products, including gasoline, diesel, fuel oil, jet fuel and gasoline additives, representing a 9.2% decrease as compared to 2000 volumes.

        Imports of refined products decreased in value by 23.5% during 2001, while exports of refined products decreased in value by 23.2%. During 2002, import volumes of refined products are likely to

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continue to fluctuate significantly in the short-term as a result of expected increases in future production capacity. Due to the uncertainty regarding the successful startup and initial operation of the new refining plants, we cannot predict import trends in the short-term from current data.

        Imports of natural gas increased in value by 15.6% during 2001, while exports of natural gas decreased by 2.0%, primarily because of increased domestic demand for natural gas.

        The following table describes the composition of our imports and exports of selected refined products in 1999, 2000 and 2001.

Imports and Exports of Selected Refined Products

		Year Ended December 31,
		1999			2000			2001
		(tbpd)	(%)		(tbpd)	(%)		(tbpd)	(%)
Imports
Gasoline(1)		129.6	35.5		153.6	34.5		167.9	43.9
Fuel oil		92.1	25.2		117.5	26.4		85.7	22.4
Liquefied petroleum gas		93.8	25.7		118.1	26.5		99.8	26.1
Diesel		35.7	9.8		42.0	9.4		16.6	4.3
Others		14.1	3.9		14.3	3.2		12.1	3.2
	Total	365.3	100.0	%	445.5	100.0	%	382.1	100.0	%
Exports
Gasoline(1)		70.0	46.8		69.6	61.9		74.2	72.4
Diesel		10.1	6.7		3.1	2.8		8.4	8.2
Liquefied petroleum gas		4.5	3.0		5.6	4.9		3.1	3.0
Jet fuel		3.2	2.1		3.6	3.2		2.5	2.4
Fuel oil		1.0	0.7		0.1	0.0		1.7	1.7
Others		60.9	40.7		30.5	27.1		12.6	12.3
	Total	149.7	100.0	%	112.5	100.0	%	102.5	100.0	%

Note: tbpd = thousands of barrels per day.

(1)

Includes methyl terbutyl ether (MTBE) and pentanes.

Source: PMI operating statistics based on INCOTERMS (International Commercial Terms)

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        For the three years ended December 31, 2001, our imports and exports of selected petrochemicals were as follows:

Imports and Exports of Selected Petrochemicals

		Year Ended December 31,
		1999			2000			2001
		(tmt)	(%)		(tmt)	(%)		(tmt)	(%)
Imports
Xylenes		2.1	1.0		—	—		3.4	1.2
Propylene		—	—		3.1	0.7		0.0	0.0
Ammonia		41.8	19.4		231.7	52.1		94.1	33.6
Others		171.0	79.6		209.6	47.2		182.7	65.2
	Total	214.9	100.0	%	444.4	100.0	%	280.3	100.0	%
Exports
Sulphur		515.1	65.6		517.1	46.0		498.4	62.8
Ammonia		37.9	4.8		248.0	22.1		20.1	2.5
Ethylene		91.9	11.7		164.3	14.6		123.6	15.6
Polyethylenes		26.0	3.3		35.0	3.1		45.3	5.7
Others		114.1	14.5		159.4	14.2		106.7	13.4
	Total	785.0	100.0	%	1,123.8	100.0	%	794.0	100.0	%

Note: tmt = thousands of metric tons.

(1)

Includes methyl terbutyl ether (MTBE) and pentanes.

Source: PMI operating statistics based on INCOTERMS (International Commercial Terms)

Hedging Operations

        PMI Trading engages in hedging operations to cover the variations in the purchase and sale prices for petroleum products. Its internal policies establish a limit on the maximum capital at risk. Capital at risk is calculated daily in order to compare the actual figures with the aforementioned limit. Internal controls include a risk comptroller responsible for ensuring compliance, an internal auditing department and a risk management committee. See "Item 11—Quantitative and Qualitative Disclosure About Market Risk—Commodity Instruments."

Transportation and Distribution

        Our pipelines connect crude oil and natural gas producing centers with refineries and petrochemical plants, and the refineries and petrochemical plants with Mexico's major cities. At the end of 2001, our pipeline network measured approximately 54,477 kilometers in length. Of the total network, approximately 8,768 kilometers of pipelines transport crude oil, approximately 12,140 kilometers transport petroleum products and petrochemicals, 15,935 kilometers transport natural gas, 1,822 kilometers transport liquefied petroleum gas, 1,084 kilometers transport basic petrochemicals and the remaining kilometers are crude oil and natural gas gathering pipelines. Ownership of the pipelines is distributed among our subsidiary entities according to the products they transport.

        During 2001, we transported approximately 72.9 billion tons per kilometer of crude oil to be processed in the refining system and petroleum products to satisfy domestic demand, as compared to the 71.03 billion tons per kilometer carried in 2000. Of the total amount of tons per kilometer we transported in 2001, we carried 99.6% through pipelines and 0.4% by vessels.

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        At the end of 2001, we owned nineteen refined product tankers and leased another four. We also owned 78 major wholesale storage centers.

PEMEX Corporate Matters

        In addition to the operating activities that we undertake through the activities of our subsidiary entities and subsidiary companies, we have certain centralized corporate operations that coordinate general labor, safety, insurance and legal matters.

Industrial Safety

        Petróleos Mexicanos' Corporate Division of Industrial Safety and Environmental Protection is responsible for planning, conducting and coordinating programs to:

•

foster a company culture of safety and environmental protection;



•

improve the safety of our workers and facilities;



•

reduce risks to the residents surrounding our facilities; and



•

protect the environment.

        We intend to develop further the industrial safety and environmental programs for each subsidiary entity. The environmental and safety division of each subsidiary entity coordinates closely with the Corporate Division of Industrial Safety and Environmental Protection.

Insurance

        We maintain general and civil liability insurance coverage for our onshore real and personal property, such as refineries, process plants, pipelines and storage facilities, and our offshore properties such as drilling platforms, rigs, gas gathering systems, floating docks and production facilities. Our insurance covers risks of sudden and accidental physical destruction or loss or damage to our properties. Our offshore general and civil liability insurance also covers extraordinary costs related to the operation of offshore wells, such as control and repair costs, evacuation costs and costs associated with spills. We maintain additional coverage for offshore environmental liabilities. We also maintain protection and indemnity insurance, life insurance, as well as insurance for automobiles and heavy equipment, electronic equipment and cargo and hull insurance for our shipping fleet.

        We contract the majority of our insurance policies through Mexican insurance carriers. These policies have limits of U.S. $1.0 billion for onshore property, U.S. $1.25 billion for offshore property (with an additional U.S. $250 million for accidental losses at our Atasta Processing and Transportation Center and our terminal at Dos Bocas, Tabasco), U.S. $300 million for extraordinary costs related to the operation of offshore wells, U.S. $500 million for offshore environmental liability and U.S. $400 million for civil liabilities. Since June 30, 1999, our insurance policies covering onshore and offshore properties also cover unforeseen interruptions in operations. This coverage, which is limited to U.S. $750 million for onshore operations and U.S. $1.25 billion for offshore operations, counts against the overall limits of the onshore and offshore property policies.

Property, Plants and Equipment

General

        Substantially all of PEMEX's property, consisting of refineries, storage, production, manufacturing and transportation facilities and certain retail outlets, is located in Mexico, including Mexican waters in the Gulf of Mexico. The location, character, utilization, productive capacity and related environmental issues of our exploration, drilling, refining, petrochemical production, transportation and storage

143

facilities are described above. See "—Exploration and Production," "—Refining," "—Gas and Basic Petrochemicals," "—Petrochemicals," and "—Transportation and Distribution."

Reserves

        Under Mexican law, all oil and other hydrocarbon reserves within Mexico are owned by the Mexican nation and not by PEMEX. Petróleos Mexicanos and the subsidiary entities have the exclusive right to exploit those reserves under the Regulatory Law and related laws and regulations. Our estimates of Mexico's hydrocarbon reserves are described in "—Exploration and Production—Reserves."

GENERAL REGULATORY FRAMEWORK

        The Mexican Government and its agencies closely regulate and supervise our operations. The Ministry of Energy monitors our activities and the Secretary of Energy acts as the chairman of the Board of Directors of Petróleos Mexicanos. The Ministry of Finance and Public Credit approves the annual budget and financing program of Petróleos Mexicanos and the subsidiary entities. The Mexican Government incorporates the annual budget and financing program of Petróleos Mexicanos and the subsidiary entities into its budget, which the Mexican Congress must approve each year. The Mexican Government is not, however, directly liable for the financial obligations that we incur. The Ministry of the Environment and Natural Resources, in conjunction with other federal and state authorities, regulates our activities that affect the environment. SECODAM appoints the external auditors of Petróleos Mexicanos and the subsidiary entities.

ENVIRONMENTAL REGULATION

Legal Framework

        We are subject to the provisions of the Ley General del Equilibrio Ecológico y la Protección al Ambiente (General Law on Ecology and Environmental Protection, which we refer to as the "Environmental Law"), the regulations issued thereunder and several technical environmental norms issued by the Ministry of the Environment and Natural Resources, which is the federal ministry in charge of supervising and regulating environmental matters relating to PEMEX. The Ministry of Health, the Ministry of Communications and Transportation, the Ministry of the Navy and the Ministry of Energy assist the Ministry of the Environment and Natural Resources in its functions. In addition, we are subject to the environmental laws and regulations issued by the governments of each of the states of Mexico where our facilities are located.

The Environmental Law and Regulation by the Ministry of the Environment and Natural Resources

        The Environmental Law and related regulations require that we obtain certain authorizations from the Ministry of the Environment and Natural Resources before we can carry out any activity that may have an adverse effect on the environment. In particular, these environmental regulations apply to chemical, petrochemical, crude oil refining and extraction activities, as well as the construction of crude oil and natural gas pipelines. Before authorizing a new project, the Ministry of the Environment and Natural Resources requires the submission of an environmental impact analysis and any other information that it may request. The Ministry of the Environment and Natural Resources is entitled to grant or deny its authorization of any activity.

        The environmental regulations that apply generally to Mexican industry apply to us. These regulations specify, among other matters, permissible levels of emissions, water discharges and hazardous substances discharges as well as atmospheric pollution level limits. The technical regulations for oil and petrochemical industries set forth maximum permissible levels of pollution in residual water discharges and natural gas emissions. These regulations also establish procedures for measuring

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pollution levels. Mexico generally updates and revises its environmental regulatory framework as necessary, and we participate with the Mexican Government in developing environmental regulations that are related to our activities.

        In April 1997, the Ministry of the Environment and Natural Resources issued regulations governing the procedures for obtaining an environmental license, under which new industrial facilities can comply with all applicable environmental requirements by way of a single administrative procedure. Each environmental license integrates all different permits, licenses and authorizations related to environmental matters for a particular facility. We must obtain an Environmental License for any new facility, while our existing facilities are not subject to this obligation.

        Federal and state authorities in Mexico may inspect any facility to determine compliance with the Environmental Law, local environmental laws, regulations and technical environmental regulations. Violations or non-compliance with the legal provisions may result in the application of substantial fines, temporary or permanent shutdown of a facility, required capital expenditures to minimize the effect of our operations on the environment, cleanup of contaminated land and water, cancellation of a concession or revocation of authorization to carry out certain activities and, in certain cases, criminal prosecution of employees and individuals.

PEMEX's Internal Monitoring

        We believe that we are currently in substantial compliance with current federal and state environmental laws as those laws have been historically interpreted and enforced. We maintain an organizational structure that permits us to implement and monitor our environmental program. The subsidiary entities have specialized departments, depending on the size and geographic distribution of their respective sites, that implement their own environmental programs, internal environmental audits and inspections of their sites and their immediate surroundings based on the standards of the Ministry of the Environment and Natural Resources. When these internal audits reveal deficiencies, the subsidiary entities take the necessary remedial actions. Remediation requirements derived from these internal audits and inspections are recorded in the financial statements when they are known and estimable.

        Our Corporate Division of Industrial Safety and Environmental Protection has developed an integrated safety and environmental protection management system and is currently implementing strategies within PEMEX to create a company culture focused on improving industrial safety and environmental protection. This system is an administrative tool composed of diverse, interdependent and interrelated elements, focused on diagnosis, evaluation, implementation and continuing preventive improvements related to safety and environmental protection. The diagnosis and evaluation stages have been completed; the system is now in the implementation stage.

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        We maintain an internal structure to identify and solve environmental problems and retain external consultants to perform operational audits at our industrial plants, including cost estimates for remedying any shortfall in compliance with Mexican environmental laws. Such remedies can include improving the operating efficiency of plants, cleaning up contaminated land and water, and capital expenditures to minimize the effect of our operations on the environment.

        In addition to our internal monitoring structure for identifying affected areas, areas of noncompliance and improvement opportunities, our environmental program is subject to the review of the Procuraduría Federal de Protección al Ambiente (the Office of the Federal Attorney for Environmental Protection, which we refer to as "PROFEPA"). PROFEPA administers the Mexican environmental regulatory rubric and establishes acceptable standards of environmental remediation. Although PROFEPA has the authority to review and inspect remediation works performed by PEMEX and compliance with permitted contamination levels established by laws and regulations, it does not determine PEMEX's environmental liabilities. PEMEX maintains proper records of all of the studies, estimations, performed works and any other information that PROFEPA may request from time to time.

        In 1993, PEMEX entered into a voluntary environmental audit program with PROFEPA. As of December 31, 2001, with respect to Petróleos Mexicanos and the subsidiary entities, 450 environmental audits had been completed under the program with PROFEPA and all main facilities had been covered. As each environmental audit is completed, we send the audit report (which includes the estimated costs for remedying environmental anomalies) to PROFEPA for its review and approval. After approval by PROFEPA, we review the audits and determine which findings can be resolved by changing current plant or drilling operations and implementing the current capital expenditures plan. If the audit report is approved by PROFEPA, PEMEX and PROFEPA negotiate a corrective action plan, stipulating the time period, amounts to be expended and the steps to be taken to bring each site into compliance. As of December 31, 2001, corrective action plans for 303 audits had been completed and 275 sites had received "clean industry" certifications from PROFEPA. With respect to the remaining 147 audits, the corrective action plans have been agreed upon and are being implemented.

        There are currently no material legal or administrative proceedings pending against us with respect to any environmental matters, and we do not believe that continued compliance with environmental laws will have a material adverse effect on our financial condition or results of operations.

Environmental Liabilities

        At December 31, 2001, our estimated and accrued environmental liabilities totaled Ps. 2,316 million. Of this total, Ps. 1,315.6 million was attributable to Pemex-Exploration and Production, Ps. 846.6 million was attributable to Pemex-Refining, Ps. 131.4 million was attributable to Pemex-Gas and Basic Petrochemicals and Ps. 22.5 million was attributable to Pemex-Petrochemicals. There were no environmental liabilities at the subsidiary company level. The following charts detail our environmental liabilities by operating region at December 31, 2001.

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Pemex-Exploration and Production

	Estimated Affected Area	Estimated Liability
	(in hectares)	(in thousands of pesos)
Northern Region	321.6	Ps.	643,300
Southern Region	34.7		47,575
Southeast Marine Region	3.2		105,000
Total	359.5	Ps.	795,875

Source: PEMEX

		Containment Reservoir Drainage
		Number of Reservoirs	Estimated Liability
			(in thousands of pesos)
Northern Region		601	Ps.	299,422
Southern Region		79		220,311
Southeast Marine Region		0		0
Total		680	Ps.	519,733
	Total estimated liabilities of Pemex-Exploration and Production		Ps.	1,315,608

Source: PEMEX

Pemex-Refining

	Estimated affected area	Estimated Liability
	(in hectares)	(in thousands of pesos)
Pipelines	9.0	Ps.	71,108
Refineries(1)	985.0		245,518
Storage and Distribution Terminals(2)	236.0		530,012
Total	1,230.0	Ps.	846,638

(1)

All six of Pemex-Refining refineries have been audited. Of the five refineries which required environmental remediation, the estimated affected area of two refineries has not yet been determined; however, the estimated liability includes the cost estimate for such areas based on available information.

(2)

All Pemex-Refining storage and distribution terminals have been audited. Of the 38 terminals which required environmental remediation, the estimated affected area of 22 storage and distribution terminals has not yet been determined; however, the estimated liability includes the cost estimate for such areas based on available information.

Source: PEMEX

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Pemex-Gas and Basic Petrochemicals

	Estimated affected area	Estimated Liability
	(in hectares)	(in thousands of pesos)
Complex Gas Processors(1)	52.67	Ps.	131,180
Pipelines	0.06		203
Total	52.73	Ps.	131,383

(1)

All eight gas processing plants have been audited and the table above reflects the six plants determined to require environmental remediation.

Source: PEMEX

Pemex-Petrochemicals

	Estimated affected area	Estimated Liability
	(in hectares)	(in thousands of pesos)
Petroquímica Cangrejera, S.A. de C.V.	0.30	Ps.	1,343
Petroquímica Pajaritos, S.A. de C.V.	10.13		21,203
Total(1)	10.43	Ps.	22,546

(1)

All Pemex-Petrochemicals plants have been audited and the table above reflects the only plants determined to require environmental remediation.

Source: PEMEX

        Our estimates of environmental liabilities include cost estimates for general and site-specific evaluation studies and the corresponding remediation. The remediation sites consist of sites identified in the audit process described above as well as those previously identified sites in more mature petroleum operating areas that were not cleaned in the past. Our environmental liabilities also include the elimination of ponds created by abandoned petroleum wells. Additionally, our environmental liabilities include an accrual for information requested and received periodically from field managers as to probable environmental liabilities identified in their respective areas of responsibility. PEMEX accrues its environmental liabilities when sufficient basic knowledge is available to form a preliminary estimation as to remediation cost. Although the full potential scope of remediation cost may not be known with certainty, such accruals are made when the liability is probable and the amount is reasonably estimable, in accordance with SFAS No. 5. These estimated liabilities include assumptions as to initial evaluation of damage, including land acreage to be remediated, depth of contamination and type of contamination. While the initial evaluation is extensive, there is a possibility that the actual scope of remediation could vary depending upon information gained during the remediation process. For further discussion of PEMEX's environmental liabilities, see Note 19 II (d) to the Financial Statements.

        Unasserted or additional claims are not reflected in our identified liabilities. We are not aware of any such claims that would be of such a magnitude as to materially affect our estimates of environmental liabilities.

        At the end of 2001, we were not aware of uncertainties with respect to joint and several liabilities that could affect our assessment of environmental contingencies or otherwise result in a major environmental liability. We are responsible for all production, processing, storage and distribution of petroleum and its derivatives in Mexico. As a result, we believe we are positioned to know immediately

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of any claims and are therefore directly and immediately accountable for such claims that may be brought against us.

        The timing of remediation or cleanup of the sites accounted for in these environmental liabilities is a function of the annual budget assigned to us by the Mexican Congress.

Environmental Expenditures

        In 2001, we invested approximately Ps. 3,349 million in environmental projects as compared to Ps. 2,711 million in 2000. For 2002, we have budgeted Ps. 3,928 million for environmental expenditures. The most important of these projects are directed to the modernization of installations, the implementation of systems and control mechanisms to monitor atmospheric pollution, the acquisition of equipment to address the contingencies of hydrocarbon spills, the expansion of water effluent systems, the restoration and reforestation of affected areas, studies for environmental investigation and the conducting of environmental audits. In addition, we continue to conduct extensive research and development efforts to increase our capacity to produce gasoline, diesel and fuel oil with lower sulphur content and alternative fuels, such as industrial oil and natural gas. Currently, we are developing procedures to track the costs and expenses of our industrial safety measures and environmental compliance.

        We do not believe that the cost of complying with environmental laws or environmental requirements related to the North American Free Trade Agreement among the governments of Mexico, the United States and Canada, which we refer to as "NAFTA," or Mexico's membership in the Organization for Economic Cooperation and Development, has caused or will cause a significant increase in our environmental expenditures.

TRADE REGULATIONS AND EXPORT AGREEMENTS

        Although it is not a member of OPEC, since 1998 Mexico has entered into agreements with OPEC and non-OPEC members to reduce its oil exports in order to stabilize international oil prices. Under three agreements in 1998 and 1999, Mexico agreed to reduce our oil exports by 325 thousand barrels per day through most of 1999. These agreements were successful in raising oil prices in 1999.

        During 2000, the Ministry of Energy of Mexico announced increases in crude oil exports by a total of 225 thousand barrels per day, in line with OPEC agreements to increase crude oil production that year. By contrast, in 2001, the Ministry of Energy announced reductions in crude oil export levels totaling 185 thousand barrels per day. Mexico agreed with other oil producing countries to reduce its oil exports in conjunction with production cuts by other oil producing countries in order to stabilize oil prices, which fell sharply in December 2000.

        Following OPEC's announcement that it would reduce crude oil production by 1.5 million barrels a day, on January 2, 2002, Mexico announced it would decrease its crude oil exports by 100 thousand barrels per day to 1.66 million barrels per day for six months beginning on January 1, 2002. Most recently, following an OPEC announcement that it would maintain current crude oil production levels through fourth quarter 2002, Mexico affirmed that it would maintain its crude oil exports at their present levels for the same period.

        For more information on these agreements and announcements, see "Item 5—Operating and Financial Review and Prospects—Sales Volumes and Prices—Export Agreements."

        NAFTA did not affect our exclusive rights to explore and produce crude oil and natural gas, to refine crude oil and to produce basic petrochemicals. By 2004, however, NAFTA will phase in lower tariffs on certain petroleum products, including petrochemicals, and certain materials and equipment that we import into Mexico as well as lower tariffs on crude oil and petroleum products that we export to the United States and Canada. Lower tariffs on exports of non-basic petrochemicals from the United

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States and Canada to Mexico could, over time, increase competition in the non-basic petrochemicals industry in Mexico. To the extent that domestic and international prices for our products remain constant, lower tariffs on the products, materials and equipment that we import from and export to the United States and Canada will decrease our expenses and increase our income.

TAXES AND DUTIES

General

        We must pay a number of special hydrocarbon taxes and duties to the Mexican Government, in addition to the other taxes and duties paid by some of the subsidiary companies, as described below under "—Other Taxes." The rate at which hydrocarbon taxes and duties are assessed may vary from year to year and is set after taking into consideration our operating budget, our capital expenditure program and our financing needs.

        If the indirect IEPS Tax that we collect is taken into account, we contributed approximately 34% of the Mexican Government's revenues in 2001 and 37% in 2000.

        The most important taxes and duties payable by us and their applicable rates in 2002 are the following:

Hydrocarbon Extraction Duty	Only Pemex-Exploration and Production pays this duty. A rate of 52.3% is applied to the net cash flow that results from deducting all cash expenditures (including operating expenses and capital expenditures) from the cash revenues generated by Pemex-Exploration and Production's sales of goods and services.
Extraordinary Hydrocarbon Extraction Duty	Only Pemex-Exploration and Production pays this duty, which is calculated on the same basis as the Hydrocarbon Extraction Duty, using a tax rate of 25.5%.
Additional Hydrocarbon Extraction Duty	Only Pemex-Exploration and Production pays this duty, which is calculated on the same basis as the Hydrocarbon Extraction Duty, using a tax rate of 1.1%.
Hydrocarbon Income Tax	Petróleos Mexicanos pays this direct tax on behalf of itself and the subsidiary entities. This tax is equivalent to the regular income tax applied to all Mexican corporations, a tax to which Petróleos Mexicanos and subsidiary entities are not subject. A tax rate of 35% is applied to net income (determined in accordance with the Income Tax Law) of each of Petróleos Mexicanos and the subsidiary entities, which may be determined on a consolidated basis.
IEPS Tax	The Special Tax on Production and Services (which we refer to as the "IEPS Tax") is an indirect tax on domestic sales of gasoline, diesel and natural gas for automotive use that Pemex-Refining and Pemex-Gas and Basic Petrochemicals collect on behalf of the Mexican Government. The IEPS Tax on the sale of gasoline and diesel is equivalent to the difference between the international reference price of each product (adjusted by freight costs and quality factors) and the retail price of the product to its customers (not including value added tax, the retailers' margin and freight costs). Thus, the Mexican Government ensures that PEMEX retains an amount reflecting the international prices (adjusted as described above) of these products, while the Mexican Government collects the difference between the international prices and the prices at which these products are sold in Mexico. The IEPS Tax imposed on natural gas sales for automotive use is based on a variable percentage, taking into consideration the international reference price of this product and the reference of the retail price of unleaded gasoline.

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        The sum of the Hydrocarbon Extraction Duty, the Extraordinary Hydrocarbon Extraction Duty, the Additional Hydrocarbon Extraction Duty, the Hydrocarbon Income Tax and the IEPS Tax (collectively, the "Taxes and Duties") must equal the Hydrocarbon Duty. For 2002, the Hydrocarbon Duty is calculated by applying a rate of 60.8% to the subsidiary entities' sales revenues from the PMI Group and third parties, including the IEPS Tax generated by Pemex-Refining, but excluding the value added tax. We make advance payments to the Mexican Government in respect of our Taxes and Duties liability up to the amount of the Hydrocarbon Duty. Our advance payments are, in turn, credited against our liability under the Hydrocarbon Extraction Duty, the Extraordinary Hydrocarbon Extraction Duty, the Additional Hydrocarbon Extraction Duty, the Hydrocarbon Income Tax and the IEPS Tax.

        In the event that the sum of the Taxes and Duties is not equal to the Hydrocarbon Duty, the rates of the Hydrocarbon Extraction Duty, the Extraordinary Hydrocarbon Extraction Duty and the Additional Hydrocarbon Extraction Duty will be adjusted to ensure that the sum of the Taxes and Duties equals the Hydrocarbon Duty.

Excess Gains Revenue Duty

        This is an administrative duty payable to the Mexican Government in addition to the Hydrocarbon Duty. Each year, we must pay an Excess Gains Revenue Duty in an amount equal to 39.2% of those revenues in excess of a threshold price set for that year. In 2001, we paid an Excess Gains Revenue Duty because our crude oil export prices exceeded the U.S. $18.00 per barrel threshold established for that year. For 2002, the Excess Gains Revenue Duty is 39.2% of those revenues from crude oil export sales in excess of a threshold crude oil price of U.S. $15.50 per barrel. Thus, for every dollar exceeding the threshold price, we must pay to the Mexican Government 60.8 cents in Hydrocarbon Duty and 39.2 cents in Excess Gains Revenue Duty so that all revenues above the threshold amount for that year are payable to the Mexican Government. However, for the amount up to the threshold price, we pay only the Hydrocarbon Duty. See also "Item 5—Operating and Financial Review and Prospects—General—IEPS Tax, Excess Gains Duty, Hydrocarbon Duties and Other Taxes." We paid this duty in 2001 and cannot assure you that the Mexican Government will not lower this threshold price again in the future and thereby increase the amounts that we would be required to pay to the Mexican Government.

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Other Taxes

        Since 1994, our interest payments on our external debt have been subject to Mexican withholding taxes. In 1994, the Mexican Government credited our withholding tax payments against our tax liability, but since the end of 1994, the Mexican Government has not allowed such a credit. Nevertheless, withholding taxes do not represent a substantial portion of our total tax liability.

        Beginning in 1995, we have been subject to municipal and state taxes, such as real property and payroll taxes. However, because most of our facilities are located on federal property, which is not subject to municipal taxation, real property taxes are not a significant part of our overall taxes. Similarly, payroll taxes do not represent a substantial portion of our total tax liability.

        Petróleos Mexicanos and the subsidiary entities are exempt from Mexican corporate income tax; however, certain of our subsidiary companies are Mexican corporations and are subject to the tax regime applicable to other Mexican corporations. Mexican companies are generally required to pay the higher of their income tax liability (determined at a rate of 35% for 1999 through 2002, 34% for 2003, 33% for 2004 and 32% thereafter) or their asset tax liability (determined at a rate of 1.8% of the average tax value of virtually all of their assets, less the average tax value of certain liabilities (basically liabilities with Mexican residents excluding debts with financial institutions or their intermediaries)). To the extent a company is required to pay the asset tax in any year, the portion of that tax that exceeds the company's income tax liability may be credited against the company's income tax liability in subsequent years.

        In addition, we have a number of non-Mexican subsidiary companies that may be subject to taxation in the jurisdiction of their incorporation or operations. The aggregate taxes paid by the subsidiary companies was Ps. 684 million in 2001, Ps. 807 million in 2000 and Ps. 689 million in 1999.

Future Fiscal Reform

        Over the past few years, the Mexican Government and PEMEX have been discussing various proposals for reforming the Mexican federal tax regime applicable to us. The proposals have generally sought to change applicable tax law so that our fiscal burdens are similar to those of state-owned oil companies in other countries. In particular, we have presented alternative internal revenue strategies to improve the Mexican Government's recovery of income from hydrocarbon extraction, while allowing PEMEX to finance more efficiently the development of hydrocarbon reserves and investments in property, plant and equipment.

        At the present time, however, the Mexican Government has not taken a position on this issue. Because only the Mexican Congress has the power to enact a change in federal tax law, and given the highly politicized nature of the federal legislative process, we cannot predict the extent or nature of future changes, if any, to the federal tax law applicable to us.

UNITED MEXICAN STATES

        The information in this section with regard to Mexico has been included due to Petróleos Mexicanos and the subsidiary entities' relationship with the Mexican Government and has been reviewed by the Ministry of Finance and Public Credit.

Form of Government

        The President is the chief of the executive branch of the Mexican Government. The current President of Mexico is Vicente Fox Quesada, whose term expires on November 30, 2006. The Constitution limits the President to one six-year term and does not allow reelection for any additional terms.

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        In the Congressional election held on July 2, 2000, all of the seats in the Senate and the Chamber of Deputies were up for election. The election, together with later changes in the party affiliations of certain deputies, resulted in the following distribution of Congressional seats:

Party Representation in Congress

	Senate			Chamber of Deputies
	Seats	% of Total		Seats	% of Total
Institutional Revolutionary Party	60	46.9	%	208	41.6	%
National Action Party	46	35.9		207	41.4
Democratic Revolution Party	16	12.5		54	10.8
Ecological Green Party of Mexico	5	3.9		16	3.2
Labor Party	0	0.0		8	1.6
Nationalist Social Party	0	0.0		3	0.6
Social Alliance Party	0	0.0		2	0.4
Convergence for Democracy	1	0.8		2	0.4
Total	128	100.0	%	500	100.0	%

Note: Totals may differ due to rounding.

Source: Federal Electoral Institute

The Economy

National Development Program

        On June 11, 2002, the Mexican Government announced the Programa Nacional de Financiamiento del Desarrollo 2002-2006 (National Development Financing Program 2002-2006, or "PRONAFIDE 2002-2006"). The goals of the PRONAFIDE 2002-2006 are to:

•

generate the resources needed to finance social programs contemplated by the National Development Plan 2001-2006;



•

increase the rate of economic growth;



•

generate jobs consistent with population dynamics; and



•

consolidate a stable macroeconomic environment.

        The basic strategies that the Mexican Government expects to employ in connection with the PRONAFIDE 2002-2006 are as follows:

•

implementation of structural reforms aimed at fostering a legal and economic environment favorable to the competitive participation of the private sector in productive activities;



•

promotion of public sector savings in order to increase the availability of financial resources for the private sector;



•

promotion of private sector domestic savings, with an emphasis on both popular and long-term savings;



•

promotion of external savings only as a complement to domestic savings; and



•

strengthening of the financial system and modernization of development banks in order to foster economic growth in the medium term.

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        Notwithstanding these initiatives, significant new investment in infrastructure, industrial and agricultural modernization, training and environmental protection will be required for continued growth and development. The Mexican economy is also likely to continue to be subject to the effects of adverse domestic and external factors such as declines in foreign direct and portfolio investment, high interest rates and low oil prices, which may lead to volatility in the foreign exchange and financial markets and may affect Mexico's ability to service its foreign debt.

        The PRONAFIDE 2002-2006 presents the medium-term strategy aimed at creating and strengthening domestic sources of financing within a stable macroeconomic environment and contemplates a medium-term fiscal stance that includes the following:

•

maintaining the public sector debt within sustainable levels;



•

reducing the Mexican Government's absorption of domestic financial resources, limiting the crowding-out effect of fiscal policy to private investment in the medium term; and



•

strengthening the capacity of the Mexican Government to fulfill its social mandate.

The Role of the Government in the Economy; Privatization

        On May 24, 2002, the Mexican Government completed its privatization of Aseguradora Hidalgo, S.A. ("AHISA"). The Comisión Intersecretarial de Desincorporación ("CID") approved the sale of AHISA shares owned by the Mexican Government and by PEMEX to MetLife Inc. for Ps. 9,200 million.

        On June 19, 2002, the Mexican Government and the Bank Savings Insurance Institute, or "IPAB," jointly carried out the sale of nearly all of their shares of Grupo Financiero BBVA Bancomer, S.A. de C.V. ("BBVA Bancomer") in the national and international markets. On July 3, 2002, the Mexican Government and IPAB sold additional shares pursuant to an over-allotment option. The Mexican Government had retained a minority interest in Bancomer, S.A. at the time of its privatization in 1991. IPAB had acquired the shares in connection with the purchase by BBVA Bancomer of Banca Promex, S.A. in 2000. The proceeds to the Mexican Government as a result of the sale totaled Ps. 6.5 billion for the shares sold internationally, Ps. 574.2 million for the shares sold in Mexico and U.S. $11.2 million for the shares sold in the United States in the form of ADSs. The proceeds to IPAB as a result of the sale totaled Ps. 1,004.6 million for the shares sold internationally, Ps. 88.1 million for the shares sold in Mexico and U.S. $1.7 million for the ADSs sold in the United States.

Gross Domestic Product

        During 2000, Gross Domestic Product ("GDP") grew by 6.6% in real terms, exceeding the target originally set in the General Economic Policy Guidelines for 2000 by 2.1 percentage points. GDP grew by 7.5% in real terms in the first quarter of 2000, 7.4% in the second quarter, 7.1% in the third quarter and 4.7% in the fourth quarter.

        According to preliminary figures, GDP decreased by 0.3% in real terms in 2001 as compared with 2000. The financial services, insurance and real estate sector grew by 4.1%, the transportation, storage and communications sector grew 2.8%, the agriculture, livestock, fishing and forestry sector grew by 2.5%, the electricity, gas and water sector grew by 1.7% and the community, social and personal services sector grew by 0.5%, each in real terms. The mining, petroleum and gas sector decreased by 0.6%, the commerce, hotel and restaurant sector decreased by 1.3%, the manufacturing sector decreased by 3.9% and the construction sector decreased by 4.5%, each in real terms.

        According to preliminary figures, GDP decreased by 2.0% in real terms in the first quarter of 2002 as compared with the same period of 2001. The agriculture, livestock, fishing and forestry sector grew by 4.7%, the financial services, insurance and real estate sector grew by 4.6%, the electricity, gas and

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water sector grew by 2.0%, and the community, social and personal services sector grew by 0.6%, each in real terms. The mining, petroleum and gas sector contracted by 1.3%, the construction sector contracted by 1.5%, the transportation, storage and communications sector contracted by 1.5%, the manufacturing sector contracted by 5.6% and the commerce, hotels and restaurants sector contracted by 6.7%, each in real terms.

        According to preliminary figures, GDP increased by 2.1% in real terms during the second quarter of 2002 as compared with the same period of 2001. The agriculture, livestock, fishing and forestry sector grew by 1.1%, the financial services, insurance and real estate sector grew by 4.7%, the electricity, gas and water sector grew by 4.4%, and the community, social and personal services sector grew by 1.8%, each in real terms. The construction sector grew by 5.0%, the transportation, storage and communications sector grew by 2.9%, the manufacturing sector grew by 2.1% and the commerce, hotels and restaurants sector grew by 0.4%, each in real terms. The mining, petroleum and gas sector contracted by 0.3% in real terms.

        The following table sets forth the change in Mexico's real GDP by sector for the periods indicated.

Real GDP Growth by Sector

	1997		1998		1999		2000		2001(1)		First quarter of 2002(1)(2)		Second quarter of 2002(1)(3)
GDP (constant 1993 prices)	6.8	%	4.9	%	3.7	%	6.6	%	(0.3	)%	(2.0	)%	2.1	%
Agriculture, livestock, fishing and forestry	0.2		0.8		3.6		0.6		2.5		4.7		1.1
Mining, petroleum and gas	4.5		2.7		(2.1	)	3.8		(0.6	)	(1.3	)	(0.3	)
Manufacturing	9.9		7.3		4.2		6.9		(3.9	)	(5.6	)	2.1
Construction	9.3		4.2		5.0		5.1		(4.5	)	(1.5	)	5.0
Electricity, gas and water	5.2		1.9		7.9		1.0		1.7		2.0		4.4
Transportation, storage and communications	9.9		6.7		7.8		9.6		2.8		(1.5	)	2.9
Commerce, hotels and restaurants	10.7		5.6		3.1		12.4		(1.3	)	(6.7	)	0.4
Financial services, insurance and real estate	3.7		4.6		3.6		5.2		4.1		4.6		4.7
Community, social and personal services	3.3		2.9		2.1		2.9		0.5		0.6		1.8

(1)

Preliminary.

(2)

First quarter of 2002 results as compared to the same period of 2001.

(3)

Second quarter of 2002 results as compared to the same period of 2001.

Source: National Institute of Statistics, Geography and Informatics.

Prices and Wages

        During most of 2000, the annual inflation rate (as measured by the change in the national consumer price index) maintained an uninterrupted downward trend in accordance with the goals established by Banco de México, Mexico's central bank, and fell to 9.0% for the year. However, during the last few months of 2000, the economy experienced inflationary pressures, which led Banco de México to adopt a stricter monetary stance. Inflation during 2001 was 4.4%, 2.1 percentage points lower than the official inflation target for the year. Inflation during the first eight months of 2002 was 3.3%, 0.9 percentage points higher than during the same period of 2001.

Interest Rates

        The 28-day Treasury bill (Certificados de la Tesorería de la Federación, or "Cetes") rate reached 18.1%, its highest level in 2000, during the last week of November 2000. This was primarily due to the volatility in the international financial markets caused by the signs of a deceleration in economic growth in the United States and the restrictive monetary policy adopted by Banco de México. However,

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interest rates registered a slight decline toward the end of 2000. For 2000 as a whole, the 28-day Cetes rate averaged 15.2%, 6.2 percentage points lower than the average rate during 1999, and the 91-day Cetes rate averaged 16.2%, 6.2 percentage points lower than the average rate during 1999.

        During 2001, interest rates on 28-day Cetes averaged 11.3% and interest rates on 91-day Cetes averaged 12.2%, as compared with average rates on 28-day Cetes and 91-day Cetes of 15.2% and 16.2%, respectively, during 2000.

        During the first nine months of 2002, interest rates on 28-day Cetes averaged 7.0% and interest rates on 91-day Cetes averaged 7.3%, as compared with average rates on 28-day and 91-day Cetes of 13.0% and 13.4%, respectively, during the same period of 2001. On November 18, 2002, the 28-day Cetes rate was 7.2% and the 91-day Cetes rate was 7.6%.

Financial System

2001 Monetary Program

        Banco de México's monetary policy during 2001 continued to target a sustainable reduction in inflation. In this context, Banco de México maintained the "short" mechanism as its principal monetary policy instrument. Under the mechanism, the daily average of the net total balance of the current accounts of banks accumulated during a certain period is a negative number, exerting an upward influence on interest rates. This mechanism allows Banco de México to combat disorderly conditions in the money and foreign exchange markets and to help ensure that changes in the monetary base follow a path consistent with the assumed inflation rate. Banco de México increased the "short" once during 2001, from Ps. 350 million to Ps. 400 million on January 12, 2001. The increase in the "short" was in response to internal and external factors that could have threatened the achievement of the inflation target for 2001. The factors identified by Banco de México included:

•

increased aggregate demand;



•

increased inflationary pressures in the United States and in other principal developed economies; and



•

increases in the prices of certain fruits and vegetables.

        The central bank's restrictive monetary policy played an important role in reducing short-term and medium-term inflationary expectations.

        Banco de México subsequently reduced the "short" on two occasions during the year, from Ps. 400 million to Ps. 350 million on May 18, 2001 and from Ps. 350 million to Ps. 300 million on July 31, 2001, in response to the slowdown in economic growth and decreased aggregate demand.

        At the end of December 2001, the monetary base had grown to Ps. 225,580 million, a 3.4% increase in real terms as compared to the level at December 29, 2000. The net domestic credit of Banco de México registered a negative balance of Ps. 185,735 million at December 31, 2001, as compared to a negative balance of Ps. 133,443 million at the end of 2000. The increase in the negative balance was attributable primarily to the accumulation of net international assets by Banco de México during this period, inasmuch as the monetary base remained within the limits established in the monetary program.

        During 2001, the M1a money supply increased by 16.3% in real terms, as compared with the 6.2% real growth observed in 2000. This increase was due primarily to the effects of a decrease in interest rates observed during the second half of the year and the impact of the difference between the rate of return on checking accounts and on time deposits. Checking account deposits denominated in pesos increased by 15.1% in real terms during 2001.

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        The growth in financial savings, defined as the difference between the monetary aggregate M4a and bills and coins held by the public, increased from 3.1% in real terms in 2000 to 11.7% in 2001. Savings generated by Mexican residents increased by 11.7% in real terms, whereas savings generated by non-residents decreased by 15.9% in real terms in 2001.

        Since April 2000, Banco de México has been publishing quarterly reports on inflation.

2002 Monetary Program

        Mexico's monetary program for 2002 has as its principal objective the achievement of an inflation rate not exceeding 4.5% by the end of 2002. The following elements are considered necessary conditions to meet the inflation target for 2002 and to be in a better position to achieve the targeted inflation rate of approximately 3.0% for 2003:

•

a monetary policy compatible with the proposed goals;



•

an adjustment of prices administered by the public sector that is consistent with the Mexican Government's inflation objectives;



•

salary increases that are compatible with sustained productivity increases and inflationary objectives;



•

an absence of severe external disturbances—such as a significant depreciation of exchange rate or a sharp reduction in the supply of foreign capital—that could cause a considerable depreciation in the real exchange rate; and



•

a sound fiscal stance.

        Banco de México has published quarterly reports on inflation in 2002 which evaluate the consequences of any failure to satisfy any of the conditions stated above.

        Banco de México will continue to use the "short" mechanism to induce the necessary changes in interest rates to achieve inflation objectives. The Board of Governors of Banco de México decided to increase the "short" to Ps. 360 million as of February 8, 2002 in order to avoid a deterioration of inflationary expectations and a negative effect on price levels in general.

        In response to the decline in interest rates and inflationary expectations, the Board of Governors of Banco de México decided to decrease the "short" from Ps. 360 million to Ps. 300 million as of April 12, 2002. However, it increased the "short" to Ps. 400 million on September 23, 2002 in response to an increase in inflationary expectations for the last quarter of 2002. If internal or external events or a change in inflationary expectations were to threaten the achievement of the inflation target, Banco de México could again increase the "short" mechanism.

        At November 15, 2002, the monetary base totaled Ps. 220,619 million, a 2.2% nominal decrease as compared to the level of Ps. 225,580 million at December 31, 2001. Banco de México estimates that the monetary base will total approximately Ps. 248,138 million at December 31, 2002.

        During the first eight months of 2002, the M1a money supply increased by 15.5% in real terms as compared with the same period of 2001. This trend was due primarily to the lower interest rates observed during the first eight months of 2002 and the increase in the rate of economic growth in the second quarter of 2002. In addition, checking account deposits denominated in pesos increased by 10.6% in real terms during the first eight months of 2002 as compared with the same period of 2001.

        During the first eight months of 2002, financial savings increased by 7.7% in real terms as compared with the same period of 2001. Savings generated by Mexican residents increased by 8.4% in real terms, whereas savings generated by non-residents decreased by 10.7% in real terms.

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Banking System

        In connection with the implementation of the North American Free Trade Agreement, amendments to several laws relating to financial services, including the Banking Law and the Ley del Mercado de Valores (Securities Market Law), became effective on January 1, 1994. These measures permit non-Mexican financial groups and financial intermediaries, through Mexican subsidiaries, to engage in various activities in the Mexican financial system, including banking and securities activities. On April 20, 1994, the Ministry of Finance and Public Credit issued regulations that implemented these amendments, as well as provisions of the North American Free Trade Agreement dealing with financial services and any future trade agreements incorporating similar provisions. These regulations set forth rules under which Canadian and U.S. financial institutions (and other foreign financial institutions acting through Canadian or U.S. affiliates) are permitted to establish or acquire Mexican financial institutions and financial holding companies. Pursuant to these rules, the aggregate net capital of Mexican commercial banks controlled by foreign financial institutions established pursuant to the North American Free Trade Agreement and other trade treaties, excluding Mexican banks acquired pursuant to a program approved by the Ministry of Finance and Public Credit, could not exceed 25% of the total net capitalization of all Mexican banks until January 1, 2000.

        In December 1998, Congress approved legislation introducing a package of financial and banking reforms which supplemented reforms in place since 1995. The 1998 reforms did not affect the general foreign ownership restrictions under the Banking Law and the North American Free Trade Agreement regulations discussed above. Under the 1998 reforms, all remaining restrictions on foreign ownership of the largest Mexican banks were removed. Foreign ownership was previously restricted in any Mexican bank whose net capital exceeded 6% of the aggregate net capital of all Mexican banks. In addition, the aggregate foreign shareholdings of Mexican-controlled banks was limited to 49% and no foreign shareholder was authorized to own, directly or indirectly, more than 5% of the equity of any Mexican bank (or 20%, with the approval of the Ministry of Finance and Public Credit). Those limits did not, however, apply to any foreign financial institution that acquired control (i.e., more than 51% of the common stock) of a smaller-sized Mexican bank (i.e., one whose net capital did not exceed 6% of the Mexican banking system's aggregate net capital).

        The Banking Law was amended on June 4, 2001 to:

•

enhance corporate governance by (1) expanding minority shareholders' rights, (2) introducing independent board members, and (3) requiring an audit committee of the board of directors;



•

improve the framework for banking operations by (1) providing adequate regulation regarding the provision of banking services using new technologies, (2) allowing banks to offer additional services, and (3) setting a new framework for related operations; and



•

strengthen regulation and surveillance while reducing their cost by (1) introducing prompt corrective actions based on banks' capitalization levels, (2) defining responsibilities and activities of the various financial authorities, and (3) expanding the role of external auditors.

Banking Supervision and Support

        The 1994-95 peso devaluation and ensuing financial crisis created concerns about the stability of the Mexican banking system. The devaluation, higher domestic interest rates and contraction in real GDP combined to weaken the quality of the assets of Mexican banks, caused the capitalization of several banks to fall below the minimum required levels and created funding difficulties for many banks.

        The weakening of the banking system prompted the Mexican Government to enact policies aimed at increasing the capitalization of Mexican banks. New reserve requirements were introduced by Banco de México to facilitate the regulation of liquidity. Pursuant to these requirements, which took effect on

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March 11, 1995, a bank that overdraws its account with Banco de México must subsequently deposit funds, and maintain amounts on deposit, at least equal to the amount of the overdraft. Substantial fines may be imposed if a bank fails to make and maintain such deposits. The new reserve requirements were intended to reduce Banco de México's daily net extension of credit. In addition, effective January 1, 1997, Banking Circular 1343 issued by the National Banking and Securities Commission, or "CNBV," adopted significant changes in the accounting practices applicable to Mexican commercial banks and development banks, with the intent of making those practices more consistent with international accounting standards, including U.S. generally accepted accounting principles.

        In response to the 1994-95 financial crisis, the Mexican Government took a number of other steps to support the banking system, including:

•

The establishment of the Temporary Capitalization Program, or "PROCAPTE," a voluntary program to assist viable but undercapitalized banks, under which the Banking Fund for the Protection of Savings, or "FOBAPROA," advanced funds to participating banks in exchange for five-year, mandatorily convertible bonds. In March 1995, five commercial banks obtained support through PROCAPTE. By May 1995, the value of bonds issued through PROCAPTE reached Ps. 7,008 million. In February of 1997, the last bank participating in PROCAPTE liquidated its total participation, thus concluding the PROCAPTE program.



•

Through FOBAPROA, the Mexican Government made foreign exchange available through a foreign exchange credit window to help banks meet dollar liquidity needs. Outstanding drawings under this program reached their highest point of U.S. $3.8 billion in April 1995, and were completely repaid by August 31, 1995. No such drawings were made after that date.



•

Mexican law was amended to broaden the scope for investment by foreign and Mexican investors in the equity of Mexican financial institutions.



•

The CNBV was, through amendment of the banking laws, granted enhanced powers of administrative and management intervention in financial holdings companies. The CNBV also increased its supervisory activities through closer and more frequent inspections and heightened reporting requirements.



•

Beginning in March 1995, the Mexican Government announced a series of debtor support programs, discussed below, designed to help financial institutions and their debtors restructure the large number of past-due loans caused by the financial crisis and the ensuing increase in domestic interest rates and economic recession.



•

In 1995 and 1996, the Ministry of Finance and Public Credit approved recapitalization plans for twelve of Mexico's financial institutions, many of which involved strategic investments by foreign financial institutions and the purchase by FOBAPROA of large portions of the loan portfolios of the affected banks.



•

Beginning in 1994, the CNBV exercised its authority to intervene in the management of a number of Mexican financial institutions, including the Cremi/Union financial group in 1994, Grupo Financiero Asemex-Banpaís, S.A. de C.V. and its banking and insurance subsidiaries in 1995 and Banco Capital, S.A. and Banco del Sureste, S.A. in 1996.

        In 1998, the Mexican Government's program to rescue troubled banks, which was first implemented in 1995, was restructured. Under the revised scheme, FOBAPROA was replaced by the Bank Savings Insurance Institute, or "IPAB," which assumed FOBAPROA's assets and liabilities, except for certain liabilities that were explicitly excluded under the financial reforms. IPAB also manages a deposit insurance program. During 1999, IPAB commenced a transition program under which deposit insurance limits are being introduced gradually. By 2005, deposit insurance will be limited to 400,000 Unidades de Inversión ("UDIs," units of account whose value in pesos is indexed to inflation on a daily

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basis, as measured by the change in the national consumer price index), per person or entity, per institution. For November 25, 2002, one UDI is set at Ps. 3.19443.

        The Congress allocates funds to IPAB on an annual basis to manage and service IPAB's net liabilities, but those liabilities generally have not become public sector debt as had been originally proposed. In emergency situations, IPAB is permitted to contract additional financing in an amount not exceeding 6% of the total liabilities of banking institutions without congressional authorization. At June 30, 2002, IPAB's debt totaled Ps. 810.9 billion.

        In addition to Mexico's auctions of debt securities in the domestic market, IPAB announced on January 6, 2000 that it planned to sell peso-denominated debt securities in Mexico. On March 1, 2000, IPAB conducted its first offering of peso-denominated debt securities, placing Ps. 1.0 billion of three-year Savings Protection Bonds. These Savings Protection Bonds pay interest monthly at a rate (reset monthly) equal to the higher of the 28-day Cetes rate or the rate applicable to one-month bank notes (Pagarés con Rendimiento Liquidable al Vencimiento). IPAB is using the proceeds of these sales to service its maturing obligations, to improve the maturity profile of its indebtedness and to reduce its financing costs. IPAB's securities are sold through auctions conducted by Banco de México.

        In addition to its other activities, IPAB is now in the process of disposing of the loan portfolios and other assets acquired by FOBAPROA during the 1994-96 period. Significant transactions include the following:

•

In October 1999, Banco Mercantil del Norte, S.A. "Banorte" won the bidding to administer, for a period of four years, part of the loan portfolio of Banca Serfin, S.A. IPAB took control of Serfin in July 1999, but the loans sold were assumed by IPAB's predecessor, FOBAPROA, between June 1995 and January 1997. Banorte bid Ps. 2,582 million for the administrative and collection rights to the portfolio, which consists of Ps. 25 billion face value of non-performing loans. The proceeds of the sale are being applied to IPAB's liabilities.



•

In November 1999, a consortium of financial institutions led by Goldman, Sachs & Co. won the bidding to administer and collect, for a period of four years, part of the loan portfolio of Banco Union, S.A. The consortium bid Ps. 842.6 million for the administration and collection rights to the portfolio, which consists of Ps. 7,639 million face value of non-performing loans. In addition to the proceeds of the sale, IPAB will receive a portion of the loan repayments collected by the consortium.



•

In March 2000, Firstcity Commercial Corporation won the bidding to acquire part of the loan portfolio of Banco Santander Mexicano. Firstcity Commercial Corporation submitted a bid worth Ps. 1,431.8 million for the loan portfolio, which bears a principal amount of Ps. 6,943 million.



•

On March 9, 2000, IPAB announced that Deutsche Bank, in association with JE Robert, signed a contract with BanCrecer, S.A. ("BanCrecer"), to administer and collect part of the loan portfolio of BanCrecer. IPAB had taken control of BanCrecer in November 1999. Fénix Administración de Activos, a subsidiary of Deutsche Bank and JE Robert, will assume the administration of the portfolio for a period of four years. BanCrecer's portfolio is valued at Ps. 51,416 million.



•

In May 2000, Grupo Financiero Santander Mexicano won the bidding to acquire 100% of the stock of Grupo Financiero Serfin, S.A. Grupo Financiero Santander Mexicano bid Ps. 14,650 million, representing 159% of Grupo Financiero Serfin, S.A.'s book value at March 31, 2000.



•

In August 2000, Grupo Financiero Bancomer acquired 100% of the stock of Banca Promex for Ps. 562.2 million, representing the value of Banca Promex's capital, plus a premium payment of Ps. 1,424.3 million and 145,775,000 shares of Grupo Financiero Bancomer's Series O stock. The

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total purchase price represented approximately 500% of the value of Banca Promex's stock at June 30, 2000.

•

Grupo Financiero Inverlat ("GFI") was recapitalized on November 30, 2000 through the acquisition by The Bank of Nova Scotia ("Scotiabank") of 55% of GFI's capital stock. In that transaction, IPAB received Ps. 1,836 million plus an additional $40 million from Scotiabank for a 45% interest in GFI, which, in addition to a 10% interest already held by Scotiabank, resulted in Scotiabank controlling 55% of the outstanding capital stock of GFI. IPAB still retains a 36% interest in GFI, which it intends to sell by the end of 2003. The remaining 9% of the capital stock of GFI is to be distributed among the eligible original shareholders of GFI. In addition to the proceeds from the GFI transaction, from January through September 2000, IPAB received Ps. 1,460 million from GFI's loan recoveries and asset sales.



•

In June 2001, IPAB announced that Firstcity Commercial was the winning bidder in the auction to acquire three bundles of commercial and industrial loans of Banco Santander Mexicano. Firstcity Commercial submitted a bid of Ps. 474 million for the loan portfolio, which has a face value of Ps. 3,075 million.



•

In September 2001, IPAB transferred 100% of the shares of BanCrecer to Banco Mercantil del Norte, S.A. ("Banorte"). Banorte had bid Ps. 1,650 million for the shares. Once the shares have been transferred to Banorte, IPAB will receive proceeds from the sale of loan portfolios and assets as well as the collection rights to the administered portfolios. The net value of the assets to be transferred is expected to reach approximately Ps. 2,500 million.



•

In October 2001, IPAB announced the sale of a bundle of commercial and industrial loans of BanCrecer and its trust division, for which IPAB was offered Ps. 198 million at auction. The net proceeds from this transaction represent 16% of the portfolio's face value of Ps. 1,239 million.



•

In December 2001, IPAB announced the sale, directly and through its trust division, of commercial and industrial property loans of BanCrecer. GMAC Commercial Mortgage submitted a bid of just over Ps. 179 million for the portfolio. 236 loans comprised the portfolio, and the proceeds from the transaction represent 14.01% of the portfolio's face value at July 31, 2001 of Ps. 1,278 million.

        The Ministry of Finance and Public Credit issued new rules governing the capitalization requirements of Mexican commercial banks effective on January 1, 2000. These rules require Mexican commercial banks to:

•

gradually reduce to 20% the amount of deferred taxes arising from fiscal losses that may be included as Tier 1 capital by January 1, 2003;



•

include all new issuances of subordinated convertible debt as Tier 2 capital. Outstanding subordinated mandatorily convertible debt, subject to current limitations, will remain as Tier 1 capital until its maturity or conversion;



•

gradually remove investments in non-financial companies and companies whose shares are not traded on the Mexican Stock Exchange from Tier 1 capital by January 1, 2003, except where those investments result from the capitalization of restructured loans; and



•

remove from Tier 2 capital certain specific assets, including credit card debt, mortgages and commercial loans, and establish general loan loss reserves for these types of assets.

        The new rules also allow Mexican commercial banks, as part of a capitalization program, to issue cumulative and noncumulative subordinated debt securities through a special purpose vehicle, providing them with a new financing alternative in international markets. These new instruments will have a minimum maturity of 10 years, will be unsecured and deeply subordinated and will provide for the

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deferral (cumulative) or cancellation (noncumulative) of interest payments in certain circumstances and payment of the face value at the maturity date. Subject to limitations, noncumulative instruments may be included as Tier 1 capital.

        During the second half of 2000, the Mexican Government continued to establish rules and criteria for the regulation of banking institutions in accordance with accepted international practices. In September 2000, the Mexican Government issued new rules for classifying the quality of loan portfolios of commercial banking institutions. At the same time, the rules governing the capitalization requirements of commercial banks were modified. In October 2000, the Mexican Government announced new rules for classifying the credit portfolios of development banks as well as new capitalization requirements for development banks.

        At December 31, 2001, calculated in accordance with the accounting criteria applicable to credit institutions since the beginning of 1997, the total amount of past-due loans of commercial banks (excluding banks under Mexican Government intervention and those in special situations) was Ps. 47,150 million, as compared with Ps. 54,700 million at December 31, 2000. This decline was primarily due to write-offs and recoveries made by some banks. On the other hand, the total loan portfolio of the banking system decreased by 1.2% in real terms during the last quarter of 2001. As a consequence, the past-due loans ratio of commercial banks was 5.1% at December 31, 2001, as compared with 5.8% at December 31, 2000. Loan loss reserves created by commercial banks (excluding banks under Mexican Government intervention and those in special situations) totaled Ps. 58,377 million at December 31, 2001, as compared with Ps. 63,117 million at December 31, 2000. At this level, commercial banks had reserves covering 123.8% of their past-due loans, exceeding the minimum reserve level of 45% required by the applicable accounting criteria.

        At the end of June 2002, and as reported in accordance with the accounting criteria applicable to credit institutions since the beginning of 1997, the total amount of past-due loans of commercial banks (excluding banks under Mexican Government intervention and those in special situations) was Ps. 47,925 million, as compared with Ps. 47,150 million at December 31, 2001. This increasing trend was primarily due to the raises in commercial past-due loans registered by some banks. The total loan portfolio of the banking system decreased by 1.1% in real terms during the first half of 2002. This decrease was the result of reductions observed in mortgage loans as well as loans to the Government and IPAB. The past-due loan ratio of commercial banks was 5.1% at June 30, 2002, as compared with 5.0% at December 31, 2001. The amount of loan loss reserves created by commercial banks (excluding banks under Mexican Government intervention and those in special situations) totaled Ps. 64,120 million at the end of June 2002, as compared with Ps. 58,377 million at December 31, 2001 and Ps. 63,117 million at December 31, 2000. At this level, commercial banks have reserves covering 133.8% of their past-due loans, exceeding the minimum reserve level of 45% required by the applicable accounting criteria.

        On June 1, 2001, the Organic Law of the Banco Nacional del Ahorro y Servicios Financieros (National Saving and Financial Services Bank) became effective. This law seeks to improve and strengthen the institutional framework for popular savings and to incorporate more people into the formal financial system by creating a National Savings and Financial Services Bank. The purpose of the law is to:

•

provide savings and lending services to people who do not have access to traditional financial institutions; and



•

create a financial culture among low-income sectors.

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        On June 4, 2001, the Mutual and Investment Funds Law went into effect. The reform aims to develop financial intermediaries other than banks, thus allowing retail investors to participate in a more transparent and liquid securities market. The goals of the reform are to:

•

introduce the concept of investment fund distributors; and



•

avoid conflicts of interest between investment funds and operating companies by (1) requiring that one third of the members of the board of each investment fund be independent and (2) precluding brokerage houses and banks from acting directly as operating companies.

The Securities Market

        The Mexican Stock Exchange is Mexico's only stock exchange and is located in Mexico City. The Mexican Stock Exchange is organized as a corporation with shares owned by 31 brokerage firms, each of which is authorized to trade on the exchange floor. Both debt and equity securities are traded on the Mexican Stock Exchange, including stocks and bonds of private sector corporations, equity certificates or shares issued by banks, commercial paper, bankers' acceptances, certificates of deposit, Mexican Government debt and special hedging instruments linked to the dollar. Currently, institutional investors are the most active participants in the Mexican Stock Exchange, although retail investors also play a role in the market. The Mexican equity market is one of Latin America's largest in terms of market capitalization, but it remains relatively small and illiquid compared to major world markets.

        Effective June 1, 2001, the Securities Market Law was amended to promote the securities market by making it more transparent, liquid and efficient and to include stricter corporate governance rules, which are intended to strengthen the rights of minority shareholders of public companies and brokerage houses, among other things. The amendments require issuers of securities to appoint an audit committee of the board which will have full access to the issuer's information, appoint independent board members and limit the amount of non-voting and voting-restricted stock they issue. In addition, the reforms introduce provisions that are intended to regulate the duties of board members and the legal responsibility of board members when acting in violation of such duties. The amendments also broaden the scope of insider trading provisions and introduce more severe penalties for insider trading violations.

        The market capitalization of the Mexican Stock Exchange was U.S. $126.6 billion at the end of 2001, representing a 0.7% increase in dollar terms from its year-end 2000 level. The value of transactions on the Mexican Stock Exchange reached U.S. $72.6 billion in 2001, 38.5% more than in 2000. Fixed income securities (i.e., commercial paper, notes, bonds and ordinary participation certificates) accounted for 1.1% and equity securities (i.e., shares and certificates of patrimonial contribution) accounted for the remaining 98.9% of transactions.

        At August 30, 2002, the Stock Market Index stood at 6,216.43 points, representing a 2.4% decrease in nominal peso terms and a 5.6% decrease in real peso terms from the level at December 31, 2001.

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Recent Commercial Legislation

        On April 27, 2000, the Mexican Congress passed into law the Commercial Reorganization and Bankruptcy Act, a new framework for business reorganizations and for bankruptcy proceedings, which is intended to result in greater legal certainty and swifter case resolution for debtors and creditors involved in the insolvency process. The new law replaces one that had been in place since 1943. Among its provisions, the new law limits the period of time in which insolvent debtors may reach a reorganization agreement with their creditors before a liquidation of the debtor is imposed. The new law also establishes a Federal Institute of Reorganization and Bankruptcy Specialists, which is intended to coordinate the provision of certain technical support in reorganization cases and to ensure that the professionals assigned to provide such support meet certain ethical and professional requirements.

        On April 30, 2000, the Mexican Congress passed into law the Miscellany of Secured Lending, which amends the Commerce Code, the General Law of Negotiable Instruments and Credit Transactions and the Credit Institutions Law. The new law is intended to promote the availability of credit to small- and medium-size businesses by allowing a wider range of assets to be used as collateral for new borrowing. It recognizes two new types of security interests, a pledge while the borrower retains possession of the collateral and a collateral trust where a trustee holds the collateral for the benefit of the lender. Under the new law, if a debtor defaults on its obligation to a creditor who holds either type of security interest, the obligation may be satisfied by the transfer of the collateral to the creditor. In such a case, if the value of collateral exceeds the value of the obligation, the creditor will be obligated to compensate the debtor for the difference. The new law also provides for an expedited procedure for creditors to execute judgments against security interests.

External Sector of the Economy

Foreign Trade

        In 2001, Mexico registered a trade deficit of U.S. $9,953.6 million, as compared with a trade deficit of U.S. $8,003.0 million for 2000. Merchandise exports decreased by 4.8% in 2001, to U.S. $158,442.9 million, as compared with U.S. $166,454.8 million in 2000. In 2001, petroleum exports decreased by 21.9% and non-petroleum exports decreased by 3.0%, in each case as compared with 2000. Exports of manufactured goods, which represented 89.2% of total merchandise exports, decreased by 2.7% in 2001, as compared with 2000. Total imports were U.S. $168,396.5 million in 2001, a 3.5% decrease as compared with 2000. Imports of intermediate goods decreased by 5.6%, imports of capital goods decreased by 6.8% and imports of consumer goods increased by 18.3% in 2001, each as compared with 2000.

        During the first six months of 2002, Mexico registered a trade deficit of U.S. $3,191 million, as compared with a trade deficit of U.S. $3,968 million for the same period of 2001. Merchandise exports decreased by 2.8% during the first six months of 2002, to U.S. $78,178 million, as compared with U.S. $80,417 million in the first six months of 2001. During the first six months of 2002, petroleum exports decreased by 6.4%, and non-petroleum exports decreased by 2.4%, in each case as compared with the same period of 2001. Exports of manufactured goods, which represented 88.3% of total merchandise exports, decreased by 2.4% during the first six months of 2002, as compared with the same period of 2001. Total imports were U.S. $81,369 million during the first six months of 2002, a 3.6% decrease as compared with the same period of 2001. Imports of intermediate goods decreased by 3.9%, imports of capital goods decreased by 8.0% and imports of consumer goods increased by 4.1% during the first six months of 2002, each as compared with the first six months of 2001.

Balance of International Payments

        According to preliminary figures, during 2001, Mexico's current account registered a deficit of U.S. $17,915 million, or 2.9% of GDP, U.S. $196 million less than the current account deficit registered in

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2000. The capital account registered a surplus of U.S. $24,173 million in 2001, as compared with a surplus of U.S. $17,786 million in 2000. The increase was principally due to an inflow of long-term external resources, such as foreign direct investment flows. In addition, there was an inflow of resources resulting from the reduction of assets held abroad by Mexican residents. At the same time, there was a modest inflow of foreign portfolio investment in equity securities and significant reductions in indebtedness of the public sector and Banco de México. Total foreign investment in Mexico reached U.S. $28,636 million in 2001, as a result of an inflow of U.S. $24,731 million in direct foreign investment and an inflow of U.S. $3,882 million of net foreign portfolio investment.

        According to preliminary figures, during the first half of 2002, Mexico's current account registered a deficit of 2.1% of GDP, or U.S. $6,804 million. The capital account surplus for the first half of 2002 totaled U.S. $8,740 million. During the first half of 2002, direct foreign investment totaled U.S. $6,134 million and portfolio investment (including securities placed abroad) registered an outflow of U.S. $835 million.

        In August 1996, the Foreign Exchange Commission, comprised of members of the Ministry of Finance and Banco de México, announced a plan to increase Mexico's reserves by conducting monthly auctions of options to sell U.S. dollars to Banco de México. The auctions took place among commercial banks, which could assign their rights arising therefrom.

        The auctions allowed Banco de México to accumulate international assets without creating distortions in the currency markets. Through this mechanism, Banco de México has accumulated U.S. $12,117 million in reserves since the auctions were introduced in 1996. At May 11, 2001, the net international assets of Banco de México totaled U.S. $40,732 million, a level sufficiently high to justify the suspension of the accumulation by this mechanism. Accordingly, on May 18, 2001, the Foreign Exchange Commission decided to suspend until further notice the sale of options after the auction held June 29, 2001.

        At December 31, 2001, Mexico's international reserves totaled U.S. $40,880 million, an increase of U.S. $7,325 million from the level at December 29, 2000. The net international assets of Banco de México totaled U.S. $44,857 million at December 31, 2001, an increase of U.S. $9,223 million from the level at December 29, 2000. At November 15, 2002, Mexico's international reserves totaled U.S. $44,948 million, an increase of U.S. $4,068 million from the level at December 31, 2001. The net international assets of Banco de México totaled U.S. $46,122 million at November 15, 2002, an increase of U.S. $1,265 million from the level at December 31, 2001.

Direct Foreign Investment in Mexico

        During 2001, direct foreign investment in Mexico notified to the National Foreign Investment Commission totaled approximately U.S. $24.8 billion. Total accumulated direct foreign investment in Mexico during the 1997-2001 period amounted to approximately U.S. $72.3 billion. Of the total direct foreign investment accumulated during the 1997-2001 period, excluding that in securities, 48.6% has been channeled to industry, 50.4% to services, 0.7% to mining and 0.3% to agriculture and fishing.

        During 2001, net foreign investment in Mexico, as recorded in the balance of payments, totaled U.S. $28.6 billion, and was comprised of direct foreign investment of U.S. $24.8 billion and portfolio investment of U.S. $3.9 billion. During the first half of 2002, net foreign investment in Mexico, as recorded in the balance of payments, totaled U.S. $5.3 billion and was comprised of direct foreign investment of U.S. $6.1 billion and portfolio investment of U.S. $(0.8) billion.

Exchange Controls and Foreign Exchange Rates

        Since December 22, 1994, the Mexican Government has maintained a floating exchange rate policy, with Banco de México intervening in the foreign exchange market from time to time to

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minimize volatility and ensure an orderly market. The Mexican Government has also promoted market-based mechanisms for stabilizing the exchange rate, such as over-the-counter forward and options contracts between banks and their clients in Mexico, and authorization of peso futures trading on the Chicago Mercantile Exchange. In addition, since October 1996, Banco de México has permitted foreign financial institutions to open peso-denominated accounts and to borrow and lend pesos (subject to general restrictions on conducting banking activities in Mexico).

        In February 1997, the Foreign Exchange Commission established a program enabling Banco de México to sell up to U.S. $200 million of dollars to Mexican commercial banks pursuant to an auction mechanism on any day in which the peso/dollar exchange rate applicable to the payment of obligations denominated in foreign currencies exceeds the corresponding rate on the preceding business day by more than 2%. This mechanism was adopted with the aim of moderating the volatility of the peso/dollar exchange rate, while maintaining the Mexican Government's freely floating exchange rate regime.

        On August 26, 1998, the Foreign Exchange Commission decided to allow Banco de México to increase the number of currency auctions held per day from two to three, in order to increase the likelihood that Banco de México would sell the entire maximum amount of U.S. $200 million on any day it chose to use the auction program. From October 27, 1997 through July 2, 2001, Banco de México sold U.S. $1,900 million under this program, auctioning dollars on October 27 and 30 and November 6, 1997, January 12, May 27, August 21 and 26, September 10 and 21 and October 8, 1998, January 12 and 13 and May 25, 1999 and on June 8, 2000.

        On September 10, 1998, in response to continuing steep declines in the value of the peso, Banco de México sold a total of U.S. $478 million. U.S. $200 million of this amount was sold under the auction program, and the remainder was sold as an extraordinary direct sale of dollars at market rates, the first extraordinary intervention by Banco de México in the foreign currency market since December 1995.

        The Foreign Exchange Commission resolved on May 18, 2001 to suspend use of the auction mechanism for the contingent sale of dollars. The suspension took effect as of July 2, 2001.

        During 2001, the average peso/U.S. dollar exchange rate was Ps. 9.339 = U.S. $1.00. During the first six months of 2002, the monthly average peso/U.S. dollar exchange rate was Ps. 9,284 = U.S. $1.00. The peso/U.S. dollar exchange rate announced by Banco de México on November 15, 2002 (to take effect on the second business day thereafter) was Ps. 10.2484 = U.S. $1.00.

Public Finance

Fiscal Policy

        The rationalization of public expenditure and the augmentation of revenue have been important components of the Mexican Government's economic stabilization strategy. The Mexican Government's fiscal policy has had two fundamental objectives: to establish the macroeconomic foundation for sustained growth and to focus the Mexican Government's resources on those sectors in which the Mexican Government can have the greatest impact in supporting social development and the competitiveness of the Mexican economy.

        At present, the Mexican Government's principal short-term fiscal policy objectives, in addition to countering inflation, are:

•

strengthening economic activity and exports;



•

maintaining an adequate surplus in the Mexican Government's primary balance while incurring only a moderate public sector deficit;



•

continuing to promote fiscal federalism; and

166

•

increasing the efficiency and competitiveness of the economy and the effectiveness of the tax collection system.

        The Mexican Government's principal fiscal policy objectives over the medium-term are:

•

significantly reducing the inflation rate to levels approximating those of Mexico's major trading partners;



•

consolidating the process of sustainable economic growth;



•

promoting private sector savings;



•

continuing to modernize the economy; and



•

strengthening social policy through increased real spending on social development.

2002 Budget

        On January 1, 2002, the Mexican Congress approved the Federal Annual Revenue Law for 2002 and the Federal Expenditure Budget for 2002 (collectively, the "2002 Budget"). The principal objectives of the 2002 Budget are to maintain sound public finances and a tight fiscal stance in order to promote a more stable economic environment, higher domestic savings and investment rates and higher employment rates. The 2002 Budget contemplates a public sector deficit of 0.65% of GDP for 2002.

        In response to the decline in international oil prices at the end of 2001, the 2002 budget was based upon an estimated weighted average price of Mexico's oil exports of U.S. $15.50 per barrel and an estimated volume of oil exports of 1.725 million barrels per day. Because both of these estimates are lower than the estimates used to formulate the Mexican Government's proposed budget, the 2002 Budget assumes Ps. 20 billion less in revenue than originally forecast in the Mexican Government's proposed budget. This anticipated shortfall has been partially compensated through the utilization of Ps. 8 billion from Mexico's oil stabilization fund. In order to raise additional revenue to compensate for the budget shortfall, the 2002 Budget also includes the following measures, among others:

•

modifications to the Income Tax Law, such as the equalization of the maximum tax rates for individuals and corporations, a reduction in the number of tax brackets and the implementation of an immediate private investment deduction;



•

elimination of certain government subsidies paid to private sector employees;



•

new or increased excise taxes on telecommunications, soft drinks (temporarily suspended by presidential decree on March 5, 2002), cigars, cigarettes and alcohol;



•

a 5% tax on certain luxury goods and services; and



•

replacement of the accrued simplified system with a cash flow based system for collecting value-added taxes.

        Under the 2002 Budget, the Mexican Government estimates that it will devote Ps. 258,691 million (25.2% of total budgetary programmable expenditures) to education and Ps. 284,355 million (27.7% of total budgetary programmable expenditures) to health and social security.

        The Mexican Government also expects that it will devote Ps. 67,752 million (6.6% of total budgetary programmable expenditures) to regional and urban development and Ps. 16,425 million (1.6% of total budgetary programmable expenditures) to social spending and nutrition. In addition, the 2002 Budget contemplates that Ps. 176,478 million will be used for the debt service of the Mexican Government and that Ps. 29,933 million will be used for the debt service of the public sector agencies included in the 2002 Budget.

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        The results for 2000, the preliminary results for 2001 and the first half of 2002, and the assumptions and targets underlying the 2002 Budget are set forth below.

2000 and 2001 Results;
2002 Budget Assumptions and Targets

	2000 Results		2001 Results(1)		First half of 2002 Results(1)	2002 Budget
Real GDP growth (%)	6.6	(1)	(0.3	)	0.0	1.7
Increase in the national consumer price index (%)	9.0		4.4		2.6	4.5
Average export price of Mexican oil mix (U.S.$/barrel)	24.62	(1)	18.57		19.79	15.50
Current account deficit as % of GDP	3.1	(1)	2.9		2.1	3.4
Average exchange rate (Ps./$1.00)	9.456		9.339		9.284	10.1
Average rate on 28-day Cetes (%)	15.2		11.3		7.0	9.7
Public sector balance as % of GDP	(1.1	)	(0.7	)	0.8	(0.7	)
Primary balance as % of GDP	2.6		2.6		4.1	2.7

(1)

Preliminary.

Source: Ministry of Finance and Public Credit.

Revenues and Expenditures

        In 2001, public sector budgetary revenues were less than public sector budgetary expenditures (excluding off-budget revenues and expenditures of the public sector) by approximately Ps. 39,920.2 million in nominal terms, or approximately Ps. 11,058.2 million in constant pesos with purchasing power at December 31, 1993, reflecting a decrease of 37.9% in real terms over the surplus for 2000. The public sector primary balance was approximately Ps. 150,359.2 million in nominal terms, or approximately Ps. 41,650.7 million in constant pesos with purchasing power at December 31, 1993, reflecting a decrease of 1.5% in real terms as compared to the public sector primary balance for 2000. The overall public sector balance registered a deficit of Ps. 42,050.3 million in nominal terms, or approximately Ps. 11,648.3 million in constant pesos with purchasing power at December 31, 1993, reflecting a decrease of 34.8% in real terms as compared to the surplus for the same period of 2000.

        In 2001, public sector revenues were negatively affected by: (1) less dynamic economic activity; (2) the strength of the Mexican peso with respect to the U.S. dollar; and (3) the reduction in the volume of oil exports agreed with other oil producing countries to stabilize medium-term oil prices. These factors caused budgetary revenues to be Ps. 33.8 billion lower than projected in the 2001 Budget.

        In accordance with the automatic adjustment mechanism contained in Article 32 of the 2001 Budget, and in response to the lower than projected revenues, the Mexican Government cut expenditures in order to meet the fiscal targets for 2001. Mexico cut expenditures by Ps. 3.4 billion during the first quarter of 2001, by Ps. 6.8 billion during the second quarter of 2001, by Ps. 3.0 billion during the third quarter of 2001, and by Ps. 3.0 billion during the fourth quarter of 2001. As a result of these adjustments, the public sector recorded an overall deficit of Ps. 42.1 billion, or 0.7% of GDP, in 2001, slightly lower than the deficit recorded in 2000.

        The overall primary balance registered a surplus in 2001 of Ps. 150.4 billion in nominal pesos (approximately 2.6% of nominal GDP) and Ps. 41.7 billion in constant 1993 pesos, 0.6% lower in real terms than the primary balance registered in 2000.

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        The public sector registered an overall surplus of Ps. 23.9 billion in nominal pesos in the first half of 2002, and the primary balance registered a surplus of Ps. 121.0 billion in nominal pesos, 0.7% lower in real terms as compared to the same period of 2001.

        In accordance with the automatic adjustment mechanism contained in Article 32 of the 2002 Budget, and in response to the lower than projected revenues, the Government cut expenditures by Ps. 10.1 billion during the first quarter of 2002 in order to meet its fiscal targets for 2002. This expenditure reduction is not reflected in the expenditure estimates described elsewhere in this section. Due to higher than expected revenues in the second quarter of 2002, the Government did not cut expenditures in the second quarter of 2002. However, further expenditure reductions could be required if revenues were to deteriorate.

Public Debt

Internal Public Debt

        Internal debt is presented herein on a "net" basis, and includes the internal debt of the Mexican Government and budget-controlled agencies, excluding Banco de México's general account balance (which was positive at June 28, 2002, indicating monies owed to the Mexican Government) and the assets of the Fondo del Sistema de Ahorro Para el Retiro (the Retirement Savings System Fund). In addition, net internal debt includes Cetes and other securities sold to the public in primary auctions, but not such debt allocated to Banco de México for its use in regulating liquidity ("Regulación Monetaria"). See footnote 2 to the table "Net Internal Public Debt" below. Internal debt does not include the debt of IPAB. See "—Financial System—Banking Supervision and Support."

        In 2001, the Mexican Government continued to pursue an internal debt strategy aimed at lengthening the average maturity of its debt in order to reduce its refinancing risk. To further this goal, the Mexican Government in the past has introduced new instruments of longer maturities. In the last quarter of 1999, the Mexican Government offered for the first time 10-year UDI-denominated securities and guaranteed 30-year UDI-indexed bonds. In January 2000, the Mexican Government began offering three-year fixed rate peso-denominated bonds.

        In addition to the three-year fixed rate peso-denominated debt securities that were first issued in January 2000, the Mexican Government issued five-year fixed rate peso-denominated securities in May 2000. In July 2001, the Ministry of Finance and Public Credit, through Banco de México, executed the first auction of ten-year fixed rate peso-denominated bonds. This was the first time that an instrument of this type was offered in the domestic market. With the issuance of these securities, the Mexican Government intends to establish a long-dated benchmark yield curve and to begin to develop a long-term private domestic debt market. The Mexican Government anticipates that the issuance of these instruments will also encourage:

•

increased use of long-term fixed rate contracts;



•

the issuance of long-term peso-denominated securities by Mexican companies;



•

the development of long-term financial hedging products; and



•

the potential to direct long-term savings toward the financing of long-term investment projects.

        At December 31, 2001, the net internal debt of the Mexican Government totaled U.S. $75.6 billion, an increase of U.S. $12.3 billion (or 19.4%) from the U.S. $63.3 billion outstanding at December 29, 2000. The increase in net internal debt was attributable to the fact that, as was the case in previous years, the Mexican Government financed its deficit primarily through borrowings in the domestic market. At the end of December 2001, the average maturity of internal debt was 748 days, as compared with 538 days at December 29, 2000.

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        At June 28, 2002, the net internal debt of the Government was U.S. $73.3 billion, as compared with U.S. $75.6 billion outstanding as of December 31, 2001. At the end of June 2002, the average maturity of internal debt was 793 days, as compared with 748 days at December 31, 2001.

        The following table summarizes the net internal public debt of the Mexican Government and the budget-controlled agencies at each of the dates indicated.

Net Internal Public Debt

			December 31,								June 28
			1997		1998		1999		2000		2001(1)		2002(1)
			(in billions of dollars)
Total net internal debt(2)			$	32.2	$	34.9	$	47.7	$	63.3	$	75.6	$	73.3
	Mexican Government			32.1		34.8		47.7		63.3		75.6		73.3
		Peso-denominated		32.1		34.8		47.7		63.3		75.6		73.3
		Foreign currency-denominated (Tesobonos)(2)		0.0		0.0		0.0		0.0		0.0		0.0
	Budget-controlled agencies			0.1		0.1		N.A.		N.A.		N.A.		N.A.
		Peso-denominated		0.0		0.0		N.A.		N.A.		N.A.		N.A.
		Foreign currency-denominated		0.1		0.1		N.A.		N.A.		N.A.		N.A.

Note: Totals may differ due to rounding.
N.A. = Not available.

(1)

Preliminary.

(2)

Does not include Tesobonos sold by Banco de México in open-market operations pursuant to Regulación Monetaria, which amounted to approximately U.S. $12.0 billion at December 31, 1994. Regulación Monetaria does not increase the Mexican Government's overall level of internal debt, because Banco de México must reimburse the Mexican Government for any allocated debt that Banco de México sells into the secondary market and that is presented to the Mexican Government for payment. If Banco de México undertakes extensive sales of allocated debt in the secondary market, however, Regulación Monetaria can result in a situation in which the level of outstanding internal debt is higher than the Mexican Government's figure for net internal debt.

Source: Ministry of Finance and Public Credit.

External Public Debt

        At December 31, 2001, Mexico's gross public external debt totaled U.S. $76.63 billion, 0.1% greater than the gross public external debt at December 29, 2000. Overall, total net public debt at December 31, 2001 represented approximately 23.3% of nominal GDP, 0.1 percentage points lower than at the end of 2000.

        The following table sets forth a summary of the external public debt of Mexico, which includes the external debt of the Mexican Government, budget-controlled agencies and administratively controlled agencies, and a breakdown of such debt by currency. External public debt as used in this section does not include, among other things, repurchase obligations of Banco de México with the International Monetary Fund or the debt of IPAB. See "—Financial System—Banking Supervision and Support." See footnote 1 to the table "Summary of External Public Debt" below.

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Summary of External Public Debt(1)
By Type

		Long-Term Direct Debt of the Mexican Government	Long-Term Debt of Budget- Controlled Agencies	Other Long- Term Public Debt(2)	Total Long- Term Debt	Total Short- Term Debt	Total Long- and Short- Term Debt
		(in millions of dollars)
December 31,
	1997	48,827	9,514	25,920	84,261	4,060	88,321
	1998	52,043	10,557	25,297	87,897	4,398	92,295
	1999	52,738	11,101	24,158	87,997	4,293	92,290
	2000	46,065	10,853	23,386	80,304	3,754	84,058
	2001	44,070	10,361	22,224	76,655	3,684	80,339
June 28, 2002		42,334	9,765	21,560	73,659	4,291	77,950

By Currency(3)

		December 31,										June 28,
		1997		1998		1999		2000		2001		2002
		(in millions of $)	(%)	(in millions of $)	(%)	(in millions of $)	(%)	(in millions of $)	(%)	(in millions of $)	(%)	(in millions of $)	(%)
U.S. Dollars		71,750	81.3	74,551	80.8	75,853	82.2	71,065	84.0	69,933	87.0	67,903	87.1
Japanese Yen		6,881	7.8	6,956	7.5	7,124	7.7	5,878	7.0	4,708	5.9	4,175	5.4
Deutsche Marks		3,940	4.4	4,132	4.5	3,201	3.5	1,270	1.5	390	0.5	0	0.0
Pounds Sterling		903	1.0	838	0.9	743	0.8	144	0.2	140	0.2	149	0.2
French Francs		1,909	2.2	1,910	2.1	1,521	1.7	627	0.7	170	0.2	38	0.0
Swiss Francs		268	0.3	265	0.3	214	0.2	27	0.0	135	0.2	147	0.2
Others		2,670	3.0	3,642	3.9	3,634	3.9	5,588	6.6	4,863	6.0	5,538	7.1
	Total	88,321	100.0	92,295	100.0	92,290	100.0	84,600	100.0	80,339	100.0	77.950	100.0

Note: Totals may differ due to rounding.

(1)

External debt denominated in foreign currencies other than dollars has been translated into dollars at exchange rates as of each of the dates indicated. External public debt does not include (a) repurchase obligations of Banco de México with the IMF (none of these were outstanding at June 28, 2002), (b) external borrowings by the public sector after June 28, 2002, including approximately U.S. $1.75 billion in capital market financings and (c) loans from the Commodity Credit Corporation to public sector Mexican banks. External debt is presented herein on a "gross" basis, and includes external obligations of the public sector at their full outstanding face or principal amount. For certain informational and statistical purposes, Mexico sometimes reports its external public sector debt on a "net" or "economic" basis, which is calculated as the gross debt net of certain financial assets held abroad. These financial assets include the value of principal and interest collateral on restructured debt and Mexican public sector external debt that is held by public sector entities but that has not been canceled.

(2)

Includes debt of development banks and other administratively controlled agencies whose finances are consolidated with the Mexican Government.

(3)

Adjusted to reflect the effect of currency swaps.

Source: Ministry of Finance and Public Credit.

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        Outstanding gross external debt decreased by approximately U.S. $2.4 billion in the first half of 2002, from U.S. $80.3 billion at December 31, 2001 to U.S. $78.0 billion at June 28, 2002. Of this amount, U.S. $73.7 billion represented long-term debt and U.S. $4.3 billion represented short-term debt.

        Since December 31, 2001, the Mexican Government and public sector entities have issued the following debt securities in the international capital markets:

•

On January 7, 2002, Pemex Project Funding Master Trust (unconditionally guaranteed by Petróleos Mexicanos) issued U.S. $500,000,000 of Floating Rate Notes due 2005.



•

On January 14, 2002, the Mexican Government issued $1.5 billion of 7.5% Global Notes due 2012.



•

On February 1, 2002, Pemex Project Funding Master Trust (unconditionally guaranteed by Petróleos Mexicanos) issued U.S. $1,000,000,000 of 7.875% Notes due 2009 and U.S. $500,000,000 of 8.625% Bonds due 2022.



•

On September 24, 2002, the Mexican Government issued $1.75 billion of 8.00% Global Notes due 2022.

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Item 5. Operating and Financial Review and Prospects

General

        PEMEX earns income from:

•

export sales, which consist primarily of sales of crude oil and refined products;



•

domestic sales, which consist of sales of natural gas, refined products (such as gasoline, diesel fuel and liquefied petroleum gas) and petrochemical products; and



•

other sources, including investment income and foreign exchange gains.

        PEMEX's operating expenses include:

•

costs of sales (which include labor expenses), costs of operating, maintaining and repairing plants and equipment, purchases of refined petroleum and other products, depreciation and amortization of fixed assets (including estimated dismantlement and abandonment costs) and costs of increasing the reserve for exploration and depletion of oil fields;



•

expenses for transportation and distribution of our products;



•

administrative expenses; and



•

interest expense.

        PEMEX's income is affected by a number of factors, including:

•

changes in international prices of crude oil and refined petroleum products, which are denominated in U.S. dollars, and domestic prices of petroleum products, which are denominated in pesos;



•

the type and volume of crude oil produced and exported;



•

the type and volume of natural gas produced and sold;



•

the results of development and exploration activities;



•

the amount of taxes and duties that the Mexican Government imposes on PEMEX;



•

Mexican inflation;



•

fluctuations in the peso-U.S. dollar exchange rate; and



•

Mexican and global economic conditions, including the levels of international interest rates.

Critical Accounting Policies

        Our significant accounting policies are more fully described in Notes 2 and 19 to the Financial Statements. Some of our accounting policies require the application of significant judgment by management in selecting the appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to a degree of uncertainty and are based on our historical experience, terms of existing contracts, management's view of trends in the oil and gas industry, both macroeconomic and within Mexico, economic factors in Mexico and information from outside sources. We believe the following critical accounting policies, among others, affect management's more significant judgments and estimates used in the preparation of our consolidated financial statements and could potentially impact our financial results and future financial performance. Unless otherwise stated, the following critical accounting policies apply for both Mexican and U.S. GAAP purposes.

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Exploration and Drilling Costs

        Under Mexican GAAP, we annually determine a budgeted exploration and drilling cost per barrel based upon internal engineering studies. To determine the cost per barrel, we take into consideration the budgeted exploration and drilling costs, the estimated annual production of oil and gas and the estimated percentage of non-successful wells. The resulting per barrel amount is charged as costs of sales in our consolidated statement of income against the equity reserve established for exploration and drilling costs. Changes in the budgeted exploration and drilling cost per barrel would impact on our recorded cost of sales expense. Under U.S. GAAP, the budgeted exploration and drilling cost recognized as part of the equity reserve is reversed.

Successful Efforts Method of Oil and Gas Accounting

        We apply the successful efforts method of oil and gas accounting. This accounting principle requires that capitalized costs for producing properties be amortized on the basis of crude oil and natural gas reserve quantities. Our reserve estimates are determined in accordance with earth science and petroleum engineering principles and practices in accordance with Rule 4-10 of Regulation S-X of the Securities Act of 1933 and can vary as a result of changes in such factors as forecasted oil and gas prices, reservoir performance, oil field technology and audits by independent engineers.

        Downward revision in our reserve estimates can result in either: (a) higher depreciation and depletion expense per barrel in future periods, or (b) an immediate write-down of the asset's book value in accordance with accounting rules for the impairment of properties. The latter condition would result if the downward revisions were so significant that the estimated future cash flows from the remaining reserves in the field were insufficient to recover the unamortized capitalized costs. Conversely, if the oil and gas reserve quantities were revised upward, our future per-barrel depreciation and depletion expense would be lower.

        The application of successful efforts accounting can also cause material fluctuations between periods in exploration expense if drilling results are different than expected or if we change our exploration and development plans. The determination that exploratory drilling was unsuccessful in finding economically producible reserves requires the immediate expensing of previously capitalized drilling costs.

Environmental Remediation, Asset Retirement Obligations

        We also make judgments and estimates in recording liabilities for environmental cleanup as well as asset retirement obligations. Estimated liabilities for environmental remediation and asset retirement obligations are subject to change because of matters such as changes in laws, regulations and their interpretation, the determination of additional information on the extent and nature of site contamination, the determination of additional works which need to be undertaken, improvements in technology, timing of expenditures, and the foreign currency exchange rates to the extent that some of these costs are incurred in U.S. dollars. In addition, with respect to offshore properties, our historical dismantlement and plugging experiences have been very limited, and therefore, our estimates of the expected cost or salvage value may vary from what will actually be incurred for many of these long-term properties when these activities are ultimately undertaken.

        While we believe that our environmental remediation and asset retirement obligation provisions are adequate and that the interpretations applied of existing law are appropriate, the amounts estimated for the future liabilities may differ materially from the costs that will actually be incurred to remediate our properties. If we determine that an insufficient environmental remediation or asset retirement obligation provision has been created, earnings will be adjusted as appropriate in the period that the determination is made.

174

Employee Benefit Plans

        We provide a range of benefits to our current and retired employees, including pensions, post-retirement health care benefits and post-employment benefits (primarily health services and supplemental payments). We annually record amounts relating to these plans based on calculations specified by Mexican and U.S. GAAP, respectively, which include various actuarial assumptions, such as discount rates, assumed rates of return, compensation increases, turnover rates and health care cost trend rates. We review our actuarial assumptions on an annual basis and make modifications to the assumptions based on current rates and trends when it is deemed appropriate to do so. As required by Mexican and U.S. GAAP, the effect of the modifications is generally recorded or amortized over future periods. We believe that the assumptions utilized in recording its obligations under our plans, which are presented in Notes 11 and 19 II(f) to the Financial Statements, are reasonable based on our experience and advice from our independent actuaries.

Financial Instruments

        On January 1, 2001, we adopted Bulletin C-2 for Mexican GAAP purposes. Bulletin C-2 provides for the definition of financial instruments, including derivative financial instruments and requires that all financial instruments, with the exception of "held to maturity" investments and certain derivative instruments that qualify as hedges, to be recorded at fair value with the fair value adjustment recognized in earnings. Held to maturity investments are recorded at amortized cost subject to an impairment review. Unlike U.S. GAAP and its interpretations, which are described below, Bulletin C-2 is not descriptive when it comes to defining "embedded" derivatives or hedge effectiveness testing or documentation. To date, no additional interpretative guidance has been issued by MIPA, and therefore, our implementation of the standard is based on what we believe is best practice but may not be similar to the interpretation of other Mexican companies or any contemplated but not yet issued guidance by the MIPA. Should additional interpretative or best practice guidance be issued in the future, this may impact how we have accounted for our financial instruments under Bulletin C-2. Our determination of fair value of financial instruments for both Mexican and U.S. GAAP employed the same methodologies, which are further discussed below.

        On January 1, 2001 we also adopted SFAS No. 133 for U.S. GAAP purposes, and in accordance with the current transition provisions of SFAS No. 133, we recorded a cumulative effect transition after tax decrease in net loss of Ps. 3,791.3 million to recognize the fair value of its derivatives and embedded derivatives at the date of adoption.

        As quoted market prices for certain derivatives used by us are not readily available, the fair value of these derivatives has been calculated using common market valuation methods and value-influencing market data at the relevant balance sheet date as follows:

•

Short-term currency and crude oil forwards as well as crude oil, gas and oil product commodity swaps are valued at future rates or market prices as of the relevant balance sheet date. The fair values of forward contracts are based on spot prices that are calculated taking into account forward premiums or discounts quoted in the relevant markets.



•

Long-term commodity forward contracts are fair valued using forward markets quotes reflecting the underlying conditions and variables associated with the relevant contractual agreements.



•

Currency, crude oil and gas options and share options are fair valued using standard options pricing models. The fair value for caps, floors and collars embedded in these contracts is calculated separately, similar to stand-alone options.



•

Interest rate, interest rate cross currency and cross currency swaps are fair valued by using the expected cash flows over the remaining term of the individual contracts at the relevant balance

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sheet date, discounted at market interest rates. Certain interest rate options are fair valued using option pricing models.

        The use of valuation models requires us to make assumptions and estimates regarding the volatility of derivative contracts at the balance sheet date, and actual results could differ significantly due to fluctuations in value-influencing market data. The valuation models for the interest rate and currency derivatives are based on calculations and valuations using a group-wide financial reporting system, which provides consistent market data and valuation algorithms throughout our organization. The algorithms used to obtain valuations are those which are commonly used in the financial markets. In certain cases, the calculated fair value of derivatives is compared with results which are produced by other market participants, including banks, as well as those available through other internally available systems. The valuations of commodity instruments are delivered utilizing common valuation techniques and models as described above.

        Through internal guidelines (i.e. group-wide financial guidelines), we ensure that the derivatives used for risk management purposes are only utilized to hedge booked, contracted or planned underlying transactions. We calculate and assess market risks in accordance with the policies outlined in "Item 11—Quantitative and Qualitative Disclosures About Market Risk."

        Contracts providing for physical delivery in Mexico are currently accounted for as contracts with no derivative components, as no sufficient natural gas market mechanism or spot market exists in Mexico so as to allow us to classify gas as readily convertible to cash. In the future, it is possible that a sufficient market mechanism or spot market for natural gas could emerge resulting in a need to reassess the Mexican contracts for derivatives under SFAS No. 133. If any such reassessment resulted in contracts being accounted for as derivatives under SFAS No. 133, the impact on future operating results could be significant.

Impairment of Long-Lived Assets

        In addition to our oil and gas assets that could become impaired under the application of successful efforts accounting, other assets could become impaired and require write-down if circumstances warrant. Conditions that could cause our assets to become impaired include lower-than-forecasted commodity sales prices, changes in our business plans or a significant adverse change in the national or international business climate. The amount of an impairment charge would be based on estimates of an asset's fair value compared with its book value. While we believe that our estimates of future cash flows are reasonable, different assumptions regarding project commodity sales prices, production costs and foreign currency exchange rates and inflation could materially affect the anticipated cash flows to be generated by the long-lived assets, thereby affecting the evaluations of the carrying values of the long-lived assets.

Sales Volumes and Prices

        The profitability of our operations in any particular accounting period is directly related to the sales volume of, and average realized prices for, the crude oil and natural gas that we sell. The average realized prices for crude oil and natural gas fluctuate from one period to another due to world market conditions and other factors.

Export Volumes and Prices

        Pemex-Exploration and Production sells crude oil to PMI, which then sells it to international clients. The volume of crude oil that we export is the volume delivered to international clients as adjusted for water content according to the bill of lading and standard market practice. We base our crude oil export price formulas on a basket of international reference prices and a constant set

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according to specific market conditions. We determine export prices of petroleum products and natural gas by reference to market conditions and direct negotiations with our clients.

        Significant changes in international crude oil prices directly affect our financial results. The impact of changes in crude oil prices on our refining activities and petrochemicals business depends on:

•

the magnitude of the change in crude oil prices;



•

how quickly petroleum and petrochemical product prices in international markets adjust to reflect changes in crude oil prices; and



•

the extent to which prices in Mexico, where we sell most of our petroleum products and petrochemicals, reflect international prices for those products.

        The following table sets forth the weighted average price per barrel of crude oil that PMI received from exports to international customers and the average price of its benchmark, West Texas Intermediate crude oil, for the years indicated. Note that the average prices of West Texas Intermediate crude oil are higher than the average prices of crude oil that we export. This is primarily due to the higher cost of refining sour crude oils, which make up a majority of our exports. See "Item 4—Information on the Company—Business Overview—Exploration and Production—Crude Oil Sales."

	Year Ended December 31,
	1997		1998		1999		2000		2001
West Texas Intermediate crude oil average price	$	20.61	$	14.41	$	19.25	$	30.97	$	25.93
PEMEX crude oil weighted average export price		16.46		10.16		15.55		24.78		18.57

Note:    The numbers in this table are average prices for the full year. Spot prices at year end are different. On November 25, 2002 the spot price for West Texas Intermediate crude oil was U.S. $26.24 per barrel and the spot price for the PEMEX crude oil basket was an estimated U.S. $19.99 per barrel.

Sources: 1997 figures: PEMEX's 1998 Statistical Yearbook and Platt's U.S. Market Scan (McGraw-Hill Company)
1998, 1999, 2000 and 2001 figures: PMI operating statistics, which are based on information in bills of lading, and Platt's U.S. Market Scan (McGraw-Hill Company)

Domestic Prices

        Committees composed of officials of Petróleos Mexicanos and the subsidiary entities and representatives of various governmental agencies including, among others, the Ministry of Finance and Public Credit, the Ministry of Energy, SECODAM and the Ministry of Economy set the formulas that we use to determine prices for crude oil and petroleum products sold in the domestic market. Petróleos Mexicanos and the subsidiary entities, together with the Mexican Government, pursue a policy that keeps domestic wholesale prices generally in line with international prices. We determine wholesale prices by reference to international prices, but make adjustments to reflect opportunity costs, transportation expenses and differences in the quality of our products relative to international benchmarks. The retail price is comprised of the wholesale price plus the value added tax, the retailer's margin and freight costs. The Ministry of Finance and Public Credit determines retail prices of gasoline and diesel before the beginning of each fiscal year in conjunction with the preparation of the Mexican Government's budget for that year. The Ministry of Finance and Public Credit also adjusts gasoline and diesel prices so that they are consistent with the Mexican Government's macroeconomic targets.

        Our retail prices for gasoline and diesel reflect the addition of the IEPS Tax as described below, as well as the value added tax. We charge the IEPS Tax only on gasoline, diesel and natural gas sales for automotive use. See "—IEPS Tax, Excess Gains Duty, Hydrocarbon Duties and Other Taxes" below, for

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a further discussion of the IEPS Tax. For financial statement purposes, the IEPS Tax is presented as part of Net Domestic Sales and then deducted after "Income before Hydrocarbon extraction duties, special tax on production services and other."

        Natural gas prices for domestic sale are calculated according to the Energy Regulatory Commission directives published on March 20, 1996. These prices reflect natural gas opportunity costs and competitive conditions in international markets and at the point of sale.

        The following table compares the average prices of petroleum products in Mexico and in the United States for the years indicated.

		1997				1998				1999				2000				2001
		Mexico		U.S.		Mexico		U.S.		Mexico		U.S.		Mexico		U.S.		Mexico		U.S.
Oil Products
Unleaded regular gasoline(1)		$	61.99	$	47.61	$	63.11	$	41.53	$	75.57	$	45.58	$	84.89	$	60.83	$	92.91	$	56.69
Premium gasoline(1)			68.86		55.04		69.83		49.76		83.38		53.45		94.36		68.07		104.29		64.53
Jet fuel(2)			25.52		23.55		18.85		17.04		22.41		20.95		37.44		35.69		32.47		30.32
Kerosene(3)			46.32		25.82		49.71		19.04		62.59		22.61		70.34		37.64		77.05		32.44
Natural Gas(4)
	Industrial		2.44		3.50		2.05		3.09		2.18		3.11		3.65		4.45		3.94		5.00
	Residential		4.06		6.91		4.56		6.97		4.65		6.91		6.27		8.44		6.48		9.26
Selected Petrochemicals
Ammonia(5)			166.81		184.76		118.04		136.36		95.37		111.73		153.84		173.93		155.66		160.55
Polyethylene L.D.(6)			1,078.84		1,124.14		874.05		978.71		915.04		1,099.75		1,034.70		1,298.66		877.90		1,059.74
Polyethylene H.D.(7)			1,058.83		1,042.38		865.70		910.93		830.67		992.31		1,082.79		1,183.66		961.44		1,004.63
Styrene(8)			645.83		595.06		478.30		519.07		590.12		586.34		916.42		888.92		641.56		690.15

(1)

In U.S. dollars per barrel. Prices to final consumers including taxes. Premium price in Mexico City. U.S. prices for Houston, Texas.
Sources: Pemex-Refining and Lundberg Retail Price Survey (Lundberg Survey Inc.)

(2)

In U.S. dollars per barrel. Mexican prices at the gate of the refineries. U.S. spot prices in Houston, Texas (Jet Fuel Gulf Coast Waterborne).
Sources: Pemex-Refining and Platt's U.S. Market Scan (McGraw-Hill Company)

(3)

In U.S. dollars per barrel. In both countries, prices to final consumers. Mexico prices include taxes, while U.S. prices exclude them.
Sources: Pemex-Refining and Petroleum Marketing Monthly published by the Energy Information Administration (DOE) (Kerosene Type Jet Fuel, end users)

(4)

In U.S. dollars per thousand cubic feet. Prices exclude taxes. For 1997 and 1998, prices are for Mexico City and surrounding areas. For 1999, prices are for all of Mexico. Industrial prices correspond to nomination of additional volumes under contract with notification to the supplier. Residential prices reflect the specific cost of transportation and distribution in that area. U.S. prices are national average industrial prices and Texas residential prices.
Sources: Pemex-Gas and Basic Petrochemicals and Petroleum Marketing Monthly published by the Energy Information Administration (DOE)

(5)

In U.S. dollars per ton. Prices exclude taxes. Mexico prices to contract users at Cosoleacaque Petrochemical Plant. U.S. spot prices in Tampa, Florida.
Sources: Pemex-Petrochemicals, Fertecon Weekly Ammonia Fax (Fertecon Limited) and Fertilizer Market Bulletin (FMB Consultants Ltd.)

(6)

In U.S. dollars per ton. Film quality. Prices exclude taxes. Mexico prices to spot consumers. U.S. prices are domestic contract average.
Sources: Pemex-Petrochemicals and ICIS-LOR (Icis-Lor Group Ltd.)

(7)

In U.S. dollars per ton. Block molding quality. Prices exclude taxes. Mexico prices to spot consumers. U.S. prices are domestic contract average.
Sources: Pemex-Petrochemicals and ICIS-LOR (Icis-Lor Group Ltd.)

(8)

In U.S. dollars per ton. Prices exclude taxes. Mexico prices to spot consumers. U.S. prices are average of contract and spot prices.
Sources: Pemex-Petrochemicals and ICIS-LOR (Icis-Lor Group Ltd.)

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IEPS Tax, Excess Gains Duty, Hydrocarbon Duties and Other Taxes

        The following table sets forth the taxes and duties that we paid each of the past three years.

		Year ended December 31,
		1999		2000		2001
		(in millions of pesos)
Hydrocarbon extractions duties and other taxes		Ps.	120,477	Ps.	224,211	Ps.	168,264
IEPS Tax			88,349		69,557		95,199
	Total	Ps.	208,826	Ps.	293,768	Ps.	263,463

Note: For a description of these taxes and duties, see "Item 4—Information on the Company—Taxes and Duties" above.
Source: PEMEX's financial statements

        The IEPS Tax has two effects: (1) it ensures that we retain the portion of our sales revenues that represents the adjusted international reference prices of our products, and (2) it gives the Mexican Government the difference between the domestic retail prices and adjusted international reference prices of diesel and gasoline.

        When international prices decrease, our wholesale price will decrease and, as a result, the IEPS Tax that we collect from consumers and transfer to the Mexican Government will increase.

        For automotive fuels, the IEPS Tax is equal to the retail price at which Pemex-Refining sells gasoline and automotive diesel to retailers less Pemex-Refining's wholesale price, value added tax and distribution costs. For natural gas, the IEPS Tax on Pemex-Gas and Basic Petrochemicals' natural gas sales for automotive consumption is linked to the retail price of unleaded regular gasoline and the international reference price of natural gas.

        In addition to the IEPS Tax, we are subject to a number of other federal taxes and duties. In 2001, the sum of these taxes and duties totaled, and in 2002 the sum of these taxes and duties is expected to total, approximately 60.8% of the sales revenues of Petróleos Mexicanos and the subsidiary entities from sales to the PMI Group and to third parties. The IEPS Tax is credited against our hydrocarbon duties in arriving at our overall rate of taxation. In addition to these taxes and duties, we are subject to an additional 39.2% excess gains duty, which applies to the portion of proceeds of our crude oil exports that are attributable to sales at prices in excess of a specific threshold price per barrel set by the Mexican Government. In 2001, this price was U.S. $18.00 per barrel, and in 2002, this price is U.S. $15.50 per barrel. The effect of the excess gains duty, when combined with the regular duty rate, is that the Mexican Government, not PEMEX, realizes all of the benefits of increases in crude oil prices over the threshold. See also "Item 4—Information on the Company—Taxes and Duties—Excess Gains Revenue Duty." The Mexican Government resets the rate of taxes and duties applicable to PEMEX each year.

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        The hydrocarbon taxes and duties affect our income because they are recorded as expenses. However, the IEPS Tax and the value added tax are indirect taxes that do not have an impact on our income because they are pass-through taxes that we collect from consumers and transfer to the Mexican Government.

Relation to the Mexican Government

        Mexico is the sole owner of Petróleos Mexicanos and the subsidiary entities and the Mexican Government closely regulates and supervises our operations. Mexican Government ministers control key executive decisions at PEMEX. The Secretary of the Ministry of Energy of Mexico is the Chairman of the Board of Directors of Petróleos Mexicanos. SECODAM appoints Petróleos Mexicanos and the subsidiary entities' external auditors.

        The Mexican Government incorporates the annual budget and financing program of Petróleos Mexicanos and the subsidiary entities into its consolidated annual budget, which it submits to the Mexican Congress for its approval. The Mexican Congress also designates certain of our largest capital expenditures as PIDIREGAS. See "Item 4—Information on the Company—History and Development—Capital Expenditures and Investments."

Inflation

        Mexico experienced high inflation during the 1980s. The annual rate of inflation (as measured by the change in the NCPI) decreased from a high of 159.2% in 1987 to 11.9% in 1992, 8.0% in 1993 and 7.1% in 1994. However, the economic events that followed the devaluation of the peso against the U.S. dollar in late 1994 and 1995, and turbulence in international financial markets, caused inflation to increase to 52.0% in 1995, decrease to 27.7% in 1996 and 15.7% in 1997 and increase to 18.6% in 1998. The annual inflation rate decreased to 12.3% in 1999, 9.0% in 2000 and 4.4% in 2001.

        Mexican inflation has affected our consolidated financial statements in the following ways:

•

Comparisons of data between periods may not reflect real trends. Because the prices of certain products and services that we purchase and sell tend to increase along with general inflation, nominal price increases substantially affect sales and expense items in our income statement.



•

Each year, we adjust the value of our fixed assets, materials and spare parts on our balance sheet to reflect inflation. This revaluation will increase our assets in periods of high inflation. When we revalue fixed assets and inventories to reflect the effects of inflation, our subsequent depreciation and cost of sales charges will increase, reducing our income.

        We revalue our fixed assets based on a hybrid of NCPI and specific-index items as determined by independent appraisers. The specific-index method takes into account usage, obsolescence, specific costs of operation and the remaining productive life of the revalued assets. See Note 2 b) to the Financial Statements.

        In 1996, an independent appraiser revalued our natural gas pipeline, distribution, transportation and storage assets using the specific-cost method. In 1997, PEMEX used the specific-cost method to revalue exploration and production assets, taking into consideration an independent appraiser's report. In 1998, PEMEX used the specific-cost method to revalue refinery assets, including distribution, transportation and storage assets, taking into consideration Mexican Petroleum Institute appraisals. For 2001, 2000 and 1999, fixed assets, excluding furniture and fixtures, vehicles and construction in progress, were restated based on appraisals performed by the Mexican Petroleum Institute and by an independent appraiser. The appraisals were performed utilizing the specific index method considering usage, a factor for obsolescence, specific costs, remaining useful lives and the relative classification of the fixed assets. Construction in progress and various immaterial assets are not restated.

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Consolidation

        The financial statements, which are prepared in accordance with Mexican GAAP, consolidate the results of Petróleos Mexicanos, the subsidiary entities and the subsidiary companies. Certain non-material subsidiaries, however, are not consolidated and are accounted for under the cost method. For a list of the consolidated subsidiary companies, see Note 2 c) to the Financial Statements. Since 1997, the results of P.M.I. Marine Ltd., have been consolidated; such results were previously accounted for under the cost method. In 1998, we began consolidating the assets and liabilities of the Pemex Project Funding Master Trust related to PIDIREGAS. Beginning in 2000, we began consolidating the results and financial condition of Mex Gas International Ltd. For U.S. GAAP purposes, beginning in 2001, we began consolidating the results and financial condition of Pemex Finance, Ltd.

Export Agreements

        In response to continuing weak crude oil prices in international markets, on March 22, 1998, the governments of Mexico, Venezuela and Saudi Arabia agreed to reduce their crude oil output (exports in the case of Mexico). Mexico agreed to reduce exports by 100 thousand barrels per day, while Venezuela agreed to reduce its output by 200 thousand barrels per day and Saudi Arabia by 300 thousand barrels per day, beginning April 1, 1998. On June 4, 1998, the same countries announced that, beginning July 1, 1998, Saudi Arabia would reduce its output by an additional 225 thousand barrels per day, Venezuela would reduce its output by an additional 125 thousand barrels per day and Mexico would reduce its exports by an additional 100 thousand barrels per day.

        On March 23, 1999, OPEC and some non-OPEC members, including Mexico, Norway, Russia and Oman, ratified an agreement reached on March 12, 1999 to cut world crude oil production by a total of 2.1 million barrels per day. Under this agreement, Mexico agreed to cut its crude oil exports by an additional 125 thousand barrels per day beginning on April 1, 1999. These crude oil agreements were set to expire on March 31, 2000.

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        On March 29, 2000, OPEC, excluding Iran, agreed to increase its crude oil production by 1,450 thousand barrels per day. Mexico, which is not a member of OPEC, announced on March 29, 2000 that it would increase its exports of crude oil by 150 thousand barrels per day, beginning in April 2000. On June 21, 2000, the Ministry of Energy announced an additional increase in crude oil exports of 75 thousand barrels per day, beginning in July 2000.

        Following OPEC's announcement in January 2001 that it would reduce crude oil production by 1.5 million barrels per day, Mexico announced it would decrease its crude oil exports by 75 thousand barrels per day, beginning on February 1, 2001. Following a March 2001 announcement by OPEC of an additional 1.0 million barrel per day reduction in crude oil production, on March 25, 2001, Mexico announced a further reduction in crude oil exports of 40 thousand barrels per day, beginning on April 1, 2001. On July 24, 2001, Mexico announced that it would reduce its crude oil exports by an additional 70 thousand barrels per day, beginning on September 1, 2001.

        Following OPEC's announcement that it would reduce crude oil production by 1.5 million barrels a day, on January 2, 2002, Mexico announced it would decrease its crude oil exports by 100 thousand barrels per day to 1.66 million barrels per day for six months beginning on January 1, 2002. Most recently, following OPEC's announcement that it would keep crude oil production at their present levels through fourth quarter 2002, Mexico affirmed that it would also maintain its crude oil exports at present levels for the same period.

Results of Operations of PEMEX—For the Year Ended December 31, 2001 Compared to the Year Ended December 31, 2000

Income/(Loss)

        In 2001, we reported a loss of Ps. 34.1 billion on Ps. 362.2 billion in total revenues net of the IEPS Tax, as compared with a loss of Ps. 19.7 billion on Ps. 409.1 billion in total revenues net of the IEPS Tax in 2000. This 73.1% increase in losses from 2000 to 2001 resulted primarily from:

•

a decrease of 25.1% in the weighted average price of crude oil sold by PMI for export, from U.S. $24.78 in 2000 to U.S. $18.57 in 2001;



•

increases in the labor reserve for pension obligations, due to higher wages and benefits paid to employees;



•

increased depreciation and amortization and a loss in product inventory; and



•

an increase in net interest expense from Ps. 6.7 billion in 2000 to Ps. 13.1 billion in 2001.

        Our total sales, net of the IEPS Tax, were Ps. 350.1 billion in 2001, a decrease of 12.2% from 2000 total sales, net of the IEPS Tax, of Ps. 398.7 billion. The decrease in total sales from 2000 to 2001 resulted primarily from a decrease in crude oil export prices, which decreased crude oil export revenues, and a decrease in the prices of the principal petroleum products that we sold in the domestic market.

Export Sales

        In 2001, total consolidated export sales decreased by 19.3% in peso terms (with dollar-denominated export revenues converted to pesos at the exchange rate for the date on which the export sale was made), from Ps. 175.4 billion in 2000 to Ps. 141.5 billion in 2001. Excluding the trading activities of the PMI Group, export sales by the subsidiary entities to the PMI Group and third parties decreased by 19.9% in peso terms, from Ps. 150.7 billion in 2000 to Ps. 120.7 billion in 2001, and decreased as a percentage of total sales, net of the IEPS Tax, from 40.3% in 2000 to 36.6% in 2001. In dollar terms, excluding the trading activities of the PMI Group, export sales (which are dollar-denominated) decreased by 18.9% in 2001, from U.S. $15.9 billion in 2000 to U.S. $12.9 billion in 2001.

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The trading and export activities of the PMI Group generated additional marginal revenues of Ps. 20.8 billion in 2001, 15.8% lower in real peso terms than in 2000, mainly due to the decrease in the prices of crude oil that PEMEX exported.

        Crude oil sales by Pemex-Exploration and Production to PMI for export accounted for 92.1% of export sales (excluding the trading activities of the PMI Group) in 2001, as compared to 91.2% in 2000. These crude oil sales decreased in peso terms by 19.0% in 2001, from Ps. 137.3 billion in 2000 to Ps. 111.2 billion in 2001, and decreased in dollar terms by 17.9% in 2001, from U.S. $14.5 billion in 2000 to U.S. $11.9 billion in 2001. This decrease reflected the fall in international crude oil prices. The weighted average price per barrel of crude oil that Pemex-Exploration and Production sold to PMI for export in 2001 was U.S. $18.57, 24.6% lower than the weighted average price of U.S. $24.62 in 2000.

        Export sales of petroleum products by Pemex-Refining and Pemex-Gas and Basic Petrochemicals to the PMI Group and third parties, including natural gas liquids, decreased from 7.3% of export sales (excluding the trading activities of the PMI Group) in 2000 to 7.0% in 2001. Export sales of petroleum products, including natural gas liquids, decreased by 22.7%, from Ps. 11.0 billion in 2000 to Ps. 8.5 billion in 2001, due to lower prices in international markets and lower export volumes of certain products. In dollar terms, export sales of petroleum products, including natural gas liquids, decreased by 22.0%, from U.S. $1,164 million in 2000 to U.S. $907 million in 2001.

        Petrochemical products accounted for the remainder of export sales in 2000 and 2001. Export sales of petrochemical products (including certain by-products of the petrochemical process) decreased by 58.3%, from Ps. 2.4 billion in 2000 to Ps. 1.0 billion in 2001, due to decreases in both demand and prices of several products. In dollar terms, export sales of petrochemical products (including certain by-products of the petrochemical process) decreased by 52.6% in 2001, from U.S. $243.5 million in 2000 to U.S. $115.4 million in 2001.

Domestic Sales

        Domestic sales, net of the IEPS Tax, decreased by 6.5% in 2001, from Ps. 223.3 billion in 2000 to Ps. 208.7 billion in 2001. Domestic sales of petroleum products other than natural gas decreased by 7.7% in 2001, from Ps. 185.2 billion in 2000 to Ps. 171.0 billion in 2001, primarily due to a fall in the domestic prices of our principal petroleum products. Domestic petrochemical sales (including sales of certain by-products of the petrochemical production process) decreased 20.7%, from Ps. 11.1 billion in 2000 to Ps. 8.8 billion in 2001, due to a decrease in the domestic market demand for the principal petrochemical products. Sales of natural gas increased 7.0%, from Ps. 27.0 billion in 2000 to Ps. 28.9 billion in 2001, as a result of an increase in domestic demand in 2001.

Other Revenues

        Other revenues decreased 13.7%, from Ps. 9.5 billion in 2000 to Ps. 8.2 billion in 2001, primarily due to decreased revenue from freight charges in connection with the distribution of our products. We recorded exchange gains of Ps. 3.9 billion in 2001, as compared to exchange gains of Ps. 0.9 billion in 2000, primarily due to the effects of fluctuations in the peso/dollar exchange rate on our dollar-denominated indebtedness.

Costs and Operating Expenses

        Costs and operating expenses, which include costs of sales, transportation and distribution expenses and administrative expenses, increased by 7.4%, from Ps. 192.7 billion in 2000 to Ps. 207.0 billion in 2001. This increase was due to increases in the labor reserve for pension obligations, depreciation and amortization, salaries and wages and the loss resulting from the fluctuation of product inventory. Costs related to the labor reserve for pension obligations increased by 13.0%, from Ps. 29.9 billion in 2000 to

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Ps. 33.8 billion in 2001. Other expenses increased by 24.5%, from Ps. 5.3 billion in 2000 to Ps. 6.6 billion in 2001, primarily due to an increase in the natural gas hedging operations.

Duties and Taxes

        Hydrocarbon extraction duties and other duties and taxes (including the IEPS Tax) decreased by 10.3%, from Ps. 293.8 billion in 2000 to Ps. 263.5 billion in 2001, largely because of the decrease in international crude oil prices in 2001 and the resulting decrease in sales revenue. We paid Ps. 1.3 billion in excess gains duties in 2001, representing 39.2% of the amount of our sales revenue derived from the difference between actual crude oil prices at which Pemex-Exploration and Production sold to PMI, which averaged U.S. $18.57 per barrel for the Mexican weighted crude oil mix, and the Mexican Government's crude oil price budgetary assumption of U.S. $18.00 per barrel. We paid Ps. 21.2 billion in excess gains duties in 2000.

Interest, net

        Net interest expense increased by 95.5%, from Ps. 6.7 billion in 2000 to Ps. 13.1 billion in 2001. This increase was mainly due to a decrease in capitalized interest incurred in respect of fixed assets and the recognition of the current period loss resulting from the application of Bulletin C-2, the new financial instrument standard.

Cumulative Effect of Adoption of New Financial Instruments Standard

        In 2001, we adopted Bulletin C-2, which resulted in a loss of Ps. 1, 331 million primarily attributable to the accounting for the Repsol equity swap, as described in Note 2 o) to the Financial Statements.

Results of Operations of PEMEX—For the Year Ended December 31, 2000 Compared to the Year Ended December 31, 1999

Income/(Loss)

        In 2000, we reported a loss of Ps. 19.7 billion on Ps. 409.1 billion in total revenues net of the IEPS Tax, as compared with a loss of Ps. 21.2 billion on Ps. 256.6 billion in total revenues net of the IEPS Tax in 1999. This 7.1% decrease in losses from 1999 to 2000 resulted primarily from:

•

an increase in domestic sales;



•

an increase in product inventory; and



•

the termination of certain hedging transactions.

        The effects of these increases were partially offset by (1) an increase in the excess gains duties that we paid in 2000 in respect of our crude oil exports sold at prices greater than U.S. $15.00 per barrel; and (2) increases in the labor reserve for pension obligations, due to higher wages and benefits paid to employees, increased purchases of refined petroleum and other products and increased depreciation and amortization.

        Our total sales, net of the IEPS Tax, reached Ps. 398.7 billion in 2000, an increase of 61.7% over 1999 total sales, net of the IEPS Tax, of Ps. 246.5 billion. The increase in total sales from 1999 to 2000 resulted primarily from an increase in crude oil export prices, which increased crude oil export revenues, and an increase in the prices of the principal petroleum products that we sold in the domestic market.

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Export Sales

        In 2000, total consolidated export sales increased by 61.4% in peso terms (with dollar-denominated export revenues converted to pesos at the exchange rate for the date on which the export sale was made), from Ps. 108.7 billion in 1999 to Ps. 175.4 billion in 2000. Excluding the trading activities of the PMI Group, export sales by the subsidiary entities to the PMI Group and third parties increased by 60.8% in peso terms, from Ps. 93.7 billion in 1999 to Ps. 150.7 billion in 2000, and decreased slightly as a percentage of total sales, net of the IEPS Tax, from 40.5% in 1999 to 40.3% in 2000. In dollar terms, excluding the trading activities of the PMI Group, export sales (which are dollar-denominated) increased by 60.6% in 2000, from U.S. $9.9 billion in 1999 to U.S. $15.9 billion in 2000. The trading and export activities of the PMI Group generated additional marginal revenues of Ps. 24.7 billion in 2000, 64.8% higher in real peso terms than in 1999, mainly due to the increase in the prices of crude oil that PEMEX exported.

        Crude oil sales by Pemex-Exploration and Production to PMI for export accounted for 91.2% of export sales (excluding the trading activities of the PMI Group) in 2000, as compared to 89.3% in 1999. These crude oil sales increased in peso terms by 64.2% in 2000, from Ps. 83.6 billion in 1999 to Ps. 137.3 billion in 2000, and increased in dollar terms by 64.8% in 2000, from U.S. $8.8 billion in 1999 to U.S. $14.5 billion in 2000. This increase reflected the rise in international crude oil prices. The weighted average price per barrel of crude oil that Pemex-Exploration and Production sold to PMI for export in 2000 was U.S. $24.62, 57.6% higher than the weighted average price of U.S. $15.62 in 1999.

        Export sales of petroleum products by Pemex-Refining and Pemex-Gas and Basic Petrochemicals to the PMI Group and third parties, including natural gas liquids, decreased from 9.6% of export sales (excluding the trading activities of the PMI Group) in 1999 to 7.3% in 2000. Export sales of petroleum products, including natural gas liquids, increased by 22.2%, from Ps. 9.0 billion in 1999 to Ps. 11.0 billion in 2000, due to higher prices in international markets and higher export volumes of certain products. In dollar terms, export sales of petroleum products, including natural gas liquids, increased by 22.9%, from U.S. $947 million in 1999 to U.S. $1,164 million in 2000.

        Petrochemical products accounted for the remainder of export sales in 1999 and 2000. Export sales of petrochemical products (including certain by-products of the petrochemical process) increased by 140.0%, from Ps. 1.0 billion in 1999 to Ps. 2.4 billion in 2000, due to an increase in demand and in the prices of several products. In dollar terms, export sales of petrochemical products (including certain by-products of the petrochemical process) increased by 124.8% in 2000, from U.S. $108.3 million in 1999 to U.S. $243.5 million in 2000.

Domestic Sales

        Domestic sales, net of the IEPS Tax, increased by 62.0% in 2000, from Ps. 137.8 billion in 1999 to Ps. 223.3 billion in 2000. Domestic sales of petroleum products other than natural gas increased by 64.8% in 2000, from Ps. 112.4 billion in 1999 to Ps. 185.2 billion in 2000, primarily due to a rise in the domestic prices of our principal petroleum products. Domestic petrochemical sales (including sales of certain by-products of the petrochemical production process) increased 11.0% from Ps. 10.0 billion in 1999 to Ps. 11.1 billion in 2000, due to an increase in the domestic market prices of the principal petrochemical products. Sales of natural gas increased 75.3% from Ps. 15.4 billion in 1999 to Ps. 27.0 billion in 2000, as a result of increases in domestic demand and prices in 2000.

Other Revenues

        Other revenues increased 31.9% from Ps. 7.2 billion in 1999 to Ps. 9.5 billion in 2000, primarily due to increased revenue from freight charges in connection with the distribution of our products and an increase in the value of an investment in a foreign company accounted for under the equity method. We recorded exchange gains of Ps. 0.9 billion in 2000, as compared to exchange gains of Ps. 2.9 billion

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in 1999, primarily due to the effects of fluctuations in the peso/dollar exchange rate on our dollar-denominated indebtedness.

Costs and Operating Expenses

        Costs and operating expenses, which include costs of sales, transportation and distribution expenses and administrative expenses, increased by 32.5%, from Ps. 145.4 billion in 1999 to Ps. 192.6 billion in 2000. This increase was due to increases in the labor reserve for pension obligations, depreciation and amortization, salaries and wages, purchases of petroleum products and other products and maintenance expenses. Costs related to the labor reserve for pension obligations increased by 19.6%, from Ps. 25.0 billion in 1999 to Ps. 29.9 billion in 2000. Other expenses increased by 12.8%, from Ps. 4.7 billion in 1999 to Ps. 5.3 billion in 2000, primarily due to increased freight expenses for the distribution of liquefied petroleum gas.

Duties and Taxes

        Hydrocarbon extraction duties and other duties and taxes (including the IEPS Tax) increased by 40.7%, from Ps. 208.8 billion in 1999 to Ps. 293.8 billion in 2000, largely because of the increase in international crude oil prices in 2000 and the resulting increase in sales revenue. We paid Ps. 21.2 billion in excess gains duties in 2000, representing 39.2% of the amount of our sales revenue derived from the difference between actual crude oil prices at which Pemex-Exploration and Production sold to PMI, which averaged U.S. $24.62 per barrel for the Mexican weighted crude oil mix, and the Mexican Government's crude oil price budgetary assumption of U.S. $15.00 per barrel. We paid Ps. 13.3 billion in excess gains duties in 1999.

Interest, net

        Net interest expense decreased by 6.9%, from Ps. 7.2 billion in 1999 to Ps. 6.7 billion in 2000. This decrease was mainly due to the recognition of a net gain in connection with the Repsol equity swap and collar unwind (which is discussed in Note 10 vi) to the Financial Statements), which was only partially offset by an increase in uncapitalized interest incurred in connection with PIDIREGAS completed in 2000.

Liquidity and Capital Resources

Equity Structure and the Certificates of Contribution "A"

        Our total equity as of December 31, 2001 was Ps. 122.9 billion, and our total capitalization (long-term debt plus equity) amounted to Ps. 246.0 billion.

        In March 1990, the Mexican Government exchanged U.S. $7.58 billion worth of external debt of Petróleos Mexicanos with international commercial banks for 30-year Collateralized Fixed Rate Bonds Due 2019 and Collateralized Floating Rate Bonds Due 2019 (also called "Brady Bonds") issued by the Mexican Government. In exchange for the cancellation of this external debt, Petróleos Mexicanos' indebtedness to the Mexican Government increased by an amount equal to U.S. $7.58 billion. The new indebtedness was denominated in currencies other than pesos. In December 1990, the Mexican Government and Petróleos Mexicanos agreed to capitalize the indebtedness incurred in March 1990 into Petróleos Mexicanos' equity as Certificates of Contribution "A." As a condition to this capitalization, Petróleos Mexicanos agreed to pay a minimum guaranteed dividend to the Mexican Government equal to the debt service on the capitalized debt at the exchange rates in effect at the date payments are made. The total dividend on the Certificates of Contribution "A" is approved annually by the Board of Directors of Petróleos Mexicanos after the close of each fiscal year. Each month, Petróleos Mexicanos makes advance payments to the Mexican Government that total a prorated portion of the minimum guaranteed dividend.

186

        From 1997 to 2001, Petróleos Mexicanos made annual advance payments, which were declared as dividends to the Mexican Government, as follows:

	Year Ended December 31,
	1997		1998		1999		2000		2001
	(in millions of pesos)
Total advance payments to the Mexican Government	Ps.	5,804	Ps.	3,064	Ps.	5,138	Ps.	5,564	Ps.	2,153
Dividends declared in respect of Certificates of Contribution "A"		5,804		3,843		5,138		5,564		2,153

Source: PEMEX's financial statements

        In December 1997, Petróleos Mexicanos' Board of Directors and the Mexican Government agreed to an equity reduction of the Certificates of Contribution "A" in exchange for a cash payment to the Mexican Government of Ps. 12.12 billion (U.S. $1.5 billion). Further to that agreement, the Ministry of Finance and Public Credit, acting on behalf of the Mexican Government, agreed to a reduction in the minimum guaranteed dividend that it would receive from Petróleos Mexicanos in 1998, 2001 and certain future years. Since 1999, Petróleos Mexicanos has been scheduled to make a total of U.S. $4.9 billion in advance payments to the Mexican Government in respect of the principal amount of the Certificates of Contribution "A." In 1999 and 2000, Petróleos Mexicanos paid U.S. $250 million under that arrangement. No advance payments were scheduled to be made in 2001. In addition, since 1999, Petróleos Mexicanos has paid minimum guaranteed dividends on the Certificates of Contribution "A" at the rate of the three-month London Interbank Offered Rate ("LIBOR") plus ¹³/16% per year on the outstanding balance of the original principal amount of the debt capitalized in March 1990.

	Year Ended December 31,
	2002	2003	2004	2005	Thereafter
	(in millions of U.S. dollars)
Future advance payments of minimum guaranteed dividends to the Mexican Government in respect of principal amount of the capitalized debt	$874	$874	$874	$874	$874

Source: PEMEX's financial statements

Cash Flow from Operating, Financing and Investing Activities

        During 2001 net funds provided by operating activities were Ps. 26.2 billion, a 6.9% increase from Ps. 24.5 billion in 2000. Funds from income (which was negative in 2001) plus items that did not require cash outlays totaled Ps. 36.4 billion in 2001. New debt financings provided an additional Ps. 114.4 billion of net funds (excluding Ps. 8.4 billion of foreign exchange gains). During 2001, we applied net funds of Ps. 39.4 billion for net investments at cost in fixed assets (Ps. 51.7 billion of new investments and capitalized interest, less Ps. 12.3 billion in dispositions of fixed assets).

        At December 31, 2001, our cash and cash equivalents totaled Ps. 14.4 billion, as compared to Ps. 27.8 billion at December 31, 2000. At that time, we did not have sufficient working capital, generated exclusively from operations, for our budgeted cash flow requirements for 2002. However, based on past experience, we expect to generate sufficient working capital through:

•

cash flow generated from operations;



•

the issuance of commercial paper;



•

acceptance credit facilities;

187

•

renewing existing and securing additional lines of credit from international commercial banks; and



•

other additional financing activities.

        Commercial paper is issued under our U.S. $445 million U.S. Commercial Paper Program, which was established in December 2001 and is backed by a Letter of Credit from Barclays Bank Plc. Commercial paper is usually issued with maturities of up to 6 months. We also established a U.S. $650 million Acceptance Credit Facility with a group of international banks and a U.S. $135 million Acceptance Credit Facility with Japanese banks in 2001. Lines of credit are obtained from major international banks with maturities ranging from 1 month up to 18 months. See also "—Commitments for Capital Expenditures and Sources of Funding" below.

        We have previously met our cash requirements for working capital, capital expenditures and investments over the past three years with a combination of funds provided by operations and financing. See "—Financing Activities" below.

Commitments for Capital Expenditures and Sources of Funding

        Our current aggregate commitments for capital expenditures, including PIDIREGAS, total approximately Ps. 149.2 billion for 2002. For general descriptions of our current commitments for capital expenditures, see "Item 4—Information on the Company—History and Development—Capital Expenditures and Investments."

        In 2001, Pemex-Exploration and Production invested in four PIDIREGAS (including the Strategic Gas Program, which was added to our budget in 2001) and other general operating investments and strategic products for a total of Ps. 57,302 million in capital expenditures in exploration and production in 2001. In 2002, Pemex-Exploration and Production will add 23 more PIDIREGAS to its budget, for a total of 27 PIDIREGAS, for which Ps. 82,234 million is budgeted in 2002. In addition, Pemex-Exploration and Production has budgeted Ps. 27,512 million for non-PIDIREGAS capital expenditures for 2002. For more detail on the expenditures for and purpose of these investments, see "Item 4—Information on the Company—Business Overview—Exploration and Production—Investment in Exploration and Production."

        Pemex-Refining invested in one PIDIREGAS in 2001 and invested in other general operating projects, strategic projection, acquisition of equipment, research and development and complementary investments for a total of Ps. 7,222 million in capital expenditures by Pemex-Refining in 2001. In 2002, Pemex-Refining expects to invest Ps. 30,387 million in capital expenditures. Of this amount, Pemex-Refining has budgeted Ps. 21,445 million for three PIDIREGAS (including amounts originally budgeted for projects in 2001 that are expected to be completed in 2002), and Ps. 8,942 million for other non-PIDIREGAS capital expenditures. For more detail on the expenditures for and purpose of Pemex-Refining's investments, see "Item 4—Information on the Company—Business Overview—Refining—Investments."

        Both Pemex-Petrochemicals and Pemex-Gas and Basic Petrochemicals invest in projects primarily related to natural gas and condensates processing, transportation and storage. In 2002, the Mexican Government approved Ps. 734 million in capital expenditures for Pemex-Gas and Basic Petrochemicals' new PIDIREGAS. The combined capital expenditures for Pemex-Gas and Basic Petrochemicals and Pemex-Petrochemicals is expected to be Ps. 7,330 million in 2002. For more detail on the expenditures for and purpose of these investments, see "Item 4—Information on the Company—Business Overview—Petrochemicals—Investments."

        Our current commitments for capital expenditures have increased compared to previous years. We plan to fund these expenditures through the financing activities in which we have engaged in the past as well as new sources. We have funded and we expect to continue to fund our commitments for

188

PIDIREGAS capital expenditures primarily through the issuance of debt securities in capital markets transactions, commercial bank syndicated loans, bilateral loans from commercial banks and guaranteed loans from export credit agencies. To a lesser extent, we may decide to use Pemex Finance, Ltd. to fund some PIDIREGAS if we consider it convenient in light of market conditions. The securities that we or Pemex Finance, Ltd. issue vary in tenor, amount, currency and type of interest rate: we may issue debt securities in U.S. dollars, Japanese yen, euros, sterling pounds or Mexican pesos, among others; these securities may be issued with fixed or floating rates, with maturities ranging between three and thirty years, depending on market conditions and funding requirements. Commercial bank syndicated loans may be established with single or multiple tranches with maturities ranging between two and five years. Bilateral loans vary in tenor and range between two and three or more years. See also "—Financing Activities" below.

        As described in "—Financing Activities" below, we have thus far issued U.S. $2 billion in debt securities in the international capital markets in 2002 through the Pemex Project Funding Master Trust, and we expect to issue additional securities over the rest of the year. As part of our activities for funding our capital expenditures for this year, we are considering issuing Mexican Peso denominated debt securities in the domestic market. Petróleos Mexicanos has never issued debt securities in the domestic market. However, the domestic market has demonstrated significant growth over the past five years, and we believe that this market can represent an alternative source of PIDIREGAS funding, offering competitive conditions in terms of tenor, amount and type of interest rates. Additionally, we may also fund some PIDIREGAS through commercial bank loans denominated in Mexican pesos.

        Non-PIDIREGAS are funded mainly through our operating revenues, and, to a lesser degree, financing activities. These financing activities consist primarily of loans from export credit agencies. These loans are usually structured with maturities ranging between five and ten years with minimum amounts of U.S. $20 million. See also "—Cash Flow from Operating, Financing and Investing Activities," above.

        In order to be able to carry out our planned capital expenditure program, we will need to seek financing from a variety of sources, and we cannot guarantee that we will be able to obtain financing on terms that would be acceptable to us. Our inability to obtain additional financing could have an adverse effect on our planned capital expenditure program and result in our being required to limit or defer this program.

Financing Activities

        2002 Financing Activities.    During the period from January 1, 2002 to September 30, 2002, Petróleos Mexicanos obtained direct credits in the amount of U.S. $400 million for use in financing our working capital requirements, and the Pemex Project Funding Master Trust obtained U.S. $1.1 billion in commercial bank loans for use in financing PIDIREGAS projects. In addition, we participated in the following financing activities:

•

Petróleos Mexicanos obtained loans from export credit agencies totaling U.S. $113.4 million;



•

Petróleos Mexicanos obtained foreign trade financing in the amount of U.S. $125 million;



•

Petróleos Mexicanos obtained U.S. $217.5 million through its commercial paper program;



•

the Pemex Project Funding Master Trust obtained loans from export credit agencies totaling U.S. $449.8 million;



•

the Pemex Project Funding Master Trust issued U.S. $500 million of Floating Rate Notes due 2005 on January 7, 2002; the notes were issued under the Master Trust's Medium-Term Note program, Series A and are guaranteed by Petróleos Mexicanos;

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•

the Pemex Project Funding Master Trust issued U.S. $1 billion 7.875% Notes due 2008 on February 1, 2002; the notes were issued under the Master Trust's Medium-Term Note program, Series A and are guaranteed by Petróleos Mexicanos; and



•

the Pemex Project Funding Master Trust issued U.S. $500 million 8.625% Bonds due 2022 on February 1, 2002; the bonds were issued under the Master Trust's Medium-Term Note program, Series A and are guaranteed by Petróleos Mexicanos.

        In the period from January 1, 2002 to September 30, 2002, Petróleos Mexicanos' net payments on external borrowings totaled U.S. $2.3 billion and were allocated as follows:

•

U.S. $400 million in respect of direct loans;



•

U.S. $300 million in respect of bond issues;



•

U.S. $260 million in respect of foreign trade lines;



•

U.S. $785 million in respect of bankers' acceptances;



•

U.S. $103.7 million in respect of credit lines from export credit agencies;



•

U.S. $345 million in respect of commercial paper;



•

U.S. $51.6 million in respect of restructured debt; and



•

U.S. $37.7 million in respect of leases.

        At September 30, 2002, PEMEX's total debt, excluding accrued interest, was approximately U.S. $19.1 billion. Of this amount, U.S. $16.7 billion consisted of total long-term debt, which was composed of approximately U.S. $11.1 billion in instruments with fixed annual interest rates ranging from 1.55% to 14.5% with maturities ranging from 2003 to 2027, approximately U.S. $5.6 billion in draws on lines of credit at variable interest rates of which U.S. $4.8 billion was based on LIBOR with maturities ranging from 2003 to 2013, and U.S. $0.8 billion in floating rate notes with maturities ranging from 2003 to 2008. Short-term debt totaled approximately U.S. $2.4 billion, consisting of U.S. $2.2 billion of variable interest rate borrowings under various lines of credit established under committed credit facilities with various international commercial banks and U.S. $0.2 billion of lines of credit with fixed interest rates.

        The portion of PEMEX's total debt at September 30, 2002 corresponding to borrowings of the Pemex Project Funding Master Trust was U.S. $11.0 billion. This amount consisted of U.S. $5.6 billion in long-term debt at fixed interest rates with maturities ranging from 2002 to 2022, U.S. $4.5 billion in long-term debt with variable interest rates with maturities ranging from 2002 to 2013, and U.S. $0.9 billion in short-term debt of which U.S. $0.8 billion consisted of variable interest rate borrowings under various lines of credit. The Pemex Project Funding Master Trust also has U.S. $4.3 billion in long-term debt consisting of an obligation to Pemex-Exploration and Production in respect of funds allocated to the Pemex Project Funding Master Trust arising from the sale of accounts receivables. This amount is not reflected in PEMEX's financial statements due to the effects of the consolidation of the results of both Pemex-Exploration and Production and the Pemex Project Funding Master Trust.

        2001 Financing Activities.    During the period from January 1 to December 31, 2001, Petróleos Mexicanos obtained direct credits in the amount of U.S. $1,800 million for use in financing its working capital requirements, and the Pemex Project Funding Master Trust obtained U.S. $450 million in direct loans for use in financing PIDIREGAS projects. In addition, we engaged in the following financing activities:

•

Petróleos Mexicanos obtained loans from export credit agencies totaling U.S. $128.7 million;



•

Petróleos Mexicanos obtained foreign trade financing in the amount of U.S. $695 million;

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•

the Pemex Project Funding Master Trust obtained loans from export credit agencies of U.S. $425.4 million and ¥60.1 billion which was subsequently swapped into U.S. dollars (for a total of U.S. $920.2 million);



•

PMI Norteamérica, S.A. de C.V. obtained U.S. $50.3 million in a bank loan from Standard Charter Bank on October 30, 2001; the bank loan bears interest at LIBOR plus 0.75% and was due in October 2002;



•

Petróleos Mexicanos utilized U.S. $871 million in acceptance lines, of which U.S. $86 million were borrowed against existing lines that expired in 2001;



•

the Pemex Project Funding Master Trust issued U.S. $1 billion of 8.50% Notes due 2008 on February 5, 2001; the notes were issued under the Pemex Project Funding Master Trust's Medium-Term Note program, Series A and are guaranteed by Petróleos Mexicanos;



•

the Pemex Project Funding Master Trust issued U.S. $500 million of 9.125% Notes due 2010 on June 7, 2001; the notes were issued under the Pemex Project Funding Master Trust's Medium-Term Note program, Series A and are guaranteed by Petróleos Mexicanos;



•

Petróleos Mexicanos issued U.S. $600 million of 6.50% Guaranteed Notes due 2005 on August 29, 2001; the notes were issued under Petróleos Mexicanos' Medium-Term Note program, Series B and are guaranteed by Pemex-Exploration and Production, Pemex-Refining and Pemex-Gas and Basic Petrochemicals;



•

the Pemex Project Funding Master Trust increased its Medium-Term Note program from U.S. $3 billion to U.S. $6 billion on November 14, 2001; and



•

the Pemex Project Funding Master Trust issued U.S. $750 million of 8.0% Notes due 2011 on November 26, 2001; the notes were issued under the Pemex Project Funding Master Trust's Medium-Term Note program, Series A and are guaranteed by Petróleos Mexicanos.

        In the period from January 1, 2001 to December 31, 2001, our net payments on external borrowings totaled U.S. $5.3 billion and were allocated as follows:

•

U.S. $1.5 billion in respect of direct loans;



•

U.S. $1.0 billion in respect of bond issues;



•

U.S. $600 million in respect of foreign trade lines;



•

U.S. $966 million in respect of bankers' acceptances;



•

U.S. $326.1 million in respect of credit lines from export credit agencies;



•

U.S. $747.4 million in respect of commercial paper;



•

U.S. $58.2 million in respect of restructured debt; and



•

U.S. $118.2 million in respect of leases.

        At December 31, 2001, our total debt, excluding accrued interest, was approximately U.S. $17.2 billion. Of this amount, U.S. $13.5 billion consisted of total long-term debt, which was composed of approximately U.S. $8.7 billion in instruments with fixed annual interest rates ranging from 1.9% to 14.5% with maturities ranging from 2003 to 2027, approximately U.S. $4.8 billion in draws on lines of credit at variable interest rates of which U.S. $3.9 billion was based on LIBOR with maturities ranging from 2003 to 2011, and U.S. $0.9 billion in floating rate notes with maturities ranging from 2003 to 2005. Short-term debt totaled approximately U.S. $3.6 billion, consisting of U.S. $3.3 billion of variable interest rate borrowings under various lines of credit established under committed credit facilities with various international commercial banks and U.S. $0.3 billion of bond issues with fixed interest rates.

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        The portion of our total debt at December 31, 2001 corresponding to borrowings of the Pemex Project Funding Master Trust was U.S. $7.5 billion. This amount consisted of U.S. $3.2 billion in long-term debt at fixed interest rates with maturities ranging from 2003 to 2010, U.S. $3.5 billion in long-term debt with variable interest rates with maturities ranging from 2003 to 2011, and U.S. $0.8 billion in short-term debt of which U.S. $0.8 billion consisted of variable interest rate borrowings under various lines of credit. The Pemex Project Funding Master Trust also has U.S. $4.5 billion in long-term debt consisting of an obligation to Pemex-Exploration and Production in respect of funds allocated to the Pemex Project Funding Master Trust arising from the sale of accounts receivables; this amount is not reflected in our consolidated financial statements due to the offsetting effects of the consolidation of the results of both Pemex-Exploration and Production and the Pemex Project Funding Master Trust.

        2000 Financing Activities.    During 2000, we obtained direct credits in the amount of U.S. $650 million in order to finance our working capital requirements. In addition, we engaged in the following financing activities:

•

Petróleos Mexicanos obtained export credit agency financings in the amount of U.S. $138.5 million;



•

Petróleos Mexicanos obtained foreign trade financings totaling U.S. $465 million;



•

Petróleos Mexicanos obtained U.S. $691 million from bankers' acceptances, U.S. $521 million of which corresponded to a line of credit from J.P.Morgan and U.S. $170 million of which corresponded to a line of credit from the Industrial Bank of Japan;



•

the Pemex Project Funding Master Trust obtained direct loans of U.S. $400 million;



•

in August 2000, the Pemex Project Funding Master Trust issued €500 million of 7.75% Notes due 2007; the notes were issued under the Pemex Project Funding Master Trust's Medium-Term Note program, Series A and are guaranteed by Petróleos Mexicanos;



•

in October 2000, the Pemex Project Funding Master Trust issued U.S. $500 million of 9.125% Notes due 2010; the notes were issued under the Pemex Project Funding Master Trust's Medium-Term Note program, Series A and are guaranteed by Petróleos Mexicanos;



•

in October 2000, the Pemex Project Funding Master Trust refinanced U.S. $625 million of a revolving credit line into three tranches of U.S. $200 million due in 2003, U.S. $175 million due in 2004 and U.S. $250 million due 2005, guaranteed by Petróleos Mexicanos;



•

in November 2000, through an agreement for the internal allocation of funding with the Mexican Government, the Pemex Project Funding Master Trust agreed to service U.S. $698.3 million of restructured debt (consisting of U.S. $694.3 million, DM 0.7 million and BEF 173.8 million) in consideration for its net receipt of U.S. $676,161,058 in cash from the Mexican Government;

        In 2000, our net payments on external borrowings totaled approximately U.S. $2.7 billion and were allocated as follows:

•

U.S. $707.0 million to repay two outstanding bankers' acceptance facilities;



•

U.S. $1.1 billion in respect of foreign trade lines;



•

U.S. $298.0 million in respect of outstanding commercial paper;



•

U.S. $100.0 million in respect of direct loans;



•

U.S. $257.8 million in respect of credit lines from export credit agencies;



•

U.S. $100.0 million in respect of bonds;

192

•

U.S. $59.1 million in respect of leases; and



•

U.S. $46.8 million in respect of restructured debt.

        At December 31, 2000, our total debt, excluding accrued interest, was approximately U.S. $14.9 billion. Of this amount, U.S. $10.9 billion consisted of total long-term debt, which was composed of approximately U.S. $6.3 billion in instruments with fixed annual interest rates ranging from 2.0% to 14.5% with maturities ranging from 2002 to 2027, approximately U.S. $4.6 billion in draws on lines of credit at variable interest rates of which U.S. $3.4 billion was based on LIBOR with maturities ranging from 2002 to 2011, and U.S. $1.2 billion in floating rate notes with maturities ranging from 2003 to 2005. See Note 9 to the Financial Statements. Short-term debt totaled approximately U.S. $4.0 billion, consisting of U.S. $3.1 billion of variable interest rate borrowings under various lines of credit established under committed credit facilities with various international commercial banks and U.S. $0.9 billion in instruments with fixed annual interest rates.

        The portion of our total debt at December 31, 2000 corresponding to borrowings of the Pemex Project Funding Master Trust was U.S. $4.5 billion. This amount consisted of U.S. $1.4 billion in long-term debt with fixed interest rates with maturities ranging from 2002 to 2010, U.S. $2.6 billion in long-term debt with variable interest rates with maturities ranging from 2002 to 2011, and U.S. $0.5 billion in short-term variable interest rate borrowings under various lines of credit. See Note 9 to the Financial Statements. The Pemex Project Funding Master Trust also has U.S. $4.7 billion in long-term debt consisting of an obligation to Pemex-Exploration and Production in respect of funds allocated to the Pemex Project Funding Master Trust arising from the sale of accounts receivables (see Note 7 to the Financial Statements); this amount is not reflected in our financial statements due to the effects of the consolidation of the results of both Pemex-Exploration and Production and the Pemex Project Funding Master Trust.

193

        The table below sets forth our total indebtedness and sales of receivables as of December 31 for each of the five years from 1997 to 2001.

Total Indebtedness and Sales of Receivables of PEMEX

				Year Ended December 31,(1)
				1997		1998(2)		1999(3)		2000(3)		2001(3)
						(in millions of U.S. dollars)(4)
Domestic Debt in Various Currencies(4)				$	1,475	$	1,355	$	1,301	$	923	$	749
External Debt(5)
	MYRA(6)			$	473	$	439	$	398	$	351	$	292
	Other direct bank loans				40		50		100		1,749		2,148
	Securities
		Bonds			4,694		5,850		5,863		6,719		8,509
		Commercial paper			785		222		307		447		228
			Total securities		5,479		6,072		6,170		7,166		8,737
	Trade financing(7)
		Acceptance lines			1,107		1,107		896		880		785
		Advances from commercial banks(8)			1,143		1,350		2,035		1,395		1,490
			Total trade financing		2,250		2,457		2,931		2,275		2,275
	Purchasing loans(9)				410		453		382		355		351
	Financial leases				491		549		496		437		319
	Project finance(10)				410		591		685		1,650		2,282
		Total external debt		$	9,553	$	10,611	$	11,162	$	13,983	$	16,404
Sale of future accounts receivable				$	241	$	0	$	0	$	0	$	0
Debt and sale of future accounts receivable(3)(11)(12)				$	11,269	$	11,966	$	12,463	$	14,906	$	17,153

Note: Numbers may not total due to rounding.

(1)

Figures do not include accrued interest. Accrued interest was U.S. $122 million, U.S. $129 million, U.S. $184 million, U.S. $224 million and U.S. $284 million at December 31, 1997, 1998, 1999, 2000 and 2001, respectively.

(2)

Includes PIDIREGAS-related debt of U.S. $1.0 billion.

(3)

Includes U.S. $1.2 billion, U.S. $1.4 billion, U.S. $4.5 billion and U.S. $7.6 billion of indebtedness of the Pemex Project Funding Master Trust as of December 31, 1998, 1999, 2000 and 2001, respectively. Does not include indebtedness related to the Madero, Salamanca and Tula PIDIREGAS of Pemex-Refining, because these are project financings under which PEMEX's payment obligations will not be effective until delivery to Pemex-Refining of the completed project. Pemex-Refining expects to accept delivery of the U.S. $1.6 billion Madero project, the U.S. $195 million Salamanca project and the U.S. $140 million Tula project in 2002. Does not include U.S. $1.6 billion of indebtedness incurred in connection with the Cadereyta PIDIREGAS of Pemex-Refining. Such indebtedness is represented by a note that will be issued by PEMEX to the construction company for the project upon delivery of the project and upon request of the construction company. The note provides for biannual payments of principal and interest and a 10-year maturity. See Note 8 to the Financial Statements.

(4)

Indebtedness payable in currencies other than U.S. dollars was first converted into pesos for accounting purposes at the exchange rates set by Banco de México and then converted from pesos to U.S. dollars at the following exchange rates: Ps. 8.0833 = U.S. $1.00 for 1997, Ps. 9.8650 = U.S. $1.00 for 1998, Ps. 9.5143 = U.S. $1.00 for 1999, Ps. 9.5722 = U.S. $1.00 for 2000 and Ps. 9.1423 = U.S. $1.00 for 2001. See Notes 9 and 14 to the Financial Statements.

(5)

Indebtedness payable other than in pesos and owed to persons or institutions having its head office or chief place of business outside Mexico, and payable outside the territory of Mexico.

(6)

Multi-Year Restructuring Agreement.

(7)

To finance external trade of crude oil and derivatives.

(8)

Includes indebtedness of the Pemex Project Funding Master Trust of U.S. $1.0 billion in trade financing advances from commercial banks as of December 31, 1998, 1999, 2000 and 2001.

(9)

To finance imports of equipment and spare parts.

(10)

Includes U.S. $227 million, U.S. $394 million, U.S. $1,450 million and U.S. $2,176 million of indebtedness of the Pemex Project Funding Master Trust as of December 31, 1998, 1999, 2000 and 2001, respectively.

(11)

Excludes the outstanding debt of Pemex Finance, Ltd., which is disclosed below.

(12)

Includes U.S. $50 million classified as an account payable in PEMEX's financial statements for the year ended December 31, 1998.

Source: Petróleos Mexicanos

194

Financing Activities of Pemex Finance, Ltd.

        Commencing December 1, 1998, Petróleos Mexicanos, Pemex-Exploration and Production, PMI and P.M.I. Services B.V. have entered into several agreements with Pemex Finance, Ltd., a limited liability company organized under the laws of the Cayman Islands. Under these contracts, Pemex Finance, Ltd. purchases certain existing PMI accounts receivable for crude oil as well as certain accounts receivable to be generated in the future by PMI related to crude oil. The receivables sold are those generated by the sale of Maya crude oil to designated customers in the United States, Canada and Aruba. The net proceeds obtained by Pemex-Exploration and Production from the sale of such receivables under the agreements are utilized for PIDIREGAS expenditures. Pemex Finance, Ltd. obtains resources for the acquisition of such accounts receivable through the placement of debt instruments in the international markets.

        As of December 31, 2001, the outstanding long-term debt of Pemex Finance, Ltd. was composed of U.S. $4.6 billion aggregate principal amount of notes with maturities ranging from 2003 to 2018 and interest rates ranging between 5.72% and 10.61% as well as three series of floating rate notes.

        2001 Financing Activities.    During 2001, Pemex Finance, Ltd. made payments of U.S. $230 million in principal on its notes. Pemex Finance, Ltd. did not incur any additional indebtedness during 2001.

        2000 Financing Activities.    On February 10, 2000, Pemex Finance, Ltd. issued U.S. $800 million of 9.03% Notes due 2011 and U.S. $150 million of 7.80% Notes due 2013. During 2000, Pemex Finance, Ltd. made payments of U.S. $185 million on borrowings.

        1999 Financing Activities.    On February 25, 1999, Pemex Finance, Ltd. issued U.S. $300 million of 6.125% Notes due 2003, U.S. $200 million of 8.45% Notes due 2007, U.S. $300 million of 6.55% Notes due 2008, U.S. $200 million of 8.875% Notes due 2010 and U.S. $100 million of Floating Rate Notes due 2014. On July 27, 1999, Pemex Finance, Ltd. issued U.S. $225 million of 9.14% Notes due 2004, U.S. $600 million of 9.69% Notes due 2009, U.S. $250 million of 7.33% Notes due 2012, U.S. $200 million of 10.61% Notes due 2017, U.S. $35 million of Floating Rate Notes, Series C, due 2004, U.S. $50 million of 9.22% Notes due 2004 and U.S. $90 million of Floating Rate Notes, Series B, due 2014.

Contractual Obligations and Other Commercial Commitments

        Information about PEMEX's long-term contractual obligations and other commercial commitments outstanding at December 31, 2001 from the notes to the Financial Statements is set forth in the table below. This information is important in understanding the financial position of PEMEX.

195

Contractual Obligations and Other Commercial Commitments Outstanding(1)

			Total		Less than 1 year		1-3 years		4-5 years		After 5 years
					(in millions of U.S. dollars)
Long-term debt(2)			$	16,834.3	$	3,640.1	$	4,856.7	$	3,012.6	$	5,324.9
Capital lease obligations(3)				319.0		40.4		90.6		75.2		112.8
Operating lease obligations(3)				0.2		0.2		—		—		—
Notes payable to contractors(4)				1,627.2		134.8		484.3		403.0		605.1
Sales of future accounts receivable(5)				4,887.8		608.6		1,013.7		984.5		2,281.0
Minimum guaranteed dividends(6)				4,369.2		873.8		2,621.6		873.8		—
Repsol equity swaps total(7)				292.0		—		292.0		—		—
Other long-term obligations				22.9		—		11.2		3.7		8.0
	Total contractual cash obligations		$	28,352.6	$	5,297.9	$	9,370.1	$	5,352.8	$	8,331.8
Other Commercial Commitments
Off balance sheet obligations:
	PIDIREGAS commitments(8)			5,121.2		1,461.0		3,470.3		140.7		49.2
	Nitrogen supply contract(9)			2,408.1		255.7		747.5		434.4		970.5
		Total commercial commitments		7,529.3		1,716.7		4,217.8		575.1		1,019.7
		Total contractual obligations and commercial commitments	$	35,881.9	$	7,014.6	$	13,587.9	$	5,927.9	$	9,351.5

(1)

As of December 31, 2001.

(2)

See Note 9 to the Financial Statements.

(3)

See Note 19 to the Financial Statements.

(4)

See Note 8 to the Financial Statements.

(5)

See Note 7 to the Financial Statements.

(6)

See Note 13 to the Financial Statements.

(7)

See Note 10 to the Financial Statements.

(8)

See Note 16 k) to the Financial Statements.

(9)

See Note 16 h) to the Financial Statements.

196

        The following tables set forth information regarding the fair value of PEMEX's over-the-counter (OTC) contracts in connection with gas trading activities as of December 31, 2001:

Fair Value of OTC Contracts

(in thousands of U.S. dollars)

Fair value of contracts outstanding at the beginning of the period	$	(1,808.0	)
Contracts realized or otherwise settled during the period		(4,077.2	)
Fair value of new contracts when entered into during the period		1,221.2
Changes in fair values attributable to changes in valuation techniques and assumptions		0
Other changes in fair values		5,858.0
Fair value of contracts outstanding at the end of the period		1,194.0

Fair Value of OTC Contracts at Period-End by Maturity(1)

Source of Fair Value	Maturity less than 1 year		Maturity 1-3 years	Maturity 4-5 years	Maturity in excess of 5 years	Total fair value
	(in thousands of U.S. dollars)
Prices actively quoted	(3.9	)	13.7	—	—	9.9
Prices provided by other external sources	(4,332.6	)	4,719.2	797.6	—	1,184.2

(1)

As of December 31, 2001.

Results of Operations by Business Segment

        This section presents results of our operations by business segment, including our central corporate operations and the operations of the consolidated subsidiary companies.

197

Revenue by Business Segment

        The following table sets forth our trade and intersegment net sales revenues by business segment for the five fiscal years ended December 31, 2001 as well as the percentage change in sales revenues for the years 1999 to 2001.

			Year Ended December 31,
																		2000 vs. 1999		2001 vs. 2000
			1997			1998			1999			2000			2001
			(in millions of pesos)															(%)		(%)
Exploration and Production
	Trade sales(1)		Ps.	81,653		Ps.	58,232		Ps.	83,635		Ps.	137,333		Ps.	111,167		64.2		(19.0	)
	Intersegment sales			91,378			71,694			92,281			174,874			153,838		89.5		(12.0	)
		Total net sales	Ps.	173,031		Ps.	129,925		Ps.	175,916		Ps.	312,207		Ps.	265,005		77.5		(15.1	)
Refining
	Trade sales		Ps.	128,168		Ps.	147,078		Ps.	187,381		Ps.	230,059		Ps.	239,230		22.8		4.0
	Intersegment sales			8,670			6,722			6,700			9,600			8,788		43.3		(8.5	)
		Total net sales	Ps.	136,838		Ps.	153,799		Ps.	194,081		Ps.	239,659		Ps.	248,018		23.5		3.5
Gas and Basic Petrochemicals
	Trade sales(1)		Ps.	31,157		Ps.	33,286		Ps.	38,685		Ps.	63,957		Ps.	65,283		65.3		2.1
	Intersegment sales			14,569			13,670			13,899			25,899			27,517		86.3		6.2
		Total net sales	Ps.	45,726		Ps.	46,956		Ps.	52,584		Ps.	89,856		Ps.	92,800		70.9		3.3
Petrochemicals
	Trade sales(1)		Ps.	13,397		Ps.	10,507		Ps.	10,105		Ps.	12,184		Ps.	9,014		20.6		(26.0	)
	Intersegment sales			3,353			1,870			1,930			2,720			2,795		40.9		2.8
		Total net sales	Ps.	16,750		Ps.	12,377		Ps.	12,036		Ps.	14,904		Ps.	11,809		23.8		(20.8	)
Corporate, Subsidiary Companies and Other
	Trade sales		Ps.	9,655		Ps.	7,885		Ps.	15,007		Ps.	24,735		Ps.	20,636		64.8		(16.6	)
	Intersegment sales and eliminations			(117,970	)		(93,955	)		(114,810	)		(213,093	)		(192,938	)	(85.6	)	9.5
		Total net sales	Ps.	(108,315	)	Ps.	(86,069	)	Ps.	(99,803	)	Ps.	(188,358	)	Ps.	(172,302	)	(88.7	)	8.5
Total Sales			Ps.	264,030		Ps.	256,987		Ps.	334,814		Ps.	468,268		Ps.	445,330		39.9		(4.9	)

Notes: Numbers may not total due to rounding.

(1)

These trade sales include sales by the subsidiary entities to the consolidated subsidiary companies, primarily to the PMI Group. Such sales are treated as eliminations in this table.

Source: PEMEX's financial statements

198

Income by Business Segment

        The following table sets forth our income (loss) by business segment for each year in the five-year period ended December 31, 2001, as well as the percentage change in income for the years 1999 to 2001.

			Year Ended December 31,
																		2000 vs. 1999		2001 vs. 2000
			1997			1998			1999			2000			2001
			(in millions of pesos)															(%)		(%)
Business Segment
	Exploration and Production		Ps.	12,175		Ps.	(9,027	)	Ps.	(5,202	)	Ps.	7,128		Ps.	8,785		237.0		23.2
	Refining			(6,812	)		(5,729	)		(8,111	)		(23,139	)		(29,601	)	(185.3	)	(27.9	)
	Gas and Basic Petrochemicals			2,080			5,121			849			(317	)		627		(137.3	)	297.8
	Petrochemicals			(170	)		(2,790	)		(4,474	)		(6,090	)		(10,199	)	(36.1	)	(67.5	)
	Corporate, Subsidiary Companies and Other			(140	)		837			(4,219	)		2,708			(3,703	)	142.1		(236.7	)
		Total Income/(loss)	Ps.	7,133		Ps.	(11,588	)	Ps.	(21,157	)	Ps.	(19,710	)	Ps.	(34,091	)	(6.8	)	(73.0	)

Note: Numbers may not total due to rounding.
Source: PEMEX's financial statements

2001 Compared to 2000

Exploration and Production

        In 2001, Pemex-Exploration and Production's trade sales of crude oil and natural gas to the PMI Group decreased by 19.0% in peso terms and by 17.9% in U.S. dollar terms, as a result of a decrease of 24.6% in the international price of crude oil and an increase of 3.5% in the volume of crude oil exports. The weighted average price of crude oil sold by Pemex-Exploration and Production to the PMI Group for export was U.S. $18.57 in 2001, as compared to U.S. $24.62 in 2000. Intersegment sales decreased by 12.0%, principally as a result of a decrease in crude oil and natural gas sales, resulting from decreases in the reference prices of these commodities. Income related to exploration and production activities increased 23.2% from Ps. 7,128 million in 2000 to Ps. 8,785 million in 2001, primarily as a result of a decrease in the excess gains revenue duties, which was offset by a 14.2% increase in costs associated with the labor reserve for pension obligations from Ps. 10,351 million in 2000 to Ps. 11,821 million in 2001. The increase in labor reserve costs was due to an increase in salaries and wages, an additional year of services by the personnel and an increase in the financial cost as a result of insufficient funding of these liabilities.

Refining

        In 2001, trade sales related to refining activities increased by 4.0%, from Ps. 230,059 million in 2000 to Ps. 239,230 million in 2001. Export sales related to refining activities decreased 32.0% from Ps. 3,654 million in 2000 to Ps. 2,486 million in 2001, as a result of a decrease in the volume of certain petroleum product exports. Domestic sales related to refining activities increased by 4.6% from Ps. 226,405 million in 2000 to Ps. 236,744 million in 2001, principally due to increases in the peso prices of refined products and the IEPS Tax, which increased by Ps. 25,642 million in 2001. Intersegment sales decreased by Ps. 812 million, largely due to decreases in the sales of naphthas and propylene. In 2001 the total loss related to refining activities was Ps. 29,601 million, as compared to a loss of Ps. 23,139 million in 2000. The increased loss was primarily due to a 9.7% decrease in domestic sales net of the IEPS tax from Ps. 157.0 million in 2000 to Ps. 141.7 million in 2001, and a 10.4% increase in labor reserves costs from Ps. 10,933 million in 2000 to Ps. 12,074 million in 2001. This increase in labor reserve costs was due to an increase in salaries and wages, an additional year of services by the personnel and an increase in the financial cost as a result of insufficient funding of these liabilities.

199

Gas and Basic Petrochemicals

        In 2001, trade sales related to the natural gas and basic petrochemical business segment increased by 2.1%, from Ps. 63,957 million in 2000 to Ps. 65,283 million in 2001. Natural gas sales increased by 7.1% from Ps. 26,997 million in 2000 to Ps. 28,917 million in 2001, mainly due to a price increase of approximately 8.3%. The volume of domestic sales of basic petrochemicals increased by 10.7% in 2001, from 785 thousand tons per year in 2000 to 869 thousand tons per year in 2001. Income related to natural gas and basic petrochemicals increased by 297.8%, from a loss of Ps. 317 million in 2000 to a gain of Ps. 627 million in 2001, mainly due to a 23.1% decrease in imports of products used in the production process and the 2.1% increase in trade sales mentioned above, partially offset by a 12.8% increase in labor reserves costs, from Ps. 2,152 million in 2000 to Ps. 2,428 million in 2001, resulting in an increase in the cost of sales and operating expenses. This increase in labor reserve costs was due to an increase in salaries and wages, an additional year of services by the personnel and an increase in the financial cost as a result of insufficient funding of these liabilities.

Petrochemicals

        In 2001, trade sales related to the petrochemicals business segment decreased by 26.0%, from Ps. 12,184 million in 2000 to Ps. 9,014 million in 2001. Prices for petrochemicals sold domestically decreased for a majority of petrochemical products. In 2001, the volume of petrochemical exports decreased by 50.2% from 607 thousand tons in 2000 to 302 thousand tons in 2001. Losses related to petrochemical activities increased 67.5% from Ps. 6,090 million in 2000 to Ps. 10,199 million in 2001 due to decreases in both volumes and sale prices and to a 13.6% increase in labor reserves costs from Ps. 2,702 million in 2000 to Ps. 3,069 million in 2001. This increase in labor reserve costs was due to an increase in salaries and wages, an additional year of services by the personnel and an increase in the financial cost as a result of insufficient funding of these liabilities.

Corporate, Subsidiary Companies and Other

        In 2001, additional marginal trade sales revenues relating to PMI's exports of crude oil and petroleum products to third parties and after intercompany eliminations decreased by 16.6% in peso terms, from Ps. 24,735 million in 2000 to Ps. 20,636 million in 2001, as a result of a 25.1% reduction in the international price of crude oil, which was offset by a 9.4% increase in the volume of PMI's crude oil sales. The weighted average price of crude oil sold by PMI was U.S. $18.57 in 2001, as compared to U.S. $24.78 in 2000. In 2001, the total income related to corporate, subsidiary companies and other, which includes the international trading activities of the PMI Group, decreased from an income of Ps. 2.7 billion in 2000 to a loss of Ps. 3.7 billion in 2001, primarily due to our adoption of the new financial instrument standard (Bulletin C-2). This compares to total income of Ps. 2.7 billion in 2000; primarily due to the recognition of a net gain in connection with the Repsol equity swap and collar unwind in that year, which is discussed below under "Item 11—Quantitative and Qualitative Disclosures About Market Risk—Risk Management and Financial Instruments—Equity Swap."

2000 Compared to 1999

Exploration and Production

        In 2000, Pemex-Exploration and Production's trade sales of crude oil and natural gas to the PMI Group increased by 64.2% in peso terms and by 64.8% in U.S. dollar terms, as a result of an increase of 57.6% in the international price of crude oil and an increase of 3.5% in the volume of crude oil exports. The weighted average price of crude oil sold by Pemex-Exploration and Production to the PMI Group for export was U.S. $24.62 in 2000, as compared to U.S. $15.62 in 1999. Intersegment sales increased by 89.5%, principally as a result of an increase in crude oil and natural gas sales, resulting from increases in the reference prices of these commodities. Income related to exploration and

200

production activities improved 237.0% from a loss of Ps. 5,202 million in 1999 to income of Ps. 7,128 million in 2000, primarily as a result of the improvement in revenues due to the increase in the weighted average price of crude oil realized by Pemex-Exploration and Production, which was offset by a 14.9% increase in costs associated with the labor reserve for pension obligations from Ps. 9,012 million in 1999 to Ps. 10,351 million in 2000.

Refining

        In 2000, trade sales related to refining activities increased by 22.8%, from Ps. 187,381 million in 1999 to Ps. 230,059 million in 2000. Export sales related to refining activities decreased 9.9% from Ps. 4,057 million in 1999 to Ps. 3,654 million in 2000, as a result of a decrease in the volume of certain petroleum product exports. Domestic sales related to refining activities increased by 23.5% from Ps. 183,384 million in 1999 to Ps. 226,405 million in 2000, principally due to increases in the peso prices of refined products. The IEPS Tax decreased by Ps. 18,793 million in 2000. Intersegment sales increased by Ps. 2,900 million, largely due to increases in the sales of naphthas and propylene. In 2000, the total loss related to refining activities was Ps. 23,139 million, as compared to a loss of Ps. 8,111 million in 1999. The increased loss was primarily due to increased purchases of crude oil and refined products at higher reference prices and a 22.8% increase in labor reserves costs from Ps. 8,903 million in 1999 to Ps. 10,933 million in 2000.

Gas and Basic Petrochemicals

        In 2000, trade sales related to the natural gas and basic petrochemical business segment increased by 65.3%, from Ps. 38,685 million in 1999 to Ps. 63,957 million in 2000. Natural gas sales increased by 75.7% from Ps. 15,364 million in 1999 to Ps. 26,997 million in 2000, mainly due to an increase in the volume of domestic sales. The volume of domestic sales of basic petrochemicals increased by 21.0% in 1999, from 649 thousand tons per year in 1999 to 785 thousand tons per year in 2000. Income related to natural gas and basic petrochemicals fell by 137.3%, from income of Ps. 849 million in 1999 to a loss of Ps. 317 million in 2000, mainly due to a 107.4% increase in imports of products used in the production process and a 25.8% increase in labor reserves costs from Ps. 1,711 million in 1999 to Ps. 2,152 million in 2000, resulting in an increase in the cost of sales and operating expenses which was only partially offset by increased sales.

Petrochemicals

        In 2000, trade sales related to the petrochemicals business segment increased by 20.6%, from Ps. 10,105 million in 1999 to Ps. 12,184 million in 2000. Prices for petrochemicals sold domestically increased for a majority of petrochemical products. In 2000, the volume of petrochemical exports increased by 105.1% from 296 thousand tons in 1999 to 607 thousand tons in 2000. Losses related to petrochemicals activities increased 36.1% from Ps. 4,474 million in 1999 to Ps. 6,090 million in 2000 due to decreases in both volumes and sale prices and to a 17.1% increase in labor reserves costs from Ps. 2,308 million in 1999 to Ps. 2,702 million in 2000.

Corporate, Subsidiary Companies and Other

        In 2000, additional marginal trade sales revenues relating to PMI's sales of crude oil and petroleum products to third parties and after intercompany eliminations increased by 64.8% in peso terms, from Ps. 15,007 million in 1999 to Ps. 24,735 million in 2000, as a result of an increase in the international price of crude oil and an increase in the volume of PMI's crude oil sales. The weighted average price of crude oil sold by PMI was U.S. $24.78 in 2000, as compared to U.S. $15.55 in 1999. In 2000, the total income related to corporate, subsidiary companies and other, which includes the international trading activities of the PMI Group, improved from a loss of Ps. 4.2 billion in 1999 to an income of Ps. 2.7 billion in 2000, in part due to a recognition of the U.S. $113 million net gain in 2000

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in connection with the Repsol equity swap and collar unwind, which is discussed below under "Item 11—Quantitative and Qualitative Disclosures about Market Risk—Risk Management and Financial Instruments."

U.S. GAAP Reconciliation

        Operating results under U.S. GAAP differ from operating results under Mexican GAAP due to several factors. The most important of these factors are differences in methods of accounting for exploration and drilling costs, pension and post-retirement obligations, financial instruments and fixed asset adjustments relating to inflation accounting, foreign exchange losses, capitalized interest, depreciation and impairment. For further information regarding these and other differences between Mexican and U.S. GAAP as they relate to our operating results, see Note 19 to the Financial Statements.

Exploration and Drilling Costs

        Under Mexican GAAP, PEMEX charges exploration and drilling costs to the equity reserve for exploration and depletion of oil fields. Exploration and drilling costs related to successful oil wells are credited to the equity reserve and recorded as fixed assets. Cost of sales is recognized by recording a charge for each barrel of crude oil extracted in the statement of operations and recording a credit to the equity reserve. Under U.S. GAAP, PEMEX initially capitalizes the costs of drilling exploratory wells and exploratory-type stratigraphic test wells, which are subsequently charged to expense if proved reserves are not discovered. Development costs, including the costs of drilling development wells and development-type stratigraphic test wells, are capitalized.

Pensions and Post-retirement Benefits

        Seniority premiums and pension plans are treated differently under U.S. GAAP and Mexican GAAP because of the different actuarial cost assumptions and implementation dates required by Bulletin D-3 and SFAS No. 87. Under Mexican GAAP, PEMEX accounts for supplemental payments under its Bulletin D-3 calculations. However, PEMEX accounts for other health services benefits on a pay-as-you-go basis. Under U.S. GAAP, PEMEX follows the guidelines of SFAS No. 106, which uses the transitional recognition method in accounting for health service and other supplemental payments provided to retirees.

Financial Instruments

        On January 1, 2001, PEMEX adopted Bulletin C-2 for Mexican GAAP purposes, which provides guidance for the definition of financial instruments and requires all financial instruments, with the exception of "held to maturity" instruments, to be recorded at fair value with the related adjustment recognized in earnings. "Held to maturity" instruments and certain derivative instruments qualifying as hedges are to be recorded at amortized cost subject to impairment evaluation. For U.S. GAAP purposes, effective January 1 2001, PEMEX adopted SFAS No. 133 (as amended by SFAS No. 137 and SFAS No. 138), which establishes accounting and reporting standards for derivative instruments and hedging activities. SFAS No. 133 requires that an entity recognize all derivatives as either assets or liabilities in the consolidated balance sheet and measure those instruments at fair value. SFAS No. 133 prescribes requirements for designation and documentation of hedging relationships and ongoing assessments of effectiveness in order to qualify for hedge accounting.

        The principal differences between the cumulative effect adjustment and current period income effect under Mexican GAAP and U.S. GAAP relate primarily to the accounting for cross currency swaps, foreign currency embedded derivatives and the accounting for the equity swap contracts related to the Repsol shares described in Note 10 to the Financial Statements.

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Fixed Asset Adjustments

        Inflation accounting.    Under Mexican GAAP, PEMEX recognizes the effects of inflation pursuant to NIF-06 BIS "A," section A, which requires the restatement of non-monetary assets, including inventories of materials and supplies, costs of sales and fixed assets to their net realizable value (in the case of inventories) or through appraisals made by independent appraisers or by using the specific price index (in the case of fixed assets), with the difference being recorded as a revaluation surplus in equity. U.S. GAAP does not require the recognition of the effects of inflation in the consolidated financial statements. Since NIF-06 BIS "A," section A, does not represent a comprehensive basis for inflation accounting, PEMEX has reversed the effects of NIF-06 BIS "A," section A, on its financial statements from the U.S. GAAP reconciliation of income and equity retroactively to 1992. Thus, under NIF-06 BIS "A," section A, a devaluation of the peso does not fully impact PEMEX's income in the year incurred because a portion of the exchange losses are capitalized into fixed assets. Furthermore, devaluation of the peso relative to the dollar results in an increase in income to the extent that expenses remain relatively stable because they are incurred in pesos, while revenues, which are mostly denominated in dollars or linked to international, dollar-denominated prices, increase in peso terms. In contrast, under U.S. GAAP, devaluation of the peso has a negative impact on PEMEX's income because the exchange losses are not capitalized but are charged immediately to income.

        Foreign currency exchange losses.    Under Mexican GAAP, exchange losses arising from debt are capitalized as part of fixed assets, and any remaining net exchange differences are reflected in the statement of operations as either a debit to costs and operating expenses or a credit to revenues. Under U.S. GAAP, all exchange gains or losses have been recognized in results of operations.

        Capitalization of interest.    For Mexican GAAP purposes, PEMEX capitalizes interest to property, plant and equipment based on the total interest cost incurred on loans allocated to construction projects, regardless of whether or not the amounts borrowed have been spent on such projects. For purposes of the U.S. GAAP reconciliation, PEMEX capitalizes interest based upon total interest incurred in proportion to additions to construction in progress.

        Depreciation.    Under Mexican GAAP, PEMEX depreciates the book value of its fixed assets, which includes amounts capitalized for foreign exchange losses and restatements for inflation. For U.S. GAAP purposes, PEMEX has reversed this depreciation expense attributable to foreign exchange losses and restatements for inflation.

        Impairment.    Under U.S. GAAP, SFAS No. 121 requires that PEMEX evaluate its long-lived assets for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable or is permanently impaired. SFAS No. 121 requires PEMEX to write-down impaired assets to the fair value, if available, or the discounted present value of expected future cash flows on related assets. PEMEX measures impairment of its oil and gas producing assets based on the undiscounted estimated future cash flows associated with estimated proved reserves on a field-by-field basis.

Other Differences

        In addition to these differences between Mexican and U.S. GAAP, other significant differences that affect our operating results relate to the accounting for accrued vacation, depreciation convention, profit in inventory and the sale of transport assets. See Note 19 to the Financial Statements.

Income and Equity under U.S. GAAP

        For the year ended December 31, 2001, PEMEX's loss under U.S. GAAP was approximately Ps. 25.4 billion, representing a Ps. 8.6 billion decrease from the loss recorded under Mexican GAAP. For the year ended December 31, 2000, PEMEX's loss under U.S. GAAP was approximately

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Ps. 16.7 billion, representing a Ps. 3.0 billion decrease from the loss recorded under Mexican GAAP. For the year ended December 31, 1999, PEMEX reported a loss under U.S. GAAP of approximately Ps. 15.4 billion, representing a Ps. 5.8 billion decrease from the loss recorded under Mexican GAAP. For further detail regarding the adjustments related to these amounts, see Note 19 to the Financial Statements.

        PEMEX's equity (deficit) under U.S. GAAP was approximately Ps. (42.3) billion at December 31, 2001 as compared to Ps. (13.6) billion at December 31, 2000. For further detail regarding the adjustments related to these amounts, see Note 19 to the Financial Statements.

Recently Issued Accounting Standards

        In November 2001, the Mexican Institute of Public Accountants (MIPA) issued revised Bulletin C-9, "Liabilities, Provisions, Contingent Assets and Liabilities and Commitments," which supersedes existing Bulletin C-9, "Liabilities," and Bulletin C-12, "Contingencies and Commitments." The revised Bulletin C-9 establishes a methodology for the following: valuation, presentation and disclosure of liabilities and provisions; valuation and disclosure of contingent assets and liabilities; and disclosure of commitments. Among other things, Bulletin C-9 establishes guidelines for the recognition of liabilities and non-recognition of liabilities in the event of extinguishments, restructurings or conversion to equity. In addition, in the case of provisions, it introduces the concept of discounting long-term provisions. With respect to contingent liabilities, Bulletin C-9 states that all contingent liabilities that have a probable realization must be accounted for and disclosed in the financial statements; contingent liabilities that have a possible realization must be disclosed, but not accounted for, in the financial statements; and contingent liabilities that have a remote realization must not be accounted for and are not required to be disclosed in the financial statements. Bulletin C-9 requires disclosure of committed amounts when they represent significant fixed asset additions, contracted services and goods exceed immediate needs, or the commitment is considered a contracted obligation. The provisions of Bulletin C-9 become effective beginning January 1, 2003, although early adoption is recommended. We are currently evaluating the impact that the adoption of Bulletin C-9 will have on our consolidated financial statements.

        In December 2001, the MIPA issued Bulletin C-8, "Intangible Assets," which defines intangible assets as costs incurred and rights or privileges acquired that will generate a future economic benefit. Bulletin C-8 provides a clear definition of research and development costs, requiring that only development costs may be deferred to a future period. Furthermore, Bulletin C-8 states that pre-operating costs should be expensed as a period cost, unless they could be classified as development costs. Bulletin C-8 requires that goodwill and intangible assets with indefinite useful lives, including previously existing goodwill and intangible assets, should not be amortized, but should be tested for impairment annually. Goodwill and intangible assets with finite useful lives should be amortized over their useful lives. The provisions of Bulletin C-8 become effective beginning January 1, 2003, although early adoption is recommended. We are currently evaluating the impact that the adoption of Bulletin C-8 will have on our consolidated financial statements.

        In July 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 141, "Business Combinations," which supersedes Accounting Principles Board (APB) Opinion No. 16, "Business Combinations," and amends or supersedes a number of related interpretations of APB Opinion No. 16. The statement is effective for all business combinations initiated after June 30, 2001 and for all business combinations accounted for by the purchase method that are completed after June 30, 2001. SFAS No. 141 addresses financial accounting and reporting for business combinations. It eliminates the pooling-of-interests method of accounting for business combinations, and prescribes the initial recognition and measurement of goodwill and other intangible assets, accounting for negative goodwill and the disclosure required for business combinations. The adoption of SFAS No. 141 did not have a material impact on our consolidated financial statements.

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        Also in July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets," which supersedes APB Opinion No. 17, "Intangible Assets." SFAS No. 142 addresses how intangible assets that are acquired individually or with a group of other assets (but not those acquired in a business acquisition) should be accounted for in financial statements upon their acquisition. SFAS No. 142 also addresses how goodwill and other intangible assets should be accounted for after they have been initially recognized in the financial statements. The provisions of SFAS No. 142 become effective for fiscal years beginning after December 15, 2001. SFAS No. 142 is required to be applied at the beginning of an entity's fiscal year and to all goodwill and other intangible assets recognized in its financial statements at that date. We are currently evaluating the impact that the adoption of SFAS No. 142 will have on our consolidated financial statements.

        In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 requires the recognition of a liability for the legal obligations associated with the retirement of a tangible long-lived asset that results from the acquisition, construction and/or normal operation of the asset. The liability is recognized at fair value in the period in which it is incurred if a reasonable estimate of fair value can be made. A corresponding asset retirement cost is added to the carrying value of the long-lived asset and is depreciated to expense using a systematic and rational method over its useful life. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002. Upon initial adoption, a liability is recognized for existing asset retirement obligations and the associated asset retirement cost is capitalized as an increase to the carrying value of the asset. The recognized liability and asset are adjusted for cumulative accretion and accumulated depreciation, respectively, from the time period when the asset retirement obligation would have originally been recognized had this statement been in effect on the date of initial adoption. The cumulative effect of initial adoption of SFAS No. 143 is recorded as a change in accounting principle. We are currently evaluating the impact that the adoption of SFAS No. 143 will have on our consolidated financial statements.

        In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," and the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations—Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions." SFAS No. 144 retains the fundamental provisions of SFAS No. 121 for recognition and measurement of the impairment of long-lived assets to be held and used, but resolves a number of implementation issues and establishes a single accounting model for the disposal of assets. SFAS No. 144 also retains the requirements for reporting discontinued operations separately from continuing operations and extends that reporting to a component of an entity that either has been disposed of by sale, abandonment or distribution to owners, or is classified as held for sale. The provisions of SFAS No. 144 are effective for financial statements issued for fiscal years beginning after December 15, 2001 and their interim periods. The provisions of SFAS No. 144 for long-lived assets to be disposed of by sale or otherwise are effective for disposal activities initiated after the effective date of SFAS No. 144 or after its initial application. We are currently evaluating the impact that the adoption of SFAS No. 144 will have on our consolidated financial statements.

        In April 2002, the FASB issued SFAS No. 145, "Rescission of SFAS Nos. 4, 44, and 64, Amendment of SFAS No. 13, and Technical Corrections as of April 2002." SFAS No. 145 rescinds SFAS No. 4, "Reporting Gains and Losses from Extinguishment of Debt," SFAS No. 44, "Accounting for Intangible Assets of Motor Carriers," and SFAS No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements." As a result, gains and losses from extinguishment of debt will no longer be classified as extraordinary items unless they meet the criteria of being unusual or infrequent, as described in APB Opinion No. 30, "Reporting the Results of Operations—Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events

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and Transactions." In addition, SFAS No. 145 amends SFAS No. 13, "Accounting for Leases," to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects similar to sale-leaseback transactions. SFAS No. 145 also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. SFAS No. 145 is effective for fiscal years beginning after May 15, 2002. We are currently evaluating the impact that the adoption of SFAS No. 145 will have on the consolidated financial statements.

        In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." The issuance of SFAS No. 146 nullifies the former guidance provided by the Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS No. 146 requires the recognition of a liability for costs associated with exit or disposal activity when the liability is incurred, rather than on the date commitment to an exit or disposal plan. SFAS No. 146 is effective for liabilities related to exit or disposal activities incurred after December 31, 2002, although earlier application is encouraged. We are currently evaluating the impact that the adoption of SFAS No. 146 will have on our consolidated financial statements.

Change in Independent Auditors

        SECODAM periodically assigns new independent auditors to PEMEX. Pursuant to actions by SECODAM, in 1998 PricewaterhouseCoopers, S.C. ceased to be the independent auditors of PEMEX at the end of fiscal year ended December 31, 1997, and Mancera, S.C. (a Member Practice of Ernst & Young Global) were assigned as the independent auditors for PEMEX on September 25, 1998 for the fiscal years ended December 31, 1998, 1999, and 2000. Pursuant to actions by SECODAM, on October 5, 2001, Mancera, S.C. ceased to be the independent auditors of PEMEX at the end of fiscal year ended December 31, 2000, and Ruiz, Urquiza y Cía., S.C. (formerly a member firm of Andersen Worldwide S.C.) was initially assigned as PEMEX's new auditors beginning in the fiscal year ended December 31, 2001. On May 9, 2002, due to the indictment of Arthur Andersen LLP, SECODAM decided to terminate the engagement of Ruiz, Urquiza y Cía., S.C. for the auditing of PEMEX's financial statements to be included in its annual report on Form 20-F for the fiscal year ended December 31, 2001, and instead appointed PricewaterhouseCoopers S.C. as the current independent auditors to audit those financial statements. As of that date, Ruiz, Urquiza y Cía., S.C. delivered only an audit report on PEMEX's financial statements prepared in accordance with Mexican Financial Reporting Standards applicable to Mexican public-sector entities.

        The independent auditors' reports on the financial statements for the 1999, 2000 and 2001 fiscal years have no adverse opinions or disclaimer of opinions, nor do such reports modify or qualify as to uncertainty, audit scope or accounting principles. For the 1997 and 2001 fiscal years, we had no disagreements with PricewaterhouseCoopers S.C. on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure. For the 1998, 1999 and 2000 fiscal years, we had no disagreements with Mancera, S.C. on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure. Ruiz, Urquiza y Cía., S.C. did not and will not deliver an audit report on PEMEX's consolidated financial statements included in its annual report on Form 20-F for the 2001 fiscal year because its engagement was terminated before those financial statements were completed. For the 2001 fiscal year, we had no disagreements with Ruiz, Urquiza y Cía., S.C. on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure with respect to its report on our financial statements prepared in accordance with Mexican Financial Reporting Standards applicable to Mexican public-sector entities. SECODAM made the decision to change accountants in each of the above instances.

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Item 6. Directors, Senior Management and Employees

        An eleven-member board of directors governs Petróleos Mexicanos. The President of Mexico appoints six members, including the Chairman of the Board of Directors. A recent amendment to the Organic Law requires that the members of the Board of Directors of Petróleos Mexicanos include the Secretary of the Ministry of the Environment and Natural Resources. The President of Mexico also appoints the Director General of Petróleos Mexicanos. The Petroleum Workers' Union (which we refer to as the "Union") selects the remaining five directors from among our employees. Alternate directors are authorized to serve on the Board of Directors in place of directors who are unable to attend meetings or otherwise participate in the activities of the Board. The members of the Board of Directors are not appointed for a specific term. The members of the Board of Directors, except for those members selected by the Union, serve subject to the discretion of the President of Mexico.

        An eight-member board of directors governs each subsidiary entity. Each of these boards consists of the Director General of Petróleos Mexicanos, the Director General of each of the other three subsidiary entities and four additional directors, who are each appointed by the President of Mexico. The Director General of Petróleos Mexicanos serves as Chairman of the board of each subsidiary entity. Neither the members of the boards of directors nor the executive officers are appointed for a specific term. The members of the boards of directors and the Directors General serve subject to the discretion of the President of Mexico.

        On December 2, 2000, in conjunction with the political transition that occurred upon the inauguration of Mr. Vicente Fox Quesada as President of Mexico, we announced that Mr. Raúl Muñoz Leos, former President and Director General of DuPont México, S.A. de C.V. was appointed Director General of Petróleos Mexicanos, effective on such date.

        At an extraordinary session of the Board of Directors, held on May 7, 2001, the board also approved the creation of, and confirmed the appointments for, five new executive offices: Corporate Director of Strategic Planning, Corporate Director of Operations, Corporate Director of Engineering and Project Development, Corporate Director for Competitiveness and Innovation and Executive Coordinator.

        The following tables set forth certain information with respect to directors and executive officers of Petróleos Mexicanos and each of the subsidiary entities as of September 24, 2002.

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Petróleos Mexicanos—Directors and Executive Officers

Name	Position with Petróleos Mexicanos	Year Appointed
Mr. Ernesto Martens Rebolledo	Chairman of the Board of Directors of Petróleos Mexicanos and Secretary of the Ministry of Energy Born: 1933 Business experience: Chairman of the board of directors of Cintra, S.A. de C.V.; Chairman of the board of directors of Aerovías de México, S.A. de C.V.; General Representative of Compañía Mexicana de Aviación, S.A. de C.V.; and Director General of Vitro, S.A de C.V. Other board memberships: Comisión Federal de Electricidad; Luz y Fuerza del Centro; Banco Nacional de Comercio Exterior, S.N.C.; Nacional Financiera, S.N.C.; and Member of the Technical Board of the Comisión Nacional del Agua	2001
Mr. José Luis Romero Hicks	Board Member of Petróleos Mexicanos and Director General of Banco Nacional de Comercio Exterior, S.N.C. Born: 1957 Business experience: Corporate Director of Finance and Planning of Desarrolladora Metropolitana, S.A. de C.V.; and Secretary of Planning and Finance of the State of Guanajuato Other board memberships: Banco Nacional de Comercio Exterior, S.N.C.; Seguros Bancomext; Ocean Garden Products, Inc.; Exportadores Mexicanos, S.A. de C.V.; Coordinadora de Asistencia Administrativa, S.A. de C.V.; Desarrollo Inmobiliario Especializado, S.A. de C.V.; and World Trade Center, Mexico City	2001
Mr. Victor Lichtinger Waisman	Board Member of Petróleos Mexicanos and Secretary of the Ministry of the Environment and Natural Resources Born: 1957 Business experience: Partner of Especialistas Ambientales, S.A. de C.V.; and Executive Director of the Environment Cooperation Commission of the Trilateral NAFTA Commission	2002

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Mr. Luis Ernesto Derbez Bautista	Board Member of Petróleos Mexicanos and Secretary of the Ministry of Economy Born: 1947 Business experience: Economic Program Coordinator for President Vicente Fox's Presidential Campaign; Professor at the Instituto Tecnológico de Estudios Superiores de Monterrey; and Independent Consultant to the World Bank Other board memberships: Aeropuertos y Servicios Auxiliares; Baja Bulk Carriers; Banco Nacional de Comercio Exterior, S.N.C.; Caminos y Puentes Federales y Servicios Conexos; and Centro Nacional de Metrología	2001
Mr. Pedro Cerisola y Weber	Board Member of Petróleos Mexicanos and Secretary of the Ministry of Communications and Transportation Born: 1949 Business experience: General Coordinator for Vicente Fox's Presidential Campaign; and Regional Director General and Planning Director of Teléfonos de México, S.A. de C.V. Other board memberships: Aeropuertos y Servicios Auxiliares (Chairman); Caminos y Puentes Federales de Ingresos y Servicios Conexos (Chairman); Telecomunicaciones de México (Chairman); Servicio Postal Mexicano (Chairman); and Banco Nacional de Obras y Servicios Públicos, S.N.C.	2001
Mr. José Francisco Gil Díaz	Board Member of Petróleos Mexicanos and Secretary of the Ministry of Finance and Public Credit Born: 1943 Business experience: Director General of Avantel; Deputy Governor of Banco de México; and Undersecretary of the Ministry of Finance and Public Credit Other board memberships: Banco Nacional de Comercio Exterior, S.N.C (Chairman); Comisión Federal de Electricidad; and Luz y Fuerza del Centro	2001
Mr. Ramón Hernández Toledo	Board Member of Petróleos Mexicanos and Union Representative Born: 1937 Business experience: Field Supervisor and other positions in Petróleos Mexicanos	1992

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Mr. Pablo Pavón Vinales	Board Member of Petróleos Mexicanos and Union Representative Born: 1945 Business experience: Other positions in Petróleos Mexicanos	1992
Mr. Luis Ricardo Aldana Prieto	Board Member of Petróleos Mexicanos; Union Representative; and Senator Born: 1954 Business experience: General Secretary of Section 40 of the Union	2001
Mr. Alejandro Sánchez Narváez	Board Member of Petróleos Mexicanos and Union Representative Born: 1952 Business experience: Other positions in Petróleos Mexicanos	2001
Mr. Mario Martínez Aldana	Board Member of Petróleos Mexicanos and Union Representative Born: 1952 Business experience: Other positions in Petróleos Mexicanos	2001
Mr. Raúl Muñoz Leos	Director General Born: 1939 Business experience: President and Director General of DuPont México, S.A. de C.V.	2000
Mr. Juan José Suárez Coppel	Corporate Director of Finance Born: 1959 Business experience: Chief of Staff of the Secretary of the Ministry of Finance; Corporate Treasury Director of Grupo Televisa; and Director of the Derivatives Trading Desk in Banco Nacional de México S.A.	2001
Ms. Martha Alicia Olvera Rodríguez	Deputy Director of Programming and Budget Born: 1954 Business experience: Associate Managing Director of Planning and Financial Programming of Petróleos Mexicanos; Associate Managing Director of Budget Control of Petróleos Mexicanos; and Deputy Manager of Programs Integration of Petróleos Mexicanos	2002

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Mr. Emilio Marco Aguilar	Deputy Director of Investment Projects Born: 1952 Business experience: Deputy Director of Programming and Budget of Petróleos Mexicanos; Associate Managing Director of Budgeting of Petróleos Mexicanos; Associate Managing Director of Operation and Results Evaluation; and Deputy Manager of Analysis and Evaluation of Petróleos Mexicanos	2001
Mr. Ricardo Koller Revueltas	Deputy Director of Financial Information Systems Born: 1966 Business experience: Director General of Sociedad General de Asesoría en Comercio Exterior e Impuestos, S.C.; Associate Managing Director of the Legal and Fiduciary Management in Banco Nacional de Obras y Servicios Públicos, S.N.C.; Coordinator of the Auditing Group of Servicios Aduanales Integrados de Guadalajara, S.A. de C.V.; and Tax Counsel of Grupo Monterrey Consultores, S.C. Board memberships: Servicios Aéreos Especializados Mexicanos, S.A. de C.V.; Integrated Trade Systems, Inc.; Fondo Laboral de Pensiones; and Fideicomiso de Cobertura Laboral y de la Vivienda	2002
Mr. Rigoberto Ariel Yépez García	Deputy Director of Economic Planning Born: 1965 Business experience: Professor and Researcher in the Economics Department of the Instituto Tecnológico Autónomo de México; Director General of Prices and Tariffs Policy of the Ministry of Finance and Public Credit; and Associate Managing Director of Business Development of Pemex-Gas and Basic Petrochemicals	2001
Mr. Gerardo Vargas Ateca	Deputy Director of Finance and Treasury Born: 1958 Business experience: Director General of Corporate Banking and Investment of Banco Santander Mexicano, S.A.; Director General of Treasury of Banca Serfín; and Director of Operations of Fondo Bancario de Protección al Ahorro	2001

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Mr. José Manuel Carrera Panizzo	Deputy Director of Risk Management Born: 1969 Business experience: Associate Managing Director of Metals, Currencies and Agreements of International Exchanges; and Market Researcher and Broker of Banco de México	2001
Mr. Julio Camelo Martínez	Corporate Director of Administration Born: 1937 Business experience: Director General of Algodonera Comercial Mexicana; Undersecretary of Educational Planning of the Ministry of Public Education; and Undersecretary of Planning and Infrastructure of the Ministry of Agrarian Reform	2001
(Vacant)	Deputy Director of Labor Relations
Mr. José César Nava Vázquez	General Counsel of Petróleos Mexicanos Born: 1974 Business experience: Advisor Coordinator of the Ministry of Social Development; Congressman of the LVIII Legislative Period; Legal Coordinator in the Transition Group of President Vicente Fox	2001
Mr. Víctor Manuel Vázquez Zárate	Deputy Director of Medical Services Born: 1943 Business experience: Associate Managing Director of Medical Services of Petróleos Mexicanos; Deputy Manager of Administrative Technical Support of Petróleos Mexicanos; and Medical Advisor of the Corporate Services Management of Petróleos Mexicanos	2000
Mr. Rafael Fernández de la Garza	Corporate Director of Industrial Safety and Environmental Protection Born: 1948 Business experience: Chief of Engineering of the Carboelectric Central Facility of Río Escondido; and Manager and Chief of Engineering of the Nucleoelectrical Central Facility of Laguna Verde	1997
Mr. José Tomás Limón Hernández	Deputy Director of Operations Coordination Born: 1943 Business experience: Managing Director of Cantarell Project; Director of Cantarell Project; and Administrator of Activo Cantarell	2001

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Mr. Roberto Osegueda Villaseñor	Corporate Director for Strategic Planning Born: 1938 Business experience: Director General of OMV Ingeniería Comercial, S.A. de C.V.; Director of Chemical and Petrochemical Division of Fomento Industrial Somex, S.A. de C.V.; and Associate Managing Director of Crude Oil Exportation of Petróleos Mexicanos Board memberships: Asociación Veracruzana, S.A. de C.V. (Vice President)	2001
Mr. Eliut González Salinas	Deputy Director of Sector Relations Born: 1951 Business experience: Associate Managing Director of Evaluation and Information; Deputy Manager of Information; and General Superintendent of Information to the Public Sector	2002
Mr. Pedro Carlos Gómez Flores	Deputy Director of Organization Development Born: 1951 Business experience: Deputy Director of Sector Relations; Deputy Director of Strategic Planning; and Deputy Director of Distribution of Pemex-Refining	2001
Mr. José Antonio Ceballos Soberanis	Corporate Director of Operations Born: 1943 Business experience: Director General of Pemex-Exploration and Production; Deputy Director of Trading of Pemex-Refining; and Executive Coordinator of Internal Trade	2001
(Vacant)	Deputy Director of Patrimonial Management
(Vacant)	Deputy Director of Corporate Services
Mr. Othón Canales Treviño	Corporate Director for Competitiveness and Innovation Born: 1952 Business experience: Director General of Quimi-Corp Internacional, S.A. de C.V.; Director General of Othón Canales Ingenieros, S.C.; and Deputy Director of Industrias Resistol, S.A. Board memberships: Kappler Safety Group	2001
Mr. Sergio F. Cruz Carranza	Deputy of Strategic Planning Born: 1942 Business experience: Director General of Corporación Industrial Portuaria, S.A. de C.V.; Associate Managing Director of Special Projects of Petróleos Mexicanos; and Associate Managing Director of Infrastructure Coordination of Petróleos Mexicanos	2001

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Mr. Andrés Antonio Moreno y Fernández	Corporate Director of Engineering and Project Development Born: 1938 Business experience: President of Mokal Consultores, S.C.; Deputy Director of Construction of the Comisión Federal de Electricidad; and Director General of Lumbreras y Túneles, S.A. de C.V.	2001
Mr. Ernesto Ríos Montero	Deputy Director of Engineering Born: 1936 Business experience: Director of Consultoría Empresarial Ejecutiva; Executive Vice President of Grupo Bufete Industrial; and Plant Manager of Síntesis Orgánicas, S.A.	2001
Mr. Enrique Bazúa Rueda	Deputy Director of Technological Development Born: 1946 Business experience: Director of the Chemistry Faculty of the Universidad Nacional Autünoma de México; Research and Planning Coordinator of the Instituto Mexicano del Petróleo; and Professor in the Chemistry Faculty of the Universidad Nacional Autünoma de México	2001
Mr. Jorge Alberto Aguilar López	Deputy Director of Contracting Born: 1956 Business experience: Executive Secretary of Public Works and Related Services of Petróleos Mexicanos; Project Director of Grupo México; Manager of Financial Planning of the Comisión Federal de Electricidad; and Private Consultant Board memberships: Kot Insurance Company, Ltd.	2001
Mr. Renato Valle Favela	Deputy Director of Industrial Plants Projects Born: 1946 Business experience: Advisor of Design, Construction, Supervision and Mounting of Electromechanical Equipment of Hydraulic Works in the Comisión Nacional del Agua; and Manager of Thermolectrical Construction Projects of the Comisión Federal de Electricidad	2001

214

Mr. Javier Pérez Saavedra	Deputy Director of Quality Control Born: 1945 Business experience: Director General and President of Pérez Saavedra y Asociados Consultores, S.A. de C.V.; Adviser to the Comisión Nacional del Agua; Deputy Director of Administration of the Comisión Nacional del Agua; and Commissioner of Desarrollo de Negocios Prendarios, S.A. de C.V.	2001
Mr. Guillermo Ruiz Gutiérrez	Deputy Director of Operation Evaluation Born: 1959 Business experience: Associate Managing Director; Manager; and Superintendent of Petróleos Mexicanos	2001
Mr. Reynaldo Jáuregui Zentella	Deputy Director of Alliances and New Business Born: 1940 Business experience: Director of New Projects of Pargo; Associate Managing Director of Information and Public Relations of Petróleos Mexicanos; and Personal Secretary to the Director General of Petróleos Mexicanos	2001
Mr. José Gastón Paulovich Rodríguez	Deputy Director of Cultural Transformation Born: 1968 Business experience: Liason Director of Union de Empresarios para la Tecnología en la Educación, A.C.; Professional Development Director of Universidad Anáhuac; and Entrepreneurial Promotion Director of Generación Empresarial Mexicana, S.C.	2002
Mr. Francisco Javier Casas Guzmán	Head of the Internal Control Body Born: 1945 Business experience: Director of Modernization and Structural Change and Director of Finance of the Comisión Federal de Electricidad; Undersecretary of Energy Operation of the Ministry of Energy; and General Administrator of Federal Fiscal Auditing of the Ministry of Finance and Public Credit	2001

215

Mr. Federico Domínguez Zuloaga	Head of Liabilities Area and Head of Complaints Area Born: 1959 Business experience: Deputy Administrator of Coercive Collection of the Ministry of Finance and Public Credit; Independent Advisor; and Chief of Loan Services for the Fondo para la Vivienda del Instituto de Seguridad y Servicios Sociales de los Trabajadores del Estado	2001
Mr. Gustavo Rovirosa Renero	Head of Control and Evaluation Auditing Born: 1939 Business experience: Deputy Director of Assets Streamlining; Advisor to the Director General of Aseguradora Hidalgo, S.A.; and Director of Administrative Services of Aseguradora Hidalgo, S.A.	2001
Mr. Manuel Vázquez Bustillos	Head of the Auditors' Area Born: 1939 Business experience: Associate Managing Director of Supervision of Entities and Affiliates of Petróleos Mexicanos; General Comptroller of the Ministry of Energy; and General Comptroller of the Instituto de Seguridad y Servicios Sociales de los Trabajadores del Estado	1997
Mr. J. Salvador Gómez Ávila	Corporate Auditor of Environmental Protection Born: 1943 Business experience: Associate Managing Director of Strategic Planning and Deputy Director of Planning of Pemex-Petrochemicals	1998
Mr. Antonio Juan Marcos Issa	Advisor for Special Projects of the Director General Born: 1946 Business experience: Secretary of Finance of the Government of Coahuila; Regional Director of the Ministry of Foreign Affairs; and Representative of Petróleos Mexicanos for Europe.	2002
Mr. Melchor de los Santos Ordóñez	Executive Coordinator to the Director General Born: 1950 Business experience: Senator in the Mexican Congress; Director of Delegations of Banco Nacional de Obras y Servicios Públicos, S.N.C.; and President of the Universidad Autónoma de Coahuila	2001

216

Mr. Moisés Ithuriel Orozco García	Executive Advisor to the Director General Born: 1968 Business experience: Associate Managing Director of Strategic Planning; Executive Advisor Coordinator of Pemex-Petrochemicals; and General Director of Special Projects of the Ministry of Energy	2001
Mr. Raoul Capdevielle Orozco	Technical Secretary of the Director General Born: 1943 Business experience: Deputy Comptroller of Liabilities; Legal Coordinator of Instalaciones Inmobiliarias para Industrias, S.A.; and Legal Director of Concesiones en Triturados Basálticos y Derivados, S.A. de C.V.	2001

Pemex-Exploration and Production—Directors and Executive Officers

Name	Position with Pemex-Exploration and Production	Year Appointed
Mr. Raúl Muñoz Leos	Chairman of the Board of Pemex-Exploration and Production (refer to Petróleos Mexicanos)	2000
Mr. Armando Leal Santa Ana	Board Member of Pemex-Exploration and Production (refer to Pemex-Refining)	2001
Mr. Marcos Ramírez Silva	Board Member of Pemex-Exploration and Production (refer to Pemex-Gas and Basic Petrochemicals)	1996
Mr. Rafael Beverido Lomelín	Board Member of Pemex-Exploration and Production (refer to Pemex-Petrochemicals)	2001
Mr. Juan José Suárez Coppel	Board Member of Pemex-Exploration and Production (refer to Petróleos Mexicanos)	2002
Mr. Carlos Hurtado López	Board Member of Pemex-Exploration and Production and Undersecretary of Disbursements of the Ministry of Finance and Public Credit Born: 1955 Business experience: Coordinator of Advisors in Economic and Social Development Matters; Coordinator of Advisors of the Ministry of Finance and Public Credit; and Mexico's Representative to the Organization for Economic Cooperation and Development (OECD) Other board memberships: Aeropuertos y Servicios Auxiliares; Ferrocarriles Nacionales de México; and Luz y Fuerza del Centro	2001

217

Mr. Juan Antonio Bargés Mestres	Board Member of Pemex-Exploration and Production and Undersecretary of Hydrocarbons of the Ministry of Energy Born: 1945 Business experience: Director of Planning and Director General of Aeronaútica Civil Other board memberships: Banco Nacional de Comercio Exterior, S.N.C.; and Nacional Financiera, S.N.C.	2001
Mr. Salvador Rubén Ortiz Vértiz	Board Member of Pemex-Exploration and Production and General Coordinator of Mining of the Ministry of Economy Born: 1949 Business experience: Adjunct Director and Deputy Director of Sectorial Studies for Banco Nacional de México, S.A.; and Advisor to the Energy Sector and Basic Industries for Banco Nacional de México, S.A. Other board memberships: Consejo de Recursos Minerales (Board of Mineral Resources); Fideicomsio de Fomento Minero (The Mining Trust); Exportadora de la Sal, S.A. de C.V.; and Transportadora de Sal, S.A. de C.V.	2002
Mr. Luis Ramírez Corzo y Hernández	Director General Born: 1948 Business experience: Director General of Turbinas Solar, S.A. de C.V. Other board memberships: Desarrollos Inmobiliarios CUGA, S.A. de C.V. (Chairman)	2001
Mr. Federico Martínez Salas	Executive Director of the Project to Modernize and Improve Cantarell Field Born: 1943 Business experience: Deputy Director of Primary Production Projects; Board member of Gutsa Constructores, S.A. de C.V.; and Executive Vice President of Grupo ICA	2001

218

Mr. J. Javier Hinojosa Puebla	Deputy Internal Director (Northern Marine Region) Born: 1958 Business experience: Coordinator of the Executive Commercial Operative Coordination; Associate Managing Director of Analysis and Investment Evaluation in Exploration; Associate Managing Director of Technical Operative Coordination; and Associate Managing Director of Production (South Region) of Pemex-Exploration and Production	1999
Mr. Alfredo Eduardo Guzmán Baldizán	Deputy Director (North Region) Born: 1947 Business experience: Executive Coordinator of Exploration Strategies; Associate Managing Director of Planning (North Region); and Associate Managing Director of Exploration (North Region) of Pemex-Exploration and Production	2001
Mr. Maclovio Yáñez Mondragón	Deputy Director (South Region) Born: 1948 Business experience: Deputy Director (North Region); Associate Managing Director of Perforation and Well Maintenance (South Region); and Associate Managing Director of Perforation and Well Maintenance (Marine Region) of Pemex-Exploration and Production	2001
Mr. Héctor Leyva Torres	Deputy Director (Southern Marine Region) Born: 1948 Business experience: Associate Managing Director of Production (Marine Region); Associate Managing Director of Production (South Region) and Deputy Director (South Region) of Pemex-Exploration and Production Board memberships: Administración Portuaria de Dos Bocas	1997
Mr. Rafael J. Bracho Ransom	Deputy Director of Management and Finance Born: 1947 Business experience: Director of Instalaciones Inmobiliarias para Industrias, S.A. de C.V.; and Deputy Director of Finance	2002

219

Mr. Carlos Rasso Zamora	Deputy Director of Drilling and Well Maintenance Born: 1946 Business experience: Inspector of Mines and Hydrocarbons of the Ministry of National Patrimony; Superintendent and Zone Manager in Petróleos Mexicanos	1997
(Vacant)	Executive Director of the Models' Design Project of the Multiple Services Contracts
Mr. Carlos A. Morales Gil	Deputy Director of Planning Born: 1954 Business experience: Deputy Director (South Region); Associate Managing Director of Production (South Region); Associate Managing Director of Planning (South Region); and Associate Managing Director of Analysis and Investment Evaluation (South Region) of Pemex-Exploration and Production	2001
Mr. Guillermo Cruz Domínguez Vargas	Deputy Director of Technology and Professional Development Born: 1946 Business experience: Deputy Director of Planning of Pemex-Exploration and Production; Associate Managing Director of Planning (Marine Region); and Associate Managing Director of Production (South Region) of Pemex-Exploration and Production	1996
Mr. Pedro Silva López	Executive Director of the Gas Strategic Program Born: 1953 Business experience: Associate Managing Director of Strategic Planning; Associate Managing Director of the Burgos Project (Northern Region); and Associate Managing Director of Planning (North Region) of Pemex-Exploration and Production	1999
(Vacant)	Executive Coordinator of Exploration Strategics
Mr. Roberto Alor Terán	Head of the Internal Control Body Born: 1950 Business experience: General Comptroller of the Instituto de Servicios de Seguridad Social para los Trabajadores del Estado; Internal Comptroller of Aeropuertos y Servicios Auxiliarios; and Deputy Director of Budget of the Sistema Nacional para el Desarrollo Integral de la Familia	2001

220

Pemex-Refining—Directors and Executive Officers

Name	Position with Pemex-Refining	Year Appointed
Mr. Raúl Muñoz Leos	Chairman of the Board of Pemex-Refining (refer to Petróleos  Mexicanos)	2000
Mr. Luis Ramírez Corzo y Hernández	Board Member of Pemex-Refining (refer to Pemex-Exploration and Production)	2001
Mr. Marcos Ramírez Silva	Board Member of Pemex-Refining (refer to Pemex-Gas and Basic Petrochemicals)	1996
Mr. Rafael Beverido Lomelín	Board Member of Pemex-Refining (refer to Pemex Petrochemicals)	2001
Mr. Carlos Hurtado López	Board Member of Pemex-Refining (refer to Pemex-Exploration and Production)	2001
Mr. Juan Antonio Bargés Mestres	Board Member of Pemex-Refining (refer to Pemex-Exploration and Production)	2001
Mr. Andrés Antonio Moreno y Fernández	Board Member of Pemex-Refining (refer to Petróleos Mexicanos)	2002
Mr. Juan Bueno Torio	Board Member of Pemex-Refining and Undersecretary for Small and Medium Enterprise of the Ministry of Economy Born: 1953 Business experience: Coordinator of the Energy Sector in the Transition Group of President Vicente Fox; Congressman of the LVII Legislative Session; and Director General of Grupo Empresarial Bueno Other board memberships: Banco Nacional de Comercio Exterior, S.N.C.; Centro de Investigación y Asesoría Tecnológica en Cuero y Calzado; Nacional Financiera, S.N.C.; Ocean Garden Products, Inc.; Banco del Ahorro Nacional y Servicios Financieros, S.N.C.; Exportadores Asociados, S.A. de C.V.; and Fideicomiso de los Laboratorios Nacionales de Fomento Industrial	2001
Mr. Armando Leal Santa Ana	Director General Born: 1937 Business experience: Director General of Pemex-Petrochemicals; Deputy Director of Production of Pemex-Refining; and Associate Managing Director of Production Control	2001
Mr. Alberto E. Alcaraz Granados	Deputy Director of Production Born: 1952 Business experience: Associate Managing Director of Production Control; Associate Managing Director of Refinería General Lazaro Cárdenas; and Associate Managing Director of Refinería Ing. Antonio M. Amor	2002

221

Mr. Enrique Samuel López Albarrán	Deputy Director of Trading Born: 1951 Business experience: Senior Vice President for Latin America of Reichhold Chemical Inc., Executive Vice President of Reichhold Chemical Inc.; and Director General of Reichhold Química de México S.A. de C.V. Board memberships: Growth Enterprise Team, S.C. (Chairman)	2001
Mr. Cutberto O. Azuara Pavón	Deputy Director of Storage and Distribution Born: 1947 Business experience: Associate Managing Director of Pipelines Transportation; Deputy Manager of Technical Evaluation of Refineries; and Commercial Representative and President of PMI Services North America, Inc.	2001
Mr. Miguel Angel Rivera Villaseñor	Deputy Director of Management and Finance Born: 1945 Business experience: Deputy Director of Management and Finance of Pemex-Exploration and Production; Corporate Deputy Director of Proceeds and Financial Programming of Petróleos Mexicanos; Executive Coordinator of Programming and Financial Control of Petróleos Mexicanos; and Director General of Metal Mechanical Industry and Capital Assets to the Ministry of Commerce and Industrial Development	2001
Mr. Rómulo Aguiñaga Enciso	Deputy Director of Projects and Capital Maintenance Born: 1939 Business experience: Managing Director of Projects and Capitalized Maintenance of Pemex-Petrochemicals; Associate Managing Director of Works and Capitalized Maintenance of Pemex-Petrochemicals; Advisor to the Director General of Pemex-Petrochemicals	2001
Mr. José Luis Jaramillo Hernández	Deputy Director of Planning, Coordination and Evaluation Born: 1943 Business experience: Deputy Director of Planning of Pemex-Petrochemicals; Director General of Petroquímica Morelos, S.A. de C.V.; and Deputy Director of Operation of Pemex-Petrochemicals	2001

222

Mr. Francisco Aparicio Varela	Head of the Internal Control Body Born: 1946 Business experience: Director of Trading of Servicios Aeroportuarios del Sureste; Director of Projects of Trituradores Basálticos y Derivados, S.A. de C.V.; and Coordinator of Refining and Petrochemicals of the Ministry of Energy	2001
Mr. Daniel Gómez Bilbao	Auditor of Industrial Safety and Environmental Protection Born: 1948 Business experience: Associate Managing Director of Evaluation of the Corporate General Comptroller of Petróleos Mexicanos; Deputy Director of Training and Technical Services; Deputy Director of Research and Industrial Transformation; and Deputy Director of Refining and Petrochemicals of the Instituto Mexicano del Petróleo	2001

Pemex-Gas and Basic Petrochemicals—Directors and Executive Officers

Name	Position with Pemex-Gas and Basic Petrochemicals	Year Appointed
Mr. Raúl Muñoz Leos	Chairman of the Board of Pemex-Gas and Basic Petrochemicals (refer to PetróleosMexicanos)	2000
Mr. Luis Ramírez Corzo y Hernández	Board Member of Pemex-Gas and Basic Petrochemicals (refer to Pemex-Exploration and Production)	2001
Mr. Armando Leal Santa Ana	Board Member of Pemex-Gas and Basic Petrochemicals (refer to Pemex-Refining)	2001
Mr. Rafael Beverido Lomelin	Board Member of Pemex-Gas and Basic Petrochemicals (refer to Pemex Petrochemicals)	2001
Mr. Carlos Hurtado López	Board Member of Pemex-Gas and Basic Petrochemicals (refer to Pemex-Exploration and Production)	2001
Mr. Juan Antonio Bargés Mestres	Board Member of Pemex-Gas and Basic Petrochemicals (refer to Pemex-Exploration and Production)	2001
Mr. Juan José Súarez Coppel	Board Member of Pemex-Gas and Basic Petrochemicals (refer to Petróleos Mexicanos)	2002

223

Ms. María de Lourdes Dieck Assad	Board Member of Pemex-Gas and Basic Petrochemicals and Coordinator of Advisors of the Secretary of Economy Born: 1954 Business experience: Director of the Ph.D. Administration Program of the Graduate School of Administration and Business Management; Professor in the Economics Department at the Instituto Tecnológico de Estudios Superiores de Monterrey; Professor in the Economics Department at Trinity College; and Consultant for the World Bank	2002
Mr. Marcos Ramírez Silva	Director General Born: 1957 Business experience: Deputy Director of Liquefied Gas and Basic Petrochemicals of Pemex-Gas and Basic Petrochemicals; Deputy Director of Planning and Operative Control of Pemex-Gas and Basic Petrochemicals; and Commercial Director of Petroleum and Petrochemical Products of P.M.I. Comercio Internacional, S.A. de C.V.	1996
Mr. Roberto Ramírez Soberón	Deputy Director of Planning Born: 1950 Business experience: Commercial Associate Managing Director; Associate Managing Director of Control and Measuring; and Associate Managing Director of Trading	1997
Mr. Salvador García-Luna Rodríguez	Deputy Director of Liquefied Gas and Basic Petrochemicals Born: 1959 Business experience: Commercial Director of Crude Oil; Commercial Associate Managing Director of Petroleum Products; and Deputy Manager of Residuals of PMI Comercio Internacional, S.A. de C.V.	1996
Mr. Luis Felipe Luna Melo	Deputy Director of Natural Gas Born: 1956 Business experience: Commercial Representative in Tokyo and Deputy Manager of Analysis of P.M.I. Comercio Internacional, S.A. de C.V.; and President of P.M.I. Holdings North America, Inc.	1996

224

Mr. Claudio Trulín Espinosa	Deputy Director of Management and Finance Born: 1945 Business experience: Associate Managing Director of Internal Management and Corporate Support; Advisor to the Major Officer of the Ministry of Public Security; Director of Support Services of the Ministry of Public Security of the Federal District; and Technical Secretary of Industrial Safety and Environmental Protection Auditing of Petróleos Mexicanos	2001
Mr. Armando R. Arenas Briones	Deputy Director of Production Born: 1948 Business experience: Various positions in Petróleos Mexicanos	1996
Mr. Claudio F. Urencio Castro	Deputy Director of Pipelines Born: 1949 Business experience: Director General of Programming and Budget of the Federal District Department; Undertreasurer of Taxation Management of the Federal District Department; Director of Economic Research of Bancomer S.N.C.; and General Director of Economic Analysis of the Ministry of Commerce and Industrial Development	1996
Mr. Andrés Alvarez Kuri	Head of the Internal Control Body Born: 1962 Business experience: General Manager and Partner of Isla Caribe Rent, S.A. de C.V.; Auditing Coordinator of the Internal Comptroller Area of the Instituto Mexicano del Seguro Social; and Control Coordinator and Special Auditing of the Internal Comptroller Area of the Instituto Mexicano del Seguro Social	2001

Pemex-Petrochemicals—Directors and Executive Officers

Name	Position with Pemex-Petrochemicals	Year Appointed
Mr. Raúl Muñoz Leos	Chairman of the Board of Pemex-Petrochemicals (refer to Petróleos Mexicanos)	2000
Mr. Luis Ramírez Corzo y Hernández	Board Member of Pemex-Petrochemicals (refer to Pemex-Exploration and Production)	2001
Mr. Armando Leal Santa Ana	Board Member of Pemex-Petrochemicals (refer to Pemex-Refining)	2001
Mr. Marcos Ramírez Silva	Board Member of Pemex-Petrochemicals (refer to Pemex-Gas and Basic Petrochemicals)	1996

225

Mr. Carlos Hurtado López	Board Member of Pemex-Petrochemicals (refer to Pemex-Exploration and Production)	2001
Mr. Juan Antonio Bargés Mestres	Board Member of Pemex-Petrochemicals (refer to Pemex-Exploration and Production)	2001
Mr. Andrés Antonio Moreno y Fernández	Board Member of Pemex-Petrochemicals (refer to Petróleos Mexicanos)	2002
Mr. Juan Antonio García Villa	Board Member of Pemex-Petrochemicals and Undersecretary of Regulation and Services to Industry and Foreign Trade of the Ministry of Economy Born: 1945 Business experience: Senator and Representative in the Mexican Congress Other board memberships: Consejo Directivo del Centro Nacional de Metrología; Instituto Nacional de la Propiedad Industrial; Comisión Federal de Electricidad; Comisión Nacional para el Ahorro de Energía; Fondo de Información y Documentación para la Industria; Corporación Mexicana de Investigación en Materiales, S.A. de C.V.; Centro de Investigación en Química Aplicada; Centro de Ingeniería y Desarrollo Industrial en Electroquímica; Telecomunicaciones de México; Entidad Mexicana de Acreditación; Normalización y Certificación de Competencia Laboral; Laboratorios de Biológicos y Reactivos Mexicanos; Petroquímica Cosoleacaque, S.A. de C.V.; Petroquímica Pajaritos, S.A. de C.V.; Petroquímica Cangrejera, S.A. de C.V.; Petroquímica Tula, S.A. de C.V.; Petroquímica Morelos, S.A. de C.V.; Petroquímica Escolín, S.A. de C.V.; Petroquímica Camargo, S.A. de C.V.; and Systems and Electrical Transportation of the Federal District Government	2001
Mr. Rafael Beverido Lomelín	Director General Born: 1942 Business experience: Director General and other positions in Industrias Negromex S.A. de C.V.	2001

226

Mr. Lorenzo Aldeco Ramírez	Deputy Director of Planning Born: 1955 Business experience: Associate Managing Director of Operations of Servicios de Operaciones de Nitrógeno, S.A. de C.V.; Associate Managing Director of Unit of Industrias Negromex, S.A. de C.V.; and Associate Managing Director of Purchases of Industrias Negromex, S.A. de C.V.	2001
(Vacant)	Deputy Director of Planning
Mr. Mario Hugo González Petrikowsky	Deputy Director of Management and Finance Born: 1937 Business experience: Associate Managing Director of Budgeting; Advisor to the Deputy Direction of Programming and Budgeting; and Deputy Director of Planning of Pemex-Petrochemicals	2001
Mr. Carlos Pani Espinosa	Deputy Director of Trading Born: 1947 Business experience: Business consultant; Director General of Troy Industrias, S.A. de C.V.; and several positions in Grupo Desc.	2001
Mr. Amadeo Álvarez Corrales	Head of the Internal Control Body Born: 1954 Business experience: Legal Advisor of the Internal Comptroller Office in Pemex-Gas and Basic Petrochemicals; Personal Secretary of the Deputy Director of Distribution; and Personal Secretary of the Deputy Director of Natural Gas	2002

227

Compensation of Directors and Officers

        For the year ended December 31, 2001, the aggregate compensation of executive officers of Petróleos Mexicanos and the subsidiary entities (95 persons) paid or accrued in that year for services in all capacities was approximately Ps. 225 million. Members of the boards of directors of Petróleos Mexicanos and the subsidiary entities do not receive compensation for their services.

Board Practices

        Neither the members of the boards of directors nor the executive officers are appointed for a specific term. The members of the boards of directors, except for those selected by the Union, and the Directors General of Petróleos Mexicanos and the subsidiary entities serve subject to the discretion of the President of Mexico.

        Petróleos Mexicanos has established an audit committee which cooperates with the Board of Directors of Petróleos Mexicanos and the Office of the Director General in improving the organization, operation, and achievement of financial and budgetary results. The main functions of the Audit Committee are (i) to promote the economy, efficiency, efficacy and effectiveness of PEMEX with regard to operations, modernization, and compliance with government regulations, (ii) to cooperate with the Board of Directors of Petróleos Mexicanos in assimilating, analyzing and summarizing the matters in which the Audit Committee is involved, and (iii) to provide advice to Petróleos Mexicanos and the subsidiary entities. In the performance of its duties, the Audit Committee analyzes, among other data, financial and operative information, performance indicators, reported problems and recommendations presented by the different control areas, and the independent auditors report to the financial statements. The Audit Committee is permanent and meets at least four times a year prior to the meetings of the Board of Directors of Petróleos Mexicanos.

        The audit committee is composed of the following members:

Name and position in audit committee	Position of the members of the audit committee
Mr. Raúl Muñoz Leos, President	Director General of Petróleos Mexicanos
Mr. Francisco Javier Casas Guzmán, Executive Member	Head of the Internal Control Body of Petróleos Mexicanos
Mr. Felipe Ramón y Castañeda, Member	Commissary for Petróleos Mexicanos
Mr. César Chavira Enriquez, Member	Representative of General Comptroller's Office (Follow-Up and Evaluation Unit for Public Performance)
Mr. Juan José Suárez Coppel, Member	Representative of Financial Area of Petróleos Mexicanos
Mr. Julio Camelo Martínez, Member	Representative of Administrative Area of Petróleos Mexicanos
Mr. Juan Arturo Lim Medrano, Member	Representative of the Ministry of Finance (Office of the General Director of Programming and Sectorial Budgeting)
Mr. Francisco Torres Roldán, Member	Representative of the Ministry of Energy (General Director of Financial Operations of the Hydrocarbons Sector)
Mr. José Rafael Robles Díaz	Representative of the Ministry of Energy (Legal Affairs Director)

        In addition, through late 2001, Mancera, S.C., through Mr. Luis Celhay López, and Ruiz Urquiza y Cía, in early 2002, through Mr. Arturo García Bello, attended the Audit Committee meetings and presented reports in connection with the tasks performed.

228

Employees

        Excluding employees of the PMI Group and including those employed by PEMEX on a temporary basis, at December 31, 2001, Petróleos Mexicanos and the subsidiary entities had 134,852 employees, as compared with 135,091 at December 31, 2000. During 2001, Petróleos Mexicanos and the subsidiary entities employed an average of 13,829 temporary employees. The following table sets forth the number of employees of Petróleos Mexicanos, the subsidiary entities and the PMI Group for the past five years.

		At December 31,
							2001 % of Total
		1997	1998	1999	2000	2001
Pemex-Refining		44,722	49,908	48,939	47,717	47,710	35.38
Pemex-Exploration and Production		34,467	36,503	43,417	46,215	43,208	32.04
Pemex-Petrochemicals		12,488	13,245	13,900	13,256	14,578	10.81
Pemex-Gas and Basic Petrochemicals		12,507	10,678	10,690	10,595	11,716	8.69
Petróleos Mexicanos		17,036	16,364	15,550	17,038	17,640	13.08
	Total	121,220	126,698	132,496	135,091	134,852	100.00
PMI Group		285	289	289	303	324	—

Source: Petróleos Mexicanos

        The Union represents approximately 79% of the work force of Petróleos Mexicanos and the subsidiary entities. The members of the Union are our employees and they elect their own leadership from among their ranks. Since the Union's official establishment in 1938, we have experienced no labor strikes, and although we have experienced work stoppages for short periods of time, none of these stoppages has had a significant material adverse effect on our operations. However, SECODAM, the Comptroller General's office, has recently announced an investigation into certain alleged improper diversions of federal monies by Union officials. See "Item 8—Financial Information—Legal Proceedings—Mexican Government Audits and Other Investigations."

        Our relationship with our employees is regulated by the Ley Federal del Trabajo (Federal Labor Law) and a collective bargaining agreement between Petróleos Mexicanos and the Union. The collective bargaining agreement regulates extensively all aspects of the relationship of Petróleos Mexicanos and the subsidiary entities with their employees. The collective bargaining agreement is subject to renegotiation every two years, although salaries are reviewed annually. Wages increased by 8.5% in 2001 and 12% in 2000, in line with the Mexican Government's price and wage accords. Petróleos Mexicanos and the Union renewed the collective bargaining agreement effective August 1, 2001, pursuant to which wages were increased by 8.5%. The renewed contract was set to expire on July 31, 2003. However, recently, following an impasse in negotiations over salaries and a threat of a strike, on September 29, 2002, PEMEX and the Union reached an agreement on a total salary increase of 7.3% (consisting of a 5.5% increase in wages and a 1.8% increase in benefits). PEMEX will pay this increase in wages and benefits to its workers, including retirees in accordance with the collective bargaining agreement, retroactively to August 1, 2002.

        In accordance with the collective bargaining agreement and the Federal Labor Law, Petróleos Mexicanos and the subsidiary entities are under an obligation to pay seniority premiums to retiring employees and pension and death benefits to retired employees or their survivors. Retirees are entitled to receive increases in their pensions whenever salary increases are granted to current employees. We also provide health and medical benefits to employees, retired employees and their families and, subject to our overall budgetary constraints, we provide an interest-rate subsidy on employees' mortgage loans.

229

        On November 5, 1997 the Ministry of Finance and Public Credit and the Board of Directors of Petróleos Mexicanos authorized the formation of a new trust called the Pemex Labor Fund. This fund is a vehicle to fund labor liabilities, current pension payments and seniority premiums. We have designed a contribution plan to increase the funds held in this trust and to continue to make payments on outstanding labor and pension liabilities. Our contributions to the Pemex Labor Fund amounted to Ps. 4,100 million in 2001 and Ps. 3,442 million in 2000.

Item 7. Major Shareholders and Related Party Transactions

Major Shareholders

        Petróleos Mexicanos and the subsidiary entities have no shareholders because they are decentralized public entities of the Mexican Government. The Mexican Government closely regulates and supervises our operations; it incorporates the annual budget and financing programs of Petróleos Mexicanos and the subsidiary entities into its consolidated annual budget, which it submits to the Mexican Congress for its approval.

        The Mexican Government also directs many executive decisions at PEMEX. Mexican Government ministers hold a majority of the seats on the Board of Directors of Petróleos Mexicanos, and the Secretary of Energy of Mexico is the Chairman of the Board. The General Comptroller's Office of the Mexican Government (SECODAM) appoints PEMEX's external auditors and the Director General of Petróleos Mexicanos is a member of the President of Mexico's cabinet and the Mexican Government. See also "Item 3—Key Information—Risk Factors—Risk Factors Related to the Relationship between PEMEX and the Mexican Government" and "Item 10—Additional Information—Share Capital."

Related Party Transactions

        Under Article 8, Section XI of the Ley Federal de Responsabilidades Administrativas de los Servidores Públicos (Federal Law of Administrative Responsibilities of Public Servants), which is applicable to all of our employees, PEMEX's employees are obligated to "recuse themselves from intervening in any way in the attention to, processing or resolution of matters in which they might have personal, family or business interest, including those where some benefit can result for themselves, their spouse, blood or affinity relatives up to the fourth degree, or civil relatives, or for third parties with which they have professional, laboral, or business relations, or for partners or partnerships where the public servant or the persons referred above are or have been members of."

Item 8. Financial Information

Legal Proceedings

Labor-related Proceedings

        In the ordinary course of our business, we are a party to various legal actions, including those involving labor claims of former and present employees. These labor disputes relate to severance payments, life insurance benefits, extensions of labor contracts, level of wages, improper termination and employee housing. We do not expect these lawsuits to have a material adverse effect on our financial condition or future results of operations.

        On September 29, 2002, PEMEX and the Union reached an agreement that, among other things, settled negotiations relating to their annual salary review. For more information regarding this agreement, see "Item 6—Directors, Senior Management and Employees—Employees."

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Mexican Government Audits and Other Investigations

        Following the change in presidential administrations, in 2001, the General Comptroller's Office of the Mexican Government, which we refer to as "SECODAM," conducted an audit of PEMEX's operations in 2000 and previous years. In the audit, SECODAM identified a series of transactions between PEMEX and the Union during 2000 which PEMEX believes involved illicit behavior. We describe the transactions, allegations and related proceedings below.

        On January 21, 2002, SECODAM announced that it had submitted a criminal complaint to the Procuraduría General de la República (the Office of the Federal Attorney General) for the diversion of Ps. 1,580 million in federal monies from PEMEX to the Union from March 2000 to October 2000. SECODAM has alleged that the payments were not properly made under applicable Mexican laws and government regulations.

        In addition, the Federal Attorney General has filed charges against certain former officers of PEMEX charging them with exceeding the scope of their corporate powers in executing the several transactions under investigation. On March 20, 2002, Petróleos Mexicanos filed three criminal complaints with the Federal Attorney General requesting prosecution principally of Rogelio Montemayor Seguy (former Director General), Carlos Juaristi Septién (former Corporate Management Director) and Juan José Domene Berlanga (former Chief Financial Officer) for acting illegally, outside the scope of their corporate powers and without the consent of PEMEX's Board of Directors, PEMEX's general counsel or the Mexican Government to illegally divert to the Union and certain of its representatives a total of Ps. 1,660 million (which includes the Ps. 1,580 previously identified by SECODAM in its complaint). Mr. Montemayor resigned from PEMEX effective November 30, 2000 concurrent with President Fox's appointment of Raúl Muñoz Leos as Director General. Messrs. Juaristi and Domene ended their affiliation with PEMEX in February 2001 as a result of the change in administration following the appointment of Mr. Muñoz Leos. If the former officers or any other parties are found guilty, Mexican law requires the court to order restitution to PEMEX for the improperly diverted amounts. To date, PEMEX has not sought restitution from the Union, because the Union has not been identified as a criminal defendant in its own right. PEMEX notes that it plans to pursue any legal action necessary to obtain restitution from whomever is found responsible.

        In May 2002, a Mexican federal judge issued arrest warrants against certain former officers of Petróleos Mexicanos (including Messrs. Montemayor, Juaristi and Domene) for their embezzlement and unlawful use of their corporate powers and privileges. On July 1, 2002, Mr. Montemayor elected to surrender himself to U.S. federal authorities in Texas instead of federal authorities in Mexico. The Mexican Government has formally requested that the U.S. authorities extradite Mr. Montemayor to Mexico; the hearing on his extradition is set for December 8, 2002.

        On September 10, 2002, the Federal Attorney General submitted a request to the Mexican Congress that it remove the legislative immunity from prosecution of Senator Ricardo Aldana Prieto, who is a member of the Board of Directors of Petróleos Mexicanos as a representative of the Union, as well as the legislative immunity of federal Congressman Carlos Romero Deschamps and of state representative Jesús Olvera Méndez. If the Mexican Congress strips these individuals of their legislative immunity, the Federal Attorney General will be able to proceed with their criminal prosecution for their participation in the illegal diversion of PEMEX funds.

        Since learning from SECODAM about the illegal diversion of funds, PEMEX has been cooperating with SECODAM and the Office of the Federal Attorney General to prosecute the responsible persons. In addition, our Director General has promoted a number of initiatives and has enacted certain rules in order to promote a culture of ethics and prevent corruption in PEMEX's daily operations. On July 31, 2002, an ethics code (Código de Ética de los Servidores Públicos de la Administración Pública Federal) was published in the Official Gazette of the Federation containing rules to promote legality, honesty, integrity, loyalty, impartiality and efficiency in the performance of

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public work by public officers. Prior to this, President Vicente Fox Quesada's cabinet had committed to follow a code of ethics which embodies the conduct that the people of Mexico expect of their public servants. In addition, all of PEMEX's officers are now required to attend an ethics program, and PEMEX is currently developing a corporate code of ethics that will better define the duties and scope of corporate powers of all of its officers in order to prevent abuses. Separately, SECODAM, through its audit representatives at PEMEX, is analyzing the illegal transactions involving the Union to determine how to better implement federal laws and internal regulations applicable to PEMEX and its officers in order to prevent future abuses. PEMEX expects that these efforts will result in a more effective system of internal controls.

        We note that we recorded the Ps. 1,660 million, the diversion of which is the subject of the prosecution, as an administrative expense in 2000. In the event that we receive any restitution in the future with respect to this matter, it will be appropriately recorded as a gain in the period in which cash is received, in accordance with Mexican and U.S. GAAP.

Civil Actions

        We prevailed in a legal claim before a Mexican federal court brought by Comercio Exterior y Materias Primas S.A. (CEMP), a service provider to Pemex-Exploration and Production, for damages in the amount of U.S. $104.6 million and Ps. 62.4 million as compensation for services provided by CEMP but not paid by Pemex-Exploration and Production. CEMP appealed that decision to the Mexican Supreme Court, and on November 26, 2001, Pemex-Exploration and Production prevailed in the appeal and was absolved of all related claims made by CEMP.

        In September 2001, Conproca, the construction company performing construction and maintenance services for Pemex-Refining's Cadereyta refinery, filed a claim for arbitration in accordance with the International Chamber of Commerce rules against Pemex-Refining related to expenses incurred by Conproca in providing such services. The claim is for U.S. $497.4 million. We are currently participating in mediation to resolve this dispute supported by the ordinary Mexican legal defenses. Pemex-Refining believes that it has sufficient elements to support its acquittal. Accordingly, we have not created a reserve to pay for any potential judgment or settlement.

        In December 2001, Odin Construcciones, S.A. de C.V. (Odin), a Mexican construction company, filed a claim for damages against Petróleos Mexicanos related to works concluded but not yet paid. The claim was for approximately U.S. $103 million. In March 2002, a Mexican federal court entered a judgment in PEMEX's favor. However, Odin filed an appeal to reverse that decision. We do not expect that the results of this appeal will have a material adverse effect on our financial condition or future results of operations.

        In October 2000, in accordance with Article 73 of the Acquisitions, Leasing and Public Sector Services Law, Pemex-Refining settled a legal dispute with Productos Ecológicos S.A. de C.V. (Proesa) relating to the early termination of a long-term MTBE supply and services contract involving an MTBE plant that was never built before the Court for International Arbitration of the International Chamber of Commerce. Proesa's initial claim against Pemex-Refining was for approximately U.S. $650 million. However, after discussion and negotiation in private arbitration proceedings, Pemex-Refining agreed to settle the dispute for a total amount of approximately U.S. $146.5 million (U.S. $127 million plus taxes). The settlement was formalized by an agreement between Pemex-Refining and Proesa, dated October 16, 2000, and fully paid on the same date; the full payment was recorded as an expense in 2000. SECODAM is currently reviewing the contracts entered into by Pemex-Refining and Proesa on a confidential basis.

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U.S. Anti-dumping Dispute

        On June 29, 1999, Save Domestic Oil, Inc., a group of independent oil producers in the United States, filed a petition before the U.S. Department of Commerce and the International Trade Commission pursuant to the United States' antidumping and countervailing duty laws against imports of crude oil from Mexico, Saudi Arabia, Venezuela and Iraq. The United States' antidumping and countervailing duty laws provide for the imposition of additional duties on imports of merchandise if certain determinations as to the existence of dumped prices or countervailing subsidies and material injury or threat thereof to the relevant U.S. industry are made. On August 9, 1999, the U.S. Department of Commerce determined that it would not initiate antidumping and countervailing duty investigations on crude oil from Mexico, Saudi Arabia and Iraq. The U.S. Department of Commerce dismissed the petition, stating that it was prohibited by law from initiating investigations because there was not the requisite U.S. industry support for the petition. The U.S. Department of Commerce has stated that its decision not to initiate investigations means that these cases are closed and that neither the U.S. Department of Commerce nor the International Trade Commission will take further action. On September 7, 1999, Save Domestic Oil, Inc. filed a complaint against the United States seeking review of the U.S. Department of Commerce's decision. This action is still pending.

Dividends

        In March 1990, as a result of the implementation of the 1989-92 Financing Package for Mexico, our commercial bank creditors exchanged U.S. $7.58 billion of Petróleos Mexicanos' external indebtedness for Brady Bonds issued by the Mexican Government. At the same time, Petróleos Mexicanos' indebtedness to the Mexican Government increased by the same amount; the new indebtedness was denominated in currencies other than pesos. In December 1990, the Mexican Government and Petróleos Mexicanos agreed to capitalize this indebtedness, converting it into Certificates of Contribution "A." As a condition of this capitalization, Petróleos Mexicanos agreed to pay a minimum guaranteed dividend to the Mexican Government equal to the debt service on the capitalized debt. The Board of Directors of Petróleos Mexicanos approves the total dividend on the Certificates of Contribution "A" after the end of each fiscal year, although Petróleos Mexicanos pays an amount equal to the minimum guaranteed dividend to the Mexican Government in monthly advance payments during the year. During 1997, 1998, 1999, 2000 and 2001, Petróleos Mexicanos made advance payments to the Mexican Government in the aggregate of, Ps. 5,804 million, Ps. 3,064 million, Ps. 5,138 million, Ps. 5,564 million and Ps. 2,153 million respectively, towards the minimum guaranteed dividends for those years. See "Item 5—Operating and Financial Review and Prospects—Liquidity and Capital Resources—Equity Structure and the Certificates of Contribution 'A."'

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Item 9. The Offer and Listing

        Trading in the securities issued by Petróleos Mexicanos and the Pemex Project Funding Master Trust takes place primarily on the Luxembourg Stock Exchange.

Item 10. Additional Information

Share Capital

        Petróleos Mexicanos and the subsidiary entities have no shareholders because they are decentralized public entities of the Mexican Government. For a discussion of the structure of the Mexican Government's equity in PEMEX, see "Item 5—Operating and Financial Review and Prospects—Liquidity and Capital Resources—Equity Structure and the Certificates of Contribution 'A."'

Memorandum and Articles of Association

        Petróleos Mexicanos and each of the subsidiary entities is a decentralized public entity of the Mexican Government. The Mexican Congress established Petróleos Mexicanos by a decree dated June 7, 1938 effective July 20, 1938. None of Petróleos Mexicanos or the subsidiary entities has bylaws or articles of association. On July 17, 1992, the Mexican Congress created the subsidiary entities out of operations that had previously been directly managed by Petróleos Mexicanos. Petróleos Mexicanos and its four subsidiary entities, Pemex-Exploration and Production, Pemex-Refining, Pemex-Gas and Basic Petrochemicals and Pemex-Petrochemicals, are decentralized public entities of the Mexican Government, and each is a legal entity empowered to own property and carry on business in its own name. The activities of Petróleos Mexicanos and the subsidiary entities are regulated by the Political Constitution of the United Mexican States, the Regulatory Law, the Organic Law, regulations issued pursuant to the Regulatory Law and other federal laws and regulations. See "Item 4—Information on the Company—History and Development." Six members of the Board of Directors of Petróleos Mexicanos, including the Chairman, are appointed by the President of Mexico. Our Union selects the remaining five directors from among employees of Petróleos Mexicanos and the subsidiary entities. An eight-member board of directors governs each subsidiary entity. Each of these boards consists of the Director General of Petróleos Mexicanos, the Director General of each of the other three subsidiary entities and four additional directors, who are each appointed by the President of Mexico. The members of the boards of directors of Petróleos Mexicanos and each of the subsidiary entities are not appointed for a specific term, and, except for those members selected by the Union, they serve subject to the discretion of the President of Mexico.

Material Contracts

        On June 16, 1993, in connection with the establishment of its U.S. $500,000,000 Medium-Term Notes, Series A, Program, Petróleos Mexicanos entered into a Fiscal Agency Agreement with Bankers Trust Company (currently Deutsche Bank Trust Company Americas, which we refer to as "Deutsche Bank"), as Fiscal Agent. On February 26, 1998, in connection with the establishment of its U.S. $1,500,000,000 Medium-Term Notes, Series B, Program, Petróleos Mexicanos amended and restated the Fiscal Agency Agreement. Under the new program, Petróleos Mexicanos issued the following securities:

•

ITL 200,000,000,000 (U.S. $120,081,355.12) Fixed Reverse Floating Rate Notes due 2008, issued on February 26, 1998;



•

U.S. $750,000,000 Daily Adjusted Yield Securities due 2005, issued on July 9, 1998; and



•

U.S. $250,000,000 Daily Adjusted Yield Securities due 2005, issued on July 17, 1998.

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        On July 24, 1998, Petróleos Mexicanos increased the aggregate principal amount of debt securities issuable under its Medium-Term Notes program to U.S. $3,500,000,000. Following this increase, Petróleos Mexicanos issued the following securities:

•

U.S. $600,000,000 9.375% Notes due December 2, 2008, Puttable at Par on December 2, 2001, issued on November 1998; and



•

U.S. $500,000,000 9.50% Puttable or Mandatorily Exchangeable Securities due 2027, issued May 5, 1999.

        On October 5, 1999, Petróleos Mexicanos increased the aggregate principal amount of debt securities issuable under its Medium-Term Notes program to U.S. $6,000,000,000. Following the increase, Petróleos Mexicanos issued the following securities:

•

€175,000,000 8.00% Guaranteed Notes due October 2003, issued on October 7, 1999; and



•

U.S. $600,000,000 6.50% Guaranteed Notes due February 1, 2005, issued on August 29, 2001.

        On November 10, 1998, Petróleos Mexicanos, The Bank of New York and The Bank of New York (Delaware) entered into a Trust Agreement, which created the Pemex Project Funding Master Trust and designated The Bank of New York as Managing Trustee and The Bank of New York (Delaware) as Delaware Trustee. On the same date, Petróleos Mexicanos, the subsidiary entities and the Pemex Project Funding Master Trust, acting through The Bank of New York, entered into an Assignment and Indemnity Agreement. This agreement provides for the assignment by the subsidiary entities to the Pemex Project Funding Master Trust of certain payment obligations relating to PIDIREGAS, the arrangement by Petróleos Mexicanos of financing on behalf of the Pemex Project Funding Master Trust to meet such payment obligations, the payment by Petróleos Mexicanos and the subsidiary entities to the Pemex Project Funding Master Trust of the amounts necessary to meet the Pemex Project Funding Master Trust's obligations under such financings and the indemnification of the Pemex Project Funding Master Trust by Petróleos Mexicanos and the subsidiary entities.

        On December 1, 1998, a Receivables Purchase Agreement was entered into by and among Pemex Finance, Ltd., PMI, P.M.I. Services, B.V. and Pemex-Exploration and Production. Pursuant to this agreement, Pemex-Exploration and Production agrees to export at least 90% of its exports of crude oil to PMI, which in turn agrees to sell all current and expected eligible receivables to P.M.I. Services, B.V. upon the request of Pemex Finance, Ltd. P.M.I. Services, B.V. agrees to sell such eligible receivables to Pemex Finance, Ltd. contemporaneously with its purchase of them.

        On July 31, 2000, in connection with the establishment of a U.S. $3,000,000,000 Medium Term Notes, Series A, Program on behalf of the Pemex Project Funding Master Trust, Petróleos Mexicanos and the Pemex Project Funding Master Trust entered into an Indenture Agreement with Deutsche Bank, as Trustee. This agreement provides for the issuance by the Pemex Project Funding Master Trust from time to time of unsecured debt securities. These issuances are unconditionally guaranteed by Petróleos Mexicanos. Pursuant to a Guaranty Agreement, dated July 29, 1996, Petróleos Mexicanos' obligations are jointly and severally guaranteed by Pemex-Exploration and Production, Pemex-Refining and Pemex-Gas and Basic Petrochemicals. Pursuant to the Indenture Agreement, the Pemex Project Funding Master Trust has issued the following securities:

•

€500,000,000 7.75% Notes due 2007, issued on July 31, 2000;



•

U.S. $500,000,000 9.125% Notes due 2010, issued on October 4, 2000;



•

U.S. $1,000,000,000 8.50% Notes due 2008, issued on February 5, 2001; and



•

U.S. $500,000,000 9.125% Notes due 2010, issued on June 7, 2001.

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        On November 14, 2001, the Pemex Project Funding Master Trust increased the aggregate principal amount of debt securities issuable under its Medium-Term Notes program to U.S. $6,000,000,000. Following the increase, the Pemex Project Funding Master Trust issued the following securities:

•

U.S. $750,000,000 8.00% Notes due 2011, issued on November 26, 2001;



•

U.S. $500,000,000 Floating Rate Notes due 2005, issued on January 7, 2002;



•

U.S. $1,000,000,000 7.875% Notes due 2009, issued on February 1, 2002; and



•

U.S. $500,000,000 8.625% Bonds due 2022, issued on February 1, 2002.

        On November 24, 2000, the Mexican Government, through the Ministry of Finance and Public Credit, as transferor, the Pemex Project Funding Master Trust, as transferee, and Petróleos Mexicanos, as guarantor, entered into a Convenio de Derivación de Fondos (Transfer of Funds Agreement) whereby the Ministry of Finance and Public Credit transferred U.S. $676,161,058 net in cash to the Pemex Project Funding Master Trust which will assume U.S. $698.3 million of the Mexican Government's payment obligations beginning on December 31, 2002.

        As of December 31, 2001 and 2000, PEMEX has entered into contracts with various contractors for an approximate amount of Ps. 46,820 million and Ps. 68,972 million, respectively. These contracts are for the development of PIDIREGAS and are therefore subject to standards required in NIF-09 A, which is a Mexican accounting guideline that outlines specific accounting and budgetary treatment applicable to PIDIREGAS. For an explanation of NIF-09 A, see "Item 4—Information on the Company—History and Development—Capital Expenditures and Investment" and Note 2 d) to the Financial Statements.

Exchange Controls

        Mexico has had a free market for foreign exchange since 1991, and the government has allowed the peso to float freely against the U.S. dollar since December 1994. There can be no assurance that the government will maintain its current foreign exchange policies. See "Item 3—Key Information—Exchange Rates" and "Item 3—Key Information—Risk Factors—Considerations related to Mexico."

Taxation

The 1997 Securities, the 1998 Securities, the 1999 Securities and the 2001 Securities

        Pursuant to a registration statement on Form F-4 (File No. 333-7796), which was declared effective by the U.S. Securities and Exchange Commission, which we refer to as the "Commission," on October 17, 1997, Petróleos Mexicanos, Pemex-Exploration and Production, Pemex-Refining and Pemex-Gas and Basic Petrochemicals registered pursuant to the Securities Act of 1933 up to U.S. $600,000,000 of 8.85% Global Guaranteed Notes due 2007 and up to U.S. $400,000,000 of 9.50% Global Guaranteed Bonds due 2027. These securities are collectively referred to as the 1997 Securities.

        Pursuant to a registration statement on Form F-4 (File No. 333-9310), which was declared effective by the Commission on August 24, 1998, Petróleos Mexicanos, Pemex-Exploration and Production, Pemex-Refining, and Pemex-Gas and Basic Petrochemicals registered pursuant to the Securities Act of 1933 up to U.S. $350,000,000 of 8 ³/8% Global Guaranteed Notes due 2005 and up to U.S. $350,000,000 of 9¹/4% Global Guaranteed Bonds due 2018. These securities are collectively referred to as the 1998 Securities.

        Pursuant to a registration statement on Form F-4 (File No. 333-10906), which was declared effective by the Commission on October 1, 1999, Petróleos Mexicanos, Pemex-Exploration and Production, Pemex-Refining, and Pemex-Gas and Basic Petrochemicals, registered pursuant to the Securities Act of 1933 up to U.S. $600,000,000 of 9 ³/8% Notes due December 2, 2008, Puttable at Par

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on December 2, 2001 (the Puttable Notes). Pursuant to a registration statement on Form F-4 (File No. 333-10706), which was declared effective by the Commission on October 1, 1999, Petróleos Mexicanos, Pemex-Exploration and Production, Pemex-Refining and Pemex-Gas and Basic Petrochemicals registered pursuant to the Securities Act of 1933 up to U.S. $500,000,000 of 9.50% Puttable or Mandatorily Exchangeable Securities (POMES^SM) due 2027. The securities registered in 1999 under these two registration statements are collectively referred to as the 1999 Securities.

        Pursuant to a registration statement on Form F-4 (File No. 333-13812), which was declared effective by the Commission on August 29, 2001, Petróleos Mexicanos, Pemex-Exploration and Production, Pemex-Refining, and Pemex-Gas and Basic Petrochemicals registered pursuant to the Securities Act of 1933 up to U.S. $1,000,000,000 of 8.50% Notes due 2008 and up to U.S. $1,000,000,000 of 9.125% Notes due 2010. These securities are collectively referred to as the 2001 Securities.

Taxation Generally

        The following summary contains a description of the principal Mexican and U.S. federal income tax consequences of the ownership and disposition of the 1997 Securities, the 1998 Securities, the 1999 Securities and the 2001 Securities (all as defined above), but it does not purport to be a comprehensive description of all of the tax considerations that may be relevant to a decision to invest in, or dispose of, the 1997 Securities, 1998 Securities, the 1999 Securities or the 2001 Securities.

        This summary is based on the federal tax laws of Mexico and the United States in force on the date of this Form 20-F, including the provisions of the income tax treaty between the United States and Mexico together with related protocol (the Tax Treaty) (which are subject to change), and does not describe any tax consequences arising under the laws of any state or municipality in Mexico, the United States or any other jurisdiction, or the laws of any taxing jurisdiction other than the federal laws of Mexico and the United States.

        Mexico has also entered into, or is negotiating, tax treaties with various countries that may have effects on holders of 1997 Securities, 1998 Securities, 1999 Securities or the 2001 Securities. This summary does not discuss the consequences (if any) of such treaties.

        Each holder or beneficial owner of 1997 Securities, 1998 Securities, 1999 Securities or the 2001 Securities should consult its tax advisor as to the Mexican, United States or other tax consequences of the ownership and disposition of those securities, including the effect of any foreign, state or municipal tax laws, and the consequences of the application of any tax treaty to which Mexico is a party.

Mexican Taxation

        This summary of certain Mexican federal tax considerations refers only to holders of 1997 Securities, 1998 Securities, 1999 Securities or the 2001 Securities that are not residents of Mexico for Mexican tax purposes and that do not conduct a trade or business in Mexico through a permanent establishment (we refer to any such non-resident holder as a Foreign Holder). For purposes of Mexican taxation, an individual is a resident of Mexico if he has established his domicile in Mexico, unless he has resided in another country for more than 183 calendar days, whether consecutive or not in any calendar year and can demonstrate that he has become a resident of that other country for tax purposes.

        A legal entity is a resident of Mexico if;

•

it has been incorporated under the laws of Mexico;



•

maintains the principal administration of its business in Mexico; or



•

it has established its effective management in Mexico.

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        If a person has a permanent establishment in Mexico, such permanent establishment shall be required to pay taxes in Mexico on income attributable to such permanent establishment in accordance with Mexican federal tax law.

        Taxation of Interest.    Under the Ley del Impuesto Sobre la Renta (Income Tax Law), payments of interest (which is deemed to include any amounts paid in excess of the original issue price), made by a Mexican issuer (including Petróleos Mexicanos) in respect of notes or bonds and other debt securities to a Foreign Holder will generally be subject to a Mexican withholding tax assessed at a rate of 4.9%, if the following requirements are met:

•

the relevant notes or bonds are registered with the Special Section of the National Registry of Securities and Intermediaries maintained by the National Banking and Securities Commission, and evidence of such registration is filed with the Ministry of Finance and Public Credit; and



•

the notes or bonds are placed outside of Mexico through banks or brokerage houses in a country that has entered into a treaty to avoid double taxation with Mexico; and



•

we duly comply with the information requirements established in the general rules issued by the Ministry of Finance and Public Credit for such purposes.

If the requirements for the 4.9% rate are not met, the rate of withholding tax on payments to a Foreign Holder will be 10%.

        If the effective beneficiaries, directly or indirectly, individually or jointly with related parties, receive more than 5% of the interest paid on notes or bonds and (1) own directly or indirectly, individually or jointly, with related parties, more than 10% of the voting stock of the issuer or (2) are entities 20% or more of whose stock is owned directly or indirectly, individually or jointly, by parties related to the issuer, the Mexican withholding tax rate applicable to payment of interest on notes or bonds may be significantly higher.

        Payments of interest made by Petróleos Mexicanos or Pemex-Exploration and Production, Pemex-Refining, and Pemex-Gas and Basic Petrochemicals in respect of the 1997 Securities, the 1998 Securities, the 1999 Securities and the 2001 Securities to non-Mexican pension or retirement funds will be exempt from Mexican withholding taxes, provided that any such fund:

•

is duly organized pursuant to the laws of its country of origin and is the effective beneficiary of the interest payment;



•

the income from such interest payment is exempt from income tax in such country of residence; and



•

is registered with the Ministry of Finance and Public Credit for that purpose.

        Additional Amounts.    Petróleos Mexicanos, Pemex-Exploration and Production, Pemex-Refining, and Pemex-Gas and Basic Petrochemicals have agreed, subject to specified exceptions and limitations, to:

•

pay Additional Amounts (as defined in the Indenture dated September 18, 1997 between Petróleos Mexicanos and Deutsche Bank (the 1997 Indenture)) to the holders of the 1997 Securities in respect of the Mexican withholding taxes mentioned above;



•

pay Additional Amounts (as defined in the Indenture dated August 7, 1998 between Petróleos Mexicanos and Deutsche Bank (the 1998 Indenture)) to the holders of the 1998 Securities in respect of the Mexican withholding taxes mentioned above;



•

pay Additional Amounts (as defined in the Indenture dated as of July 31, 1999 between Petróleos Mexicanos and Deutsche Bank) to the holders of the Puttable Notes;

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•

pay Additional Amounts (as defined in the Indenture dated as of July 15, 1999 between Petróleos Mexicanos and Deutsche Bank) to the holders of the POMES^SM in respect of the Mexican withholding taxes described above; and



•

pay Additional Amounts (as defined in the Indenture dated as of July 31, 2000 among the Pemex Project Funding Master Trust, Petróleos Mexicanos and Deutsche Bank) to the holders of the 2001 Securities in respect of the Mexican withholding taxes mentioned above.

        If Petróleos Mexicanos pays Additional Amounts in respect of such Mexican withholding taxes, any refunds received with respect to such Additional Amounts will be for the account of Petróleos Mexicanos.

        Holders or beneficial owners of the 1997 Securities, the 1998 Securities, the 1999 Securities or the 2001 Securities may be requested to provide certain information or documentation necessary to enable Petróleos Mexicanos or Pemex-Exploration and Production, Pemex-Refining, and Pemex-Gas and Basic Petrochemicals to establish the appropriate Mexican withholding tax rate applicable to such holders or beneficial owners. In the event that the specified information or documentation concerning the holder or beneficial owner, if requested, is not provided on a timely basis, the obligation of Petróleos Mexicanos or Pemex-Exploration and Production, Pemex-Refining, and Pemex-Gas and Basic Petrochemicals to pay Additional Amounts may be limited.

        Taxation of Dispositions.    Capital gains resulting from the sale or other disposition of the 1997 Securities, the 1998 Securities, the 1999 Securities or the 2001 Securities by a Foreign Holder will not be subject to Mexican income or withholding taxes.

        Other Mexican Tax Considerations.    Under the Income Tax Law, any discount received by a non-resident upon purchase of the notes or bonds issued by a Mexican issuer, are deemed interest income, and therefore, subject to taxes in Mexico. Such interest income is calculated as the difference between the face value (plus accrued interest not subject to withholding) and the purchase price of such notes or bonds. If any such note or bond is sold by a Mexican resident or a non-resident with a permanent establishment in Mexico, such taxes must be paid by the seller, on behalf of the non-resident purchaser, within 15 days after the sale. However, when the sale is made by a Foreign Holder, the Income Tax law is unclear as to how such taxes, if any, would be paid by or on behalf of the purchaser.

        Transfer and Other Taxes.    There are no Mexican stamp, registration, or similar taxes payable by a Foreign Holder in connection with the purchase, ownership or disposition of the 1997 Securities, the 1998 Securities, the 1999 Securities or the 2001 Securities. A Foreign Holder of the 1997 Securities, the 1998 Securities, the 1999 Securities or the 2001 Securities will not be liable for Mexican estate, succession, gift, inheritance or similar tax with respect to such securities.

United States Taxation

        This summary of certain U.S. federal income tax considerations deals principally with persons that will hold the 1997 Securities, the 1998 Securities, the 1999 Securities or the 2001 Securities as capital assets and whose functional currency is the United States dollar. This summary does not purport to be a comprehensive description of all the tax considerations that may be relevant to any particular investor, including tax considerations that arise from rules of general application or that are assumed to be known to investors. This summary generally does not address the tax treatment of holders that may be subject to special tax rules, such as banks, insurance companies, tax-exempt organizations, dealers in securities or currencies, traders in securities electing to mark to market, or persons that hold the 1997 Securities, the 1998 Securities, the 1999 Securities or the 2001 Securities as a position in a "straddle" for tax purposes or as part of a "synthetic security" or a "conversion transaction" or other integrated investment comprised of such securities and one or more other investments, nor does it address the tax

239

treatment of holders that do not acquire the 1997 Securities, the 1998 Securities, the 1999 Securities or the 2001 Securities at their issue price as part of the initial distribution. Investors who purchase the 1997 Securities, the 1998 Securities, the 1999 Securities or the 2001 Securities at a price other than the issue price should consult their tax advisor as to the possible applicability to them of the amortizable bond premium or market discount rules. As used in this section "Taxation," the term "United States Holder" means an individual who is a citizen or resident of the United States, a U.S. domestic corporation, or any other person that is subject to U.S. federal income taxation on a net income basis in respect of its investment in the 1997 Securities, the 1998 Securities, the 1999 Securities or the 2001 Securities.

Taxation of Interest and Additional Amounts.    A United States Holder will treat the gross amount of interest and Additional Amounts (i.e., without reduction for Mexican withholding taxes) as ordinary interest income in respect of the 1997 Securities, the 1998 Securities, the 1999 Securities or the 2001 Securities. Mexican withholding taxes paid at the appropriate rate applicable to the United States Holder will be treated as foreign income taxes eligible for credit against such United States Holder's U.S. federal income tax liability, subject to generally applicable limitations and conditions, or, at the election of such United States Holder, for deduction in computing such United States Holder's taxable income. Interest and Additional Amounts will constitute income from sources without the United States for U.S. foreign tax credit purposes. Such income generally will constitute "passive income" or, in the case of certain United States Holders, "financial services income" for U.S. foreign tax credit purposes unless the Mexican withholding tax applicable to the United States Holder is imposed at a rate of at least 5%, in which case such income generally will constitute "high withholding tax interest."

        The calculation of foreign tax credits and, in the case of a United States Holder that elects to deduct foreign taxes, the availability of deductions, involves the application of rules that depend on a United States Holder's particular circumstances. United States Holders should consult their own tax advisors regarding the availability of foreign tax credits and the treatment of Additional Amounts.

        Foreign tax credits may not be allowed for withholding taxes imposed in respect of certain short-term or hedged positions in securities or in respect of arrangements in which a United States Holder's expected economic profits is insubstantial. United States Holders should consult their own advisors concerning the implications of these rules in light of their particular circumstances.

        Taxation of Dispositions.    Upon the sale, exchange or retirement of a 1997 Security, 1998 Security, 1999 Security or 2001 Security, a United States Holder will generally recognize a gain or loss equal to the difference between the amount realized (less any amounts attributable to accrued and unpaid interest not previously includible in gross income, which will be taxable as ordinary income) and the holder's tax basis in such security. Gain or loss recognized by a United States Holder on the sale, redemption or other disposition of the 1997 Securities, the 1998 Securities, the 1999 Securities or the 2001 Securities generally will be long-term capital gain or loss if, at the time of disposition, the securities have been held for more than one year. Long-term capital gain realized by an individual United States Holder is generally taxed at lower rates than short-term capital gains or ordinary income.

        Non-United States Holders.    Holders of the 1997 Securities, the 1998 Securities, the 1999 Securities or the 2001 Securities that are, with respect to the United States, non-resident aliens or foreign corporations (Non-United States Holders) will not be subject to U.S. federal income taxes, including withholding taxes, on payments of interest on the securities so long as the requirements described under "Backup Withholding and Information Reporting" are satisfied, unless such income is effectively connected with the conduct by the Non-United States Holder of a trade or business in the United States.

        The gain realized on any sale or exchange of the 1997 Securities, the 1998 Securities, the 1999 Securities or the 2001 Securities by a Non-United States Holder will not be subject to U.S. federal income tax, including withholding tax, unless (i) such gain is effectively connected with the conduct by

240

the holder of a trade or business in the United States or (ii) in the case of gain realized by an individual holder, the holder is present in the United States for 183 days or more in the taxable year of the sale and either (A) such gain or income is attributable to an office or other fixed place of business maintained in the United States by such holder or (B) such holder has a tax home in the United States.

        A 1997 Security, 1998 Security, 1999 Security or 2001 Security held by an individual holder who at the time of death is a nonresident alien will not be subject to United States federal estate tax.

        Backup Withholding and Information Reporting.    The principal paying agent for the 1997 Securities, the 1998 Securities, 1999 Securities or the 2001 Securities will be required to file information returns with the Internal Revenue Service with respect to payments made to certain United States Holders of those securities. In addition, certain United States Holders may be subject to a backup withholding tax in respect of such payments, unless they (i) provide their accurate taxpayer identification numbers to the principal paying agent and certify that they are not subject to backup withholding or (ii) otherwise establish an exemption from the backup withholding tax. Non-United States Holders may be required to comply with applicable certification procedures to establish that they are not United States Holders in order to avoid the application of such information reporting requirements and backup withholding tax.

241

DOCUMENTS ON DISPLAY

        We are subject to the information requirements of the Securities Exchange Act of 1934, as amended. In accordance with these requirements, we file reports, including annual reports on Form 20-F, and other information with the Commission. These materials, including this annual report, and the exhibits thereto, may be inspected and copied at the Commission's public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the Commission at 1-800-SEC-0330 for further information on the public reference rooms. In addition, any filings we make electronically with the Commission will be available to the public over the Internet at the Commission's web site at http://www.sec.gov.

Item 11. Quantitative and Qualitative Disclosures About Market Risk

Risk Management and Financial Instruments

        We face significant market risks in foreign exchange, interest rates and hydrocarbon prices as part of our normal business operations. Managing risk exposure is a high priority for our senior management and risk management committee, which is composed of representatives of Petróleos Mexicanos and the subsidiary entities, Banco de México, the Ministry of Finance and Public Credit and PMI. We have developed policies aimed at managing the volatility inherent in these normal business exposures, and, in accordance with these policies, we enter into various transactions using derivative financial and commodity instruments, including conventional exchange-traded derivative instruments such as futures and options, as well as over-the-counter instruments such as swaps, options and forward contracts.

        During 2001, the Board of Directors of Petróleos Mexicanos approved a restructuring of the risk management area and created the Risk Management Deputy Direction, whose objective is to develop the financial and operational risk management strategy for Petróleos Mexicanos and the subsidiary entities and to establish institutional regulations consistent with a consolidated risk management approach.

Commodity Price Risk

Crude Oil

        Our exports and domestic sales are related to international hydrocarbon prices, thus exposing us to fluctuations in international markets. We share this risk with the Mexican Government through our current fiscal regime. In order to mitigate this risk, since 1998, the Mexican Government, along with PEMEX, has actively participated with the major international oil producers to improve international oil prices by reducing crude oil exports volumes. See "Item 5—Operating and Financial Review and Prospects—General—Export Agreements."

        In the past few years, PMI entered into several long-term Maya crude oil supply agreements. Under these agreements, PMI provides purchasers with certain support mechanisms to protect, under certain adverse market conditions, the investments the purchasers made in accordance with the agreements. Given the conditions of crude oil markets, placing additional volumes of crude oil in more refineries that are able to process the heavy crude oil that Pemex-Exploration and Production produces supports the overall average price of crude oil exports. We perceive the risk under these agreements as manageable, without the need for hedging instruments, since in the worst case market scenario the expected additional value derived from crude oil exports should exceed the expected cost of the support mechanisms.

242

Petroleum Products

        We balance our overall petroleum product supply and demand through PMI Trading, managing only those exposures associated with our immediate operational program. To this end, we use the full range of conventional oil price-related financial and commodity derivatives available in the oil markets. Our benchmark for petroleum product commercial activities is the prevailing market price. As of December 31, 2001, the value at risk as measured against the above-mentioned benchmark was U.S. $16.2 million.

Natural Gas

        As described above under "Item 4—Information on the Company—Business Overview—Gas and Basic Petrochemicals—Natural Gas Risk Management," we have entered into a number of three-year agreements with Mexican industrial consumers that hold outstanding natural gas price hedging instruments to sell natural gas at a fixed reference price of U.S. $4.00 per million BTUs. As part of our risk management strategy, we have also entered into a number of derivative instruments to hedge these fixed price sales under the three-year agreements, while locking in a profit margin; we entered into these derivative instruments for approximately 91% of the total volume of natural gas sold under these three-year fixed price agreements.

        The risk management strategy used to hedge these fixed price sales left us with an exposure to basis risk arising from the difference between the index used to hedge the natural gas sales at a fixed price and the index used as reference to mark to market these contracts. This basis risk is treated as an inefficiency of the transaction and may impact our earnings in a period other than the one during which the transaction was realized.

Foreign Currency Exchange Rate Risk

        A significant amount of our revenues is derived from exports of crude oil and petroleum products, which are priced and payable in U.S. dollars. Moreover, our revenues net of the IEPS Tax from domestic sales of petroleum products and petrochemicals are related to the international dollar-denominated prices of these products. By contrast, most of our costs of sales and other expenses, other than hydrocarbon duties, are payable in pesos and are not linked to the U.S. dollar. As a result, the peso's depreciation against the U.S. dollar increases our income in peso terms. Appreciation of the peso relative to the U.S. dollar has the opposite effect. We perceive this risk as manageable, without the need for hedging instruments, because most of our investments and debt issuances are made in U.S. dollars and, therefore, the impact of the fluctuation in the exchange rate between the U.S. dollar and the peso on our revenues is offset by its impact on our obligations.

        Most of our debt is denominated in U.S. dollars, although we borrow in other currencies as well. Also, because we generate significant U.S. dollar revenues, fluctuations in currencies other than the U.S. dollar can increase our costs of funding. Since 1991, Petróleos Mexicanos has entered into currency swaps to hedge against movements in exchange rates when it borrows in currencies other than U.S. dollars. In 2001, Petróleos Mexicanos entered into various cross-currency swaps to hedge currency risk arising from Euro- and Japanese yen-denominated debt obligations issued by the Pemex Project Funding Master Trust. As of December 31, 2001, the aggregate notional amount of the swaps entered into in 2001 was U.S. $884 million, for a total outstanding position on currency swaps at year-end of U.S. $1,952 million. In addition, during 2002, Petróleos Mexicanos has entered into a series of cross-currency swaps for a nominal amount of U.S. $915.1 million.

        We capitalize our debt-related foreign exchange losses on our balance sheet, but only up to the increase in the restated value of our fixed assets in the same period. In 2000, we capitalized our debt-related foreign exchange losses of Ps. 140 million resulting from foreign exchange losses of certain subsidiary entities (the remaining subsidiary entities recorded foreign exchange gains). We do not

243

capitalize debt-related foreign exchange gains nor foreign exchange gains or losses related to our operations, which consist mainly of gains and losses on receivables for export sales and payables to foreign suppliers; we record these gains or losses in results of operations. As we had net debt-related foreign exchange gains in 1999, 2000 and 2001, we recorded total net foreign exchange gains from operations and debt of Ps. 2,950 million in 1999, Ps. 877 million in 2000 and Ps. 3,892 million in 2001.

Interest Rate Risk

        We are exposed to interest rate risk on short and long-term floating rate instruments. We are predominantly exposed to U.S. dollar LIBOR interest rates because our borrowings are primarily denominated in, or swapped into, U.S. dollars. We use derivative instruments as described below to achieve the required mix of fixed and floating rate exposure in our debt portfolio. As of December 31, 2001, the proportion of floating rate debt was approximately 40% of total net debt outstanding.

        Interest-rate swaps.    Under interest-rate swap agreements, we are obligated to make payments based on a fixed interest rate and are entitled to receive payments based on either the floating three-month or six-month LIBOR. As of December 31, 2001 Petróleos Mexicanos was a party to interest-rate swap agreements totaling an aggregate notional amount of U.S. $100 million, with an average fixed interest rate of approximately 7.33% and a weighted average term of approximately 2.59 years. During 2002, we have entered into interest-rate swap agreements totaling an aggregate notional amount of U.S. $331 million.

        Interest-rate caps.    In 1994, our hedging committee eliminated some of the protection provided by our interest-rate swaps by selling interest-rate caps. During 2001, all of Petróleos Mexicanos' outstanding caps in a total notional amount of U.S. $100 million expired. Petróleos Mexicanos did not enter into any new interest-rate-cap transactions during this period.

        The market value of Petróleos Mexicanos' aggregate foreign exchange and interest rate derivatives position was negative Ps. 2,357.7 million as of December 31, 2000 and negative Ps. 3,366.3 million as of December 31, 2001.

        The effects on the consolidated statements of income of entering into "swap" transactions are recorded as incurred and when the precise settlement amounts are known. The effects on the consolidated statements of income of other derivative instruments, including premiums paid or received, are recognized at the date of receipt or payment. Such amounts are included in the consolidated statements of income within the "Interest, net" caption. See Note 10 to the Financial Statements.

        When derivative results are favorable to Petróleos Mexicanos, it faces the risk that counterparties will not pay their obligations. To minimize this risk, Petróleos Mexicanos monitors counterparties' creditworthiness and exposure to derivative instruments. Petróleos Mexicanos also deals exclusively with major financial institutions and maintains a diversified portfolio.

Equity Swap

        Petróleos Mexicanos currently holds three equity swaps with respect to shares of Repsol. In 1994, Petróleos Mexicanos entered into an equity swap, which was restructured in March 2000, resulting in a swap with respect to 26,427,781 Repsol shares divided in three tranches, having one-, two- and three-year maturities. Upon the maturity of the one-year tranche of the restructured swap in 2001, Petróleos Mexicanos entered into a new swap for another three months, commencing in April 2001. Since then, this swap has been renewed periodically. Upon the maturity of the two-year tranche of the restructured swap in April 2002, Petróleos Mexicanos entered into a new swap for three months.

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        In addition, in January 2000, Petróleos Mexicanos entered into a second equity swap with respect to 13,679,704 Repsol shares maturing in three years. As of December 31, 2001 the market value of the Repsol shares was U.S. $14.57 per share.

Instruments Entered Into For Trading Purposes

        As part of our client-based approach, we offer natural gas derivatives to our clients. As mentioned above, our benchmark is the market price; therefore, we enter into derivative transactions with the opposite position in order to offset the effect of the derivatives offered to our clients. Neither Bulletin C-2 nor SFAS No.133 allow entering into a derivatives position in order to hedge a position created by another derivative; as a result, these two operations are considered to be entered into for trading purposes. However, given that they have offsetting effects, we are only exposed to basis risk arising from the difference between the index offered to clients and the index related to the offsetting position.

        The following tables set forth our portfolio of debt and derivative financial instruments that are sensitive to changes in interest rates as of December 31, 2001. It should be noted that:

•

for debt obligations, this table presents principal cash flows and related weighted average interest rates for fixed and variable rate debt;



•

for interest-rate swaps and other derivatives, this table presents notional amounts and weighted average interest rates by expected (contractual) maturity dates;



•

weighted average variable rates are based on implied forward rates in the yield curve at the reporting date;



•

fair values are obtained from market quotes received from market sources such as Reuters, Telerate and Bloomberg;



•

where quotes are not available, fair value is calculated internally, discounting from the corresponding zero coupon yield curve in the original currency;



•

for all instruments, the table shows the contract terms in order to determine future cash flows categorized by expected maturity dates;



•

the information is presented in equivalents of the peso, which is our reporting currency; and



•

each instrument's actual cash flows are denominated in U.S. dollars or other foreign currencies as indicated in parentheses.

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Quantitative Disclosure of Market Risk (Interest Rate Sensitivity) as of December 31, 2001(1)

			Year of Expected Maturity Date
			2002	2003	2004	2005	2006	Thereafter	Total Carrying Value	Fair Value
			(in thousands of pesos)
Liabilities
Outstanding debt
	Fixed rate (U.S. dollars)		3,392,847	586,695	513,653	9,129,794	5,034,477	50,867,542	69,525,007	(74,103,363	)
		Average Interest Rate (%)	8.65	8.67	8.68	8.68	8.92	8.86	8.83	—
	Fixed rate (Japanese yen)		1,263,124	1,289,625	1,289,625	1,289,625	1,289,625	5,710,858	12,132,480	(13,165,903	)
		Average Interest Rate (%)	2.56	2.56	2.57	2.57	2.58	2.59	2.58	—
	Fixed rate (British pounds)		—	1,036,257	—	—	621,243	—	1,657,500	(1,851,275	)
		Average Interest Rate (%)	10.77	10.77	14.92	14.92	14.92	—	12.32	—
	Fixed rate (Euro)		6,110	1,710,724	428	428	428	6,888,266	8,606,385	(8,737,663	)
		Average Interest Rate (%)	8.47	8.47	8.59	8.59	8.59	8.59	8.57	—
Total fixed rate debt			4,662,080	4,623,300	1,803,705	10,419,847	6,945,773	63,466,667	91,921,372	(97,858,205	)
	Variable rate (U.S. dollars)		28,980,413	9,931,314	11,111,008	5,369,464	2,649,709	4,449,589	62,491,497	(63,052,360	)
	Variable rate (Swiss francs)		1,084	1,177	1,257	628	628	38,082	42,857	(43,709	)
	Variable rate (Euro)		6,482	20,839	1,938,802	9,334	7,840	381,032	2,364,328	(2,527,727	)
Total variable rate debt			28,987,979	9,953,330	13,051,068	5,379,426	2,658,177	4,868,702	64,898,682	(65,623,797	)
		Total Debt	33,650,059	14,576,630	14,854,773	15,799,273	9,603,950	68,335,369	156,820,054	(163,482,002	)

Note: Numbers may not total due to rounding.

(1)

The information in this table has been calculated using an exchange rate of Ps. 9.1423 = U.S. $1.00.

Source: Petróleos Mexicanos

246

Quantitative Disclosure of Market Risk (Interest Rate Risk) as of December 31, 2001(1)

Derivative financial instruments held or issued for purposes other than trading:

				Year of Expected Maturity Date
				2002	2003	2004	2005	2006	Thereafter	Total Notional Amount	Fair Value
				(in thousands of pesos)
Interest Rate Derivatives
Hedging Instruments
	Cross-Currency Swaps			—	2,848,512	1,917,199	—	—	13,084,337	17,850,048	(3,281,486	)
		Euro to U.S. dollars		—	1,710,296	—	—	—	6,801,320	8,511,616	(1,533,064	)
		Italian lire to U.S. dollars		—	—	1,917,199	—	—	1,859,942	3,777,141	(1,281,899	)
		Japanese Yen to U.S. dollars		—	—	—	—	—	4,423,074	4,423,074	(292,435	)
		British pounds to U.S. dollars		—	1,138,216	—	—	—	—	1,138,216	(174,089	)
Non-Hedging Instruments
	Interest Rate Swaps (U.S. Dollars)
		Variable to fixed		—	—	914,230	—	—	—	914,230	(84,848	)
			Average pay rate (%)	7.33	7.33	7.33	—	—	—	7.33	—
			Average receive rate (%)	2.29	4.23	5.60	—	—	—	4.04	—
			Total	—	—	—	—	—	—	—	(3,366,334	)

Note: Numbers may not total due to rounding.

(1)

The information in this table has been calculated using exchange rate of Ps. 9.1423 = U.S. $1.00.

Quantitative Disclosure of Market Risk (Equity Swap) as of December 31, 2001(1)

	Year of Expected Maturity Date
	2002	2003	2004	2005	2006	Thereafter	Total Notional Amount	Fair Value
	(in thousands of pesos)
Equity Swap	2,848,857	4,087,257	—	—	—	—	6,936,114	(1,701,683	)

Note: Numbers may not total due to rounding.

(1)

The information in this table has been calculated using exchange rate of Ps. 9.1423 = U.S. $1.00.

Item 12. Description of Securities Other than Equity Securities

        Not applicable.

Item 13. Defaults, Dividend Arrearages and Delinquencies

        Not applicable.

Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds

        Not applicable.

Item 15. Controls and Procedures

        Because this Form 20-F is being filed for the fiscal year ended December 31, 2001, the disclosure requirements of Item 15(a) of Form 20-F are not applicable.

        There have been no changes in internal controls of PEMEX which would require disclosure under Item 15(b) of Form 20-F.

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Item 16. [Reserved]

Item 17. Financial Statements.

        Not applicable.

Item 18. Financial Statements.

        Please refer to Item 19(a) for a list of all Financial Statements filed as a part of this Form 20-F.

Item 19. Exhibits.

(a) List of Financial Statements:

	Page
Report of PricewaterhouseCoopers, S.C., Independent Accountants	F-2
Report of Mancera, S.C. (A Member Practice of Ernst & Young Global), Independent Auditors	F-3
Consolidated Balance Sheets as of December 31, 2001 and 2000	F-4
Consolidated Statements of Operations for the years ended December 31, 2001, 2000 and 1999	F-5
Consolidated Statements of Changes in Equity for the years ended December 31, 2001, 2000 and 1999	F-6
Consolidated Statements of Changes in Financial Position for the years ended December 31, 2001, 2000 and 1999	F-7
Notes to the Consolidated Financial Statements	F-8
Unaudited Supplemental Consolidated Information Prepared on a Price-level Adjusted Basis	F-87
Notes to the Unaudited Supplemental Consolidated Information Prepared on a Price-level Adjusted Basis	F-92
Appendix: Reports of Other Independent Accountants	F/A-1
Report of PricewaterhouseCoopers on Integrated Trade Systems, Inc.	F/A-2
Report of PricewaterhouseCoopers on P.M.I. Trading Limited Mexican Branch	F/A-3
Report of PricewaterhouseCoopers on P.M.I. Holdings North America, Inc.	F/A-4
Report of PricewaterhouseCoopers on P.M.I. Holdings N.V.	F/A-5
Report of PricewaterhouseCoopers on P.M.I. Holdings B.V.	F/A-7
Report of PricewaterhouseCoopers on P.M.I. Norteamérica, S.A. de C.V.	F/A-9
Report of PricewaterhouseCoopers on P.M.I. Marine Limited Mexican Branch	F/A-10
Report of PricewaterhouseCoopers on P.M.I. Services B.V.	F/A-11
Report of PricewaterhouseCoopers on P.M.I. Services North America, Inc.	F/A-13
Report of PricewaterhouseCoopers on Kot Insurance Company, Ltd.	F/A-14

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(b)  List of Exhibits

1.1	Ley Orgánica de Petróleos Mexicanos y Organismos Subsidiarios (the Organic Law of Petróleos Mexicanos and Subsidiary Entities), as amended effective January 1, 1994 (previously filed as Exhibit 3.1 to Petróleos Mexicanos' Registration Statement on Form F-1 (File No. 33-86304) on November 14, 1994 and incorporated by reference herein).
1.2	Reglamento de la Ley Orgánica de Petróleos Mexicanos y Organismos Subsidiarios (Regulations to the Organic Law of Petróleos Mexicanos and Subsidiary Entities), together with an English translation (previously filed as Exhibit 3.2 to Petróleos Mexicanos' Registration Statement on Form F-1 (File No. 33-86304) on November 14, 1994 and incorporated by reference herein).
1.3	Reglamento de Gas Natural (Natural Gas Regulation), effective November 9, 1995 together with an English translation (previously filed as Exhibit 1 to Petróleos Mexicanos' annual report on Form 20-F (File No. 0-99) on June 28, 1996 and incorporated by reference herein).
1.4	Decreto por el que se Reforma la Ley Reglamentaria del Artículo 27 Constitucional en el Ramo del Petróleo (Decree that Amends the Regulatory Law to Article 27 of the Political Constitution of the United Mexican States Concerning Petroleum Affairs), effective November 14, 1996 (previously filed as Exhibit 1 to Petróleos Mexicanos' annual report on Form 20-F (File No. 0-99) on June 30, 1997 and incorporated by reference herein).
1.5	Decreto por el que se adiciona el Reglamento de la Ley Orgánica de Petróleos Mexicanos y Organismos Subsidiarios (Decree that adds to the Regulations to the Organic Law of Petróleos Mexicanos and Subsidiary Entities), together with an English translation, effective April 30, 2001 (previously filed as Exhibit 1.5 to Petróleos Mexicanos' annual report on Form 20-F (File No. 0-99) on June 28, 2001 and incorporated by reference herein).
1.6	Ley Orgánica de Petróleos Mexicanos y Organismos Subsidiarios (the Organic Law of Petróleos Mexicanos and Subsidiary Entities), as amended effective January 16, 2002 (English translation) (previously filed as Exhibit 1.6 to Amendment No. 1 to Petróleos Mexicanos' annual report on Form 20-F/A (File No. 0-99) on November 15, 2002 and incorporated by reference herein).
2.1	Indenture, dated as of September 18, 1997, between Petróleos Mexicanos and Bankers Trust Company (previously filed as Exhibit 4.1 to Petróleos Mexicanos' Registration Statement on Form F-4 (File No. 333-7796) on October 17, 1997 and incorporated by reference herein).
2.2	Indenture, dated August 7, 1998, between Petróleos Mexicanos and Bankers Trust Company (previously filed as Exhibit 4.1 to Petróleos Mexicanos' Registration Statement on Form F-4 on August 11, 1998 and incorporated by reference herein).
2.3	Indenture, dated July 15, 1999, between Petróleos Mexicanos and Bankers Trust Company (previously filed as Exhibit 4.1 to Petróleos Mexicanos' Registration Statement on Form F-4 (File No. 333-10706) on August 23, 1999 and incorporated by reference herein).
2.4	Indenture, dated July 31, 1999, between Petróleos Mexicanos and Bankers Trust Company (previously filed as Exhibit 4.1 to Petróleos Mexicanos' Registration Statement on Form F-4 (File No. 333-10706) on September 29, 1999 and incorporated by reference herein).

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2.5	Indenture, dated as of July 31, 2000, among Pemex Project Funding Master Trust, Petróleos Mexicanos and Bankers Trust (previously filed as Exhibit 2.5 to Petróleos Mexicanos' annual report on Form 20-F (File No. 0-99) on June 28, 2001 and incorporated by reference herein).
2.6	Fiscal Agency Agreement between Petróleos Mexicanos and Bankers Trust, dated as of June 16, 1993, and amended and restated as of February 26, 1998 (previously filed as Exhibit 3.1 to Petróleos Mexicanos' annual report on Form 20-F (File No. 0-99) on June 29, 2000 and incorporated by reference herein).
2.7	Trust Agreement, dated as of November 10, 1998, among The Bank of New York, The Bank of New York (Delaware) and Petróleos Mexicanos (previously filed as Exhibit 3.1 to Petróleos Mexicanos' annual report on Form 20-F (File No. 0-99) on June 30, 1999 and incorporated by reference herein).
2.8	Assignment and Indemnity Agreement, dated as of November 10, 1998, among Petróleos Mexicanos, Pemex-Exploración y Producción, Pemex-Refinación, Pemex-Gas y Petroquímica Básica and Pemex Project Funding Master Trust, and The Bank of New York (previously filed as Exhibit 3.2 to Petróleos Mexicanos' annual report on Form 20-F (File No. 0-99) on June 30, 1999 and incorporated by reference herein).
2.9	Guaranty Agreement, dated July 29, 1996, among Petróleos Mexicanos, Pemex-Exploración y Producción, Pemex-Refinación and Pemex-Gas y Petroquímica Básica (previously filed as Exhibit 4.4 to Petróleos Mexicanos' Registration Statement on Form F-4 (File No. 333-7796) on October 17, 1997 and incorporated by reference herein).
4.1	Agreement for the Financial Strengthening of Petróleos Mexicanos between the Federal Government of Mexico and Petróleos Mexicanos, together with a summary in English (previously filed as Exhibit 10.1 to Petróleos Mexicanos' Registration Statement on Form F-1 (File No. 33-86304) on November 14, 1994 and incorporated by reference herein).
4.2	Amendment to the Agreement for the Financial Strengthening of Petróleos Mexicanos between the Federal Government of Mexico and Petróleos Mexicanos, dated December 18, 1997, together with an English translation (previously filed as Exhibit 10.1 to Amendment No. 1 to Petróleos Mexicanos' annual report on Form 20-F/A (File No. 0-99) on July 20, 1998 and incorporated by reference herein).
4.3	Receivables Purchase Agreement, dated as of December 1, 1998, by and among Pemex Finance, Ltd., P.M.I. Comercio Internacional, S.A. de C.V., P.M.I. Services, B.V. and Pemex-Exploración y Producción. (previously filed as Exhibit 3.3 to Petróleos Mexicanos' annual report on Form 20-F (File No. 0-99) on June 30, 1999 and incorporated by reference herein).
4.4	Transfer of Funds Agreement, dated as of November 24, 2000, among Pemex Project Funding Master Trust, Petróleos Mexicanos and the Federal Government (English translation) (previously filed as Exhibit 4.4 to Amendment No. 1 to Petróleos Mexicanos' annual report on Form 20-F/A (File No. 0-99) on November 15, 2002 and incorporated by reference herein).
8.1	For a list of subsidiaries, their jurisdiction of incorporation and the names under which they do business, see "Consolidated Structure of PEMEX" on page 3.

250

INDEX TO FINANCIAL STATEMENTS

		Page
Report of PricewaterhouseCoopers, S.C., Independent Accountants		F-2
Report of Mancera, S.C. (A Member Practice of Ernst & Young Global), Independent Auditors		F-3
Consolidated Balance Sheets as of December 31, 2001 and 2000		F-4
Consolidated Statements of Operations for the years ended December 31, 2001, 2000 and 1999		F-5
Consolidated Statements of Changes in Equity for the years ended December 31, 2001, 2000 and 1999		F-6
Consolidated Statements of Changes in Financial Position for the years ended December 31, 2001, 2000 and 1999		F-7
Notes to the Consolidated Financial Statements		F-8
Unaudited Supplemental Consolidated Information Prepared on a Price-level Adjusted Basis		F-87
Notes to Unaudited Supplemental Consolidated Information Prepared on a Price-Level Adjusted Basis		F-92
Appendix—Reports of Other Independent Accountants		F/A-1
	Report of PricewaterhouseCoopers on Integrated Trade Systems, Inc.	F/A-2
	Report of PricewaterhouseCoopers on P.M.I. Trading Limited Mexican Branch	F/A-3
	Report of PricewaterhouseCoopers on P.M.I. Holdings North America, Inc.	F/A-4
	Report of PricewaterhouseCoopers on P.M.I. Holdings N.V.	F/A-5
	Report of PricewaterhouseCoopers on P.M.I. Holdings B.V.	F/A-7
	Report of PricewaterhouseCoopers on P.M.I. Norteamérica, S.A. de C.V.	F/A-9
	Report of PricewaterhouseCoopers on P.M.I. Marine Limited Mexican Branch	F/A-10
	Report of PricewaterhouseCoopers on P.M.I. Services B.V.	F/A-11
	Report of PricewaterhouseCoopers on P.M.I. Services North America, Inc.	F/A-13
	Report of PricewaterhouseCoopers on Kot Insurance Company, Ltd.	F/A-14

F-1

REPORT OF THE INDEPENDENT ACCOUNTANTS

Mexico City, Mexico November 27, 2002

To the General Comptroller's Office
and the Board of Directors of
Petróleos Mexicanos:

        We have audited the accompanying consolidated balance sheet of Petróleos Mexicanos, Subsidiary Entities and Subsidiary Companies (collectively "PEMEX") as of December 31, 2001, and the related consolidated statements of operations, changes in equity and changes in financial position for the year then ended. These financial statements are the responsibility of the Management of PEMEX. Our responsibility is to express an opinion on these financial statements based on our audit. The financial statements of PEMEX as of December 31, 2000 and for the two years then ended, were audited by other independent accountants whose report dated November 27, 2002, expressed an unqualified opinion on those statements.

        We conducted our audit in accordance with auditing standards generally accepted in Mexico and in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement and are prepared in accordance with accounting principles generally accepted in Mexico. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures made in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by Management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

        As discussed in Note 2 o) to the consolidated financial statements, effective January 1, 2001, PEMEX adopted the guidelines of the Bulletin C-2, "Financial Instruments", issued by the Mexican Institute of Public Accountants. As a result, a cumulative effect charge totalling Ps. 1,331,247 was recognized in earnings.

        The effects of inflation are recognized in conformity with Financial Reporting Standard ("NIF") 06 BIS "A" Section A (see Note 2 b) to the accompanying consolidated financial statements), which affect only the equity caption titled "Revaluation surplus". The difference between this standard and accounting principles generally accepted in Mexico, Bulletin B-10, "Recognition of the Effects of Inflation on Financial Information", is disclosed in Note 15 to the consolidated financial statements.

        In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of PEMEX as of December 31, 2001, and the consolidated results of their operations, changes in equity and changes in financial position for the year then ended, in conformity with accounting principles generally accepted in Mexico and as to the recognition of inflation, in accordance with NIF 06 BIS "A" Section A (see Notes 2 b) and 15 to the consolidated financial statements).

        Accounting principles generally accepted in Mexico vary in certain significant respects from generally accepted accounting principles in the United States of America. The application of generally accepted accounting principles in the United States of America would have affected the determination of consolidated net loss expressed in Mexican Pesos for the year ended December 31, 2001 and the determination of consolidated deficit and consolidated financial position also expressed in Mexican Pesos at December 31, 2001 to the extent summarized in Note 19 to the consolidated financial statements.

PricewaterhouseCoopers, S.C.

/s/ FRANCISCO J. HERNÁNDEZ F. Francisco J. Hernández F.

F-2

REPORT OF THE INDEPENDENT AUDITORS

To the General Comptroller Office
and the Board of Directors of
Petróleos Mexicanos

        We have audited the accompanying consolidated balance sheet of Petróleos Mexicanos, Subsidiary Entities and Subsidiary Companies as of December 31, 2000, and the related consolidated statements of operations, changes in equity and changes in financial position for each of the two years in the period ended December 31, 2000. These financial statements are the responsibility of the Management of Petróleos Mexicanos, Subsidiary Entities and Subsidiary Companies. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of certain Subsidiary Companies, whose statements reflect total assets constituting 1% in 2000 and total revenues constituting 8% in 2000 and 1999, of the related consolidated totals. Those financial statements were audited by other auditors whose reports have been furnished to us and are included herein, and our opinion, insofar as it relates to data included for those Subsidiary Companies, is based solely on the reports of the other auditors.

        We conducted our audits in accordance with auditing standards generally accepted in Mexico and the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement and are prepared in accordance with accounting principles generally accepted in Mexico. An audit includes examining, on a test basis, evidence supporting the amounts (including the reconciliation of the financial statements of Petróleos Mexicanos, the Subsidiary Entities and Subsidiary Companies to generally accepted accounting principles in the United States) and disclosures made in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by Management, as well as evaluating the overall financial statement presentation. We believe that our audits and the reports of other auditors provide a reasonable basis for our opinion.

        The effects of inflation are recognized in conformity with Financial Reporting Standard (NIF) 06 BIS "A" Section A (see Note 2 b) to the accompanying consolidated financial statements), which affect only the equity caption titled, "Revaluation surplus". The difference between this standard and accounting principles generally accepted in Mexico, Bulletin B-10, is disclosed in Note 15 to the consolidated financial statements.

        In our opinion, based on our audits and the reports of other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Petróleos Mexicanos, Subsidiary Entities and Subsidiary Companies as of December 31, 2000, and the consolidated results of their operations, changes in equity and changes in financial position for each of the two years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in Mexico and as to the recognition of inflation, in accordance with NIF 06 BIS "A" section A (see Notes 2 b) and 15 to the consolidated financial statements), which differ in certain respects from those followed in the United States (see Note 19 to the consolidated financial statements).

Mancera, S.C.
A Member Practice of
Ernst & Young Global

/s/ J. ALFONSO CAMPAÑA R. J. Alfonso Campaña R.

Mexico City, Mexico
November 27, 2002

F-3

PETRÓLEOS MEXICANOS, SUBSIDIARY ENTITIES AND SUBSIDIARY COMPANIES

CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2001 and 2000

(In thousands of pesos and thousands of U.S. dollars)
(Notes 1, 2 and 14)

					2001			2001			2000
ASSETS:
	Current assets:
		Cash and cash equivalents			US$	1,579,675		Ps.	14,441,864		Ps.	27,826,846
		Accounts, notes receivable and other, net (Note 3)				4,907,893			44,869,427			56,701,566
		Inventories, net (Note 4)				1,883,849			17,222,714			24,864,138
			Total current assets			8,371,417			76,534,005			109,392,550
		Properties and equipment, net (Note 5)				44,508,851			406,913,266			388,224,576
		Intangible asset derived from the actuarial computation of labor obligations and other assets (Notes 6 and 11)				8,032,549			73,435,977			65,850,397
				Total assets	US$	60,912,817		Ps.	556,883,248		Ps.	563,467,523
LIABILITIES:
	Current liabilities:
		Current portion of long-term debt (Note 9)			US$	3,964,659		Ps.	36,246,106		Ps.	40,457,071
		Current portion of notes payable to contractors (Note 8)				137,427			1,256,395			1,245,707
		Suppliers				2,570,903			23,503,971			22,651,745
		Accounts payable and accrued expenses				921,713			8,426,580			6,102,552
		Taxes payable				275,135			2,515,370			25,308,881
			Total current liabilities			7,869,837			71,948,422			95,765,956
		Long-term debt (Note 9)				13,472,539			123,169,995			104,370,025
		Notes payable to contractors (Note 8)				1,492,444			13,644,370			16,152,769
		Sale of future accounts receivable (Note 7)				4,887,786			44,685,602			51,976,573
		Reserve for sundry creditors and others				824,423			7,537,122			6,094,832
		Reserve for retirement payments, pensions and seniority premiums (Note 11)				18,926,474			173,031,504			138,501,996
				Total long-term liabilities		39,603,666			362,068,593			317,096,195
				Total liabilities		47,473,503			434,017,015			412,862,151
	Commitments and contingencies (Note 16)
EQUITY:
	Certificates of Contribution "A"					1,118,150			10,222,463			10,222,463
	Specific oil-field exploration and depletion reserve					1,780,601			16,278,784			12,691,475
	Revaluation surplus					19,889,715			181,837,738			174,054,170
	Accumulated losses:
		From prior years				(5,620,267	)		(51,382,165	)		(26,652,344	)
		Net loss for the year				(3,728,885	)		(34,090,587	)		(19,710,392	)
						(9,349,152	)		(85,472,752	)		(46,362,736	)
		Total equity				13,439,314			122,866,233			150,605,372
		Total liabilities and equity			US$	60,912,817		Ps.	556,883,248		Ps.	563,467,523

The accompanying notes are an integral part of these consolidated financial statements.

F-4

PETRÓLEOS MEXICANOS, SUBSIDIARY ENTITIES AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 and 1999

(In thousands of pesos and thousands of U.S. dollars)
(Notes 1 and 2)

	2001			2001			2000			1999
Net sales:
Domestic	US$	33,235,963		Ps.	303,853,144		Ps.	292,880,287		Ps.	226,137,090
Export		15,474,992			141,477,018			175,387,308			108,676,689
		48,710,955			445,330,162			468,267,595			334,813,779
Foreign exchange gain, net		425,681			3,891,701			876,736			2,949,615
Other revenues		892,926			8,163,397			9,543,799			7,215,362
Total revenues		50,029,562			457,385,260			478,688,130			344,978,756
Costs and operating expenses:
Cost of sales		18,082,378			165,314,521			153,059,837			113,512,525
Transportation and distribution expenses		1,486,331			13,588,482			12,609,161			10,867,571
Administrative expenses		3,065,458			28,025,338			26,972,703			21,076,266
Interest, net		1,433,339			13,104,015			6,652,005			7,155,959
Other expenses		727,380			6,649,928			5,337,243			4,696,975
Total costs and operating expenses		24,794,886			226,682,284			204,630,949			157,309,296
Income before hydrocarbon extraction duties and other, special tax on production and services, and cumulative effect of adoption of new financial instruments standard		25,234,676			230,702,976			274,057,181			187,669,460
Hydrocarbon extraction duties and other		18,404,951			168,263,587			224,211,053			120,476,988
Special tax on production and services (IEPS Tax)		10,412,996			95,198,729			69,556,520			88,349,243
		28,817,947			263,462,316			293,767,573			208,826,231
Cumulative effect of adoption of new financial instruments standard (Note 10)		(145,614	)		(1,331,247	)		—			—
Net loss for the year	US$	(3,728,885	)	Ps.	(34,090,587	)	Ps.	(19,710,392	)	Ps.	(21,156,771	)

The accompanying notes are an integral part of these consolidated financial statements.

F-5

PETRÓLEOS MEXICANOS, SUBSIDIARY ENTITIES AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 and 1999

(In thousands of pesos and thousands of U.S. dollars)
(Notes 1 and 2)

				Specific oil-field exploration and depletion reserve
								Accumulated losses
		Certificates Of Contribution "A"
						Revaluation surplus		From prior years			Net loss from Current year			Total
Balances at December 31, 1998		Ps.	10,222,463	Ps.	8,394,132	Ps.	145,704,773	Ps.	14,404,562		Ps.	(11,587,990	)	Ps.	167,137,940
	Transfer to prior years' retained earnings		—		—		—		(11,587,990	)		11,587,990			—
	Minimum guaranteed dividends paid to the Mexican Government approved by the Board of Directors on August 3, 1999		—		—		—		(3,063,747	)		—			(3,063,747	)
	Dividends paid to the Mexican Government approved by the Board of Directors on August 3, 1999		—		—		—		(779,517	)		—			(779,517	)
	Comprehensive loss for the year (Note 12)		—		2,055,350		16,306,888		968,774			(21,156,771	)		(1,825,759	)
Balances at December 31, 1999			10,222,463		10,449,482		162,011,661		(57,918	)		(21,156,771	)		161,468,917
	Transfer to prior years' accumulated losses		—		—		—		(21,156,771	)		21,156,771			—
	Minimum guaranteed dividends paid to the Mexican Government approved by the Board of Directors on May 9, 2000		—		—		—		(5,137,889	)		—			(5,137,889	)
	Dividends paid to the Mexican Government approved by the Board of Directors on May 9, 2000		—		—		—		(231,074	)		—			(231,074	)
	Comprehensive loss for the year (Note 12)		—		2,241,993		12,042,509		(68,692	)		(19,710,392	)		(5,494,582	)
Balances at December 31, 2000			10,222,463		12,691,475		174,054,170		(26,652,344	)		(19,710,392	)		150,605,372
	Transfer to prior years' accumulated losses		—		—		—		(19,710,392	)		19,710,392			—
	Minimum guaranteed dividends paid to the Mexican Government approved by the Board of Directors on May 7, 2001		—		—		—		(5,563,799	)		—			(5,563,799	)
	Comprehensive loss for the year (Note 12)		—		3,587,309		7,783,568		544,370			(34,090,587	)		(22,175,340	)
Balances at December 31, 2001		Ps.	10,222,463	Ps.	16,278,784	Ps.	181,837,738	Ps.	(51,382,165	)	Ps.	(34,090,587	)	Ps.	122,866,233
		US$	1,118,150	US$	1,780,601	US$	19,889,715	US$	(5,620,267	)	US$	(3,728,885	)	US$	13,439,314

The accompanying notes are an integral part of these consolidated financial statements.

F-6

PETRÓLEOS MEXICANOS, SUBSIDIARY ENTITIES AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION

FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 and 1999

(In thousands of pesos and thousands of U.S. dollars)
(Notes 1 and 2)

				2001			2001			2000			1999
Funds provided by (used in):
Operating activities:
		Net loss for the year		US$	(3,728,885	)	Ps.	(34,090,587	)	Ps.	(19,710,392	)	Ps.	(21,156,771	)
		Charges to operations not requiring the use of funds:
			Depreciation and amortization		3,112,277			28,453,367			26,060,936			23,941,026
			Reserve for retirement payments, pensions and indemnities		3,702,478			33,849,168			29,901,504			25,022,850
			Specific oil-field exploration and depletion reserve		895,277			8,184,890			8,048,328			7,857,274
			Reserve for sundry creditors and others		5,690			52,024			719,397			1,283,821
					3,986,837			36,448,862			45,019,773			36,948,200
	Variances in:
		Accounts, notes receivable and other			1,294,219			11,832,139			(9,417,731	)		(18,710,747	)
		Inventories			835,832			7,641,424			(8,645,509	)		(4,041,064	)
		Intangible asset derived from the actuarial computation of labor obligations and other assets			(829,723	)		(7,585,580	)		(9,389,482	)		(5,537,829	)
		Suppliers			93,218			852,226			5,900,009			4,347,084
		Accounts payable and accrued expenses			254,205			2,324,028			694,744			(338,026	)
		Taxes payable			(2,493,192	)		(22,793,511	)		643,493			19,464,218
		Reserve for sundry creditors and others			152,070			1,390,266			563,594			239,037
		Reserve for retirement payments, pensions and indemnities			74,417			680,340			4,925,662			(8,788,284	)
		Exploration and well-drilling expenses charged to the specific oil-field exploration and depletion reserve			(502,891	)		(4,597,581	)		(5,806,335	)		(5,801,924	)
		Funds provided by operating activities			2,864,992			26,192,613			24,488,218			17,780,665
Financing activities:
		Minimum guaranteed dividends paid to the Mexican Government			(608,578	)		(5,563,799	)		(5,137,889	)		(3,063,747	)
		Other equity movements			59,544			544,370			(68,692	)		968,774
		Dividends paid to the Mexican Government			—			—			(231,074	)		(779,517	)
		Notes payable to contractors			(273,204	)		(2,497,711	)		15,599,161			1,799,315
		Debt			1,595,770			14,589,005			24,503,534			1,493,911
		Sale of future accounts receivable			(797,499	)		(7,290,971	)		8,675,835			26,702,250
		Funds (used in) provided by financing activities			(23,967	)		(219,106	)		43,340,875			27,120,986
Investing activities:
		Increase in fixed assets, net			(4,305,097	)		(39,358,489	)		(63,989,070	)		(35,546,131	)
		Funds used in investing activities			(4,305,097	)		(39,358,489	)		(63,989,070	)		(35,546,131	)
Net increase (decrease) in cash and cash equivalents					(1,464,072	)		(13,384,982	)		3,840,023			9,355,520
Cash and cash equivalents at beginning of the year					3,043,747			27,826,846			23,986,823			14,631,303
Cash and cash equivalents at end of the year				US$	1,579,675		Ps.	14,441,864		Ps.	27,826,846		Ps.	23,986,823

The accompanying notes are an integral part of these consolidated financial statements.

F-7

PETRÓLEOS MEXICANOS, SUBSIDIARY ENTITIES AND SUBSIDIARY COMPANIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999

(Amounts expressed in thousands of pesos and thousands of U.S. dollars)

1.    Structure and business activities of Petróleos Mexicanos, Subsidiary Entities and Subsidiary Companies

        Following the nationalization of the foreign-owned oil companies then operating in the United Mexican States ("Mexico"), Petróleos Mexicanos was established by a decree of the Mexican Congress dated June 7, 1938 and effective July 20, 1938. Petróleos Mexicanos and its four Subsidiary Entities (as defined below) are decentralized public entities of the Federal Government of Mexico (the "Mexican Government") and together they comprise the Mexican state oil and gas company.

        The activities of Petróleos Mexicanos and Subsidiary Entities are regulated by the Constitución Política de los Estados Unidos Mexicanos (Political Constitution of the United Mexican States), the Ley Reglamentaria del Artículo 27 Constitucional en el Ramo del Petróleo (the Regulatory Law to Article 27 of the Political Constitution of the United Mexican States concerning Petroleum affairs, or the "Regulatory Law") effective November 30, 1958, as amended effective May 12, 1995 and November 14, 1996, and the Ley Orgánica de Petróleos Mexicanos y Organismos Subsidiarios (the Organic Law of Petróleos Mexicanos and Subsidiary Entities, or the "Organic Law"), effective July 17, 1992. Under the Organic Law and related regulations, Petróleos Mexicanos is entrusted with the central planning activities and the strategic management of Mexico's petroleum industry. For purposes of these financial statements, capitalized words carry the meaning attributed to them herein or the meaning as defined in the Political Constitution of the United Mexican States or the Organic Law.

        The Organic Law establishes a structure that consists of decentralized legal entities of a technical, industrial and commercial nature, with their own corporate identity and equity and with the legal authority to own property and conduct business in their own names. The Subsidiary Entities are controlled by and have characteristics of subsidiaries of Petróleos Mexicanos. The Subsidiary Entities are:

Pemex-Exploración y Producción (Pemex-Exploration and Production);
Pemex-Refinación (Pemex-Refining);
Pemex-Gas y Petroquímica Básica (Pemex-Gas and Basic Petrochemicals); and
Pemex-Petroquímica (Pemex-Petrochemicals).

        The strategic activities entrusted to Petróleos Mexicanos and Subsidiary Entities by the Organic Law can be performed only by Petróleos Mexicanos and Subsidiary Entities and cannot be delegated or subcontracted. Pemex-Petrochemicals is an exception and may delegate and/or subcontract certain duties.

        The principal objectives of the Subsidiary Entities are as follows:

I.

Pemex-Exploration and Production explores for and produces crude oil and natural gas; additionally, this entity transports, stores and markets such products;

II.

Pemex-Refining refines petroleum products and derivatives thereof that may be used as basic industrial raw materials; additionally, this entity stores, transports, distributes and markets such products and derivatives;

III.

Pemex-Gas and Basic Petrochemicals processes natural gas, natural gas liquids and derivatives thereof that may be used as basic industrial raw materials, and stores, transports, distributes and markets such products; additionally, this entity stores, transports, distributes and markets Basic Petrochemicals; and

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IV.

Pemex-Petrochemicals engages in industrial petrochemical processing, and stores, distributes and markets Secondary Petrochemicals.

        At their formation, Petróleos Mexicanos assigned to the Subsidiary Entities all the assets and liabilities needed to carry out these activities, which assets and liabilities were incorporated into the Subsidiary Entities' initial capital contribution. Additionally, Petróleos Mexicanos assigned to the Subsidiary Entities all the personnel needed for their operations, and the Subsidiary Entities assumed all the related liabilities. There was no change in the carrying value of assets and liabilities upon their contribution by Petróleos Mexicanos to the Subsidiary Entities.

        The principal distinction between Subsidiary Entities and Subsidiary Companies (as defined below) is that Subsidiary Entities are decentralized public entities created by Article 3 of the Organic Law, whereas the Subsidiary Companies are companies that have been formed in accordance with the general corporations law of each of the respective jurisdictions in which they are incorporated and are managed as other private corporations subject to the general corporations law, in their respective jurisdictions.

        As used herein, "Subsidiary Companies" are defined as (a) those companies which are not Subsidiary Entities but in which Petróleos Mexicanos has greater than a 50% ownership investment, and (b) the Pemex Project Funding Master Trust (the "Master Trust"), a Delaware business trust controlled by Petróleos Mexicanos. "Non-consolidated subsidiary companies", as used herein, are defined as those companies which are (a) not Subsidiary Entities or Subsidiary Companies and (b) in which Petróleos Mexicanos has less than a 50% ownership interest. Petróleos Mexicanos, the Subsidiary Entities and the Subsidiary Companies are referred to as "PEMEX".

2.    Significant accounting policies

        The principal accounting policies followed by PEMEX in the preparation of these consolidated financial statements are summarized below:

a)    Accounting basis for the preparation of financial information

        The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in Mexico ("Mexican GAAP") as issued by the Instituto Mexicano de Contadores Públicos (Mexican Institute of Public Accountants, or "MIPA") and as to the recognition of inflation, in accordance with Financial Reporting Standard ("NIF") 06-BIS "A" Section A as issued by the Ministry of Finance and Public Credit ("SHCP") and by the General Comptroller's Office ("SECODAM").

b)    Effects of inflation on the financial information

        Effects of inflation on the financial information are computed and recorded in accordance with the guidelines established in NIF-06 BIS "A" Section A.

        In accordance with NIF-06 BIS "A" Section A, fixed assets (property and equipment), together with accumulated depreciation and amortization, are restated for balance sheet presentation at net replacement cost. Obsolete and abandoned assets, as well as assets under construction and assets held for disposal, are not restated.

        The main differences between Mexican GAAP Bulletin B-10, "Recognition of the Effects of Inflation on Financial Information" ("Bulletin B-10"), and NIF-06 BIS "A" Section A are described below. A summary of the significant differences between those two standards is presented in Note 15.

        (i)    The restatement of the non-monetary assets referred to in NIF-06 BIS "A" Section A must be completed in accordance with the rules established therein, and restatements should be made by applying the constant-peso-value method based on the National Consumer Price Index ("NCPI"). In specific circumstances, when there is justification, a company may elect to use the specific-cost method or the specific-index method, these methods being based upon technical studies. Effective

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January 1, 1997, the use of independent appraisals was disallowed under Mexican GAAP, which only allows for the restatement of fixed assets utilizing the NCPI or, in the case of assets of foreign origin, applying the inflation of the country of origin to the foreign currency amount of the assets prior to translation to pesos at the period end exchange rate. Under NIF-06 BIS "A" Section A, PEMEX has elected to use a hybrid of the constant-peso-value-method with NCPI and specific index method as determined by independent appraisers.

        (ii)  NIF-06 BIS "A" Section A does not consider the concept of fair value as referred to in Mexican GAAP. Therefore, the balance sheet reflects restated fixed assets without consideration of fair value.

        (iii)  In accordance with the rules of NIF-06 BIS "A" Section A, the difference between the historical cost of assets, including interest and exchange rate fluctuations, and the restated amounts that are generated from the restatement of fixed assets, as determined above, and investments, are recorded in the equity account "Revaluation surplus."

        (iv)  NIF-06 BIS "A" Section A allows capitalization of the exchange rate fluctuations and the interest derived from identifiable liabilities associated with fixed assets. Bulletin B-10 only allows capitalization of interest that can be identified with specific fixed assets in the construction or installation phase.

        (v)  NIF-06 BIS "A" Section A requires that the effects of inflation in the financial statements reflect exclusively the restatement of non-monetary assets. However, in accordance with Bulletin B-10, as amended, it is necessary that the effects of inflation in the individual equity accounts be recognized, also quantified and recorded in equity. In addition, the monetary position result of each period is also reflected in earnings. Additionally, Bulletin B-10, as amended, requires that all items presented in the financial statements be expressed in constant pesos with purchasing power at the latest balance sheet date. NIF-06 BIS "A" Section A does not require this remeasurement.

c)    Consolidation

        The consolidated financial statements include the accounts of Petróleos Mexicanos, the Subsidiary Entities and the Subsidiary Companies. All significant intercompany transactions have been eliminated in the consolidation.

        The Subsidiary Companies that are consolidated are as follows: P.M.I. Comercio Internacional, S.A. de C.V. ("PMI"); P.M.I. Trading Ltd.; P.M.I. Holdings North America, Inc.; P.M.I. Holdings N.V.; P.M.I. Holdings B.V.; P.M.I. Norteamérica, S.A. de C.V. ("PMI NASA"); Kot Insurance Co. Ltd.; Integrated Trade Systems, Inc.; P.M.I. Marine Limited; P.M.I. Services, B.V.; Pemex Internacional España, S.A.; Pemex Services Europe Ltd.; P.M.I. Services North America, Inc.; Mex Gas International, Ltd.; and the Master Trust.

        Certain investments in Subsidiary Companies and other non-consolidated subsidiary companies, due to their immateriality in relation to PEMEX's total assets and revenue, are accounted for under the cost method.

d)    Long-term productive infrastructure projects (PIDIREGAS)

        The investment in long-term productive infrastructure projects ("PIDIREGAS") and related liabilities are recorded in accordance with NIF-09-A applicable to Entidades Paraestatales de la Administración Pública Federal (State-owned Entities of the Federal Public Administration). In addition to outlining specific accounting treatment, NIF-09-A also identifies specific budgetary and legal requirements governing PIDIREGAS.

        During 1997, PEMEX began investing in certain capital expenditure projects that were financed with long-term debt obligations. Such investment expenses and related liabilities will be recognized in the accounting records in future years under NIF-09-A, which provides for only liabilities having maturities expiring in less than two years to be recorded to the accounting records for statutory

F-10

purposes. For the purposes of these financial statements and in accordance with Mexican GAAP consolidation principles, all the accounts related to PIDIREGAS were incorporated into the consolidated financial statements at December 31, 2001 and 2000, i.e., all effects of NIF-09-A are excluded.

        On December 31, 1998, PEMEX transferred all assets and liabilities related to these PIDIREGAS, in an amount of Ps. 12,104,010, to the Master Trust. The main objective of the Master Trust is to administer financial resources related to PIDIREGAS, such financial resources having been designated by PEMEX for that purpose. The Master Trust has been consolidated in the financial statements since 1998 in accordance with the consolidation principles detailed in Mexican GAAP Bulletin B-8, "Consolidated and Combined Financial Statements and Valuation of Permanent Investments in Stocks."

e)    Exploration and drilling costs

        The successful efforts method of accounting is followed. Exploration and drilling costs are charged to the specific oil-field exploration and depletion reserve, as described below. Accumulated drilling costs corresponding to successful oil wells are capitalized out of this reserve.

f)    Specific oil-field exploration and depletion reserve

        The specific oil-field exploration and depletion reserve is established to cover current and future exploration and drilling costs. As oil and gas is extracted from existing wells, the equity reserve is increased based upon a calculated exploration and drilling cost per barrel, with a corresponding amount being charged to cost of sales. Exploration and drilling costs are charged against this reserve as incurred. Accumulated drilling costs related to successful wells are capitalized as fixed assets and a corresponding amount is added back to re-establish the reserve. PEMEX determines the budgeted exploration and drilling cost per barrel based upon engineering studies. During 2001, PEMEX maintained the cost per barrel of 5.48 pesos, an amount equal to that charged for the years ended December 31, 2000 and 1999.

g)    Inventory valuation

        Inventories are valued as follows:

I.

Crude oil and derivatives thereof for export: At net realizable value, determined on the basis of average export prices at December 31, 2001 and 2000, less a provision for distribution expenses and shrinkage.

II.

Crude oil and derivatives there of for domestic sales: At cost, as calculated based on net realizable international market prices.

III.

Materials, spare parts and supplies: At the last purchase price.

IV.

Materials in transit: At acquisition cost.

h)    Properties

        PEMEX's assets are initially recorded at acquisition or construction cost. Exchange losses arising from the impact of exchange rate fluctuations on the associated foreign currency denominated debt and interest costs are capitalized as part of the asset cost. In accordance with NIF-06 BIS "A" Section A (see Note 2 b)), the book values of these accounts are restated annually. Projects in progress are not restated.

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        Property, plant and equipment assets are depreciated using the straight-line method at annual rates determined from studies performed by independent appraisers. PEMEX begins to compute depreciation the year after the asset is placed into service. The depreciation rates used by PEMEX are as follows:

	%	Years
Buildings	3	33
Plant and drilling equipment	3-5	20-33
Furniture and fixtures	10	10
Offshore platforms	4	25
Transportation equipment	4-20	5-25
Pipelines	4	25
Software/computers	10-25	4-10

        Related gains or losses from the sale or disposal of fixed assets are recognized in income. PEMEX amortizes its well assets using the units-of-production ("UOP") method. The amount to be recognized as amortization expense is calculated based upon the number of equivalent crude oil barrels extracted from each specific field as compared to the field's total proven and probable reserves.

        The Reglamento de Trabajos Petroleros ("Petroleum Works Law") provides that once a well turns out to be dry, invaded with salt water or abandoned due to mechanical failure or when the well's production has been depleted such that abandonment is necessary due to economic unfeasibility of production, it must be plugged to ensure the maintenance of sanitary and safe conditions and to prevent the seepage of hydrocarbons to the surface. All activities required for plugging a well are undertaken with the purpose of isolating, in a definitive and adequate manner, the cross formations in the perforation that contains oil, gas or water in order to ensure that hydrocarbons do not seep to the surface. This law also requires that PEMEX obtain approval from the Ministry of Energy for the dismantlement of hydrocarbon installations, either for the purposes of replacing them with new installations or for permanent retirement.

        Estimated dismantlement and abandonment costs are taken into account in determining amortization and depreciation rates. PEMEX recognizes the costs related to currently producing and temporarily closed wells based on the UOP method. In the case of the non-producing wells subject to abandonment and dismantlement, the full dismantlement and abandonment cost has been recognized at the end of each period. All estimates are based on the life of the field, and take into consideration current cost estimates on an undiscounted basis. No salvage value is considered when determining such rates because salvage values have traditionally been zero. The estimated dismantlement and abandonment costs are reflected within accumulated depreciation and amortization.

i)    Foreign currency balances and transactions

        Transactions denominated in foreign currency are recorded at the respective exchange rates prevailing on the day that the transactions are entered into and the related asset or liability is recorded. Assets and liabilities in foreign currencies are stated in pesos at the rates in effect at the balance sheet date and published by the SHCP. As described in Note 2h), in accordance with NIF-06 BIS "A" Section A, exchange losses arising from the impact of currency fluctuations on the value of the foreign currency denominated debt and related interest costs are capitalized as part of the cost of fixed assets. During fiscal years 2001 and 1999, no exchange losses related to these assets were capitalized, as PEMEX recorded exchange gains on its foreign currency denominated debt; during fiscal year 2000, exchange losses of Ps. 139,692 were capitalized as part of fixed asset costs. Foreign exchange losses, which are not capitalized, and all foreign exchange gains, are charged and credited, respectively, to income. This resulted in net exchange gains credited to income of Ps. 3,891,701, Ps. 876,736, and Ps. 2,949,615 in 2001, 2000 and 1999, respectively.

F-12

j)    Retirement benefits and seniority premiums

        PEMEX has established a pension plan for retirement and seniority premiums to be paid to its employees. The liability is computed by an independent actuary, based upon the projected unit-credit method. PEMEX has recorded the results of the actuarial valuation in accordance with Mexican GAAP Bulletin D-3, "Labor Obligations," except that, due to the recognition of the effects of inflation in accordance with NIF-06 BIS "A" Section A, the liabilities are computed using nominal interest rates.

        Payments for indemnities to dismissed personnel are charged to income as and when the expense is incurred.

k)    Cost of sales

        Cost of sales is determined by adding to inventories at the beginning of the year the increase in the specific oil-field exploration and depletion reserve (a fixed charge per extracted barrel), the operating cost of oil fields, refineries and plants (including internally-consumed products), the purchase cost of crude oil and refined and other products, and deducting the value of inventories at the end of the year. Cost of sales also includes a portion of the depreciation and amortization expense associated with assets used in operations as well as the expense associated with the reserve for future dismantlement and abandonment costs.

l)    Taxes and federal duties

        Petróleos Mexicanos and the Subsidiary Entities are subject to special tax laws, which are based upon petroleum revenues and do not generate temporary differences or deferred income taxes. Petróleos Mexicanos and the Subsidiary Entities are not subject to the Ley del Impuesto Sobre la Renta (Income Tax Law) or the Ley del Impuesto al Activo ("Assets Tax Law"). Some of the Subsidiary Companies are subject to the Income Tax Law; however, such Subsidiary Companies do not generate significant deferred income taxes.

        Petróleos Mexicanos and the Subsidiary Entities are subject to the following duties and taxes: Hydrocarbon Extraction Duties, Hydrocarbon Income Tax and the Special Tax on Production and Services ("IEPS Tax"). Petróleos Mexicanos and the Subsidiary Entities are also subject to the Value Added Tax ("VAT").

        Hydrocarbon extraction duties are calculated at a rate of 52.3% on the net cash flow difference between crude oil sales and extraction costs and expenses. Extraordinary and additional hydrocarbon extraction duties are calculated at a rate of 25.5% and 1.1%, respectively, on the same basis. The hydrocarbon income tax is equivalent to the regular income tax applied to all Mexican corporations, a tax to which Petróleos Mexicanos and the Subsidiary Entities are not subject; this rate was 35% for all periods presented.

        The sum of the above duties and taxes must equal 60.8% of Petróleos Mexicanos and the Subsidiary Entities' annual sales revenues to third parties (and an additional 39.2% of the portion of revenues in respect of crude oil sales at prices in excess of U.S. $18.00, U.S. $15.00 and U.S. $9.25 per barrel for 2001, 2000 and 1999, respectively). Therefore, to the extent that the sum of hydrocarbon extraction duties is less than 60.8% of sales to third parties, additional taxes are paid to reach that level.

m)  Special Tax on Production and Services ("IEPS Tax")

        The special tax on production and services charged to customers is a tax on the domestic sales of gasoline and diesel. The applicable rates depend on, among other factors, the product, producer's price, freight costs, commissions and the region in which the respective product is sold. For financial statement purposes, the special tax on production and services is presented as part of

F-13

"Net domestic sales" and then deducted after "Income before hydrocarbon extraction duties, special tax on production and services and other".

n)    Revenue recognition

        For all export products, risk of loss and ownership title is transferred upon shipment, and thus PEMEX records sales revenue upon shipment to customers abroad. In the case of certain domestic sales in which the customer takes product delivery at a PEMEX facility, sales revenues are recorded upon product pick-up. For domestic sales in which PEMEX is responsible for product delivery, risk of loss and ownership is transferred at the delivery point, and PEMEX records sales revenue upon delivery.

o)    Financial instruments

        Prior to January 1, 2001, the effects on the consolidated statements of operations of entering into "swap" transactions were recorded as incurred and when the precise settlement amounts were known. The effects on the consolidated statements of operations of other derivative instruments, including premiums paid or received, were recognized at the date of receipt or payment. Such amounts were included in the consolidated statements of operations within the "Interest, net" caption (see Note 10).

        During February 2000, the MIPA issued Bulletin C-2, "Financial Instruments", which became effective as of January 1, 2001. Bulletin C-2 provides guidance for recognizing, measuring and disclosing information about financial assets and financial liabilities, including accounting for derivative financial transactions. Bulletin C-2 requires that all financial instruments, with the exception of derivative financial instruments designated as hedges and held to maturity investments, be recorded on the balance sheet at their fair values and changes in their fair value are recognized in earnings of each period. With respect to derivative financial instruments, Bulletin C-2 requires that they be accounted for in the same manner as the items being hedged; held to maturity investments are recorded at amortized cost, subject to impairment evaluation.

        As a result of the adoption of Bulletin C-2 as of January 1, 2001, PEMEX recognized a charge to earnings totaling Ps. 1,331,247 which has been reflected as a cumulative effect of adopting a new accounting standard. The adjustment was primarily the result for the accounting for the equity swap related to Repsol YPF, S.A. ("Repsol") shares (see additional discussion in Note 10). As more fully described in Note 10, PEMEX has three outstanding equity swaps involving Repsol shares. As Bulletin C-2 has no provision for hedging forecasted transactions, nor does it permit the equity swap to be treated as a hedge since the Repsol shares were considered to have been sold for Mexican GAAP purposes in prior years, the entire fair value at January 1, 2001 related to the equity swaps, which totalled Ps. 1,241,514 was recognized as part of the cumulative effect adjustment. The remainder of the cumulative effect adjustment related to interest rate and cross currency swaps entered into to hedge borrowings in currencies other than the U.S. dollar. These swaps are entered into at or near inception of the debt and carry similar terms and conditions; thus forming a "highly effective" financial hedge.

p)    Use of estimates

        The preparation of the financial statements requires the use of estimates. Management makes estimates and assumptions that affect the amounts and the disclosures presented as of the date of the consolidated financial statements. Actual results could differ from those estimates.

        Events and occurrences, which could result in financial statement loss, are reviewed periodically, and contingencies identified are assessed as remote, possible or probable in accordance with Bulletin C-12, "Contingencies and Commitments". When a loss contingency is viewed to be possible, it is disclosed together with a range of potential loss, when determinable. When a loss contingency is viewed

F-14

to be probable, it is disclosed, and an accrual as to the most likely loss scenario is recorded in the financial statements.

q)    Comprehensive income

        In August 2000, the MIPA issued Bulletin B-4, "Comprehensive Income". Bulletin B-4 defines comprehensive income as the net income for the period presented in the statement of operations plus other results for the period reflected in equity which are from non-owner sources, and requires the disclosure of the components of comprehensive income in the presentation of financial statements. Bulletin B-4 became effective January 1, 2001, and the statement of changes in equity for prior periods has been restated to conform to the current year presentation (see Note 12).

r)    Convenience translation

        United States dollar ("U.S. dollar") amounts shown in the balance sheets, the statements of operations, the statements of changes in equity and the statements of changes in financial position have been included solely for the convenience of the reader. Such amounts are translated from pesos, as a matter of arithmetic computation only, at an exchange rate of 9.1423 pesos per U.S. dollar, which is the December 31, 2001 exchange rate for the settlement of obligations in foreign currencies provided by Banco de México and the SHCP. Translations herein should not be construed as a representation that the peso amounts have been or could be converted into U.S. dollars at the foregoing rate or any other rate.

s)    Reclassifications

        Certain reclassifications have been made to 2000 and 1999 amounts presented in the consolidated financial statements and related notes to conform such amounts and disclosures to the current year presentation.

t)    Recently issued accounting standards

        In November 2001, MIPA issued revised Bulletin C-9, "Liabilities, Provisions, Contingent Assets and Liabilities and Commitments" ("Bulletin C-9"), which supersedes existing Bulletin C-9, "Liabilities", and Bulletin C-12, "Contingencies and Commitments". Bulletin C-9 establishes a methodology for valuation, presentation and disclosure of liabilities and provisions, as well as for valuation and disclosure of contingent assets and liabilities, and for disclosure of commitments. Among other things, Bulletin C-9 establishes guidelines for the recognition of liabilities and non-recognition of liabilities in the event of extinguishments, restructurings or conversion to equity. In addition, in the case of provisions, it introduces the concept of discounting long-term provisions. With respect to contingent liabilities, Bulletin C-9 states that all contingent liabilities that have a probable realization must be accounted for and disclosed in the financial statements; contingent liabilities that have a possible realization cannot be accounted for in the financial statements, but must be disclosed; and contingent liabilities that have a remote realization cannot be accounted for in the financial statements and are not required to be disclosed. Bulletin C-9 requires disclosure of committed amounts when they represent significant fixed asset additions, contracted services and goods that exceed immediate needs or if the commitment is considered a contracted obligation. The provisions of Bulletin C-9 become effective beginning January 1, 2003, although early adoption is recommended. Management is currently evaluating the impact that the adoption of Bulletin C-9 will have on its consolidated financial statements.

        In December 2001, the MIPA issued Bulletin C-8, "Intangible Assets" ("Bulletin C-8"), which defines intangible assets as costs incurred and rights or privileges acquired that will generate a future economic benefit. Bulletin C-8 provides a clear definition of research and development costs, requiring

F-15

that only development costs may be deferred to a future period. Furthermore, Bulletin C-8 states that preoperating costs should be expensed as a period cost, unless they could be classified as development costs. Bulletin C-8 requires that goodwill and intangible assets with indefinite useful lives, including previously existing goodwill and intangible assets, should not be amortized, but should be tested for impairment annually. Goodwill and intangible assets with finite useful lives should be amortized over their useful lives. The provisions of Bulletin C-8 become effective beginning January 1, 2003, although early adoption is recommended. Management is currently evaluating the impact that the adoption of Bulletin C-8 will have on its consolidated financial statements.

3.    Accounts, notes receivable and other

        Accounts, notes receivable and other amounts are as follows:

	2001			2000
Trade-domestic	Ps.	19,757,188		Ps.	26,340,778
Trade-foreign		4,707,899			10,072,988
Pemex Finance, Ltd		6,576,272			6,926,132
Mexican Government (Note 13) advance payments on minimum guaranteed dividends		2,152,788			5,563,799
Other accounts receivable		12,933,575			9,012,465
Less: allowance for doubtful accounts		(1,258,295	)		(1,214,596	)
	Ps.	44,869,427		Ps.	56,701,566

4.    Inventories

        At December 31, 2001 and 2000, inventories are as follows:

	2001			2000
Crude oil, refined products, derivatives and petrochemical products	Ps.	14,018,513		Ps.	21,591,377
Materials and supplies in stock		4,205,193			4,823,858
Materials and products in transit		981,580			709,968
Less: allowance for slow-moving inventory and obsolescence reserve		(1,982,572	)		(2,261,065	)
	Ps.	17,222,714		Ps.	24,864,138

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5.    Properties and equipment

        The components of this caption, net of accumulated depreciation and amortization, are as follows:

	2001		2000
Land	Ps.	34,637,920	Ps.	32,943,681
Buildings		14,863,887		14,886,795
Wells and field assets		65,994,431		79,362,124
Plants, furnishings and equipment		201,644,888		184,889,326
Offshore platforms		24,205,124		10,075,207
		341,346,250		322,157,133
Fixed assets pending disposition		287,950		555,652
Construction spares		223,142		331,840
Construction in progress		65,055,924		65,179,951
Total	Ps.	406,913,266	Ps.	388,224,576

        a)    For 2001 and 2000 fixed assets, excluding furniture and fixtures, vehicles and construction in progress, were restated based on specific indexes as determined by Instituto Mexicano del Petróleo (Mexican Petroleum Institute, or "IMP") and by an independent appraiser. The specific index method considers usage, a factor for obsolescence, specific costs, remaining useful lives and the relative classification of the fixed assets. Construction in progress and various immaterial assets are not restated.

        b)    In accordance with NIF-06 BIS "A" Section A, interest costs and foreign currency losses associated with Petróleos Mexicanos and Subsidiary Entities' debt are capitalized as part of the cost of fixed assets. Interest capitalized was Ps. 3,779,541 in 2001, interest and exchange losses capitalized totalled Ps. 4,052,872 in 2000 and interest capitalized was Ps. 5,119,428 in 1999.

        c)    Depreciation and amortization expense recorded in operating expenses for the years ended December 31, 2001, 2000 and 1999 was Ps. 28,453,367, Ps. 26,060,936 and Ps. 23,941,026, respectively, which include Ps. 1,351,207, Ps. 1,200,666 and Ps. 1,321,233, respectively, related to dismantlement and abandonment costs. Accumulated depreciation and amortization at December 31, 2001 and 2000 was Ps. 378,586,975 and Ps. 345,830,925, respectively.

        d)    The total estimated future costs related to dismantlement and abandonment activities (on an undiscounted current cost basis) at December 31, 2001 and 2000 was estimated at approximately Ps. 15,316,164 and Ps. 13,953,806, respectively, of which PEMEX has accrued Ps. 10,350,204 and Ps. 8,998,997, respectively. The accrued amounts have been included in accumulated depreciation and amortization.

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6.    Intangible asset derived from the actuarial computation of labor obligations and other assets

        As of December 31, 2001 and 2000, the intangible and other assets amount consists of:

	2001		2000
Intangible asset derived from the actuarial computation of labor obligations (Note 11)	Ps.	59,060,585	Ps.	54,133,613
Long-term investments and other assets		14,375,392		11,716,784
	Ps.	73,435,977	Ps.	65,850,397

        PMI NASA has a joint venture with Shell Oil Company, in which it owns a 50% interest in a petroleum refinery located in Deer Park, Texas. The investment is accounted for under the equity method and amounts to Ps. 2,478,969 and Ps. 2,229,238, respectively, at December 31, 2001 and 2000. During 2001, 2000 and 1999, PEMEX recorded Ps. 530,949, Ps. 498,983 and Ps. (687,301) respectively, of earnings (losses) relative to its interest in the joint venture which has been reflected in the line item "Other revenues" in the statements of operations. During 2001, 2000 and 1999, PEMEX paid the joint venture Ps. 3,717,666, Ps. 3,217,047 and Ps. 1,627,591 respectively, for the processing of petroleum. During 2000 and 1999, PEMEX, through its subsidiary company, PMI NASA, paid Ps. 15,768 and Ps. 29,259 respectively, to the joint venture under the terms of the contract which calls for contributions from PMI NASA based upon the refinery's operating margin. In July 2000, the above noted contract was modified retroactively respective to the contribution on the refining operating margin; the amounts presented are as revised per the modified contract.

        Long-term investments also include PEMEX's 46.85% investment in Mexicana de Lubricantes, S.A. de C.V. ("MexLub") an associated company which is accounted for under the equity method. PEMEX's investment in MexLub amounted to Ps. 642,619 and Ps. 686,937, at December 31, 2001 and 2000, respectively.

7.    Sale of future accounts receivable

        On December 1, 1998, Petróleos Mexicanos, Pemex-Exploration and Production, PMI and P.M.I. Services B.V. entered into several agreements with Pemex Finance, Ltd. ("Pemex Finance"), a limited liability company which was organized under the laws of the Cayman Islands. Under these agreements, Pemex Finance purchases certain existing accounts receivable for crude oil, as well as certain accounts receivable to be generated in the future by Pemex-Exploration and Production and PMI related to crude oil. The receivables sold are those generated by the sale of Maya crude oil to designated customers in the United States, Canada, and Aruba. The net resources obtained by Pemex-Exploration and Production from the sale of such receivables under the agreements are utilized for PIDIREGAS (see Note 2 d)). At December 31, 2001 and 2000, the sales under these agreements were Ps. 44,685,602 and Ps. 51,976,573, respectively.

        "Sale of future accounts receivable" has been classified as a long-term liability as of December 31, 2001 and 2000. The agreements between Petróleos Mexicanos, Pemex-Exploration and Production, PMI, P.M.I. Services B.V. and Pemex Finance establish short-term repayments; however, such agreements are evergreen and it is not expected that current resources will be used in repayments as the agreements do not bear a re-financing risk. Pemex Finance has a proven continuous ability to contract debt in the international market sufficient to sustain the acquisition of accounts receivable from PEMEX.

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8.    Notes payable to contractors

        At December 31, 2001 and 2000, the notes payable to contractors consisted of:

	2001		2000
Total notes payable to contractors (a), (b)	Ps.	14,900,765	Ps.	17,398,476
Less: Current portion of notes payable to contractors.		1,256,395		1,245,707
Notes payable to contractors (long-term)	Ps.	13,644,370	Ps.	16,152,769

(a)

On November 26, 1997, Petróleos Mexicanos and Pemex-Refining entered into a financed public works contract and a unit-price public works contract with Consorcio Proyecto Cadereyta Conproca, S.A. de C.V. The related contracts are for the reconfiguration and modernization of the "Ing. Hector R. Lara Sosa" refinery in Cadereyta, N.L.

The original amount of the financed public works contract was U.S. $1,618,352, plus a financing cost of U.S. $805,648, due in twenty semi-annual payments of U.S. $121,200. The original amount of the unit-price public works contract was U.S. $80,000, including a financing cost of U.S. $47,600 payable monthly based on the advancement of the project. At December 31, 2001 and 2000, the outstanding balance was Ps. 13,717,107 and Ps. 15,748,200 respectively.

(b)

On June 25, 1997, PEMEX entered into a 10-year service agreement, with a different contractor, for a daily fee of U.S. $82,500 for the storage and loading of stabilized petroleum by means of a floating system ("FSO"). At December 31, 2001 and 2000, the outstanding balance was Ps. 1,160,283 and Ps. 1,650,280, respectively.

9.    Debt

        As of December 31, 2001, PEMEX had Ps. 42,268,970 in lines of credit bearing interest rates of LIBOR plus 0.15% to 0.95%. As of December 31, 2001, the unused portion of the lines of credit was Ps. 1,347,903.

        During 2001, significant financing operations were as follows:

a.

At various dates during 2001, Petróleos Mexicanos obtained trade loans for an aggregate amount of U.S. $695,000 (Ps. 6,353,899) from various financial institutions. As of December 31, 2001, U.S. $490,000 (Ps. 4,479,727) of the trade loans drawn down during 2001 were outstanding. The applicable interest rate on the trade loans is LIBOR plus 0.66% or 0.72%. All the trade loans are repayable during 2002.



b.

At various dates during 2001, Petróleos Mexicanos obtained loans from export credit agencies totaling U.S. $121,072 (Ps. 1,106,877) granted by various export credit agencies. The loans are repayable from 2002 through 2009 and bear interest at LIBOR plus 0.625% to 1.25%.



c.

At various dates during 2001, Petróleos Mexicanos obtained unsecured loans of U.S. $1,800,000 c. (Ps. 16,456,140) from Banco Nacional de Comercio Exterior, S.N.C. for U.S. $800,000 (Ps. 7,313,840), Banco Santander Mexicano, S.A. for U.S. $450,000 (Ps. 4,114,035), BBVA Bancomer, S.A. for U.S. $450,000 (Ps. 4,114,035) and Nacional Financiera, S.N.C. for U.S. $100,000 (Ps. 914,230), which was utilized to finance working capital requirements. As of December 31, 2001, U.S. $950,000 (Ps. 8,865,185) of the unsecured loans were outstanding. The unsecured loans bear interest at LIBOR plus 0.55% to 0.90% and are repayable during 2002.



d.

On August 29, 2001, Petróleos Mexicanos issued U.S. $600,000 (Ps. 5,485,380) of 6.50% Guaranteed Notes due 2005. The notes were issued under Petróleos Mexicanos's Medium

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Term Note program, Series B, and are guaranteed by Pemex-Exploration and Production, Pemex-Refining and Pemex-Gas and Basic Petrochemicals.

e.

On October 30, 2001, PMI NASA obtained U.S. $50,270 (Ps. 459,587) in a bank loan from Standard Charter Bank. The bank loan bears interest at LIBOR plus 0.75% and is due in October 2002.



f.

During 2001, U.S. $527,900 (Ps. 4,826,220) was received from the commercial paper programs; comprised of U.S. $83,000 (Ps. 758,811) from the old program that matured in 2001 and U.S. $444,900 (Ps. 4,067,409) from the new program maturing in 2004. The commercial paper bears interest at the discount rate prevailing in the market at the date of issuance.



g.

During 2001, Petróleos Mexicanos utilized U.S. $871,000 (Ps. 7,962,943) in acceptance lines of which U.S. $86,000 (Ps. 786,238) were borrowed against existing lines, which expired in 2001. As of December 31, 2001, U.S. $785,000 (Ps. 7,176,705) of new acceptance lines were outstanding. The acceptance lines bear interest at U.S. discount rate and LIBOR plus 0.7%, expiring in 2004.



h.

During 2001, Petróleos Mexicanos obtained U.S. $7,600 (Ps. 69,481) for purchasing loans and project financing. The project financing credits bear interest at LIBOR plus 0.62% to 2%. The amounts obtained during 2001 are repayable semi-annually through 2011.

        During 2001, the Master Trust undertook the following financing activities:

a.

In September and October 2001, the Master Trust obtained commercial bank loans totaling U.S. $450,000 (Ps. 4,114,035) from Banco Nacional de Comercio Exterior, S.N.C. for U.S. $200,000 (Ps. 1,828,460) and Banco Santander Central Hispano for U.S. $250,000 (Ps. 2,285,575), which were utilized for PIDIREGAS projects. These loans bear interest at LIBOR plus 0.9% and are repayable in 2004.



b.

On February 5, 2001, the Master Trust issued U.S. $1,000,000 (Ps. 9,142,300) of 8.50% Notes due 2008. The Notes were issued under the Master Trust's Medium-Term Note program, Series A, and are guaranteed by Petróleos Mexicanos.



c.

On June 7, 2001, the Master Trust issued U.S. $500,000 (Ps. 4,571,150) of 9.125% Notes due 2010. The Notes were issued under the Master Trust's Medium-Term Note program, Series A, and are guaranteed by Petróleos Mexicanos.



d.

On November 14, 2001, the Master Trust increased its Medium-Term Note program from U.S. $3,000,000 (Ps. 27,426,900) to U.S. $6,000,000 (Ps. 54,853,800).



e.

On November 26, 2001, the Master Trust issued U.S. $750,000 (Ps. 6,856,725) of 8.0% Notes due 2011. The Notes were issued under the Master Trust's Medium-Term Note program, Series A, and are guaranteed by Petróleos Mexicanos.



f.

During 2001, the Master Trust obtained U.S. $425,401 (Ps. 3,889,143) and ¥ 60,084 million (Ps. 4,187,860) in project financing from several financial institutions. The project financing bears fixed interest at rates between 5.04% and 5.66% and variable rates of LIBOR plus 0.08% and 0.25% and the Yen Prime rate. The project financing is repayable between 2001 and 2011.

        During 2000, the following debts were contracted by PEMEX:

a.

Foreign trade lines of credit in the amount of U.S. $465,000 extended by various banks. These lines of credit are to finance crude oil and petrochemical imports and exports, as well as crude oil pre-exports. The full amount of these lines of credit was committed at December 31, 2000.

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b.

Petróleos Mexicanos used U.S. $107,000 in lines of credit extended by Société Générale, HSBC Investment Bank, plc Banco Santander Central Hispano, Kreditanstalt Für Wiederfbau and Export Development Corporation. At December 31, 2000, U.S. $127,300 of these lines of credit was not committed.



c.

Petróleos Mexicanos obtained direct loans for U.S. $650,000: U.S. $350,000 from Banco Santander, S.A. and U.S. $300,000 from Nacional Financiera, S.N.C.



d.

Petróleos Mexicanos obtained U.S. $173,000 through the Pemex Capital, Inc. commercial paper program and it reused U.S. $265,000.



e.

Petróleos Mexicanos reused U.S. $691,000 of banker's acceptances, U.S. $521,000 of which corresponded to the J.P. Morgan line of credit and U.S. $170,000 to the Industrial Bank of Japan line of credit.



f.

To finance projects, Petróleos Mexicanos used U.S. $32,000. At December 31, 2000, U.S. $14,900 and ¥ 335,600 million were not committed.

        The Master Trust contracted the following debt during 2000:

a.

Export Credit Agencies guaranteed loans in the amount of U.S. $1,098,900, of which U.S. $351,500 correspond to ABN AMRO Bank, U.S. $113,400 to Barclays Bank, U.S. $399,900 to JBIC, U.S. $34,200 to HSBC and U.S. $200,000 to Export Development Corporation.



b.

Two notes issuances for an aggregate amount of U.S. $963,300. The first issuance was for    € 500 million of 7.75% Notes due 2007. The second issuance was for U.S. $500,000 of 9.125% Notes due 2010.



c.

Direct bank loans for an aggregate amount of U.S. $400,000 of which U.S. $300,000 correspond to Banco Nacional de Comercio Exterior, S.N.C. and U.S. $100,000 to Royal Bank of Canada.



d.

U.S. $698,300 as financing from the Mexican Government.

        In 1983, 1985, 1987, and 1990, Petróleos Mexicanos, together with the Mexican Government, entered into various covenants with the international banking community for restructuring its debt. As a result of the final agreement, the remaining balance of the restructured Mexican Government debt retained, principally, the same interest rate conditions as had been negotiated in 1987. The agreed-upon periods of amortization including a provision for division of the debt into two main portions with amortization over 52 and 48 quarters, respectively. The first amortization period began in 1994 and the second began in 1995, with both scheduled to end in December 2006.

        Each year, SHCP approves Petróleos Mexicanos and Subsidiary Entities' annual budget and its annual financing program. The Mexican Government incorporates Petróleos Mexicanos and Subsidiary Entities' annual budget and annual financing program into the budget of the Mexican Government, which the Federal Congress of Mexico must approve each year. PEMEX's debt is not an obligation of, or guaranteed by, the Mexican Government. However, under the Ley General de Deuda Pública (the General Law of Public Debt), Petróleos Mexicanos and Subsidiary Entities' foreign debt obligations must be approved by and registered with the SHCP and are considered Mexican external public debt. Although Petróleos Mexicanos' debt is not guaranteed by the Mexican Government, Petróleos Mexicanos' external debt has received pari passu treatment in previous debt restructurings. Petróleos Mexicanos has repayments in 2002 related to current portion of long-term debt. A portion of this debt, primarily bankers' acceptances and commercial paper, is contractually committed until the year 2004, and thus does not bear a refinancing risk.

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        Various credit facilities require compliance with various operating covenants which, among other things, place restrictions on the following types of transactions:

•

sale of substantial assets essential for the continued operations of the business;



•

liens against its assets; and



•

transfers, sales or assignments of rights to payment under contracts for the sale of crude oil or gas not yet earned, accounts receivable or other negotiable instruments.

        As of December 31, 2001 and 2000, long-term debt was as follows:

				December 31, 2001				December 31, 2000
		Rate of interest(4)	Maturity	Pesos (thousands)		Foreign currency (thousands)		Pesos (thousands)		Foreign currency (thousands)
U.S. dollars:
	Unsecured loans(1)	Domestic and LIBOR plus 0.8125	Various to 2006	Ps.	5,002,105		547,139	Ps.	6,313,392	659,555
	Unsecured loans	LIBOR plus 0.55 to 0.95	2006		8,685,185		950,000		6,221,930	650,000
	Acceptance lines	Acceptance rate and LIBOR plus 0.7% and 2%	2002		7,176,706		785,000		8,423,536	880,000
	Bonds	Various from 6.0163% to 10.1% and LIBOR plus 3.4125%	Various to 2027		63,522,890		6,948,239		44,032,130	4,600,001
	Bonds (financing assigned to PIDIREGAS)	8.85% to 9.50%	Various to 2027		32,288,099		3,531,726		35,093,125	3,666,150
	Purchasing loans and project financing	Various from 1.93175% to 7.77% and LIBOR plus 0.0625% to 2.00%	Various to 2011		3,729,497		407,939		4,169,890	435,625
	Leasing contracts	Various from 9.49% to 10.34% and LIBOR plus fixed rate 1.25%	Various to 2002		2,916,661		319,029		4,184,966	437,200
	Commercial paper	Discount rate prevailing in the market	From 59 to 90 days		2,079,873		227,500		4,278,773	447,000
	External trade loans	LIBOR plus 0.625% to 0.725%	Various to 2002		4,479,727		490,000		3,781,019	395,000
	Others	Various from 8.2725% to 10.10%	Various to 2008		1,676,174		183,342		—	—
	Bank loans	LIBOR plus 0.75%	2002		459,587		50,270		—	—
	Total financing denominated in U.S. dollars			Ps.	132,016,504		14,440,184	Ps.	116,498,761	12,170,531
Euros:
	Unsecured loans and Euro bonds	LIBOR plus 0.8125% and from 2.00% to 10.00%	Various to 2007		10,970,713		1,355,932		6,242,749	675,000
Italian lira:
	Bonds	Various from 7.375% to 11.25% and LIBOR plus 165 basis points	Various to 2008	Ps.	—	Ps.	—	Ps.	7,134,376	1,300,000,000

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				December 31, 2001			December 31, 2000
		Rate of interest(4)	Maturity	Pesos		Foreign currency (thousands)	Pesos		Foreign currency (thousands)
Japanese yen:
	Project financing	From 1.6% to 6.6% and Prime in yen	Various to 2015	Ps.	12,132,480	174,067,145	Ps.	10,583,011	126,908,224
Other currencies(2)			Various to 2016		1,700,357			2,226,998
	Total principal in pesos(3)				156,820,054			142,685,895
	Plus: Accrued interest				2,596,047			2,141,201
	Total principal and interest				159,416,101			144,827,096
	Less: Short-term maturities				36,246,106			40,457,071
	Long-term debt			Ps.	123,169,995		Ps.	104,370,025

	2002		2003		2004		2005		2006		2007 and thereafter		Total
Maturities (in thousands of pesos)	Ps.	33,650,059	Ps.	14,576,630	Ps.	14,854,773	Ps.	15,799,273	Ps.	9,603,950	Ps.	68,335,369	Ps.	156,820,054

Notes to table:

(1)

Unsecured loans remain from a debt restructuring in 1987. This restructuring extended maturities to new periods through 2006.

(2)

Balance includes market operations, unsecured loans, purchasing loans and project financing denominated in Pounds sterling, Deutsche marks, Swiss francs, Austrian schillings, French francs and Belgian francs, all carrying different interest rates.

(3)

Includes financing from foreign banks for Ps. 149,517,308 and Ps. 133,850,060 as of December 31, 2001 and 2000, respectively.

(4)

As of December 31, 2001 the LIBOR rate was 1.98125% (6.204% in 2000), the Eurodollar rate was 1.81% (6.140% in 2000) the U.S. Discount rate was 1.25% (6.000% in 2000), the Prime rate in Japanese yen was 1.85% (2.100% in 2000) and the Acceptance rates ranged from 6.480% to 6.667% in 2000.

10.  Financial instruments

        During the normal course of business, PEMEX is exposed to foreign currency risk, interest rate risk, commodity price risk, counterparty risk and investment portfolio risk. These risks create volatility in earnings, equity, and cash flows from period to period. PEMEX makes use of derivative instruments in various strategies to eliminate or limit many of these risks.

        PEMEX has enacted general risk management guidelines for the use of derivative instruments, which form a comprehensive framework for PEMEX. Each subsidiary entity using derivatives has also adopted industry-specific risk management guidelines to manage the appropriate risks arising from their respective activities. The subsidiary entities' guidelines operate within the general risk management framework of PEMEX.

        The Risk Management Committee of PEMEX, comprised of representatives of PEMEX, the Central Bank of Mexico, SHCP, and PMI, authorizes PEMEX's hedging strategies and submits the risk management policies for the approval of the Board of Directors of Petróleos Mexicanos (the Board of Directors).

        During 2001, the Board of Directors approved a restructuring of the risk management area and created the Risk Management Deputy Direction, whose objective is to develop the financial and

F-23

operational risk management strategy for PEMEX and to establish institutional regulations consistent with a consolidated risk management approach.

(i) Credit risk

        PEMEX is subject to credit risk through trade receivables, short-term cash investments and derivative financial instruments. A significant portion of PEMEX's sales are to customers whose activities are related to the oil and gas industry, including some who are located in foreign countries (primarily the United States). To monitor this risk, PEMEX has established an internal credit committee to monitor credit policies and procedures. PEMEX extends credit to these customers which are generally covered by credit mitigation instruments such as bonds or letters of credit. Nevertheless, collection of receivables is affected by the economy of the oil and gas industry and of Mexico itself (since products are also sold in the domestic market). Also, with respect to foreign sales, collection may be more difficult in the event of a default. However, PEMEX closely monitors extensions of credit and has never experienced significant credit losses. Also, most foreign sales are made to large, well-established companies.

        PEMEX invests excess cash in low-risk, liquid instruments, which are placed with a wide array of institutions.

(ii) Counterparty risk from the use of derivative financial instruments

        PEMEX is exposed to credit (or repayment) risk and market risk through the use of derivative instruments. If the counterparty fails to fulfill its performance obligations under a derivative contract, PEMEX's credit risk will equal the positive market value in a derivative. Currently, when the fair value of a derivative contract is positive, this indicates that the counterparty owes PEMEX, thus creating a repayment risk for PEMEX. When the fair value of a derivative contract is negative, PEMEX owes the counterparty and, therefore, assumes no repayment risk.

        In order to minimize the credit risk in derivative instruments, PEMEX enters into transactions with high quality counterparties which include financial institutions and commodities exchanges that satisfy PEMEX's established credit approval criteria. Normally, these counterparties have higher credit standing than that of PEMEX.

        Derivative transactions are generally executed on the basis of standard agreements. In general, collateral for financial derivative transactions are neither provided nor received. However in energy derivatives transactions, counterparties require collateral when the negative fair value of the position exceeds the credit threshold.

(iii) Interest rate risk management

        PEMEX's interest rate risk hedging strategy allows the volatility of the financial risk to be reduced in the operating cash flows of PEMEX for the long-term debt commitments and guaranteed minimum dividends. Interest rate derivatives allow PEMEX to contract long-term loans to be contracted at fixed or variable rates and to select the appropriate mix of the debt at variable versus fixed rates.

        Interest rate hedging strategies have permitted PEMEX to effectively change the characteristics of its liabilities. At December 31, 2001, the effective interest rate on approximately 60% (51% in 2000) of PEMEX's debt is at a fixed rate, contracted directly or by using derivatives instruments.

        Derivative financial instruments used in PEMEX's hedging transactions primarily consist of (i) fixed interest rate swaps, under which PEMEX is eligible to receive payments generally based on the three month and six month LIBOR interest rate, and to a lesser degree, (ii) options on interest rate caps to establish an interest rate ceiling.

F-24

(iv) Exchange rate risk management

        As a currency exchange rate risk hedging policy, PEMEX contracts cross-currency swaps in order to hedge against adverse changes in currency exchange rates.

        Since a significant amount of PEMEX's revenues is denominated in U.S. dollars, PEMEX generally contracts loans in U.S. dollars. However, PEMEX also contracts debt in currencies other than the U.S. dollar to take advantage of the financing terms available in these foreign currencies. PEMEX has historically contracted cross-currency swaps as a hedging strategy against market exposure due to the depreciation of the U.S. dollar. These foreign currency financial derivatives have been established to translate the amounts relative to various bonds issued in other currencies into U.S. dollars.

(v) Commodity price risk management

        Crude oil:

        PEMEX's exports and domestic sales are related to international hydrocarbon prices, thus exposing PEMEX to fluctuations in international markets. PEMEX shares this risk with the Mexican Government through its current fiscal regime. Currently, PEMEX does not hedge against fluctuations in crude oil prices. However, in order to lessen the effect of a decline in hydrocarbon prices, since 1998, the Mexican Government, along with PEMEX, agreed to reduce the volume of crude oil exports in conjunction with the major international oil producers to improve international oil prices.

        Petroleum products:

        PEMEX balances its overall petroleum product supply and demand through PMI Trading Ltd., managing only those exposures associated with the immediate operational program. To this end, PEMEX uses the full range of conventional oil price-related financial and commodity derivatives available in the oil markets. PEMEX's benchmark for petroleum product commercial activities is the prevailing market price.

        Natural gas:

        As part of the Mexican Government's policy of promoting economic growth, SHCP, the Ministry of Economy, the Ministry of Energy and PEMEX announced a natural gas pricing program on January 2001 for certain industrial consumers of natural gas in Mexico. Under this program, Mexican industrial consumers that hold outstanding natural gas price hedging instruments may enter into a three-year agreement with PEMEX to purchase natural gas from PEMEX at a fixed reference price of 4.00 U.S. dollars per million BTUs. PEMEX entered into a number of such contracts in 2001. Participation by the industrial consumers in the program is optional.

        As part of PEMEX's risk management strategy, PEMEX has entered into a number of derivative instruments, primarily swaps and futures, for hedging purposes. These instruments are designed to unlock the fixed price sales under the three-year agreements, while locking in a profit margin, and were entered into for approximately 91% of the total volume of natural gas sold under these three-year fixed price agreements. The risk management strategy used to hedge these fixed price sales leaves PEMEX with an exposure to basis risk arising from the difference between the index used to hedge the natural gas sales at a fixed price and the index used as reference to mark to market these contracts. This basis risk is treated as an inefficiency of the transaction and may impact PEMEX's earnings in a period other than the one during which the transaction may be realized.

(vi) Investment portfolio risk management

        PEMEX currently holds three equity swaps with respect to shares of Repsol with two counterparties. In 1994, PEMEX entered into an equity swap for substantially all of its ownership interest in Repsol (44,985,000 shares). The equity swap was restructured in March 2000, with respect to

F-25

26,427,781 Repsol shares (with the remaining 18,557,219 shares in the original swap being returned to PEMEX). The restructured swap was divided in three tranches, having one-, two- and three-year maturities. Upon the maturity of the one-year tranche in 2001, PEMEX entered into a new swap for another three months, commencing in April 2001 and since then, this swap has been renewed periodically. Upon the maturity of the two-year tranche of the restructured swap in April 2002, PEMEX entered into a new swap for three months. In addition, in January 2000, PEMEX entered into a second equity swap with respect to 13,679,704 Repsol shares maturing in three years. These shares had been purchased in 1999. As of December 31, 2001, the market value of the Repsol shares was 14.57 U.S. dollars per share.

        The above equity swaps, which are uncollateralized, involve the option to be cash or physically settled.

        In December 1999, PEMEX unwound a collar component of a call spread swap with a financial institution. This enabled PEMEX not to limit potential gains. The resulting structure is that of an asset swap. The realized cost of termination of the collar component was Ps. 2,666,173, with Ps. 1,058,504 being paid in 1999 and Ps. 1,607,669 being paid in early 2000; the full expense related to the collar termination cost was recorded in 1999.

(vii) Fair value of derivative financial instruments

        The fair value of derivative instruments is sensitive to movements in the underlying market rates and variables. PEMEX monitors the fair value of derivatives instruments on a periodic basis. The fair value of foreign currency, commodity and interest rate derivatives is monitored on a periodic basis ranging from daily to at least quarterly. Fair values are calculated for each derivative financial instrument, which is the price at which one party would assume the rights and duties of another party. Fair values of financial derivatives have been calculated using common market valuation methods with reference to available market data as of the balance sheet date.

        The following is a summary of the methods and assumptions for the valuation of utilized derivative financial instruments.

•

Currency, crude oil forwards, crude oil, gas and product swaps are valued separately at future rates or market prices as of the balance sheet date. The fair values of spot and forward contracts are based on spot prices that consider forward premiums or discounts from quoted prices in the relevant markets when possible.



•

Market prices for currency, crude oil and gas options are valued using standard option-pricing models commonly used in the market. Embedded caps, floor and collars are considered in the valuation by calculating the fair value separately for such features similar to stand-alone options.



•

The fair values of existing instruments to hedge interest rate risk were determined by discounting future cash flows using market interest rates over the remaining term of the instrument. Discounted cash values are determined for interest rate and cross currency swaps for each individual transaction as of the balance sheet date. Interest exchange amounts are considered with an effect on current results at the date of payment or accrual. Market values for interest rate options are determined on the basis of quoted market prices or on calculations based on option pricing models.



•

Exchange-traded oil and energy future contracts are valued individually at daily settlement prices determined on the futures markets that are published by their respective clearing houses. Paid initial margins are disclosed under other assets. Variation margins received or paid during the term are stated under other liabilities or other assets, respectively. They are accounted for with an impact on earnings at settlement or realization, respectively.

F-26

        The following table indicates the types of swaps contracted, their duration, and their respective interest rates at December 31, 2001 and 2000.

		2001			2000
		Notional amount	Fair value		Notional amount	Fair value
Received variable swaps		914,230	(84,848	)	3,350,270	(56,478	)
	Weighted average (maturity years)	2.59	—		1.25	—
	Average receive rate	4.04	—		7.32	—
	Average pay rate	7.33	—		5.84	—

The following table indicates interest rate options, fair value, and their respective interest rate.

	2001		2000
	Notional amount	Fair value	Notional amount	Fair value
Caps written	—	—	957,220.00	—
Weighted average (maturity years)	—	—	0.37	—
Average receive rate	—	—	9.84	—
Average pay rate	—	—	5.79	—

        The following table indicates the type of cross-currency swaps and their respective fair values at December 31, 2001 and 2000.

	2001			2000
	Notional amount	Fair value		Notional amount	Fair value
Italian lire to U.S. dollars	3,777,142	(1,281,899	)	3,954,755	(1,033,136	)
British pounds to U.S. dollars	1,138,216	(174,089	)	1,191,739	(106,695	)
Japanese yens to U.S. dollars	4,423,074	(292,435	)	—	—
Euro to U.S. dollars	8,511,616	(1,533,064	)	5,082,754	(1,161,406	)
	17,850,048	(3,281,487	)	10,229,248	(2,301,237	)

F-27

Fair value of financial instruments other than derivatives

        The estimated fair value of financial instruments other than derivatives, for which it is practicable to estimate that value, as of December 31, 2001 and 2000 are as follows:

		2001				2000
		Carrying Value		Fair Value		Carrying Value		Fair Value
Assets:
	Cash and cash equivalents	Ps.	14,441,864	Ps.	14,441,864	Ps.	27,826,846	Ps.	27,826,846
	Accounts receivable, notes and other		44,869,427		44,869,427		56,701,566		56,701,566
Liabilities:
	Suppliers	Ps.	23,503,971	Ps.	23,503,971	Ps.	22,651,745	Ps.	22,651,745
	Accounts payable		8,426,580		8,426,580		6,102,552		6,102,552
	Sale of future accounts receivable		44,685,602		44,685,602		51,976,573		51,976,573
	Taxes payable		2,515,370		2,515,370		25,308,881		25,308,881
	Short-term debt		36,246,106		36,246,106		40,457,071		40,457,071
	Notes payable to contractors-short term		1,256,395		1,256,395		1,245,707		1,245,707
	Notes payable to contractors-long term		13,644,370		14,827,874		16,152,769		17,913,133
	Long-term debt		123,169,995		127,235,896		104,370,025		106,230,257

        The reported amounts of financial instruments such as cash equivalents, accounts receivable and payable, taxes payable and short-term debt approximate fair value because of their short maturities.

        The fair value of long-term debt is determined by reference to market quotes, and, where quotes are not available, is based on discounted cash flow analyses. Because assumptions significantly affect the derived fair value and they are inherently subjective in nature, the estimated fair values cannot be substantiated by comparison to independent market quotes and, in many cases, the estimated fair values would not necessarily be realized in an immediate sale or settlement of the instrument.

11.  Reserve for retirement payments, pensions and seniority premiums

        PEMEX has labor obligations for seniority premiums and pensions, according to regulations established by the Ley Federal del Trabajo (the "Federal Labor Law"), and provisions in the individual and collective labor contracts. This compensation is only payable after the worker or employee has worked a certain number of years. Benefits are based on the employee's compensation as of his retirement date, as well as the number of years of service. PEMEX has established a reserve for retirement and seniority premium benefits, determined by independent actuaries. The reserve is calculated by independent third party actuaries using the projected unit-credit method. The net cost of the plan recorded in the consolidated statements of operations amounted to Ps. 33,849,168, Ps. 29,901,504 and Ps. 25,022,850 in 2001, 2000 and 1999, respectively.

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        The amount of benefits projected for pensions and seniority premiums, determined by independent actuaries, is as follows:

	2001		2000
Obligation for current benefits	Ps.	178,379,613	Ps.	147,537,355
Additional amount for projected benefits		46,155,618		44,146,568
Projected benefits obligation		224,535,231		191,683,923
Less:
Plan assets (trust funds)		5,803,396		9,330,702
		218,731,835		182,353,221
Transition liability to be amortized over 7 years, actuarial gains or losses, prior service costs and plan amendments		104,760,916		97,984,838
Net projected liability		113,970,919		84,368,383
Additional minimum liability		59,060,585		54,133,613
Accumulated obligation	Ps.	173,031,504	Ps.	138,501,996

12.  Comprehensive loss

        Comprehensive loss for the years ended December 31, 2001, 2000 and 1999 is analyzed as follows:

	2001			2000			1999
Net loss for the year	Ps.	(34,090,587	)	Ps.	(19,710,392	)	Ps.	(21,156,771	)
Effect of restatement in the year, net		7,783,568			12,042,509			16,306,888
Net increase in specific oil-field exploration and depletion reserve		3,587,309			2,241,993			2,055,350
Other equity movements(1)		544,370			(68,692	)		968,774
Comprehensive loss for the year	Ps.	(22,175,340	)	Ps.	(5,494,582	)	Ps.	(1,825,759	)

(1)

Represents primarily translation adjustments from non-Mexican subsidiaries.

13.  Equity

        On December 31, 1990, certain debt owed by Petróleos Mexicanos to the Mexican Government was capitalized as equity. This capitalization amounted to Ps. 22,334,195 (U.S. $7,577,000) and was authorized by the Board of Directors. The capitalization agreement between Petróleos Mexicanos and the Mexican Government stipulates that the Certificates of Contribution "A" constitute permanent capital.

        As a condition of this capitalization, Petróleos Mexicanos agreed to pay a minimum guaranteed dividend to the Mexican Government equal to the debt service for the capitalized debt. The minimum guaranteed dividend consists of the payment of principal and interest in the same terms and conditions as those originally agreed upon with international creditors until the year 2006, at the exchange rates in effect as of the date payments are made. Such payments must be approved annually by the Board of Directors.

        In December 1997, the Board of Directors and the Mexican Government agreed to an equity reduction of the Certificates of Contribution "A" in exchange for a cash payment to the Mexican Government of Ps. 12,118,050 (U.S. $1,500,000). Petróleos Mexicanos and SHCP agreed upon a corresponding reduction in the future payments of the minimum guaranteed dividend.

F-29

        During 2001, Petróleos Mexicanos paid Ps. 2,152,788 (Ps. 5,563,799 during 2000) to the Mexican Government in advance payments on account of the minimum guaranteed dividend. These payments will be applied to the final amount that the Board of Directors approves as the total annual dividend, which is usually in the following fiscal year.

        On October 31, 1998, PEMEX liquidated its investment in the shares of Distribuidora de Gas Natural del Estado de México, S.A. de C.V. and recorded a gain in other revenues of Ps. 406,677. PEMEX also recorded in the 1998 operating results, dividends of Ps. 372,840 received during the year from that company. All proceeds obtained from these operations were deposited in the Federal Treasury, through a dividend in the favor of the Mexican Government, approved by the Board of Directors on August 3, 1999.

        On January 31, 1999, PEMEX liquidated its investment in the shares of Distribuidora de Gas de Querétaro, S.A. de C.V., and recorded a gain of Ps. 231,074 in the 1999 operating results. The proceeds obtained from that operation were deposited in the Federal Treasury, through a dividend in the favor of the Mexican Government, approved by the Board of Directors on May 9, 2000.

F-30

14.    Foreign currency position

        PEMEX has the following assets and liabilities denominated in foreign currencies, which are stated in pesos at the exchange rate prevailing at December 31, 2001 and 2000:

	Amount in foreign currency (Thousands)
	Assets	Liabilities	Long (short) position		Exchange rate	Amounts in pesos
2001:
U.S. dollars	2,693,204	13,967,347	(11,274,143	)	9.1423	Ps.	(103,071,598	)
Japanese yen	—	71,758,328	(71,758,328	)	0.0697		(5,001,555	)
Pounds sterling	—	165,377	(165,377	)	13.2600		(2,192,899	)
Austrian schillings	—	212	(212	)	0.5880		(125	)
Dutch guilders	40	—	40		3.6715		147
Euros	467	1,383,966	(1,383,499	)	8.0909		(11,193,752	)
Other currencies	various	various	various		various		(4,686	)
Net-short position, before foreign-currency hedging (Note 10)						Ps.	(121,464,468	)
2000:
U.S. dollars	4,297,065	14,044,116	(9,747,051	)	9.5722	Ps.	(93,300,722	)
Japanese yen	12	127,244,317	(127,244,305	)	0.0834		(10,612,175	)
Deutsche marks	—	10,924	(10,924	)	4.5525		(49,732	)
Italian lira	22,101	1,300,000,184	(1,299,978,083	)	0.0046		(5,979,899	)
Pounds sterling	—	127,075	(127,075	)	14.2836		(1,815,088	)
Austrian schillings	1	506,089	(506,088	)	0.6471		(327,490	)
Swiss francs	—	1,056	(1,056	)	5.9037		(6,234	)
French francs	—	4,943	(4,943	)	1.3574		(6,710	)
Euros	—	675,000	(675,000	)	8.9041		(6,010,268	)
Belgium francs	—	173,814	(173,814	)	0.2207		(38,361	)
Other currencies	various	various	various		various		18,078
Net-short position, before foreign-currency hedging (Note 10)						Ps.	(118,128,601	)

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15.    Effects of inflation on the financial information

        The following table reflects the approximate effects of inflation on PEMEX's financial information in accordance with Bulletin B-10 (Restated amounts columns), except that the concept of fair value has not been included, see subsequent discussion in this note. The Basic Financial Statements column is prepared in accordance with NIF-06 BIS "A" Section A.

Effect on Balance sheets
		2001						2000
		NIF-06 BIS "A" Basic Financial Statements			Bulletin B-10 Restated amounts
Equity:
Certificates of Contribution "A"		Ps.	10,222,463		Ps.	10,222,463		Ps.	10,222,463
Specific oil-field exploration and depletion reserve			16,278,784			16,278,784			12,691,475
Revaluation surplus			181,837,738			—			—
Retained earnings (losses):
	Prior years		(51,382,165	)		(45,267,802	)		(24,483,734	)
	Current year		(34,090,587	)		(26,022,769	)		(15,220,269	)
Restatement of equity			—			653,837,966			627,462,574
Deficit from the restatement of equity:
	Loss on accumulated monetary position		—			(77,577,999	)		(74,305,937	)
	Equity monetary result		—			8,796,254			8,425,248
	Accumulated deficit from holding non-monetary assets		—			(417,400,664	)		(394,186,448	)
		Ps.	122,866,233		Ps.	122,866,233		Ps.	150,605,372

Effect on statements of income
		2001			2000			1999
Comprehensive cost of financing:
	Interest expense and exchange loss capitalized in fixed assets	Ps.	(3,779,541	)	Ps.	(4,052,872	)	Ps.	(5,119,428	)
	Monetary position gain, Net		11,847,359			8,542,995			12,545,971
		Ps.	8,067,818		Ps.	4,490,123		Ps.	7,426,543

        The above table was prepared using the following procedures and assumptions:

Balance sheets:

1)

Currency exchange losses arising from the impact of foreign currency fluctuations on the foreign currency denominated debt and interest capitalized as part of fixed assets under NIF-06 BIS "A" Section A are, because of the restatement, charged to income for the year under Bulletin B-10, and would be reflected as part of the "Comprehensive cost of financing".

2)

The Certificates of Contribution "A" have been restated by applying the factor derived from the NCPI Index to the contributions based on the year in which they were made, in order to present them in terms of the same purchasing power. The same procedure was applied to the equity reserves and retained earnings. The figure for these items is presented under the caption "Restatement of equity".

3)

The deficit or surplus from holding non-monetary assets represents the difference achieved by comparing these asset balances, restated as discussed in Note 2 b), to the result from applying NCPI indexes to such non-monetary assets.

F-32

There is evidence that the restated amounts of some of the assets might exceed their "fair value," which is defined as the amount of the net cash flows that are reasonably expected to be received from the use of such assets. The approximate amounts of that overstatement at December 31, 2001 and 2000, are estimated at Ps. 35,199,400 and Ps. 30,407,300, respectively; these amounts have not been deducted from the restated amount of the assets, as required by Bulletin B-10. As stated in Note 2 b), NIF-06 BIS "A" Section A does not consider the concept of fair value.

Statements of operations:

4)

The gain from monetary position represents the effect that inflation has produced on monetary assets and liabilities. Holding these assets produces a loss; holding such liabilities produces a gain.

The initial accumulated result upon implementation of Bulletin B-10 arising from the restatement is presented in equity. The result for the year is applied to the "Comprehensive cost of financing", which includes interest expense and exchange losses.

Other:

5)

The consolidated balance sheets as of December 31, 2001 and 2000 would be stated in pesos with purchasing power restated as of those dates and the related consolidated statements of operations are stated in pesos reflecting average purchasing power for those years. The consolidated balance sheets are prepared under a NIF-06 BIS "A" Section A basis (see Note 2 b)).

16.    Commitments and contingencies

a.

PEMEX is involved in various lawsuits filed against it by dismissed personnel, which in the event of being resolved in favor of the dismissed personnel, would result in a charge to operations in the year in which the payment is made. Management does not believe that the ultimate outcome of these events will have a material effect on its financial position or results of operations.



b.

PEMEX is subject to the Ley General de Equilibrio Ecológico y Protección al Ambiente (the General Law on Ecology and Protection of the Environment, or the "Environmental Law"). To comply with this law, PEMEX has contracted environmental audits for its larger operating, storage and transportation facilities. To date, audits of refineries, secondary petrochemical plants and certain other facilities have been concluded. Following the completion of such audits, PEMEX signed various agreements with the Procuraduría Federal de Protección al Ambiente (the Federal Attorney of Environmental Protection, or "PROFEPA") to implement environmental remedy and improvement plans. Such plans consider remedy for environmental damages previously caused, as well as related investments for the improvement of equipment, maintenance, labor and materials.

PEMEX has recorded obligations for environmental remediation as of December 31, 2001 and 2000 of Ps. 2,316,175 and Ps. 2,837,758, respectively. These liabilities are included in the "Reserve for sundry creditors and others".

c.

A trust agreement has been formed between Pemex-Gas and Basic Petrochemicals as beneficiary, Distribuidora de Gas de Querétaro, S.A. de C.V.; DGN de la Laguna Durango, S. de R.L. de C.V.; DGN de Chihuahua, S. de R.L. de C.V.; Repsol México, S.A. de C.V. (now Gas Natural de México, S.A. de C.V.); Gas Natural del Río Pánuco, S. de R.L. de C.V.; Tamauligas, S.A. de C.V.; NATGASMEX, S.A. de C.V.; Consorcio Mexigas, S.A. de C.V.; Comercializadora Metrogas, S.A. de C.V. (formerly DIGANAMEX, S.A. de C.V.) and Distribuidora de Gas Natural de Jalisco, S.A. de C.V., as trustees, and the Banco Nacional de Obras y Servicios Públicos, S.N.C. (National Bank of Public Works and Services, S.N.C.) as

F-33

trust administrator. Pursuant to this agreement, Pemex-Gas and Basic Petrochemicals is obligated to transfer the right to the use of assets associated with natural gas distribution from Pemex-Gas and Basic Petrochemicals to the trustees and, in return, the trustees are obligated to deposit in the trust a payment for the right of use of the transferred assets. This payment was approximately Ps. 332,799, Ps. 332,799 and Ps. 250,179 at December 31, 2001, 2000 and 1999, respectively. The trust administrator is obligated to transfer the ownership of the assets to the trustees once the title and control of the assets has been formalized and properly accredited into the name of the trustees.

d.

PEMEX, through its subsidiaries PMI and PMI-NASA, has executed several long-term purchase and sale contracts for Maya crude oil with various refineries. These contracts oblige the buyers to construct conversion units (coking/catalyst conversion units) that permit the optimization of yields from the refining process of Maya crude. PMI, in its role, principally has the obligation to assign Maya crude oil once the new investments have been completed.

        The contracts which have been signed to date include:

(i)

An agreement with Clark Refining and Marketing Inc. (now Port Arthur Coker Company), signed in March 1998 for delivery of crude oil to its refinery in Port Arthur, Texas, U.S.A. The contract is for approximately 158,000 barrels per day of Maya crude oil to be delivered for a period of seven years following project completion, which occurred in April 2001.



(ii)

An agreement with Coastal Aruba Refining Company N.V., signed in July 1998, for delivery of crude oil to its refinery in Lagoweg, Aruba. The contract is for approximately 100,000 barrels per day of Maya crude oil to be delivered for a period of five years following project completion, which occurred in April 2000.



(iii)

An agreement with Exxon Company U.S.A. and Exxon Trading Company International, signed in September 1998 for delivery of crude oil to its refinery in Baytown, Texas, U.S.A. The contract is for approximately 65,000 barrels per day of Maya crude oil to be delivered for a period of five years following project completion, which occurred in December 2001.



(iv)

In May 1999, an agreement, signed with Pecten Trading Company, which is a trading subsidiary of Shell Oil Company and PMI-NASA to expand the refinery at Deer Park Refining Limited Partnership by increasing its total processing capacity from 280,000 barrels per day to 340,000 barrels per day; the project was completed in April 2001. The increased requirements for heavy crude are satisfied through an increase in the supply of Maya crude oil from PMI, which increased its existing agreements with Pecten and PMI-NASA from 140,000 barrels per day to 200,000 barrels per day, 50,000 barrels per day of the additional contractual quantity are contracted under terms similar to the other agreements mentioned in this section.



(v)

An agreement with Marathon Ashland Supply LLC, signed in May 1999 to supply its Garyville, Louisiana, U.S.A. refinery with approximately 90,000 barrels per day, which by today has been increased to up to 100,000 barrels per day, of Maya crude oil for a period of five years following project completion, which occurred in December 2001.



(vi)

An agreement with Valero Marketing & Supply Company and Valero Refining-Texas, L.P., signed in December 2001 to supply its Texas City, Texas, U.S.A. refinery with approximately 90,000 barrels per day of Maya crude oil for a period of five years following project completion, which is scheduled to occur on or before October 1, 2003.

F-34

(vii)

An agreement with Chevron Products Company, signed in March 2002 to supply its Pascagoula, Mississippi, U.S.A. refinery with approximately 130,000 barrels per day of Maya crude oil for a period of five years following project completion, which is scheduled to occur in April 2003.




e.

At December 31, 2001, PEMEX is involved in various civil, tax and administrative lawsuits with a total claim amount of Ps. 11,888,473. At December 31, 2001 and 2000, PEMEX has accrued Ps. 1,026,561 and Ps. 368,873, respectively, related to those contingencies for which management believes that the outcome will be unfavorable.



f.

PEMEX presently faces claims in courts, filed by service providers for damages amounting to U.S. $497,300 (Ps. 4,546,466). Those legal proceedings have recently begun and PEMEX believes that to date it is not necessary to create any provision.



g.

PEMEX has been sued by a supplier for late and non-payment of billings and other items for a total of U.S. $79,276 (Ps. 724,765). Based on an analysis of the documentation presented by the supplier, PEMEX recognized a liability of U.S. $4,576 (Ps. 41,835). In addition, PEMEX will file suit against the supplier for U.S. $4,949 (Ps. 45,245) for unsatisfactory work. At the present time, documentary evidence is now in the process of being presented to the court.



h.

PEMEX has a nitrogen supply contract for the pressure maintenance program for the Cantarell field that expires in 2015. At December 31, 2001 and 2000, the value of the nitrogen to be supplied during the term of the contract is approximately Ps. 22,015,737 and Ps. 25,525,000, respectively. In the event of the annulment of the contract for causes attributable to PEMEX, PEMEX would be required to purchase the nitrogen production plant from the supplier for Ps. 8,310,456.



i.

As discussed in Note 10, PEMEX sold 13,679,704 shares of Repsol and simultaneously contracted an equity swap on such shares with an international financial institution. The agreement contains a mandatory re-purchase clause for the shares. The repurchase commitment is for U.S. $292,000.



j.

The Comisión Federal de Competencia ("Federal Competition Commission") handed down a resolution against PEMEX for presumed monopolistic policies relative to exclusivity clauses for the sale of lubricants, grease, and oil. The resolution established the following measures:



•

The payment of a fine in the amount of Ps. 17,055;



•

Amendment of the joint venture agreements, use of trademark license contract, franchise supply contract, as well as documents containing the exclusivity clause;



•

Amendment of contracts with franchise service stations to adjust franchise and supply contracts; and



•

Report the resolution handed down by the Federal Competition Commission to the legal representatives of service stations.

To date, PEMEX has filed two appeals for constitutional relief from this resolution. One appeal was resolved favorably in the first instance, because it was challenged through an appeal for review. A ruling thereon has not been handed down yet. A ruling by the appeals court has not been handed down on the other appeal.

k.

At December 31, 2001, PEMEX has entered into contracts with various contractors for an approximate amount of Ps. 46,819,776. These contracts are for the development of PIDIREGAS and, therefore, subject to standards required in NIF-09-A (see Note 2 d)).

F-35

l.

In the normal course of business, PEMEX is named in a number of lawsuits of various natures. PEMEX evaluates the merit of each claim and assesses the likely outcome, accruing a contingent liability when an unfavorable decision is probable and the amount is reasonable estimable. PEMEX does not believe a materially unfavorable outcome is probable for any known or pending lawsuits or threatened litigation for which PEMEX has not made accruals.

17.    Marketing of gas

        During 2000 and through February 2001, the market selling price of liquid gas was determined by reference to the average price for the last three months with a maximum increase of up to 2%. Effective March 2001, by decree of the Economic Committee headed by the Ministry of Economy, the selling price was set at 3.461 pesos per ton for a four month period. On July 27, 2001, the Comisión Reguladora de Energía ("CRE") published a release for the selling price of liquid gas in the Official Daily Gazette, effective August 1, 2001. This price release consists of applying the reference market selling price of liquid gas which is based upon the Mount Bellevue price.

18.    Hydrocarbon reserves (unaudited)

        In accordance with the Political Constitution of the United Mexican States and the Organic Law, all reserves of petroleum and other hydrocarbons in Mexico are the property of the nation. Furthermore, as mandated by the Organic Law, PEMEX has the exclusive right to extract and exploit the resources. Mexico's proved reserves of hydrocarbons were 21,893 million barrels of oil equivalent at December 31, 2001 and 23,525 million barrels of oil equivalent at December 31, 2000. Reserves have been adjusted by revisions, increases and developments and have been decreased by the production for the year.

19.    Differences between Mexican GAAP and U. S. GAAP

        A summary of the significant differences between the accounting principles followed by PEMEX and generally accepted accounting principles in the United States ("U.S. GAAP") is presented below.

        The accompanying consolidated financial statements have been prepared in accordance with Mexican GAAP and, as to the recognition of inflation, in accordance with NIF-06-BIS "A" section A applicable to public-sector entities, which differs in certain significant respects from U.S. GAAP. Such differences involve methods for measuring the amounts shown in the consolidated financial statements, as well as additional disclosures required by U.S. GAAP.

F-36

I.    Differences in measurement methods:

        The principal differences between Mexican GAAP and U.S. GAAP are disclosed below. Loss represents pre-tax loss, because PEMEX is not subject to Mexican income taxes, and is reconciled as follows:

			2001			2000			1999
Net loss for the year under Mexican GAAP			Ps.	(34,090,587	)	Ps.	(19,710,392	)	Ps.	(21,156,771	)
U.S. GAAP adjustments:
	Exploration and drilling costs(a)			2,034,465			3,710,002			4,692,946
	Pensions and seniority premiums(b)			(263,476	)		(203,877	)		(10,742	)
	Post-retirement benefits(c)			(6,066,029	)		(5,777,295	)		(5,067,595	)
	Accrued vacation(d)			(62,405	)		(83,096	)		(171,957	)
	Fixed asset adjustments:
		• Depreciation expense(f)		10,611,702			10,364,367			9,501,544
		• Foreign currency exchange losses(g)		—			(139,692	)		—
		• Capitalization of interest, net(h)		1,431,466			471,555			748,164
		• Fixed asset impairment, net(i)		(5,571,939	)		(3,236,480	)		(3,928,205	)
		• Depreciation convention(j)		(1,020,650	)		(1,443,270	)		—
	Accounting for financial instruments:
		• Difference in cumulative effect of adoption of new financial instruments standards(k)		5,122,515			—			—
		• Difference in current period effect(k)		2,482,947			(11,005	)		(11,776	)
	Sale of shares of Repsol(l)			—			(118,742	)		—
	Sale of air transport assets(m)			—			—			34,097
	Profit in inventory(n)			(52,120	)		(518,791	)		—
Total U.S. GAAP adjustments, net				8,646,476			3,013,676			5,786,476
Net loss for the year under U.S. GAAP			Ps.	(25,444,111	)	Ps.	(16,696,716	)	Ps	(15,370,295	)
Components of U.S. GAAP net loss:
	Loss from continuing operations		Ps.	(29,235,380	)	Ps.	(16,696,716	)	Ps.	(15,370,295	)
	Cumulative effect of accounting change(k)			3,791,269			—			—
	Net loss for the year		Ps.	(25,444,111	)	Ps.	(16,696,716	)	Ps.	(15,370,295	)
Comprehensive income (loss) under U.S. GAAP:
	Net loss for the year under U.S. GAAP		Ps.	(25,444,111	)	Ps.	(16,696,716	)	Ps.	(15,370,295	)
	Other comprehensive (loss) income:
		Derivative financial instruments(k)		(470,653	)		—			—
		Unrealized (losses) gains on securities(p)		(1,240,660	)		(3,922,094	)		3,487,966
		Other equity movements		544,370			—			—
				(1,166,943	)		(3,922,094	)		3,487,966
Comprehensive loss			Ps.	(26,611,054	)	Ps.	(20,618,810	)	Ps.	(11,882,329	)

F-37

			2001			2000
Components of accumulated other comprehensive (loss) income at December 31,:
	Derivative financial instruments(k)		Ps.	(470,652	)	Ps.	—
	Unrealized (losses) gains on securities(p)			3,845,614			5,086,274
	Other equity movements (translation adjustment)			544,370			—
Accumulated other comprehensive income			Ps.	3,919,332		Ps.	5,086,274
			2001			2000
Equity (deficit) is reconciled as follows:
Equity under Mexican GAAP			Ps.	122,866,233		Ps.	150,605,372
U. S. GAAP adjustments:
	Exploration and drilling costs(a)			15,881,285			17,434,129
	Pensions and seniority premiums(b)			(3,508,677	)		(3,245,201	)
	Post retirement benefits(c)			(25,621,145	)		(19,555,116	)
	Accrued vacation(d)			(463,756	)		(401,351	)
	Fixed asset adjustments:
		• Inflation accounting — fixed assets valuation(e)		(112,381,035	)		(104,597,467	)
		• Accumulated depreciation(f)		44,345,488			33,733,786
		• Foreign currency exchange losses(g)		(64,507,568	)		(64,507,568	)
		• Capitalization of interest, net(h)		(2,298,612	)		(3,730,078	)
		• Impairment, net(i)		(22,074,405	)		(16,502,466	)
		• Depreciation convention(j)		(2,463,920	)		(1,443,270	)
	Accounting for financial instruments(k)			7,134,809			—
	Sale of shares of Repsol(l)			(361,150	)		(361,150	)
	Profit in inventory(n)			(570,911	)		(518,791	)
	Advanced payments on minimum guaranteed dividend(o)			(2,152,788	)		(5,563,799	)
	Available-for-sale investment securities(p)			3,845,614			5,086,274
Total U. S. GAAP adjustments, net				(165,196,771	)		(164,172,068	)
Deficit under U. S. GAAP			Ps.	(42,330,538	)	Ps.	(13,566,696	)

Changes in U.S. GAAP equity for the year ended December 31, 2001:
	Deficit at December 31, 2000			Ps.	(13,566,696	)
		Net loss for the period			(25,444,111	)
		Minimum guaranteed dividends			(2,152,788	)
		Other comprehensive income:
			Derivative financial instruments		(470,653	)
			Unrealized gains (losses) on available-for-sale investment securities.		(1,240,660)
			Other equity movements (translation adjustments)		544,370
	Deficit at December 31, 2001			Ps.	(42,330,538	)

        Explanation of reconciling items:

(a)

Exploration and drilling costs

        As discussed in Notes 2 e) and 2 f), under Mexican GAAP, PEMEX charges exploration and drilling costs to the equity reserve for exploration and depletion of oil fields. Exploration and drilling costs related to successful oil wells are credited to the equity reserve and recorded as fixed assets. Cost of sales is recognized by recording a per-crude oil barrel quota charge in the statement of operations and recording a credit to the equity reserve.

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        Under U.S. GAAP, costs of drilling exploratory wells and exploratory-type stratigraphic test wells are initially capitalized and are charged to expense if proved reserves are not discovered. Development costs, including the costs of drilling development wells and development-type stratigraphic test wells are capitalized. The capitalized costs of wells and related equipment are amortized on a UOP basis, as the related oil and gas reserves are extracted. Costs of unproved properties are assessed periodically and a loss is recognized if the properties are determined to be impaired (See also Note 19 I (i)). PEMEX has accordingly adjusted the results of operations and equity to reflect the impact of U.S. GAAP on exploration and drilling costs; i.e., the Mexican GAAP operations charge related to the cost per barrel has been reversed, the equity account related to the specific oil field exploration and drilling reserve has been reversed to zero, and costs related to properties in the exploration and development phase have been capitalized in accordance with U.S. GAAP. The adjustment is net of the difference in amortization for capitalized amounts.

(b)

Pensions and seniority premiums

        Under Mexican GAAP, PEMEX follows the guidance in Bulletin D-3, which establishes the procedures for measuring the expenses and liabilities for pension plans and seniority premiums. The primary differences between PEMEX's application of Bulletin D-3 and the U.S. GAAP guidance provided in SFAS No. 87, "Employers Accounting for Pensions", relate to actuarial assumptions and implementation dates. PEMEX adopted SFAS No. 87 effective January 1, 1989 and recorded a transition obligation on adoption which is being amortized over 15 years.

(c)

Post-retirement benefits

        Under Mexican GAAP, PEMEX accounts for supplemental payments under its Bulletin D-3 calculations. PEMEX, however, accounts for other health service benefits on a pay-as-you-go basis. Under U.S. GAAP, PEMEX follows the guidelines of SFAS No. 106, "Employers' Accounting for Post-Retirement Benefits Other Than Pensions," in accounting for health service and other supplemental payments provided to retirees. SFAS No. 106 requires the accrual of the expected cost of providing such benefits to employees during the years that the employees render service.

(d)

Accrued vacation

        Under Mexican GAAP, vacation expense is recognized when the vacation is utilized by the employee. Under U.S. GAAP, vacation expense is accrued for when earned by the employee.

(e)

Inflation accounting

        As mentioned in Note 2 b), PEMEX's consolidated financial statements recognize the effects of inflation pursuant to NIF-06-BIS "A" Section A, which requires that non-monetary assets, including inventories of materials and supplies and fixed assets be restated to their net realizable value (in the case of inventories) or in the case of fixed assets, through appraisals made by independent appraisers or by using the specific price index, with the difference being recorded as a revaluation surplus in equity.

        U.S. GAAP does not require the recognition of the effects of inflation on the consolidated financial statements. Since NIF-06-BIS "A" Section A is not deemed to be a comprehensive method of accounting for inflation (as discussed in Note 15), PEMEX has eliminated retroactively to 1992 the effect of revaluation of fixed assets, inventories and costs of sales from the reconciliation of income and equity. PEMEX has not adjusted the depreciation effect of fixed asset revaluations prior to 1992 under NIF-06-BIS "A" section A for the reconciliation of income and equity. For U.S. GAAP purposes, the 1992 balances became the historical basis of the fixed assets.

(f)

Fixed assets-depreciation

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        Under Mexican GAAP, PEMEX depreciates the book value of its fixed assets, which includes amounts capitalized for foreign exchange losses and restatements for inflation. For U.S. GAAP purposes, PEMEX has reversed the depreciation expense attributable to restatements for inflation (adjustment (e)) and foreign currency exchange losses (adjustment (g)) which are included in the Mexican GAAP basis of the fixed assets.

(g)

Fixed assets-foreign currency exchange losses

        Under Mexican GAAP, exchange losses arising from debt are capitalized as part of fixed assets any remaining net exchange differences is reflected in the statement of operations as either a debit to costs and operating expenses or a credit to revenues.

        Under U.S. GAAP, all exchange gains or losses have been recognized in results of operations for 2001, 2000 and 1999 in the reconciliation of income and equity. In addition, under U.S. GAAP, foreign currency transaction gains or losses would be reported as non-operating income or expenses. As further explained in Note 5 b), there were no foreign currency exchange losses capitalized in 2001 and 1999, primarily as a result of the appreciation of the peso against the U.S. dollar, and therefore, no adjustment has been recognized in the reconciliation for 2001 and 1999.

(h)

Fixed assets-capitalization of interest

        Under Mexican GAAP, interest is capitalized to property, plant and equipment based upon total interest cost incurred on loans allocated to construction projects, regardless of whether or not the amounts borrowed have been spent on such projects.

        Under U.S. GAAP, interest is capitalized based upon total interest incurred in proportion to additions to construction in progress. PEMEX has accordingly adjusted its results of operations and equity to reflect the U.S. GAAP requirements for capitalizing interest. The adjustment for capitalized interest is presented net of the effects of depreciation related to amounts previously capitalized for such assets.

        Interest costs for the years ended December 31, 2001, 2000, and 1999, for Mexican GAAP and U.S. GAAP purposes were allocated as follows:

		2001		2000		1999
Under Mexican GAAP:
	Interest capitalized in fixed assets	Ps.	3,779,541	Ps.	3,913,180	Ps.	5,119,428
	Interest in the specific oil-field exploration and depletion reserve		86,553		814,739		864,553
	Interest expense		15,832,884		15,618,066		9,846,918
	Total interest cost	Ps.	19,698,978	Ps.	20,345,985	Ps.	15,830,899
Under U.S. GAAP:
	Interest capitalized in fixed assets	Ps.	5,112,410	Ps.	4,273,611	Ps.	5,713,187
	Interest expense		14,586,568		16,072,374		10,117,712
	Total interest cost	Ps.	19,698,978	Ps.	20,345,985	Ps.	15,830,899

F-40

(i)

Fixed asset impairment

        For U.S. GAAP purposes, PEMEX follows SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." SFAS No. 121 provides criteria for when and in what circumstances an impairment loss (write-down) should be recorded and the manner in which the write-down should be measured. An evaluation of impairment is undertaken whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. Under SFAS No. 121, the impairment criteria is met when the carrying value of assets exceeds the sum of expected future cash flows (undiscounted and without interest charges) of the related assets. The asset is written down to fair value, if available, or the present value of expected future cash flows. PEMEX measures impairment of its oil and gas producing assets based on the undiscounted estimated future cash flows associated with estimated proved reserves on a field by field basis.

        In determining the estimated future cash flows for impairment purposes for all periods presented, hydrocarbon duties based on sales to third parties have not been included in the net cash flow calculation. In accordance with the requirements of SFAS No. 121, management believes that the hydrocarbon duties paid are similar in nature to income taxes or dividend distributions payable to its parent, and therefore are properly excluded from the net cash flow calculation.

        In 2001, 2000 and 1999, PEMEX recorded impairment charges which reduced long-term assets with a corresponding charge to operations of Ps. 5,571,939, Ps. 3,236,480 and Ps. 3,928,205, respectively. The amounts appearing in the income reconciliation are net of the reversal of the depreciation expense which is being recorded under Mexican GAAP for the basis difference. In 2001, the expense relates primarily to oil and gas producing properties and petrochemical plants. In 2000, the expense relates primarily to refining assets and petrochemical plants. In 1999, the expense relates primarily to exploration and production assets and secondary petrochemical plants, with an immaterial amount of impairment being related to gas and basic petrochemical assets. Expected cash flows and fair values were estimated internally using PEMEX methodology and practices for valuing similar properties to be acquired or sold.

(j)

Depreciation convention

        Under Mexican GAAP, PEMEX begins to depreciate assets the year after which they are placed in service. In accordance with U.S. GAAP, assets should be depreciated from the date placed in service or using a mid-year convention. For the years ended December 31, 2001 and 2000, due to significant new PIDIREGAS financed through the Master Trust, an adjustment for depreciation has been recognized in the U.S. GAAP reconciliation. Additional U.S. GAAP depreciation for the year ended December 31, 1999 related to PIDIREGAS was immaterial and thus not considered as an adjustment to the reconciliation as of that date.

(k)

Accounting for derivatives

Through December 31, 2000:

        Written instruments:    Under Mexican GAAP, PEMEX records income on its written options as the premiums are collected. Gains and losses on written options are recognized on a cash basis on each contractual payment date. Under U.S. GAAP, PEMEX records option premiums as deferred income when received and amortizes the deferred income in relation to the market value of the option with gains and losses recorded in current operations.

        Purchased instruments:    Under Mexican GAAP, the cost of premiums on purchased options are expensed when paid. Gains and losses on purchased options are recognized on a cash basis on each contractual payment date. Under U.S. GAAP, the premiums paid for interest rate options and cap agreements purchased are amortized to interest expense over the terms of the agreements. In addition, purchased options which are non-hedging instruments are marked to market with gains and losses

F-41

recorded in current operations. Amounts receivable or payable under purchased instruments are recognized as an adjustment to interest expense.

Policy:

        Effective January 1, 2001, for U.S. GAAP purposes, PEMEX adopted Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"), as amended by SFAS No. 137 and SFAS No. 138 and as interpreted by the Derivative Implementation Group (DIG). SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities. SFAS No. 133 requires that an entity recognize all derivatives as either assets or liabilities in the consolidated balance sheet and measure those instruments at fair value. SFAS No. 133 prescribes requirements for designation and documentation of hedging relationships and ongoing assessments of effectiveness in order to qualify for hedge accounting.

        Hedge effectiveness is assessed consistently with the method and risk management strategy documented for each hedging relationship. On at least a quarterly basis, PEMEX assesses the effectiveness of each hedging relationship retrospectively and prospectively to ensure that hedge accounting was appropriate for the prior period and continues to be appropriate for future periods. PEMEX considers hedge accounting to be appropriate if the assessment of hedge effectiveness indicates that the change in fair value of the designated hedging instrument is highly effective at offsetting the change in fair value due to the hedged risk of the hedged item or transaction.

        If a derivative instrument qualifies as a fair value hedge under the applicable guidance and is documented as such, the change in the fair value of the derivative and the change in the fair value of the hedged item that is due to the hedged risk(s) is recorded in earnings based on the income classification of the item being hedged. These hedges also adjust the book values of the derivatives and hedged item. If a derivative instrument qualifies as a cash flow hedge under the applicable guidance and is documented as such, the effective portion of the hedging instrument's gain or loss is reported in stockholders' equity (as a component of accumulated other comprehensive income) and is reclassified into earnings in the period during which the transaction being hedged affects earnings. Gains or losses reclassified from stockholders' equity to earnings are classified in accordance with earnings treatment of the hedged transaction. The ineffective portion of a hedging derivative's fair value change, where that derivative is used in a cash flow hedge, is recorded in current earnings. Classification in the statement of operations of the ineffective portion of the hedging instrument's gain or loss is based on the income statement classification of the transaction being hedged. If a derivative instrument does not qualify as a cash flow hedge under the applicable guidance, the change in the fair value of the derivative is immediately recognized in the statements of operations.

        PEMEX has entered into contracts for the purchase and/or sale of oil and gas. While some of these contracts meet the definition of a derivative under SFAS No. 133, PEMEX has determined that the normal purchase or normal sale exception applies to such contracts. Accordingly, such contracts are not accounted for as derivatives pursuant to SFAS No. 133.

        PEMEX also evaluates contracts for "embedded" derivatives, and considers whether any embedded derivatives have to be bifurcated, or separated, from the host contracts in accordance with SFAS No. 133 requirements. Embedded derivatives may have terms that are not clearly and closely related to the terms of the host contract in which they are included. If embedded derivatives exist and are not clearly and closely related to the host contract, they are accounted for separately from the host contract as derivatives, with changes in their fair value recorded in current earnings, to the extent that the hybrid instrument is not already accounted at fair value.

F-42

        When hedge accounting is discontinued due to PEMEX's determination that the derivative no longer qualifies as an effective fair value hedge, PEMEX will continue to carry the derivative on the balance sheet at its fair value. The related hedged asset or liability will cease to be adjusted for changes in fair value that are due to the previously hedged risk. When PEMEX discontinues hedge accounting in a cash flow hedge because it is no longer probable that the forecasted transaction will occur in the originally expected period, the gain or loss on the derivative remains in accumulated other comprehensive income and is reclassified into earnings when the forecasted transaction affects earnings. However, if it is probable that a forecasted transaction will not occur by the end of the originally specified time period or within an additional two month period of time thereafter, the gains and losses that were accumulated in other comprehensive income will be recognized in current earnings. If a derivative instrument ceases to meet the criteria for hedge accounting, any subsequent gains and losses are recognized in current earnings.

        An adjustment of the carrying amount of a hedged asset held for sale would remain part of the carrying amount of that asset until the asset is sold, at which point the entire carrying amount of the hedged asset would be recognized as the cost of the item sold in determining earnings. An adjustment of the carrying amount of a hedged interest-bearing financial instrument shall be amortized to earnings; amortization shall begin no later than when the hedged item ceases to be adjusted for changes in its fair value attributable to the risk being hedged. As of December 31, 2001, PEMEX had not discontinued any hedge accounting.

Impact of adoption:

        In accordance with the transition provisions of SFAS No. 133, PEMEX recorded a cumulative effect adjustment totaling Ps. 3,791,269 (benefit to earnings) as of January 1, 2001. There was no cumulative effect adjustment in other comprehensive income as of this date since PEMEX did not have any cash flow hedges upon adoption.

        The principal differences between the cumulative effect adjustment under Mexican GAAP and U.S. GAAP relate to the following:

•

As disclosed in Note 10, PEMEX has entered into cross currency swaps under which it swaps principal and interest payments on non-U.S. dollar-denominated obligations for U.S. dollar amounts. This limits PEMEX's exposure to fluctuations in these currencies as they relate to the U.S. dollar. Under U.S. GAAP, foreign currency hedges can only be designated as such when hedging the risk to the entity's functional currency, and therefore, these contracts do not qualify for hedge accounting under U.S. GAAP although they do under Mexican GAAP Bulletin C-2, which has no similar requirement that foreign currency hedge transactions be carried out in their functional currency.



•

Given the need for specialized technology, PEMEX enters into infrastructure and supply contracts whose settlement terms are denominated in or linked to the U.S. dollar. Such contracts are generally entered into with companies whose functional currency is not the U.S. dollar, thus creating a foreign currency embedded derivative which is bifurcated and evaluated separately under U.S. GAAP. Such embedded derivatives are not required to be bifurcated under Mexican GAAP Bulletin C-2 since they are considered normal provisions of contracts in Mexico.



•

Lastly, under Mexican GAAP Bulletin C-2, PEMEX recognized a loss on the fair value of the equity swap contracts related to the Repsol shares (see Note 10). As more fully described in Note 19 I (l), under U.S. GAAP, the Repsol shares did not meet the definition of a true sale therefore the swap would not have been fair valued under SFAS No. 133.

F-43

Other required disclosures:

Fair value hedges

        For the year December 31, 2001, PEMEX recognized a net gain of Ps. 381,465 reported as "interest net" in the consolidated Statements of Operation, which represented the ineffective portion of all fair-value hedges. All components of each derivative's gain or loss were included in the assessment of hedge effectiveness, except for the time value of option contracts.

Cash flow hedges

        For the year December 31, 2001, PEMEX recognized a net gain (loss) of Ps. 470,652 reported as "interest net" in the consolidated Statements of Operations, which represented the ineffective portion of all cash flow hedges. All components of each derivative's gain or loss were included in the assessment of hedge effectiveness, except for the time value of option contracts.

        For cash flow hedges, gains and losses on derivative contracts that are reclassified from accumulated other comprehensive income to current-period earnings are included in the line item in which the hedged item is recorded in the same period the forecasted transaction affects earnings. None were reclassified in 2001.

(l)

Sale of shares of Repsol

        As discussed in Note 10, under Mexican GAAP, PEMEX recorded a Ps. 118,742 gain in 2000 and a Ps. 242,408 gain in 1994 on the transfer of its Repsol shares. For U.S. GAAP purposes, the transfer of the shares does not meet the criteria for sale recognition and, accordingly, the gain was reversed and the transfer of the shares treated as a financing transaction. Therefore, under U.S. GAAP, the Repsol shares would be evaluated pursuant to SFAS No. 115 (see Note 19 (p)), and the liability equal to the notional amount resulting from these transactions would also be reflected on the balance sheet.

(m)

Sale of air transport assets

        Under Mexican GAAP, during 1994, PEMEX recorded a gain of Ps. 340,969 on the sale of its air transport division to a newly created company, Servicios Aéreos Especializados Mexicanos, S.A. ("SAEMSA"), in exchange for a 49% ownership interest in that company plus other consideration of Ps. 291,103. Under Mexican GAAP, the gain was calculated by including the imputed fair value of the 49% interest in SAEMSA which was received by PEMEX as part of the sale proceeds. Under the sale agreement, PEMEX will continue to have more than a minor use of the property through a leaseback. For U.S. GAAP purposes, this transaction is treated as a sale-leaseback; accordingly, the realized gain was deferred and will be amortized into income over the term of the lease. The amortization of the deferred gain during 1999 amounted to Ps. 34,097. At December 31, 1999, the deferred gain related to this transaction was fully amortized to income.

(n)

Profit in inventory

        Under Mexican GAAP, PEMEX values crude oil and derivatives for export at net realizable value with the difference between the net realizable value and cost recorded in earnings. In contrast, U.S. GAAP requires that inventories be recorded at net realizable cost, but not to exceed cost. For U.S. GAAP purposes, PEMEX has eliminated the effect of profit in inventory and has increased such amount to U.S. GAAP loss presented. For the year ending December 31, 1999, this adjustment was immaterial to the U.S. GAAP reconciliation primarily due to reduced volumes of crude inventory at year-end 1999.

F-44

(o)

Advance payments on minimum guaranteed dividend

        Under Mexican GAAP, advance payments on the minimum guaranteed dividend owed to the Mexican Government derived from the capitalization of debt as described in Note 13 are recorded as an account receivable prior to formalization of the amount by the Board of Directors.

        Under U.S. GAAP, such receivable balances are considered as a reduction in equity. PEMEX has accordingly adjusted equity to reflect the minimum guaranteed dividend payment as a reduction in equity.

        The effective rate used to calculate the minimum guaranteed dividend is LIBOR plus 0.8125% (which was in a range from 3.4475% to 7.4626% and from 7.1820% to 7.8055% for 2001 and 2000, respectively).

        The scheduled maturities on the original principal amount of the capitalized debt over the next five years, and thereafter, is as follows:

Year
2002	U.S.$	873,848
2003		873,848
2004		873,848
2005		873,848
2006		873,848
Total	U.S.$	4,369,240

(p)

Accounting for investment securities

        PEMEX follows SFAS No.115, "Accounting for Certain Investments in Debt and Equity Securities" for U.S. GAAP purposes. PEMEX has classified its investment securities as "Available-for-Sale" and, accordingly, they are recorded at fair value with unrealized gains and losses excluded from the statement of operations and reported in other comprehensive income (loss). The fair value of the securities is determined by quoted market prices at December 31, 2001, 2000 and 1999. The cost and fair value of PEMEX's investments at December 31, 2001, 2000 and 1999 is as follows:

	Cost		Fair Value		Unrealized Gain
2001	Ps.	3,968,724	Ps.	7,814,338	Ps.	3,845,614
2000	Ps.	3,968,724	Ps.	9,054,998	Ps.	5,086,724
1999	Ps.	3,968,724	Ps.	12,977,092	Ps.	9,008,368

        Under Mexican GAAP, investment securities are carried at cost. The unrealized gain for U.S. GAAP purposes is largely explained by the appreciation of the underlying security price.

II.    Additional disclosure requirements:

(a)

Consolidation of Pemex Finance

        As more fully disclosed in Note 7, PEMEX and certain subsidiaries entered into several agreements with Pemex Finance. Under these contracts, Pemex Finance purchases certain accounts receivable and rights to future receivables. Pemex Finance obtains resources for such purchases through the placement of debt instruments in the international markets.

        In conjunction with the adoption of SFAS No. 140, "Accounting for the Transfers and Servicing of Financial Assets and Extinguishments of Liabilities", a replacement of SFAS No. 125, PEMEX has evaluated the Pemex Finance structure in light of the permitted and non-permitted activities as well as

F-45

the transition provisions of a Qualified Special Purpose Entity ("QSPE") and determined that Pemex Finance does not qualify as a QSPE under the new standard. Consequently, as of December 31, 2001, the U.S. GAAP consolidated total assets would have decreased by Ps. 838,337 and total liabilities would have decreased by Ps. 2,299,674. Had Pemex Finance been consolidated, there would not have been any effect on equity or net income.

(b)

Special Tax on Production and Services ("IEPS Tax")

        Under Mexican GAAP, the IEPS Tax is reflected as part of "Net domestic sales" when charged to customers and then deducted from "Income before hydrocarbon extraction duties, special tax on production and services and other."

        Under U.S. GAAP, this tax would have no net effect on revenues nor would it be deducted after "Income before hydrocarbon extraction duties, special tax on production and services and other", as both the amount charged to customers and the amount accrued as payable to the tax authorities would be reflected in revenues.

        As a result, under U.S. GAAP, revenues would have been less than those reflected under Mexican GAAP by Ps. 95,198,729, Ps. 69,556,520 and Ps. 88,349,243, for the years ended December 31, 2001, 2000 and 1999, respectively. In addition, those amounts would not have been deducted after "Income before hydrocarbon extraction duties, special tax on production and services and other."

(c)

Cash flow information

        Under Mexican GAAP, PEMEX presents statements of changes in financial position. In contrast with the statements of cash flows required by U.S. GAAP, PEMEX's statements of changes in financial position do not include certain information relating to the three major categories of sources and uses of funds: operating, financing and investing activities.

        Under U.S. GAAP, the following information would be disclosed separately in reconciling loss for the year to funds provided by operations: changes in hydrocarbon extraction duties, changes in allowances for doubtful accounts and slow-moving inventories, net exchange gains or losses and accrued interest income from affiliates. Additionally, under U.S. GAAP, borrowings and repayments of debt would be presented separately in arriving at funds from financing activities, and investments in and the proceeds from the sale of property, wells, plants and transportation equipment would be presented separately in arriving at funds from investment activities. In the statements of changes in financial position, PEMEX has disclosed information within the financing and investment categories on a net basis.

F-46

        The following table details the effects discussed above using Mexican GAAP measurement methods and U.S. GAAP presentation:

			2001			2000			1999
Cash flows from operating activities:
Net loss for the year plus or less charges or credits not requiring the use of cash:
Following U.S. GAAP presentation			Ps.	37,096,160		Ps.	44,966,205		Ps.	38,151,056
	Difference(1)			(647,298	)		53,568			(1,202,856	)
Under Mexican GAAP				36,448,862			45,019,773			36,948,200
Increase (decrease) in assets and liabilities:
Following U.S. GAAP presentation				(8,023,485	)		(21,402,881	)		(21,757,232	)
	Differences
		Accounts receivable(2)		(3,344,538	)		467,523			2,211,163
		Inventory(1)		(278,493	)		(159,791	)		139,497
		Sundry credits reserve(1)		1,390,267			563,594			239,037
Under Mexican GAAP				(10,256,249	)		(20,531,555	)		(19,167,535	)
Following U.S. GAAP presentation				29,072,674			23,563,324			16,393,824
	Differences			(2,880,061	)		924,894			1,386,841
Under Mexican GAAP			Ps.	26,192,613		Ps.	24,488,218		Ps.	17,780,665
Cash flows from financing activities:
	New long-term debt financing		Ps.	114,440,035		Ps.	77,407,465		Ps.	68,091,176
	Financing payments			(91,904,916	)		(52,835,673	)		(64,101,015	)
	Dividends paid to the Mexican Government			(2,152,788	)		(5,563,799	)		(5,137,889	)
	Advance payment on minimum guaranteed dividends			—			(231,074	)		(779,517	)
	Retained earnings adjustments			544,370			(68,692	)		968,774
	Sale of future accounts receivable			(7,290,971	)		8,675,835			26,702,250
		Net increase in financing following U.S. GAAP presentation		13,635,730			27,384,062			25,743,779
Difference:
	Foreign currency exchange loss			(8,400,963	)		(461,029	)		(3,652,678	)
	Interest accrued, not paid			454,849			392,771			1,156,428
	Dividends paid to the Mexican Government(3)			(3,411,011	)		425,910			2,074,142
	Notes payable to contractors			(2,497,711	)		15,599,161			1,799,315
		Net (decrease) increase in financing under Mexican GAAP	Ps.	(219,106	)	Ps.	43,340,875		Ps.	27,120,986

F-47

		2001			2000			1999
Cash flows from investing activities:
	Acquisition of fixed assets	Ps.	(52,167,537	)	Ps.	(60,633,593	)	Ps.	(38,697,694	)
	Disposal of fixed assets(4)		12,809,048			12,383,376			4,950,878
Net investment at cost in property, wells, plants and transportation equipment under U.S. GAAP			(39,358,489	)		(48,250,217	)		(33,746,816	)
Capitalized exchange loss			—			(139,692	)		—
Acquisitions not requiring cash			—			(15,599,161	)		(1,799,315	)
Net investment at cost in property, wells, plants and transportation equipment under Mexican GAAP (including capitalized exchange loss and interest)		Ps.	(39,358,489	)	Ps.	(63,989,070	)	Ps.	(35,546,131	)
	Supplemental cash flow information:
	Cash payments for taxes	Ps.	288,676,019		Ps.	288,474,111		Ps.	194,162,822
	Cash payments for interest, net of amount capitalized		18,687,520			19,953,214			14,405,871

(1)

The items that are excluded from the determination of cash flows under SFAS No. 95 are the provision for both doubtful accounts and obsolete inventories.

(2)

The difference is due to the effects of the advanced payments on minimum guaranteed dividend and the foreign currency translation gain on accounts receivable.

(3)

The difference is because for Mexican GAAP purposes, the dividends to the Mexican Government are those approved by the Board of Directors of Petróleos Mexicanos in a given year whereas for U.S. GAAP purposes, such dividends are the amount paid in that year.

(4)

Disposal of fixed assets did not generate material cash flow.

        Cash and cash equivalents include all cash balances and highly liquid instruments purchased with an original maturity of three months or less.

(d)

Environmental, dismantlement and abandonment

        Environmental:

        PEMEX estimates its environmental liabilities on a site-by-site basis based on the best available information. After an affected area is identified, PEMEX establishes accruals for its environmental liabilities using costs of prior or current remediation works with similar characteristics. PEMEX establishes accruals using estimates based on costs of similar remediation works most recently contracted and in progress at that time.

        In 1999, PEMEX implemented new internal guidelines for estimating and recording environmental liabilities. The guidelines, Pasivos Ambientales: Definición y Lineamientos para su Cuantificación y Registro Contable (Environmental Liabilities: Definition and Guidelines for their Quantification and Accounting Treatment), sought to standardize and improve upon PEMEX's internal procedures for identifying necessary remediation works and estimating and monitoring environmental liabilities. These guidelines codified existing policy with respect to estimating environmental liabilities, and establish that an environmental liability exists when:

•

as a result of the activities of PEMEX, an affected area is identified in a particular site, and PEMEX undertakes a formal commitment to correct the environmental deficiency, in accordance with the criteria, guidelines, standards and legal framework in force; and



•

a reasonable estimate of the costs of remediation or clean-up of the identified affected area has been made, including the costs of the assessment studies.

F-48

        As stated above, in accordance with past and present internal guidelines, PEMEX conducts site-by-site studies to identify environmental liabilities and develop a reasonable estimate of such liabilities. These guidelines consider many factors but are tailored to specific Mexican requirements. Each contaminated site must be characterized, quantified and assessed through a specific study. The contamination of the affected sites may extend to the soil, subsoil and bodies of water, including water deposits, lagoons, swamps and others. These sites may be located inside PEMEX's facilities, in surrounding areas, in abandoned areas where PEMEX had activity in the past or along the pipelines.

        Once the corresponding contaminated site has been identified and evaluated, expenses for the cleanup of (i) hydrocarbon seepage and other spills that may cause pollution and that cannot be corrected in a short timeframe, (ii) water deposits and (iii) the concentration of hazardous residuals, will be included in the remediation or restoration of affected areas. Estimates are kept current based on best available information.

        Based on reports from field managers and other available information, management prepares reports for identified affected areas on a periodic basis. When the contamination relates to a new incident, PEMEX informs PROFEPA and responds immediately to eliminate the cause of the incident or to minimize its effects. Subsequently, PEMEX and PROFEPA jointly determine whether the contamination has been eliminated or if additional actions are necessary for the remediation of the site.

        PEMEX believes its environmental liabilities are probable when its initial studies reveal the existence of contamination in the inspected areas at levels above those permitted by Mexican law, indicating that PEMEX will have to perform remediation works necessary to bring the site into compliance. PEMEX believes the liability is reasonably estimable when (i) an assessment of the size of the affected area has been made, (ii) it has compared the affected area to other affected areas identified and addressed in the past, and (iii) based on PEMEX's experience with current or recent works on similar sites, PEMEX can assess the estimated remediation costs in order to be able to calculate the corresponding environmental liability. Thus, PEMEX accrues for these environmental liabilities when it identifies affected areas with contamination levels above those permitted by Mexican law and PEMEX is able to make a reasonable estimate of the size of the affected area and the remediation cost. In addition, PEMEX periodically revises its estimates of environmental liabilities as it obtains new information during the course of the remediation works in order to ensure its estimates are based on the most accurate and updated information.

        PROFEPA administers the Mexican environmental regulatory rubric and establishes acceptable standards of environmental remediation. Although PROFEPA has the authority to review and inspect remediation works performed by PEMEX and compliance with permitted contamination levels established by laws and regulations, it does not determine PEMEX's environmental liabilities. PEMEX maintains proper records of all of the studies, estimations, performed works and any other information that PROFEPA may request from time to time.

        During 2001 and 2000, PEMEX invested Ps. 3,349,000 and Ps. 2,711,000, respectively, in various environmental projects. The most important of these projects have been directed to the modernization of installations, the implementation of systems and control mechanisms to monitor atmospheric pollution, the acquisition of equipment to clean hydrocarbon spills, the expansion of aquatic effluent systems, the restoration and reforestation of affected areas, studies for environmental investigation and the conducting of environmental audits. In addition, PEMEX has engaged in extensive research and development efforts to develop capacity for increased production of unleaded gasoline, diesel and fuel oil with lower sulfur content and alternative fuels, such as industrial oil gas and natural gas. Currently, PEMEX is developing a procedure (Procedimiento para la Determinación de Gastos Asociados a las Actividades de Seguridad Industrial y Protección Ambiental) to determine the costs and expenses related to the activities associated with integral safety and environmental management.

F-49

        Management of PEMEX believes that its operations are in substantial compliance with the Environmental Law as such law has been historically interpreted and enforced.

        Environmental expenditures are expensed or capitalized depending on their future economic benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefit are expensed. Liabilities for expenditures of a non-capital nature are recorded on an undiscounted basis when environmental assessment and/or remediation is probable and the costs can be reasonably estimated.

        As PEMEX has exclusive rights to production and processing of crude oil, natural gas, and refined products within Mexico, there are no instances of joint liability; PEMEX is the sole responsible party in the event of environmental damage.

        PEMEX has contracted insurance policies to cover the cost of certain environmental contingencies. The liability accruals are not reflected net of any amounts forthcoming under such policies.

        Environmental liabilities accrued in the consolidated financial statements, for both Mexican GAAP and U.S. GAAP purposes, as of December 31, 2001 and 2000 are divided among the operating units as follows:

	2001		2000
Pemex—Exploration and Production	Ps.	1,315,608	Ps.	1,787,169
Pemex—Refining		846,638		918,646
Pemex—Gas and Basic Petrochemicals		131,383		109,581
Pemex—Petrochemicals		22,546		22,362
Total Environmental Liability Accrual	Ps.	2,316,175	Ps.	2,837,758

        Dismantlement and abandonment costs:

        Under current Mexican law, PEMEX's legal obligation related to dismantlement and abandonment activities is governed by the following two federal laws: the Petroleum Works Law and the Environmental Law described above. Although PEMEX is subject to other laws and regulations established at a local level in areas where PEMEX undertakes petroleum extractive activities, these local laws and regulations do not contain any specific guidance on abandonment, restoration and removal of oil and gas facilities or otherwise impose a higher standard on PEMEX in this regard. The United Mexican States is not a party to any international treaty or convention that would affect PEMEX's understanding of its obligation with regard to dismantlement and abandonment activities. Thus, the only relevant law for PEMEX as to abandonment, and removal of facilities related to oil- and gas-producing activities is Mexican federal law.

        The Petroleum Works Law provides that wells must be plugged, or in certain special cases capped, to ensure the maintenance of sanitary and safe conditions and to prevent the seepage of hydrocarbons to the surface. The Petroleum Works Law requires that PEMEX plug a well when it turns out to be dry, invaded with salt water or abandoned due to a mechanical accident, or once a well's production has been depleted such that abandonment is necessary due to economic unfeasibility of production. All activities required for plugging a well are undertaken with the purpose of isolating, in a definitive and convenient manner, the cross formations in the perforation that contains oil, gas or water in order to ensure that hydrocarbons do not seep to the surface.

        PEMEX must obtain authorization from the Ministry of Energy before performing any plugging activities. The Petroleum Works Law also states that the Ministry of Energy may also authorize temporary plugging of exploratory wells where production of hydrocarbons is commercially feasible but for which there are no adequate means for its exploitation.

F-50

        PEMEX monitors and reviews its own internal estimates of costs to undertake dismantlement and abandonment at levels consistent with Mexican legal requirements and guidelines for oil and gas industry extractive activities. Estimates as to aggregate costs consider PEMEX's operational specifics such as its number of onshore and offshore wells, depth of wells, varying nature of offshore platforms, expected production lives, current expectations as to when the costs will be incurred based on present production rates and other operational specifics. The actual costs incurred in the dismantlement and retirement of wells are considered where practicable, as described above. The average cost for plugging and dismantlement varies from producing region to producing region and from platform to platform. For the offshore regions, to the extent that actual costs are not available due to limited plugging and dismantlement activity historically, PEMEX uses estimates based on services costs. The estimated costs are both peso- and U.S. dollar-denominated.

(e)

Pensions and seniority premiums

        PEMEX follows SFAS No. 87 for the calculation of seniority premiums and pension expense under U.S. GAAP.

        The calculation of pension cost and benefit obligations under SFAS No. 87 requires considerable judgment with respect to choosing actuarial assumptions. Each significant assumption should reflect the best estimate of the plan's future experience solely with respect to that assumption. Assumed discount rates and compensation levels often have the greatest effect on pension cost and benefit obligations and are related because both are affected by some of the same economic factors. The discount rate should be based upon the current prices for settling the pension obligation, referred to as the "settlement rate." Assumed compensation levels should reflect the best estimate of actual future compensation levels for the individuals involved and be consistent with assumed discount rates to the extent that both incorporate expectations of the same future economic conditions, such as inflation.

        Applying these provisions of SFAS No. 87 in a historically inflationary environment such as Mexico creates unique problems which are complicated by economic events since December 1994. The opportunity for a company to settle a pension obligation at any particular point in time may not exist; long term financial instruments may not exist in Mexico as they do in the United States and volatile inflation rates may make it difficult to predict compensation progression.

        SFAS No. 87 does not include specific guidance under these conditions. PEMEX believes it is appropriate to use actuarial assumptions which include an estimate of long-term inflation (nominal rates). PEMEX has determined its discount rate and salary progression rate for SFAS No. 87 including a long-term inflation rate.

        An alternative approach to actuarial assumptions where benefits are indexed to inflation (which is not generally the case in Mexico) would be to eliminate the effect of inflation in the assumptions (i.e., use real rates). PEMEX believes that the effect on the U.S. GAAP reconciliation of net loss would not be materially different under this approach. However, the "accumulated benefit obligation" and the related minimum liability for pensions can be affected by the discount rate used. Under SFAS No. 87, the accumulated benefit obligation is the present value of expected future benefit payments based upon an employee's service to date without assuming any increase in the employee's compensation. If the accumulated benefit obligation were calculated using an assumed real discount rate of 4.6%, the accumulated benefit obligation calculated under SFAS No. 87 would be Ps. 162,412,847.

F-51

        The components of net seniority premium and pension plan cost, calculated in accordance with SFAS No. 87, consist of the following:

	2001			2000			1999
Service cost: benefits earned during the year	Ps.	4,311,446		Ps.	3,382,551		Ps.	2,931,948
Interest cost on projected benefit obligation		16,490,339			15,427,141			12,180,626
Expected return on plan assets		(996,151	)		(1,196,607	)		(599,638	)
Net amortization and deferral		3,840,020			2,989,946			2,409,896
Amortization of net transition obligation		1,122,160			1,122,160			1,122,160
Net cost under U.S. GAAP		24,767,814			21,725,191			18,044,992
Net cost under Mexican GAAP		24,504,338			21,521,314			18,034,250
Additional expense that would be recognized under U.S. GAAP	Ps.	263,476		Ps.	203,877		Ps.	10,742

        Actuarial assumptions used in the calculation of net seniority premium and pension plan cost under U.S. GAAP as of December 31 are:

	2001		2000		1999
Discount rate	11.00	%	12.00	%	14.00	%
Rates of increase in compensation levels	7.00	%	8.00	%	10.00	%
Expected long-term rate of return on assets	12.00	%	13.00	%	15.00	%

        The combined seniority premium and pension plan liability as of December 31, under SFAS No. 87 is as follows:

		2001			2000
	Accumulated benefit obligation	Ps.	132,233,686		Ps.	107,038,918
Projected benefit obligation		Ps.	168,703,289		Ps.	140,678,169
Plan assets at fair value			5,803,396			9,330,702
Projected benefit obligation in excess of plan assets			162,899,893			131,347,467
Unrecognized net loss			(32,376,030	)		(29,206,268	)
Unrecognized transition obligation			(3,366,491	)		(4,488,651	)
Prior service cost			(36,582,030	)		(29,949,677	)
Accrued liability under U.S. GAAP			90,575,342			67,702,871
Accrued costs recognized in the consolidated balance sheet under Mexican GAAP			87,066,665			64,457,616
Net U.S. GAAP adjustment to seniority premium and pension plan liability		Ps.	3,508,677		Ps.	3,245,255
Additional minimum liability		Ps.	35,854,948		Ps.	30,005,345

        The plan's assets consist primarily of cash, investments and an interest in a real estate joint venture.

        In accordance with the provisions of SFAS No. 87, PEMEX has reflected, for U.S. GAAP purposes, an additional minimum liability at the end of each year representing the excess of the accumulated benefit obligations over the fair value of plan assets and accrued pension liabilities. The additional minimum liability is offset by recording an intangible asset and, accordingly, has no impact on operations or equity.

F-52

(f)

Post retirement benefits

        PEMEX has implemented SFAS No. 106 effective January 1, 1995, using the transitional recognition method.

        PEMEX makes supplemental payments and provides health care benefits to retired employees. PEMEX regularly determines the level of its supplemental payments considering inflationary conditions. Health care is provided through a regional network of PEMEX hospitals and medical centers, which also provide care to active PEMEX employees. No commitments have been made regarding the level of such contributions in the future.

        For Mexican GAAP purposes, PEMEX has included the projected costs associated with the supplemental payments in its determination of pension obligation under Bulletin D-3, but has excluded the costs associated with medical care, which is accounted for on a pay-as-you-go basis. There are no plan assets for post-retirement benefits.

F-53

        The components of other post-retirement benefits expense consist of the following for the years ended December 31, 2001, 2000 and 1999:

	2001						2000						1999
	Supplemental Payments		Health Services		Total		Supplemental Payments		Health Services		Total		Supplemental Payments		Health Services		Total
Service cost	Ps.	1,415,698	Ps.	1,053,039	Ps.	2,468,737	Ps.	1,117,257	Ps.	867,337	Ps.	1,984,594	Ps.	914,594	Ps.	705,447	Ps.	1,620,041
Interest cost		5,943,506		5,476,212		11,419,718		5,608,284		5,198,901		10,807,185		4,686,841		4,311,381		8,998,222
Amortization of actuarial gains and losses		55,193		856,695		911,888		409,008		671,637		1,080,645		369,983		588,400		958,383
Amortization of prior service cost and plan amendments		1,617,442		151,319		1,768,761		971,961		151,319		1,123,280		699,196		151,319		850,515
Amortization of transition obligation		418,020		518,346		936,366		418,020		518,346		936,366		418,020		518,346		936,366
Net expense under U.S. GAAP		9,449,859		8,055,611		17,505,470		8,524,530		7,407,540		15,932,070		7,088,634		6,274,893		13,363,527
Expense under Mexican GAAP		9,344,079		2,095,362		11,439,441		8,380,310		1,774,465		10,154,775		6,988,788		1,307,144		8,295,932
Additional expense under U.S. GAAP	Ps.	105,780	Ps.	5,960,249	Ps.	6,066,029	Ps.	144,220	Ps.	5,633,075	Ps.	5,777,295	Ps.	99,846	Ps.	4,967,749	Ps.	5,067,595

        Actuarial assumptions used in the calculation of other post-retirement benefits under U.S. GAAP as of December 31 were:

	2001		2000		1999
Discount rate	11.00	%	12.00	%	14.00	%
Health care cost trend rate	7.00	%	8.00	%	10.00	%

        Since the other post-retirement benefits are not based on levels of compensation, it is not necessary to use salary increase assumptions to determine expenses. The effect of a 1% increase in the health care cost trend rate is to increase net expense for post-retirement benefits by Ps. 1,397,913 (Ps. 1,292,063 for 2000) and increase the accumulated post-retirement benefit obligation by Ps. 9,479,221 (Ps. 8,249,215 for 2000). The effect of a 1% decrease in the health care cost trend rate is to decrease net expense for post-retirement benefits by Ps. 1,220,234 (Ps. 1,072,910 for 2000) and decrease the accumulated post-retirement benefit obligation by Ps. 8,565,254 (Ps. 6,983,839 for 2000).

F-54

        The other post-retirement benefit liability as of December 31, 2001 and 2000 is as follows:

			2001									2000
			Supplemental Payments			Health Services			Total			Supplemental Payments			Health Services			Total
Accumulated unfunded post retirement benefit obligation:
	Retirees		Ps.	31,387,428		Ps.	35,383,590		Ps.	66,771,018		Ps.	27,979,125		Ps.	29,917,005		Ps.	57,896,130
	Fully eligible active participants			1,463,475			1,125,781			2,589,256			1,410,301			755,789			2,166,090
	Other active plan participants			22,980,180			19,278,672			42,258,852			21,615,697			16,000,372			37,616,069
		Total		55,831,083			55,788,043			111,619,126			51,005,123			46,673,166			97,678,289
Unrecognized actuarial (gains) losses				7,752,616			(22,519,106	)		(14,766,490	)		(2,837,908	)		(18,694,813	)		(21,532,721	)
Prior service cost and plan amendments				(32,416,108	)		(1,803,422	)		(34,219,530	)		(23,680,190	)		(1,954,741	)		(25,634,931	)
Unamortized transition obligation				(4,506,567	)		(5,601,138	)		(10,107,705	)		(4,924,587	)		(6,119,484	)		(11,044,071	)
Net post-retirement benefit liability: U.S. GAAP				26,661,024			25,864,377			52,525,401			19,562,438			19,904,128			39,466,566
Mexican GAAP				26,904,256			—			26,904,256			19,911,397			—			19,911,397
Net U.S. GAAP adjustment			Ps.	(243,232	)	Ps.	25,864,377		Ps.	25,621,145		Ps.	(348,959	)	Ps.	19,904,128		Ps.	19,555,169

F-55

        Pursuant to the requirements of SFAS No. 132, the following tables present a reconciliation of the beginning and ending balances of plan assets' fair value and the accumulated benefit obligation.

	Seniority Premiums and Pension Benefits						Supplemental Payments						Health Services
	2001			2000			2001			2000			2001			2000
Change in benefit obligation
Benefits obligation at beginning of year	Ps.	140,678,169		Ps.	112,840,555		Ps.	51,005,123		Ps.	41,368,545		Ps.	46,673,166		Ps.	37,920,929
Service cost		4,311,446			3,382,551			1,415,698			1,117,257			1,053,039			867,337
Interest cost		16,490,339			15,427,141			5,943,506			5,608,284			5,476,212			5,198,901
Plan participant's contributions		—			—			—			—			—			—
Amendments		8,784,055			9,970,450			10,353,360			9,459,478			—			—
Actuarial (gains)/losses		4,847,291			4,543,317			(10,535,331	)		(4,406,885	)		4,680,988			4,460,464
Benefits paid		(6,408,011	)		(5,485,845	)		(2,351,273	)		(2,141,556	)		(2,095,362	)		(1,774,465	)
Benefits obligation at end of year	Ps.	168,703,289		Ps.	140,678,169		Ps.	55,831,083		Ps.	51,005,123		Ps.	55,788,043		Ps.	46,673,166
Change in plan assets
Fair value of plan assets at beginning of year	Ps.	9,330,702		Ps.	11,933,446		Ps.	—		Ps.	—		Ps.	—		Ps.	—
Actual return on plan assets		985,362			1,520,837			—			—			—			—
Company contributions		1,763,403			1,309,284			2,336,455			2,132,916			—			—
Plan participant's contributions		—			—			—			—			—			—
Benefits paid		(6,276,071	)		(5,432,865	)		(2,336,455	)		(2,132,916	)		—			—
Fair value of plan assets at end of year	Ps.	5,803,396		Ps.	9,330,702		Ps.	—		Ps.	—		Ps.	—		Ps.	—

F-56

(g)

Leases

        During 2001, 2000 and 1999, PEMEX's rent expense under operating leases amounted to Ps. 13,289, Ps. 49,379 and Ps. 69,762, respectively.

        PEMEX enters into non-cancelable lease arrangements for equipment used in the ordinary course of business. The following table shows the future minimum obligations under lease commitments in effect at December 31, 2001:

	Capital Leases(1)		Operating Leases
2002	Ps.	691,462	Ps.	1,627
2003		543,402		—
2004		757,983		—
2005		633,323		—
2006		516,958		—
2007 and thereafter		1,881,591		—
	Ps.	5,024,719	Ps.	1,627

(1)

includes a total of Ps. 2,108,057 of imputed interest and commissions.

        Assets acquired under capital leases, together with their related depreciation, are included in "Properties, net".

(h)

Interest, net

        For Mexican GAAP purposes, "Interest, net" is presented as an operating cost in the statement of operations. For U.S. GAAP purposes, "Interest, net" would be presented as a non-operating item in the statement of operations.

(i)

Business segment information

        PEMEX's primary business is the exploration for and production of crude oil and natural gas and the refining and marketing of petroleum products conducted through four business segments: Pemex-Exploration and Production, Pemex-Refining, Pemex-Gas and Basic Petrochemicals and Pemex-Petrochemicals. Management makes decisions related to the operations of the consolidated business along these four strategic lines.

        The primary sources of revenue for the segments are as described below:

•

Pemex-Exploration and Production earns revenues from domestic crude oil sales, as well as, from the export of crude oil, through PMI, to international markets. Export sales are made through PMI to approximately 25 major customers in various foreign markets. Less than half (approximately 43%) of PEMEX crude is sold domestically; however, these amounts are in large part sufficient to satisfy Mexican domestic demand.



•

Pemex-Refining earns revenues from sales of refined petroleum products and derivatives. Most of Refining's sales are to third parties and occur within the domestic market. The entity supplies the CFE with approximately 80% of its fuel oil production. Pemex-Refining's most profitable products are gasolines.



•

Pemex-Gas and Basic Petrochemicals earns revenues primarily from domestic sources. Pemex-Gas and Basic Petrochemicals also consumes high levels of its own natural gas production. Most revenues for the entity are obtained through the sale of ethane and butane gases.



•

Pemex-Petrochemicals engages in the sale of petrochemical products to the domestic market. Pemex-Petrochemicals offers a wide range of products, with the higher revenue generating products being methane derivatives, ethane derivatives and aromatics and derivatives.

F-57

        In making performance analyses for the entities, PEMEX management focuses on sales volumes and gross revenues as the primary indicators.

        Income (loss) and identifiable assets for each segment have been determined after intersegment adjustments. Sales between segments are made at internal transfer prices established by PEMEX which reflect international market prices. All information presented herein is on a Mexican GAAP basis.

			Exploration and Production			Refining			Gas and Basic Petrochemicals			Petrochemicals			Subsidiary Companies			Intersegment Eliminations			Total
Year ended December 31, 2001:
	Sales:
		Trade	Ps.	111,166,914		Ps.	239,230,195		Ps.	65,282,808		Ps.	9,013,903		Ps.	20,636,342		Ps.	—		Ps.	445,330,162
		Intersegment		153,838,141			8,788,293			27,516,653			2,794,650			179,869,540			(372,807,277	)		—
	Total net sales			265,005,055			248,018,488			92,799,461			11,808,553			200,505,882			(372,807,277	)		445,330,162
	Interest revenue			3,779,410			196,043			364,343			126,053			8,139,494			(9,876,474	)		2,728,869
	Interest expense			7,854,598			7,098,405			817,696			1,094,847			14,925,202			(15,957,864	)		15,832,884
	Net income (loss) for the year			8,785,168			(29,601,028	)		626,726			(10,198,863	)		(1,569,220	)		(2,133,370	)		(34,090,587	)
	Depreciation and amortization			17,070,157			6,688,398			3,041,165			861,701			791,946			—			28,453,367
	Acquisition of fixed assets (3)			39,716,330			6,996,977			2,253,130			1,131,194			1,574,369			—			51,672,000
	Total assets			330,326,527			159,168,158			50,579,783			24,910,332			404,144,993			(412,246,545	)		556,883,248
Year ended December 31, 2000:
	Sales:
		Trade	Ps.	137,332,942		Ps.	230,059,161		Ps.	63,956,948		Ps.	12,183,505		Ps.	24,735,039		Ps.	—		Ps.	468,267,595
		Intersegment		174,874,390			9,600,123			25,899,156			2,720,032			221,976,834			(435,070,535	)		—
	Total net sales			312,207,332			239,659,284			89,856,104			14,903,537			246,711,873			(435,070,535	)		468,267,595
	Interest revenue			1,440,422			168,612			146,969			140,352			12,795,601			(7,333,564	)		7,358,392
	Interest expense			7,791,613			5,095,985			637,231			464,829			15,887,019			(15,866,280	)		14,010,397
	Net income (loss) for the year			7,128,264			(23,138,923	)		(317,025	)		(6,089,717	)		5,512,591			(2,805,582	)		(19,710,392	)
	Depreciation and amortization			16,132,052			5,536,985			2,885,617			934,314			571,968			—			26,060,936
	Acquisition of fixed assets(2)			47,248,730			30,198,372			4,986,457			1,262,954			(7,463,759	)		—			76,232,754
	Total assets			311,900,547			162,392,658			53,749,219			26,739,557			381,915,179			(373,229,637	)		563,467,523
Year ended December 31, 1999:
	Sales:
		Trade	Ps.	83,634,745		Ps.	187,381,338		Ps.	38,685,177		Ps.	10,105,410		Ps.	15,007,109		Ps.	—		Ps.	334,813,779
		Intersegment		92,281,333			6,699,593			13,898,662			1,930,196			138,504,622			(253,314,406	)		—
	Total net sales			175,916,078			194,080,931			52,583,839			12,035,606			153,511,731			(253,314,406	)		334,813,779
	Interest revenue			407,784			821,806			672,806			301,344			12,847,768			(10,752,880	)		4,298,628
	Interest expense			4,276,874			2,068,967			206,528			65,149			15,734,671			(10,897,602	)		11,454,587
	Net income (loss) for the year			(5,202,009	)		(8,111,242	)		848,958			(4,473,763	)		(3,028,467	)		(1,190,248	)		(21,156,771	)
	Depreciation and amortization			14,079,496			5,057,886			3,087,577			1,106,596			609,471			—			23,941,026
	Acquisition of fixed assets(1)			4,323,398			7,513,197			2,466,565			669,826			25,524,023			—			40,497,009
	Total assets			231,824,328			141,822,632			42,182,869			26,553,108			387,924,754			(348,059,847	)		482,247,844

(1)

In 1999, the Corporate, Subsidiary Companies and Other segment acquired fixed assets in the amount of Ps. 25,524,023, of which Ps. 25,202,280 are related to the Master Trust.

(2)

In 2000, the Corporate, Subsidiary Companies and Other segment acquired fixed assets in the amount of Ps. 31,003,126, of which Ps. 30,600,179 are related to the Master Trust and Ps. 38,466,885 of completed assets were transferred from the Master Trust to Subsidiary Entities who will maintain and operate the fixed assets.

(3)

In 2001, the Corporate, Subsidiary Companies and Other segment acquired fixed assets in the amount of Ps. 34,402,742, of which Ps. 33,994,644 are related to the Master Trust and Ps. 32,828,373 of completed assets were transferred from the Master Trust to Subsidiary Entities who will maintain and operate the fixed assets.

F-58

        Geographical segment information:

        The majority of PEMEX's operations are in Mexico. The following shows PEMEX's domestic and export sales for the years ended December 31:

		2001		2000		1999
Domestic sales		Ps.	303,853,144	Ps.	292,880,287	Ps.	226,137,090
Export sales:
	United States		123,624,322		137,065,181		84,278,772
	Canada, Central and South America		1,161,540		19,573,224		10,900,272
	Europe		13,895,101		15,591,932		11,052,419
	Far East		2,796,055		3,156,971		2,445,226
Total export sales			141,477,018		175,387,308		108,676,689
Total sales		Ps.	445,330,162	Ps.	468,267,595	Ps.	334,813,779

        PEMEX does not have significant long-lived assets outside of Mexico.

(j)

Valuation and qualifying accounts

        The valuation and qualifying accounts for PEMEX are as follows:

Description			Balance at beginning of period		Additions charged to costs and expenses		Deductions		Balance at end of period
For the year ended December 31, 1999:
	Reserves deducted in the balance sheet from the assets to which they apply:
		Allowance for uncollectible trade accounts	Ps.	670,751	Ps.	306,427	Ps.	460	Ps.	976,718
		Allowance for slow-moving inventory and obsolescence	Ps.	2,281,359	Ps.	489,031	Ps.	349,534	Ps.	2,420,856
For the year ended December 31, 2000:
	Reserves deducted in the balance sheet from the assets to which they apply:
		Allowance for uncollectible trade accounts	Ps.	976,718	Ps.	331,470	Ps.	93,592	Ps.	1,214,596
		Allowance for slow-moving inventory and obsolescence	Ps.	2,420,856	Ps.	194,422	Ps.	354,213	Ps.	2,261,065
For the year ended December 31, 2001:
	Reserves deducted in the balance sheet from the assets to which they apply:
		Allowance for uncollectible trade accounts	Ps.	1,214,596	Ps.	147,847	Ps.	104,148	Ps.	1,258,295
		Allowance for slow-moving inventory and obsolescence	Ps.	2,261,065	Ps.	195,616	Ps.	474,109	Ps.	1,982,572

Note: The above valuation and qualifying accounts are presented in accordance with U.S. GAAP. The Mexican GAAP accounts titled "reserve for sundry creditors and others," "reserve for retirement payments, pensions, and indemnities," and "specific oil field exploration and depletion reserve" are accrued liability accounts and not valuation and qualifying accounts and have not been included in the table above.

F-59

(k)

Significant risks and uncertainties

Environmental

        The ultimate costs to be incurred in relation to PEMEX's environmental contingencies may exceed the total amounts reserved. Additional liabilities may be accrued as the assessment work is completed and formal remedial plans are formulated. Numerous factors affect the reliability and precision of clean-up cost estimates, including the individual characteristics of the site, the lack of specific guidance in levels of permissible pollution and type of technology available for the remediation as well as general economic factors such as inflation.

        As discussed previously, PEMEX accrues an environmental liability when a reasonable estimate of the costs for remediation or clean-up of the identified affected area has been made. In cases, investigations are not yet at a stage where PEMEX is able to quantify the liability or estimate a range of possible exposure. In such cases, the amounts of PEMEX's liabilities are indeterminate due to the unknown magnitude of possible contamination, the imprecise and conflicting engineering evaluations and estimates of proper cleanup methods and costs, the unknown timing and extent of the corrective actions that may be required, and the ambiguities in Mexican environmental laws and regulations.

        PEMEX is not aware of any unasserted claims or assessments, which may give rise to an environmental liability, and therefore, no amounts related to such items have been reflected in the environmental accrual.

Government

        The operations and earnings of PEMEX have been, and may in the future be, affected from time to time in varying degree by political developments and laws and regulations, such as forced divestiture of assets, restrictions on production, price controls, tax increases, cancellation of contract rights, refined product specifications, environmental, health and safety regulations. Both the likelihood of such occurrences and their overall effect upon PEMEX are not predictable.

Labor

        PEMEX employees belonging to the Petroleum Workers' Union of the Mexican Republic represent approximately 79% of the workforce. They have a collective bargaining agreement which is renegotiated every two years and has no firm expiration date.

Product prices

        Because PEMEX's major products are commodities, significant changes in the prices of crude oil, natural gas and chemical products could have a significant impact on PEMEX's results of operations in any particular year. Crude oil represents approximately 34% of PEMEX's sales revenues net of IEPS Tax which makes it reasonably possible that PEMEX is vulnerable to near-term severe impacts from fluctuations in prices.

General

        PEMEX has certain other contingent liabilities with respect to litigation, claims and contractual agreements arising in the ordinary course of business. Although these contingencies could result in expenses or judgments that could be material to PEMEX's results of operations for a given reporting period, on the basis of management's best assessment of the ultimate amount and timing of these events, such expenses or judgments are not expected to have a material adverse effect on PEMEX's operations, financial position, condition or liquidity.

F-60

(l)

Capitalized software costs

        Direct internal and external costs related to the development of internal use software are deferred and included in other assets. Capitalized software costs as of December 31, 2001 and 2000 amounted to Ps. 706,665 and Ps. 643,800, respectively. Amortization expense for the years ended December 31, 2001, 2000 and 1999 amounted to Ps. 201,150, Ps. 167,128, and Ps. 89,321, respectively.

(m)

Recently issued accounting standards

        In July 2001, the FASB issued SFAS No. 141, "Business Combinations" which supersedes Accounting Principles Board ("APB") Opinion No. 16, "Business Combinations" and amends or supersedes a number of related interpretations of APB Opinion No. 16. The statement is effective for all business combinations initiated after June 30, 2001 and for all business combinations accounted for by the purchase method that are completed after June 30, 2001. SFAS No. 141 addresses financial accounting and reporting for business combinations, eliminates the pooling-of-interests method of accounting for business combinations, and prescribes the initial recognition and measurement of goodwill and other intangible assets, accounting for negative goodwill and the required disclosures in respect of business combinations. The adoption of SFAS No. 141 did not have a material impact on the consolidated financial statements.

        Also in July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets", which supersedes APB Opinion No. 17, "Intangible Assets". SFAS No. 142 addresses how intangible assets that are acquired individually or with a group of other assets (but not those acquired in a business acquisition) should be accounted for in financial statements upon their acquisition. SFAS No. 142 also addresses how goodwill and other intangible assets should be accounted for after they have been initially recognized in the financial statements. The provisions of SFAS No. 142 became effective for fiscal years beginning after December 15, 2001. SFAS No. 142 is required to be applied at the beginning of an entity's fiscal year and to be applied to all goodwill and other intangible assets recognized in its financial statements at that date. Management is currently evaluating the impact that the adoption of SFAS No. 142 will have on its consolidated financial statements.

        In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations". SFAS No. 143 requires the recognition of a liability for the legal obligations associated with the retirement of a tangible long-lived asset that results from the acquisition, construction and/or normal operation of the asset. The liability is recognized at fair value in the period in which it is incurred if a reasonable estimate of fair value can be made. A corresponding asset retirement cost is added to the carrying value of the long-lived asset and is depreciated to expense using a systematic and rational method over its useful life. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002. Upon initial adoption, a liability is recognized for existing asset retirement obligations and the associated asset retirement cost is capitalized as an increase to the carrying value of the asset. The recognized liability and asset are adjusted for cumulative accretion and accumulated depreciation, respectively, from the time period when the asset retirement obligation would have originally been recognized had this statement been in effect to the date of initial adoption. The cumulative effect of initial adoption of SFAS No. 143 is recorded as a change in accounting principle. Management is currently evaluating the impact that the adoption of SFAS No. 143 may have on the consolidated financial statements.

        In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". SFAS No. 144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" and the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations—Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions". SFAS No. 144 retains the fundamental provisions of SFAS No. 121 for recognition and measurement of the impairment of long-lived assets to be held and used, but resolves a number of

F-61

implementation issues and establishes a single accounting model for assets to be disposed of. SFAS No. 144 also retains the requirements to report discontinued operations separately from continuing operations and extends that reporting to a component of an entity that either has been disposed of by sale, abandonment or distribution to owners or is classified as held for sale. The provisions of SFAS No. 144 are effective for financial statements issued for fiscal years beginning after December 15, 2001 and their interim periods. The provisions of SFAS No. 144 for long-lived assets to be disposed of by sale or otherwise are effective for disposal activities initiated after the effective date of SFAS No. 144 or after its initial application. Management is currently evaluating the impact that the adoption of SFAS No. 144 will have on the consolidated financial statements.

        In April 2002, the FASB issued SFAS No. 145, "Rescission of SFAS Nos. 4, 44, and 64, Amendment of SFAS No. 13, and Technical Corrections as of April 2002". SFAS No. 145 rescinds SFAS No. 4, "Reporting Gains and Losses from Extinguishment of Debt," SFAS No. 44, "Accounting for Intangible Assets of Motor Carriers," and SFAS No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements". As a result, gains and losses from extinguishment of debt will no longer be classified as extraordinary items unless they meet the criteria of unusual or infrequent as described in APB Opinion No. 30, "Reporting the Results of Operations—Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions". In addition, SFAS No. 145 amends SFAS No. 13, "Accounting for Leases," to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. SFAS No. 145 also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. SFAS No. 145 is effective for fiscal years beginning after May 15, 2002. Management is currently evaluating the impact that the adoption of SFAS No. 145 will have on the consolidated financial statements.

        In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities". The issuance of SFAS No. 146 nullifies the former guidance provided by the Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring" ("EITF 94-3"). SFAS No. 146 requires the recognition of a liability for costs associated with exit or disposal activity when the liability is incurred, rather then on the date commitment to an exit or disposal plan. SFAS No. 146 is effective for liabilities, related to exit or disposal activities, which are incurred after December 31, 2002, while earlier application is encouraged. Management is currently evaluating the impact that the adoption of SFAS No. 146 will have on the consolidated financial statements.

20.  Subsidiary guarantor information

        The following consolidating information presents condensed balance sheets at December 31, 2001 and 2000 and condensed statements of operations and changes in financial position for the years ended December 31, 2001, 2000 and 1999 of Petróleos Mexicanos, Pemex-Exploration and Production, Pemex-Refining, Pemex-Gas and Basic Petrochemicals, and Pemex-Petrochemicals and the consolidated Subsidiary Companies.

        These statements are prepared in conformity with accounting principles generally accepted in Mexico and, as to the recognition of inflation, in accordance with NIF-06-BIS "A" section A (see Notes 2 b) and 15 to the consolidated financial statements), with one exception: for the purposes of the presentation of the subsidiary guarantor information, the Subsidiary Entities and Subsidiary Companies have been accounted for as investments under the equity method by Petróleos Mexicanos. Earnings of subsidiaries are therefore reflected in Petróleos Mexicanos' investment account and earnings. The principal elimination entries eliminate Petróleos Mexicanos' investment in subsidiaries and intercompany balances and transactions. Pemex-Exploration and Production, Pemex-Refining and

F-62

Pemex-Gas and Basic Petrochemicals (collectively, the "Subsidiary Guarantors") and Pemex-Petrochemicals are controlled by and have the characteristic of subsidiaries of Petróleos Mexicanos. Pemex-Petrochemicals and the Subsidiary Companies collectively comprise the non-guarantor subsidiaries ("Non-Guarantor Subsidiaries"). Petróleos Mexicanos and the Master Trust are the only entities authorized to contract debt, and thus all guaranteed debt is held by these entities. The guarantees of the Subsidiary Guarantors are full and unconditional and joint and several. Management has not presented separate financial statements for the Subsidiary Guarantors because it has determined that such information is not material to investors.

        The significant differences between Mexican and U.S. GAAP as they affect PEMEX are established in Note 19. The U.S. GAAP adjustment related to exploration and drilling costs is exclusive to Pemex-Exploration and Production. The U.S. GAAP adjustment related to fixed asset impairment relates to Pemex-Exploration and Production, Pemex-Refining and Pemex-Petrochemicals. U.S. GAAP adjustments pertaining to advance payment on minimum guaranteed dividends, investment securities, pensions and seniority premiums, post-retirement benefits, profit in inventory, and the sale of Repsol shares relate exclusively to Petróleos Mexicanos. The U.S. GAAP adjustment to account for derivatives relates primarily to Petróleos Mexicanos, Pemex-Exploration and Production, Pemex-Petrochemicals, Pemex-Gas and Basic Petrochemicals, Pemex-Refining and the Master Trust. The U.S. GAAP adjustments related to depreciation and capitalization of interest relate to Petróleos Mexicanos, Pemex-Exploration and Production, Pemex-Petrochemicals, Pemex-Gas and Basic Petrochemicals and Pemex-Refining. The U.S. GAAP adjustment related to depreciation convention relates to Petróleos Mexicanos, Pemex-Exploration and Production, Pemex-Petrochemicals, Pemex-Gas and Basic Petrochemicals, Pemex-Refining and the Master Trust, as well as another subsidiary. All other U.S. GAAP adjustments relate collectively to Petróleos Mexicanos, Pemex-Refining, Pemex-Exploration and Production and Pemex-Gas and Basic Petrochemicals.

F-63

SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION

BALANCE SHEET

As of December 31, 2001

			Corporate			Subsidiary Guarantors		Non-Guarantor Subsidiaries			Eliminations			PEMEX Consolidated
ASSETS
Current assets:
	Cash and cash equivalents		Ps.	5,522,511		Ps.	722,477	Ps.	8,196,876		Ps.	—		Ps.	14,441,864
	Accounts, notes receivable and other, net			2,699,390			94,357,062		23,416,641			(75,603,666	)		44,869,427
	Inventories, net			165,166			14,222,954		2,834,594			—			17,222,714
		Total current assets		8,387,067			109,302,493		34,448,111			(75,603,666	)		76,534,005
Long term debt receivable—intercompany				50,509,012			—		63,413,676			(113,922,688	)		—
Investments in subsidiaries				178,487,519			—		4,924,513			(174,969,287	)		8,442,745
Properties, net				8,826,710			335,022,388		63,064,168			—			406,913,266
Intangible asset derived from the actuarial computation of labor obligations and other assets				12,468,275			95,749,586		4,526,275			(47,750,904	)		64,993,232
		Total assets	Ps.	258,678,583		Ps.	540,074,467	Ps.	170,376,743		Ps.	(412,246,545	)	Ps.	556,883,248
LIABILITIES
Current liabilities:
	Current portion of long-term debt		Ps.	28,328,581		Ps.	12,724,756	Ps.	14,654,660		Ps.	(19,461,891	)	Ps.	36,246,106
	Accounts payable—intercompany			16,290,049			12,017,704		13,163,044			(41,470,797	)		—
	Other current liabilities			4,324,874			23,938,251		19,580,324			(12,141,133	)		35,702,316
		Total current liabilities		48,943,504			48,680,711		47,398,028			(73,073,821	)		71,948,422
Long-term debt				67,730,850			113,673,593		61,290,605			(119,525,053	)		123,169,995
Sale of future accounts receivable				—			48,923,317		—			(4,237,715	)		44,685,602
Reserve for retirement payments, pensions, indemnities, sundry creditors, others				21,233,452			157,797,694		59,179,262			(43,997,412	)		194,212,996
		Total liabilities		137,907,806			369,075,315		167,867,895			(240,834,001	)		434,017,015
EQUITY
Equity accounts				(60,610,938	)		65,873,943		(9,671,154	)		(54,563,356	)		(58,971,505	)
Revaluation surplus				181,381,715			105,125,209		12,180,002			(116,849,188	)		181,837,738
				120,770,777			170,999,152		2,508,848			(171,412,544	)		122,866,233
		Total liabilities and equity	Ps.	258,678,583		Ps.	540,074,467	Ps.	170,376,743		Ps.	(412,246,545	)	Ps.	556,883,248

F-64

SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION

BALANCE SHEET

As of December 31, 2000

			Corporate			Subsidiary Guarantors		Non-Guarantor Subsidiaries		Eliminations			PEMEX Consolidated
ASSETS
Current assets:
	Cash and cash equivalents		Ps.	14,428,209		Ps.	1,452,602	Ps.	11,946,035	Ps.	—		Ps.	27,826,846
	Accounts, notes receivable and other, net			80,976,771			94,668,605		103,931,208		(222,875,018	)		56,701,566
	Inventories, net			188,647			21,364,219		3,307,105		4,167			24,864,138
		Total current assets		95,593,627			117,485,426		119,184,348		(222,870,851	)		109,392,550
Long term debt receivable—intercompany				57,154,732			—		—		(57,154,732	)		—
Investments in subsidiaries				182,890,968			—		5,514,460		(188,405,428	)		—
Properties, net				9,214,929			316,477,604		18,530,892		44,001,151			388,224,576
Intangible asset derived from the actuarial computation of labor obligations and other assets				12,776,048			94,079,394		2,559,701		(43,564,746	)		65,850,397
		Total assets	Ps.	357,630,304		Ps.	528,042,424	Ps.	145,789,401	Ps.	(467,994,606	)	Ps.	563,467,523
LIABILITIES
Current liabilities:
	Current portion of long-term debt		Ps.	114,135,746		Ps.	52,139,993	Ps.	14,507,684	Ps.	(140,326,352	)	Ps.	40,457,071
	Accounts payable—intercompany			—			33,904,305		6,551,679		(40,455,984	)		—
	Other current liabilities			1,910,274			39,930,032		14,497,538		(1,028,959	)		55,308,885
		Total current liabilities		116,046,020			125,974,330		35,556,901		(181,811,295	)		95,765,956
Long-term debt				70,126,090			52,799,597		83,557,996		(102,113,658	)		104,370,025
Sale of future accounts receivable				—			51,976,573		—		—			51,976,573
Reserve for retirement payments, pensions, indemnities, sundry creditors, and others				16,319,176			129,436,724		11,837,927		3,155,770			160,749,597
		Total liabilities		202,491,286			360,187,224		130,952,824		(280,769,183	)		412,862,151
EQUITY
Equity accounts				(16,105,298	)		70,071,754		3,171,404		(80,586,658	)		(23,448,798	)
Revaluation surplus				171,244,316			97,783,446		11,665,173		(106,638,765	)		174,054,170
				155,139,018			167,855,200		14,836,577		(187,225,423	)		150,605,372
		Total liabilities and equity	Ps.	357,630,304		Ps.	528,042,424	Ps.	145,789,401	Ps.	(467,994,606	)	Ps.	563,467,523

F-65

SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION

STATEMENT OF INCOME

For the year ended December 31, 2001

			Corporate			Subsidiary Guarantors			Non-Guarantor Subsidiaries			Eliminations			PEMEX Consolidated
Net sales			Ps.	12,339,892		Ps.	605,823,004		Ps.	199,974,543		Ps.	(372,807,277	)	Ps.	445,330,162
Other revenues				2,826,908			9,759,540			12,718,685			(13,250,035	)		12,055,098
Total revenues				15,166,800			615,582,544			212,693,228			(386,057,312	)		457,385,260
Costs and operating expenses:
	Cost of sales			—			320,770,253			208,519,631			(363,975,363	)		165,314,521
	Transportation and distribution expenses			—			13,208,914			533,777			(154,209	)		13,588,482
	Administrative expenses			15,465,295			21,392,241			4,118,801			(12,950,999	)		28,025,338
	Other expenses			1,544,954			17,669,179			5,550,054			(5,010,244	)		19,753,943
		Total costs and operating expenses		17,010,249			373,040,587			218,722,263			(382,090,815	)		226,682,284
Equity participation in subsidiaries				(29,034,047	)		—			—			29,034,047			—
Capitalization of Master Trust operations and others				—			—			(1,833,128	)		1,833,128			—
	Cumulative effect of adoption of new financial instruments standard			(1,301,451	)		(29,796	)		—			—			(1,331,247	)
(Loss) income before hydrocarbon extraction duties, and other special tax on production and services				(32,178,947	)		242,512,161			(7,862,163	)		26,900,678			229,371,729
	Hydrocarbon extraction duties and other			—			167,502,566			761,021			—			168,263,587
	Special tax on production and services (IEPS Tax)			—			95,198,729			—			—			95,198,729
				—			262,701,295			761,021			—			263,462,316
Net (loss) income for the year			Ps.	(32,178,947	)	Ps.	(20,189,134	)	Ps.	(8,623,184	)	Ps.	26,900,678		Ps.	(34,090,587	)

F-66

SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION

STATEMENT OF INCOME

For the year ended December 31, 2000

			Corporate			Subsidiary Guarantors			Non-Guarantor Subsidiaries			Eliminations			PEMEX Consolidated
Net sales			Ps.	22,129,563		Ps.	641,722,720		Ps.	239,485,847		Ps.	(435,070,535	)	Ps.	468,267,595
Other revenues				574,735			9,367,075			10,816,326			(10,337,601	)		10,420,535
Total revenues				22,704,298			651,089,795			250,302,173			(445,408,136	)		478,688,130
Costs and operating expenses:
	Cost of sales			—			325,946,683			241,568,215			(414,455,061	)		153,059,837
	Transportation and distribution expenses			—			12,058,906			649,516			(99,261	)		12,609,161
	Administration expenses			14,996,555			19,275,246			3,111,839			(10,410,937	)		26,972,703
	Other expenses			7,038,378			17,535,771			7,211,332			(19,796,233	)		11,989,248
		Total costs and operating expenses		22,034,933			374,816,606			252,540,902			(444,761,492	)		204,630,949
Equity participation in subsidiaries				(21,216,737	)		—			—			21,216,737			—
Capitalization of Master Trust operations				—			—			2,034,574			(2,034,574	)		—
(Loss) income before hydrocarbon extraction duties, and other special tax on production and services				(20,547,372	)		276,273,189			(204,155	)		18,535,519			274,057,181
	Hydrocarbon extraction duties and other			—			223,044,353			1,042,336			124,364			224,211,053
	Special tax on production and services (IEPS Tax)			—			69,556,520			—			—			69,556,520
				—			292,600,873			1,042,336			124,364			293,767,573
Net (loss) income for the year			Ps.	(20,547,372	)	Ps.	(16,327,684	)	Ps.	(1,246,491	)	Ps.	18,411,155		Ps.	(19,710,392	)

F-67

SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION

STATEMENT OF INCOME

For the year ended December 31, 1999

			Corporate			Subsidiary Guarantors			Non-Guarantor Subsidiaries			Eliminations			PEMEX Consolidated
Net sales			Ps.	16,774,887		Ps.	422,580,848		Ps.	148,772,450		Ps.	(253,314,406	)	Ps.	334,813,779
Other revenues				2,818,391			8,830,443			2,882,073			(4,365,930	)		10,164,977
	Total revenues			19,593,278			431,411,291			151,654,523			(257,680,336	)		344,978,756
Costs and operating expenses:
	Cost of sales			—			201,972,991			147,802,262			(236,262,728	)		113,512,525
	Transportation and distribution expenses			—			10,570,323			434,286			(137,038	)		10,867,571
	Administration expenses			11,280,125			15,447,974			2,980,546			(8,632,379	)		21,076,266
	Other expenses			11,543,220			8,297,322			444,033			(8,431,641	)		11,852,934
		Total costs and operating expenses		22,823,345			236,288,610			151,661,127			(253,463,786	)		157,309,296
Equity participation in subsidiaries				(15,616,823	)		—			—			15,616,823			—
(Loss) income before hydrocarbon extraction duties, and other special tax on production and services				(18,846,890	)		195,122,681			(6,604	)		11,400,273			187,669,460
	Hydrocarbon extraction duties and other			—			119,237,731			1,239,257			—			120,476,988
	Special tax on production and services (IEPS Tax)			—			88,349,243			—			—			88,349,243
				—			207,586,974			1,239,257			—			208,826,231
Net (loss) income for the year			Ps.	(18,846,890	)	Ps.	(12,464,293	)	Ps.	(1,245,861	)	Ps.	11,400,273		Ps.	(21,156,771	)

F-68

SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION

STATEMENT OF CHANGES IN FINANCIAL POSITION

For the year ended December 31, 2001

		Corporate			Subsidiary Guarantors			Non-Guarantor Subsidiaries			Eliminations			PEMEX Consolidated
Funds provided by (used in) operating activities		Ps.	93,512,424		Ps.	9,070,449		Ps.	114,718,332		Ps.	(191,108,592	)	Ps.	26,192,613
Financing activities:
	Sale of future accounts receivable		—			(3,053,256	)		—			(4,237,715	)		(7,290,971	)
	Long-term debt		(79,144,359	)		(2,925,553	)		(15,509,050	)		109,670,256			12,091,294
	Net income (loss) passed to Petróleos Mexicanos		(27,461,110	)		18,837,927			8,623,183			—			—
	Other changes in equity and retained earnings		(5,563,799	)		15,127,018			(3,306,297	)		(11,276,351	)		(5,019,429	)
Funds provided by (used in) financing activities			(112,169,268	)		27,986,136			(10,192,164	)		94,156,190			(219,106	)
Investing activities:
	Increase in fixed assets, net		9,751,146			(37,786,710	)		(108,275,327	)		96,952,402			(39,358,489	)
	Investments in subsidiaries		—			—			—			—			—
Funds provided by (used in) investing activities			9,751,146			(37,786,710	)		(108,275,327	)		96,952,402			(39,358,489	)
(Decrease) increase in cash and cash equivalents			(8,905,698	)		(730,125	)		(3,749,159	)		—			(13,384,982	)
Cash and cash equivalents at beginning of the year			14,428,209			1,452,602			11,946,035			—			27,826,846
Cash and cash equivalents at the end of the year		Ps.	5,522,511		Ps.	722,477		Ps.	8,196,876		Ps.	—		Ps.	14,441,864

F-69

SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION

STATEMENT OF CHANGES IN FINANCIAL POSITION

For the year ended December 31, 2000

		Corporate			Subsidiary Guarantors			Non-Guarantor Subsidiaries			Eliminations			PEMEX Consolidated
Funds (used in) provided by operating activities		Ps.	(62,080,063	)	Ps.	(10,216,646	)	Ps.	(34,901,498	)	Ps.	131,686,425		Ps.	24,488,218
Financing activities:
	Sale of future accounts receivable		—			8,675,835			—			—			8,675,835
	Long-term debt		63,717,256			35,413,510			45,299,798			(119,927,030	)		24,503,534
	Net income distributions to Petróleos Mexicanos		(11,894,564	)		11,143,060			751,504			—			—
	Other changes in equity and retained earnings		(5,623,568	)		26,433,760			(1,341,824	)		(9,306,862	)		10,161,506
Funds provided by (used in) financing activities			46,199,124			81,666,165			44,709,478			(129,233,892	)		43,340,875
Investing activities:
	Increase in fixed assets, net		9,050,823			(71,180,882	)		(2,018,105	)		159,094			(63,989,070	)
	Investments in subsidiaries		2,611,627			—			—			(2,611,627	)		—
Funds provided by (used in) investing activities			11,662,450			(71,180,882	)		(2,018,105	)		(2,452,533	)		(63,989,070	)
(Decrease) increase in cash and cash equivalents			(4,218,489	)		268,637			7,789,875			—			3,840,023
Cash and cash equivalents at beginning of the year			18,646,698			1,183,963			4,156,162			—			23,986,823
Cash and cash equivalents at the end of the year		Ps.	14,428,209		Ps.	1,452,600		Ps.	11,946,037		Ps.	—		Ps.	27,826,846

F-70

SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION

STATEMENT OF CHANGES IN FINANCIAL POSITION

For the year ended December 31, 1999

		Corporate			Subsidiary Guarantors			Non-Guarantor Subsidiaries			Eliminations			PEMEX Consolidated
Funds provided by (used in) operating activities		Ps.	21,139,652		Ps.	(16,904,904	)	Ps.	(20,120,629	)	Ps.	33,666,546		Ps.	17,780,665
Financing activities:
	Sale of future accounts receivable		—			26,702,250			—			—			26,702,250
	Long-term debt		(224,763	)		(9,700,795	)		23,199,712			(11,780,243	)		1,493,911
	Net income (loss) distributions to Petróleos Mexicanos		(10,766,871	)		8,185,826			854,362			1,726,683			—
	Other changes in equity and retained earnings		(3,843,264	)		1,780,238			(3,309,823	)		4,297,674			(1,075,175	)
Funds (used in) provided by financing activities			(14,834,898	)		26,967,519			20,744,251			(5,755,886	)		27,120,986
Investing activities:
	Increase in fixed assets, net		(773,080	)		(9,544,561	)		(235,848	)		(24,992,642	)		(35,546,131	)
	Investments in subsidiaries		2,534,631			—			—			(2,534,631	)		—
Funds provided by (used in) investing activities			1,761,551			(9,544,561	)		(235,848	)		(27,527,273	)		(35,546,131	)
Increase in cash and cash equivalents			8,066,305			518,054			387,774			383,387			9,355,520
Cash and cash equivalents at beginning of the year			10,580,393			665,909			3,768,388			(383,387	)		14,631,303
Cash and cash equivalents at the end of the year		Ps.	18,646,698		Ps.	1,183,963		Ps.	4,156,162		Ps.	—		Ps.	23,986,823

F-71

21.  PIDIREGAS liabilities and the Pemex Project Funding Master Trust ("Master Trust")

        The Master Trust, a consolidated entity which is a business trust, was organized under the laws of Delaware on November 10, 1998. The main objective of the Master Trust is to administer financial resources related to PIDIREGAS, such financial resources being designated by PEMEX for that purpose, by assuming payment obligations under contracts relating to PIDIREGAS and acting as the borrower under financing arrangements for PIDIREGAS.

        Under an Assignment and Indemnity Agreement dated November 10, 1998, among Petróleos Mexicanos, the Master Trust and the Subsidiary Guarantors, Petróleos Mexicanos and the Subsidiary Guarantors have certain obligations to the Master Trust with respect to the liabilities incurred by the Master Trust in connection with PIDIREGAS. These obligations include:

(i)

the obligation of Petróleos Mexicanos to guarantee the repayment of the debt obligations undertaken by the Master Trust to finance PIDIREGAS;

(ii)

the obligation of Petróleos Mexicanos and the Subsidiary Guarantor which is sponsoring the relevant PIDIREGAS to make such payments to the Master Trust as may be necessary for the Master Trust to fulfill its payment obligations in respect of any financing the Master Trust has entered into in connection with such project; and

(iii)

the joint and several obligation of Petróleos Mexicanos and each of the aforementioned Subsidiary Guarantors to indemnify the Master Trust with respect to any liability incurred by the Master Trust in connection with PIDIREGAS.

        On December 31, 1998, PEMEX transferred all assets and liabilities related to PIDIREGAS for an amount equaling Ps. 12,104,010 to the Master Trust. The Master Trust has been consolidated in the financial statements of PEMEX at December 31, 2001, 2000 and 1999 in accordance with consolidation principles detailed in Mexican GAAP Bulletin B-8 "Consolidated and Combined Financial Statements and Valuation of Permanent Investments in Stocks." In accordance with U.S. accounting principles, the Master Trust is a special purpose entity requiring consolidation to the financial statements as it does not meet non-consolidation criteria as specified in U.S. accounting literature.

        The following consolidating information presents condensed consolidating balance sheets at December 31, 2001 and 2000 and condensed consolidating statements of operations and statements of changes in financial position for the years ended December 31, 2001, 2000 and 1999 of Petróleos Mexicanos, Pemex-Exploration and Production, Pemex-Refining, Pemex-Gas and Basic Petrochemicals, Pemex-Petrochemicals and the consolidated Subsidiary Companies. These financial statements are prepared in conformity with Mexican GAAP and as to the recognition of inflation, in accordance with NIF-06-BIS "A" section A (see Notes 2 b) and 15 to the consolidated financial statements), except that in the following condensed financial information, the Master Trust and the Subsidiary Entities are accounted for as investments under the equity method rather than being consolidated. Pemex-Petrochemicals and the Subsidiary Guarantors are controlled by and have the characteristics of subsidiaries of Petróleos Mexicanos. Petróleos Mexicanos' guaranty of the indebtedness of the Master Trust is full and unconditional. The guaranties by the Subsidiary Guarantors of Petróleos Mexicanos' guaranty of the Master Trust's payment obligations are full and unconditional and joint and several.

        Petróleos Mexicanos and the Master Trust are the only entities authorized to contract debt, and thus all guaranteed debt is held by these entities.

F-72

SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION

BALANCE SHEET

As of December 31, 2001

			Corporate			Master Trust		Subsidiary Guarantors		Non-Guarantors Subsidiaries			Eliminations			PEMEX Consolidated
ASSETS
Current assets:
	Cash and cash equivalents		Ps.	5,522,511		Ps.	5,288,454	Ps.	722,477	Ps.	2,908,422		Ps.	—		Ps.	14,441,864
	Accounts, notes receivable and other, net			2,699,390			7,804,623		94,357,062		15,612,018			(75,603,666	)		44,869,427
	Inventories, net			165,166			—		14,222,954		2,834,594			—			17,222,714
		Total current assets		8,387,067			13,093,077		109,302,493		21,355,034			(75,603,666	)		76,534,005
Long-term debt receivable—intercompany				50,509,012			63,413,676		—		—			(113,922,688	)		—
Investments in subsidiaries				178,487,519			—		—		4,924,513			(174,969,287	)		8,442,745
Properties, net				8,826,710			44,326,188		335,022,388		18,737,980			—			406,913,266
Intangible asset derived from the actuarial computation of labor obligations and other assets				12,468,275			1,395,274		95,749,586		3,131,001			(47,750,904	)		64,993,232
		Total assets	Ps.	258,678,583		Ps.	122,228,215	Ps.	540,074,467	Ps.	48,148,528		Ps.	(412,246,545	)	Ps.	556,883,248
LIABILITIES
Current liabilities:
	Current portion of long-term debt		Ps.	28,328,581		Ps.	8,707,639	Ps.	12,724,756	Ps.	5,947,021		Ps.	(19,461,891	)	Ps.	36,246,106
	Accounts payable— intercompany			16,290,049			436,459		12,017,704		12,726,585			(41,470,797	)		—
	Other current liabilities			4,324,874			9,468,451		23,938,251		10,111,873			(12,141,133	)		35,702,316
		Total current liabilities		48,943,504			18,612,549		48,680,711		28,785,479			(73,073,821	)		71,948,422
Long-term debt				67,730,850			61,041,007		113,673,593		249,598			(119,525,053	)		123,169,995
Sale of future accounts receivable				—			—		48,923,317		—			(4,237,715	)		44,685,602
Reserve for retirement payments, pensions, indemnities sundry creditors, and others				21,233,452			42,574,659		157,797,694		16,604,603			(43,997,412	)		194,212,996
	Total liabilities			137,907,806			122,228,215		369,075,315		45,639,680			(240,834,001	)		434,017,015
EQUITY
Equity accounts				(60,610,938	)		—		65,873,943		(9,671,154	)		(54,563,356	)		(58,971,505	)
Revaluation surplus				181,381,715			—		105,125,209		12,180,002			(116,849,188	)		181,837,738
				120,770,777			—		170,999,152		2,508,848			(171,412,544	)		122,866,233
		Total liabilities and equity	Ps.	258,678,583		Ps.	122,228,215	Ps.	540,074,467	Ps.	48,148,528		Ps.	(412,246,545	)	Ps.	556,883,248

F-73

SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION

BALANCE SHEET

As of December 31, 2000

			Corporate			Master Trust		Subsidiary Guarantors		Non-Guarantor Subsidiaries		Eliminations			PEMEX Consolidated
ASSETS
Current assets:
	Cash and cash equivalents		Ps.	14,428,209		Ps.	8,057,964	Ps.	1,452,602	Ps.	3,888,071	Ps.	—		Ps.	27,826,846
	Accounts, notes receivable and other, net			80,976,771			88,026,014		94,668,605		15,905,194		(222,875,018	)		56,701,566
	Inventories, net			188,647			—		21,364,219		3,307,105		4,167			24,864,138
		Total current assets		95,593,627			96,083,978		117,485,426		23,100,370		(222,870,851	)		109,392,550
Long-term debt receivable—intercompany				57,154,732			—		—		—		(57,154,732	)		—
Investments in subsidiaries				182,890,968			—		—		5,514,460		(188,405,428	)		—
Properties, net				9,214,929			—		316,477,604		18,530,892		44,001,151			388,224,576
Intangible asset derived from the actuarial computation of labor obligations and other assets				12,776,048			—		94,079,394		2,559,701		(43,564,746	)		65,850,397
		Total assets	Ps.	357,630,304		Ps.	96,083,978	Ps.	528,042,424	Ps.	49,705,423	Ps.	(467,994,606	)	Ps.	563,467,523
LIABILITIES
Current liabilities:
	Current portion of long-term debt		Ps.	114,135,746		Ps.	5,885,494	Ps.	52,139,993	Ps.	8,622,190	Ps.	(140,326,352	)	Ps.	40,457,071
	Accounts payable—intercompany			—			—		33,904,305		6,551,679		(40,455,984	)		—
	Other current liabilities			1,910,274			6,848,735		39,930,032		7,648,803		(1,028,959	)		55,308,885
		Total current liabilities		116,046,020			12,734,229		125,974,330		22,822,672		(181,811,295	)		95,765,956
Long-term debt				70,126,090			83,349,749		52,799,597		208,247		(102,113,658	)		104,370,025
Sale of future accounts receivable				—			—		51,976,573		—		—			51,976,573
Reserve for retirement payments, pensions, indemnities sundry creditors, and others				16,319,176			—		129,436,724		11,837,927		3,155,770			160,749,597
		Total liabilities		202,491,286			96,083,978		360,187,224		34,868,846		(280,769,183	)		412,862,151
EQUITY
Equity accounts				(16,105,298	)		—		70,071,754		3,171,404		(80,586,658	)		(23,448,798	)
Revaluation surplus				171,244,316			—		97,783,446		11,665,173		(106,638,765	)		174,054,170
				155,139,018			—		167,855,200		14,836,577		(187,225,423	)		150,605,372
		Total liabilities and equity	Ps.	357,630,304		Ps.	96,083,978	Ps.	528,042,424	Ps.	49,705,423	Ps.	(467,994,606	)	Ps.	563,467,523

F-74

SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION

STATEMENT OF INCOME

For the year ended December 31, 2001

			Corporate			Master Trust			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Eliminations			PEMEX Consolidated
Net sales			Ps.	12,339,892		Ps.	—		Ps.	605,823,004		Ps.	199,974,543		Ps.	(372,807,277	)	Ps.	445,330,162
Other revenues				2,826,908			5,432,891			9,759,540			7,285,794			(13,250,035	)		12,055,098
Total revenues				15,166,800			5,432,891			615,582,544			207,260,337			(386,057,312	)		457,385,260
Costs and operating expenses:
	Cost of sales			—			—			320,770,253			208,519,631			(363,975,363	)		165,314,521
	Transportation and distribution expenses			—			—			13,208,914			533,777			(154,209	)		13,588,482
	Administrative expenses			15,465,295			16,169			21,392,241			4,102,632			(12,950,999	)		28,025,338
	Other expenses			1,544,954			3,583,594			17,669,179			1,966,460			(5,010,244	)		19,753,943
		Total costs and operating expenses		17,010,249			3,599,763			373,040,587			215,122,500			(382,090,815	)		226,682,284
Equity participation in subsidiaries				(29,034,047	)		—			—			—			29,034,047			—
Capitalization of Master Trust operations				—			(1,833,128	)		—			—			1,833,128			—
Cumulative effect of adoption of new financial instruments standard				(1,301,451	)		—			(29,796	)		—			—			(1,331,247	)
(Loss) income before hydrocarbon extraction duties and other and special tax on production and services				(32,178,947	)		—			242,512,161			(7,862,163	)		26,900,678			229,371,729
	Hydrocarbon extraction duties and other			—			—			167,502,566			761,021			—			168,263,587
	Special tax on production and services (IEPS Tax)			—			—			95,198,729			—			—			95,198,729
				—			—			262,701,295			761,021			—			263,462,316
Net (loss) income for the year			Ps.	(32,178,947	)	Ps.	—		Ps.	(20,189,134	)	Ps.	(8,623,184	)	Ps.	26,900,678		Ps.	(34,090,587	)

F-75

SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION

STATEMENT OF INCOME

For the year ended December 31, 2000

			Corporate			Master Trust		Subsidiary Guarantors			Non- Guarantor Subsidiaries			Eliminations			PEMEX Consolidated
Net sales			Ps.	22,129,563		Ps.	—	Ps.	641,722,720		Ps.	239,485,847		Ps.	(435,070,535	)	Ps.	468,267,595
Other revenues				574,735			4,118,225		9,367,075			6,698,101			(10,337,601	)		10,420,535
Total revenues				22,704,298			4,118,225		651,089,795			246,183,948			(445,408,136	)		478,688,130
Costs and operating expenses:
	Cost of sales			—			—		325,946,683			241,568,215			(414,455,061	)		153,059,837
	Transportation and distribution expenses			—			—		12,058,906			649,516			(99,261	)		12,609,161
	Administrative expenses			14,996,555			14,355		19,275,246			3,097,484			(10,410,937	)		26,972,703
	Other expenses			7,038,378			6,138,444		17,535,771			1,072,888			(19,796,233	)		11,989,248
		Total costs and operating expenses		22,034,933			6,152,799		374,816,606			246,388,103			(444,761,492	)		204,630,949
Equity participation in subsidiaries				(21,216,737	)		—		—			—			21,216,737			—
Capitalization of Master Trust operations				—			2,034,574		—			—			(2,034,574	)		—
(Loss) income before hydrocarbon extraction duties and other and special tax on production and services				(20,547,372	)		—		276,273,189			(204,155	)		18,535,519			274,057,181
	Hydrocarbon extraction duties and other			—			—		223,044,353			1,042,336			124,364			224,211,053
	Special tax on production and services (IEPS Tax)			—			—		69,556,520			—			—			69,556,520
				—			—		292,600,873			1,042,336			124,364			293,767,573
Net (loss) income for the year			Ps.	(20,547,372	)	Ps.	—	Ps.	(16,327,684	)	Ps.	(1,246,491	)	Ps.	18,411,155		Ps.	(19,710,392	)

F-76

SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION

STATEMENT OF INCOME

For the year ended December 31, 1999

			Corporate			Master Trust		Subsidiary Guarantors			Non-Guarantor Subsidiaries			Eliminations			PEMEX Consolidated
Net sales			Ps.	16,774,887		Ps.	—	Ps.	422,580,848		Ps.	148,772,450		Ps.	(253,314,406	)	Ps.	334,813,779
Other revenues				2,818,391			169,403		8,830,443			2,882,073			(4,535,333	)		10,164,977
Total revenues				19,593,278			169,403		431,411,291			151,654,523			(257,849,739	)		344,978,756
Costs and operating expenses:
	Cost of sales			—			—		201,972,991			147,802,262			(236,262,728	)		113,512,525
	Transportation and distribution expenses			—			—		10,570,323			434,286			(137,038	)		10,867,571
	Administrative expenses			11,280,125			1,795		15,447,974			2,980,546			(8,634,174	)		21,076,266
	Other expenses			11,543,220			3,733,938		8,297,322			444,033			(12,165,579	)		11,852,934
		Total costs and operating expenses		22,823,345			3,735,733		236,288,610			151,661,127			(257,199,519	)		157,309,296
Equity participation in subsidiaries				(15,616,823	)		—		—			—			15,616,823			—
Capitalization of Master Trust operations				—			3,566,330		—			—			(3,566,330	)		—
(Loss) income before hydrocarbon extraction duties and other and special tax on production and services				(18,846,890	)		—		195,122,681			(6,604	)		11,400,273			187,669,460
	Hydrocarbon extraction duties and other			—			—		119,237,731			1,239,257			—			120,476,988
	Special tax on production and services (IEPS Tax)			—			—		88,349,243			—			—			88,349,243
				—			—		207,586,974			1,239,257			—			208,826,231
Net (loss) income for the year			Ps.	(18,846,890	)	Ps.	—	Ps.	(12,464,293	)	Ps.	(1,245,861	)	Ps.	11,400,273		Ps.	(21,156,771	)

F-77

SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION

STATEMENT OF CHANGES IN FINANCIAL POSITION

For the year ended December 31, 2001

		Corporate			Master Trust			Subsidiary Guarantors			Non-Guarantor Subsidiaries			Eliminations			PEMEX Consolidated
Funds (used in) provided by operating activities		Ps.	93,512,424		Ps.	124,020,493		Ps.	9,070,449		Ps.	(9,302,161	)	Ps.	(191,108,592	)	Ps.	26,192,613
Financing activities:
	Sale of future accounts receivable		—			—			(3,053,256	)		—			(4,237,715	)		(7,290,971	)
	Long-term debt		(79,144,359	)		(19,050,139	)		(2,925,553	)		3,541,089			109,670,256			12,091,294
	Long-term debt receivable—intercompany		—			—			—			—			—			—
	Net income distributions to Petróleos Mexicanos		(27,461,110	)		—			18,837,927			8,623,183			—			—
	Other changes in equity and retained earnings		(5,563,799	)		—			15,127,018			(3,306,297	)		(11,276,351	)		(5,019,429	)
Funds provided by (used in) financing activities			(112,169,268	)		(19,050,139	)		27,986,136			8,857,975			94,156,190			(219,106	)
Investing activities:
	Increase in fixed assets, net		9,751,146			(107,739,864	)		(37,786,710	)		(535,463	)		96,952,402			(39,358,489	)
	Investments in subsidiaries		—			—			—			—			—			—
Funds provided by (used in) investing activities			9,751,146			(107,739,864	)		(37,786,710	)		(535,463	)		96,952,402			(39,358,489	)
(Decrease) increase in cash and cash equivalents			(8,905,698	)		(2,769,510	)		(730,125	)		(979,649	)		—			(13,384,982	)
Cash and cash equivalents at beginning of the year			14,428,209			8,057,964			1,452,602			3,888,071			—			27,826,846
Cash and cash equivalents at the end of the year		Ps.	5,522,511		Ps.	5,288,454		Ps.	722,477		Ps.	2,908,422		Ps.	—		Ps.	14,441,864

F-78

SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION

STATEMENT OF CHANGES IN FINANCIAL POSITION

For the year ended December 31, 2000

		Corporate			Master Trust			Subsidiary Guarantors			Non-Guarantor Subsidiaries			Eliminations			PEMEX Consolidated
Funds (used in) provided by operating activities		Ps.	(62,080,063	)	Ps.	(30,581,553	)	Ps.	(10,216,646	)	Ps.	(4,319,945	)	Ps.	131,686,425		Ps.	24,488,218
Financing activities:
	Sale of future accounts receivable		—			—			8,675,835			—			—			8,675,835
	Long-term debt		63,717,256			38,050,136			35,413,510			7,249,662			(119,927,030	)		24,503,534
	Net income distributions to Petróleos Mexicanos		(11,894,564	)		—			11,143,060			751,504			—			—
	Other changes in equity and retained earnings		(5,623,568	)		—			26,433,760			(1,341,824	)		(9,306,862	)		10,161,506
Funds provided by (used in) financing activities			46,199,124			38,050,136			81,666,165			6,659,342			(129,233,892	)		43,340,875
Investing activities:
	Increase in fixed assets, net		9,050,823			—			(71,180,882	)		(2,018,105	)		159,094			(63,989,070	)
	Investments in subsidiaries		2,611,627			—			—			—			(2,611,627	)		—
Funds provided by (used in) investing activities			11,662,450			—			(71,180,882	)		(2,018,105	)		(2,452,533	)		(63,989,070	)
(Decrease) increase in cash and cash equivalents			(4,218,489	)		7,468,583			268,637			321,292			—			3,840,023
Cash and cash equivalents at beginning of the year			18,646,698			589,382			1,183,963			3,566,780			—			23,986,823
Cash and cash equivalents at the end of the year		Ps.	14,428,209		Ps.	8,057,965		Ps.	1,452,600		Ps.	3,888,072		Ps.	—		Ps.	27,826,846

F-79

SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION

STATEMENT OF CHANGES IN FINANCIAL POSITION

For the year ended December 31, 1999

		Corporate			Master Trust			Subsidiary Guarantors			Non-Guarantor Subsidiaries			Eliminations			PEMEX Consolidated
Funds provided by (used in) operating activities		Ps.	21,139,652		Ps.	(24,021,915	)	Ps.	(16,904,904	)	Ps.	3,901,286		Ps.	33,666,546		Ps.	17,780,665
Financing activities:
	Sale of future accounts receivable		—			—			26,702,250			—			—			26,702,250
	Long-term debt		(224,763	)		24,611,297			(9,700,795	)		(1,411,585	)		(11,780,243	)		1,493,911
	Net income (loss) distributions to Petróleos Mexicanos		(10,766,871	)		—			8,185,826			854,362			1,726,683			—
	Other changes in equity and retained earnings		(3,843,264	)		—			1,780,238			(3,309,823	)		4,297,674			(1,075,175	)
Funds (used in) provided by financing activities			(14,834,898	)		24,611,297			26,967,519			(3,867,046	)		(5,755,886	)		27,120,986
Investing activities:
	Increase in fixed assets, net		(773,080	)		—			(9,544,561	)		(235,848	)		(24,992,642	)		(35,546,131	)
	Investments in subsidiaries		2,534,631			—			—			—			(2,534,631	)		—
Funds provided by (used in) investing activities			1,761,551			—			(9,544,561	)		(235,848	)		(27,527,273	)		(35,546,131	)
Increase (decrease) in cash and cash equivalents			8,066,305			589,382			518,054			(201,608	)		383,387			9,355,520
Cash and cash equivalents at beginning of the year			10,580,393			—			665,909			3,768,388			(383,387	)		14,631,303
Cash and cash equivalents at the end of the year		Ps.	18,646,698		Ps.	589,382		Ps.	1,183,963		Ps.	3,566,780		Ps.	—		Ps.	23,986,823

F-80

21.  PIDIREGAS liabilities and the Pemex Project Funding Master Trust (continued)

        The significant differences between Mexican and U.S. GAAP as they affect PEMEX are described in Note 19. The U.S. GAAP adjustments related to exploration and drilling costs and units of production amortization are exclusive to Pemex—Exploration and Production. The U.S. GAAP adjustment related to fixed asset impairment relates to the Subsidiary Entities. U.S. GAAP adjustments pertaining to advance payment on minimum guaranteed dividends, investment securities, and the sale of Repsol shares relate exclusively to Petróleos Mexicanos. The U.S. GAAP adjustment to account for derivatives relates primarily to Petróleos Mexicanos, Pemex-Exploration and Production, Pemex-Petrochemicals, Pemex-Gas and Basic Petrochemicals, Pemex-Refining and the Master Trust. All other U.S. GAAP adjustments relate collectively to Petróleos Mexicanos and the Subsidiary Entities.

22.  Supplementary information on oil and gas exploration and production activities (Unaudited)

        The following tables provide supplementary information on the oil and gas exploration, development and producing activities of Pemex-Exploration and Production in compliance with SFAS No. 69 ("Disclosures about Oil and Gas Producing Activities") published by the Financial Accounting Standards Board of the United States of America. All exploration and production activities of Pemex-Exploration and Production are located in Mexico.

        The supplemental data presented herein reflects information for all of Pemex-Exploration and Production's oil and gas producing activities. Capitalized costs and results of operations presented herein have been prepared in accordance with U.S. GAAP.

Capitalized costs for oil and gas producing activities:

		As of December 31,
		2001			2000			1999
Proved properties		Ps.	228,672,654		Ps.	202,137,360		Ps.	160,291,686
Construction in progress			8,622,883			9,654,352			11,079,971
Accumulated depreciation and amortization			(113,834,067	)		(97,073,538	)		(84,905,319	)
	Net capitalized costs	Ps.	123,461,470		Ps.	114,718,174		Ps.	86,466,338

Costs incurred for oil and gas property exploration and development activities:

		Year ended December 31,
		2001		2000		1999
Exploration		Ps.	1,224,042	Ps.	331,685	Ps.	—
Development			5,888,168		6,353,194		4,262,495
	Total costs incurred	Ps.	7,112,210	Ps.	6,684,879	Ps.	4,262,495

        There are no property acquisition costs because PEMEX exploits oil reserves owned by the Mexican nation.

        Development costs include costs of geological and geophysical studies of field development amounting to Ps. 1,043,572, Ps. 1,710,998 and Ps. 920,379 for 2001, 2000 and 1999, respectively, that are expensed, under successful efforts, as geological and geophysical exploration expenses. Development costs also include Ps. 4,163,503, Ps. 5,494,939 and Ps. 4,345,266 for 2001, 2000 and 1999 related to construction in progress. Upon project completion, construction in progress amounts will be re-classified either to expenses or capitalized as appropriate.

F-81

Results of operations for oil and gas producing activities:

	Year Ended December 31,
	2001		2000		1999
Revenues from affiliates	Ps.	265,005,055	Ps.	312,207,332	Ps.	175,916,078
Hydrocarbon duties		163,906,684		200,099,233		104,716,228
Excess-gains taxes		1,314,957		21,196,536		13,259,914
Production costs (excluding taxes)		55,101,847		44,753,856		33,804,055
Exploration expenses		1,043,572		1,710,998		920,379
Depreciation, depletion and amortization		12,249,799		11,513,616		9,715,698
		233,616,859		279,274,239		162,416,274
Results of operations for oil and gas producing activities	Ps.	31,388,196	Ps.	32,933,093	Ps.	13,499,804

Crude oil and natural gas reserves:

Sales prices and production costs (unaudited)

        The following table summarizes average sales prices (excluding production taxes) in U.S. dollars:

	2001		2000		1999
December average sales price	$	13.62	$	23.03	$	18.24
Crude oil, per barrel	$	15.21	$	22.78	$	20.70
Natural gas, per thousand cubic feet	$	1.85	$	5.13	$	1.91

Crude oil and natural gas reserves (unaudited)

        Under the Political Constitution of the United Mexican States and Mexican statutory law, all oil and other hydrocarbon reserves within Mexico are owned by the Mexican nation and not by PEMEX. Under the Organic Law, PEMEX has the exclusive right to produce, not own, these reserves and sells the production subject to a federal production tax currently assessed at the rate of 60.8% of revenue from production sales. Crude oil exports are subject to an additional "excess gains" tax. PEMEX's exploration and development activities are limited to reserves located in Mexico.

        Proved oil and gas reserves are those estimated quantities of crude oil, natural gas and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions, i.e., prices and costs at the date the estimate is made. Mexico's proved reserves are estimated by PEMEX's petroleum engineers.

        PEMEX estimates Mexico's reserves using standard geological and engineering methods generally accepted by the petroleum industry. The choice of method or combinations of methods employed in the analysis of each reservoir is determined by experience in the area, the stage of development, quality and completeness of basic data and production and pressure history. The reserves data set forth herein represent only estimates. Reserves valuation is a subjective process of estimating underground accumulations of crude oil and natural gas that cannot be measured in an exact manner. The accuracy of any reserve estimate depends on the quality of available data, the engineering and geological interpretation and judgment. As a result, estimates of different engineers may vary. In addition, results of drilling, testing and production subsequent to the date of an estimate are among the criteria which may be used to justify revision of such estimate.

F-82

        The following two tables of oil and gas reserves set forth PEMEX's estimates of Mexico's proved reserves at December 31, 2001, 2000 and 1999 in accordance with the definition of proved reserves under Rule 4-10(a) Regulation S-X of the Securities Act of 1933.

Crude oil and condensate reserves (including natural gas liquids)(a)

			(Millions of barrels)
			2001		2000		1999
Proved developed and undeveloped reserves
	At January 1		20,186		21,519		21,638
		Revisions	(144	)	(180	)	775
		Extensions and discoveries(b)	2		91		311
		Production	(1,277	)	(1,244	)	(1,205	)
	At December 31		18,767		20,186		21,519
Proved developed reserves at December 31			12,622		12,312		11,414

Note: Table amounts may not total due to rounding.

(a)

Crude oil and condensate reserves include the fraction of liquefiable hydrocarbons recoverable in gas processing plants.

(b)

Extensions include positive and negative changes due to new data gathered through drilling of extension wells.

Dry gas reserves

			(Billions of cubic feet)
			2001		2000		1999
Proved developed and undeveloped reserves
	At January 1		17,365		18,471		17,054
		Revisions	(78	)	3		2,427
		Extensions and discoveries(a)	98		58		176
		Production	(1,129	)	(1,167	)	(1,186	)
	At December 31		16,256		17,365		18,471
Proved developed reserves at December 31			8,776		9,713		11,127

Note: Table amounts may not total due to rounding.

(a)

Extensions include positive and negative changes due to new data gathered through drilling of extension wells. Negative changes are reported as revisions.

        Based on the reservoir performance, new information, and discoveries, proved reserves in accordance with the definition of proved reserves under Rule 4-10(a) of Regulation S-X for all regions as of December 31, 2001 are estimated to be 21,893 million barrels of oil equivalent (23,525 million barrels of oil equivalent at December 31, 2000).

F-83

Standardized measure of discounted future net cash flows related to proved oil and gas reserves (unaudited)

        The standardized measure tables presented below relate to proved oil and gas reserves (i) after adjusting for the reserve revisions in the Marine, Southern and Northern Regions, and (ii) excluding proved reserves scheduled to be produced after the year 2025.

        Estimated future cash inflows from production are computed by applying average December prices of oil and gas to the year-end quantities. Future development and production costs are those estimated future expenditures needed to develop and produce the year-end estimated proved reserves, assuming constant year-end economic conditions.

        Future tax expenses are computed by applying the appropriate year-end statutory tax rates—with consideration of the tax rates already legislated for 2001—to the future pre-tax net cash flows related to Mexico's proved oil and gas reserves.

        In addition to being subject to the payment of all taxes and contributions set forth by the SHCP (except as indicated below), PEMEX is presently subject to the following special duties: a hydrocarbon extraction duty, an extraordinary hydrocarbon extraction duty, an additional hydrocarbon extraction duty, a tax on hydrocarbon income and the IEPS Tax. These taxes and duties are to be credited against the Derecho Sobre Hidrocarburos ("hydrocarbon duty"), which is calculated by applying a rate of 60.8% to the sales revenue of Petróleos Mexicanos and Subsidiary Entities to third parties (sales revenues are taken to include the IEPS Tax generated by the sale of refined products, but not to include VAT). In addition to the payment of the hydrocarbon duty, Petróleos Mexicanos and Subsidiary Entities must pay to the Mexican Government an excess gains tax, which for 2000 was equal to 39.2% on the portion of Petróleos Mexicanos and Subsidiary Entities' crude oil export sales revenues in excess of a threshold price of 15.00 U.S. dollars per barrel. Since the 2000 prices were higher than 15.00 U.S. dollars per barrel, Petróleos Mexicanos and Subsidiary Entities paid excess gains tax. For 2001, the excess gains tax applies to prices in excess of 18.00 U.S. dollars per barrel. Petróleos Mexicanos and Subsidiary Entities are not subject to Income Tax Law (Ley del Impuesto Sobre la Renta) or Asset Tax Law (Ley del Impuesto al Activo).

        The standardized measure provided below represents a comparative benchmark value rather than an estimate of expected future cash flows or fair market value of PEMEX's production rights. There are numerous uncertainties inherent in estimating quantities of proved reserves and in projecting future rates of production and timing of development expenditures, including many factors beyond the control of the producer. Accordingly, reserve estimates may be materially different from the quantities of crude oil and natural gas that are ultimately recovered.

F-84

Standardized measure of discounted net cash flows

	As of December 31
	2001			2000			1999
Future cash inflows	U.S.$	253,752,000		U.S.$	452,876,000		U.S.$	363,032,000
Future production costs (excluding taxes)		(42,101,000	)		(59,779,000	)		(51,613,000	)
Future development costs		(38,993,000	)		(47,456,000	)		(34,248,000	)
Future cash flows before tax		172,658,000			345,641,000			277,171,000
Future production-and-excess-gains taxes		(132,778,000	)		(293,732,000	)		(230,745,000	)
Future income taxes		—			—			—
Future net cash flows		39,880,000			51,909,000			46,426,000
Effect of discounting net cash flows at 10%		(19,496,000	)		(29,216,000	)		(28,011,000	)
Standardized measure of discounted future net cash flows	U.S.$	20,384,000		U.S.$	22,693,000		U.S.$	18,415,000

Note: Table amounts may not total due to rounding.

        Crude oil and natural gas prices have decreased approximately 54.9% and 33.0%, respectively, from December 2001 to August 2002. If the standardized measure at December 31, 2001 had been calculated using crude oil and natural gas prices at August 2002, the standardized measure would have approximated U.S. $45.6 billion.

        To comply with SFAS No. 69, the next table presents the aggregate standardized measure change for each year and significant sources of variance:

Changes in standardized measure of discounted net cash flows

		2001			2000			1999
Sales of oil and gas produced, net of production costs		U.S.$	(24,672,000	)	U.S.$	(29,919,000	)	U.S.$	(15,603,000	)
Net changes in prices and production costs			(83,212,000	)		42,006,000			103,191,000
Extensions and discoveries			130,000			1,060,000			2,876,000
Development cost incurred during the year			5,946,000			5,985,000			4,535,000
Changes in estimated development costs			(2,353,000	)		(11,645,000	)		(6,378,000	)
Reserves revisions, extensions, discoveries and timing changes			4,519,000			11,512,000			10,638,000
Accretion of discount of pre-tax net cash flows			16,437,000			13,476,000			3,921,000
Net changes in production-and excess-gains taxes			80,894,000			(28,196,000	)		(92,602,000	)
Other			—			—			—
Aggregate change in standardized measure		U.S.$	(2,310,000	)	U.S.$	4,278,000		U.S.$	10,579,000
Standardized measure
	As of January 1		22,693,000			18,415,000			7,836,000
	As of December 31		20,383,000			22,693,000			18,415,000
Change		U.S.$	(2,310,000	)	U.S.$	4,278,000		U.S.$	10,579,000

Note: Table amounts may not total due to rounding.

F-85

        In computing the amounts under each factor of change, the effects of variances in prices and costs are computed before the effects of changes in quantities. Consequently, changes in reserves are calculated at December prices and costs. The change in computed taxes includes taxes effectively incurred during the year and the change in future tax expense.

F-86

PETRÓLEOS MEXICANOS, SUBSIDIARY ENTITIES AND SUBSIDIARY COMPANIES

UNAUDITED SUPPLEMENTAL CONSOLIDATED FINANCIAL INFORMATION

PREPARED ON A PRICE-LEVEL ADJUSTED BASIS

For the Years Ended December 31, 2001, 2000 and 1999

General

        The unaudited supplementary consolidated price-level adjusted financial information included in the following pages has been prepared pursuant to Rule 3-20(c) of Regulation S-X promulgated by the United States Securities and Exchange Commission. For the years ended December 31, 2001, 2000 and 1999, Mexico was not considered a hyperinflationary economy. However, PEMEX has continued to provide supplemental price-level adjusted financial information for these subsequent years in lieu of adoption of Mexican GAAP Bulletin B-10.

        The supplemental financial information reflects all appropriate U.S. GAAP adjustments and, in the opinion of PEMEX management, all adjustments which are necessary for a fair presentation of the supplemental price-level adjusted financial information have been included herein. Unless otherwise noted, this financial information has been prepared in a manner consistent with the historical financial statements and should be read in conjunction with the audited consolidated financial statements and notes thereto presented herein, as of December 31, 2001 and 2000, and for the three years then ended.

F-87

PETRÓLEOS MEXICANOS, SUBSIDIARY ENTITIES AND SUBSIDIARY COMPANIES

UNAUDITED CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2001 AND 2000

(in thousands of constant pesos as of December 31, 2001)

			2001		2000
ASSETS
Current assets:
	Cash and cash equivalents		Ps.	14,488,435	Ps.	29,052,202
	Accounts, notes receivable and other, net			47,274,987		52,936,920
	Inventories, net			16,651,803		25,417,393
		Total current assets		78,415,225		107,406,515
Properties, net				419,107,363		408,908,289
Intangible asset derived from the actuarial computation of labor obligations and other assets				78,697,162		74,224,931
		Total assets	Ps.	576,219,750	Ps.	590,539,735
LIABILITIES
Current liabilities:
	Current portion of long-tem debt		Ps.	36,246,106	Ps.	42,238,598
	Other current liabilities			39,527,241		58,264,363
		Total current liabilities		75,773,347		100,502,961
Long-term debt				162,291,424		108,965,959
Sale of future accounts receivable				—		54,265,361
Reserve for retirement payments, pensions and indemnities, sundry creditors, and others				225,803,683		194,201,764
		Total liabilities		463,868,454		457,936,045
Minority interest				1,461,337		—
TOTAL EQUITY				110,889,959		132,603,690
		Total liabilities and equity	Ps.	576,219,750	Ps.	590,539,735

The accompanying notes are an integral part of this unaudited supplemental consolidated financial information.

F-88

PETRÓLEOS MEXICANOS, SUBSIDIARY ENTITIES AND SUBSIDIARY COMPANIES

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999

(In thousands of constant pesos as of December 31, 2001)

		2001			2000			1999
Net sales (1)		Ps.	357,214,592		Ps.	432,679,617		Ps.	292,848,996
Other revenues			15,210,500			10,356,891			8,612,076
Total revenues			372,425,092			443,036,508			301,461,072
Cost and operating expenses:
	Cost of sales		172,695,129			183,367,278			137,186,348
	Transportation and distribution expenses		14,584,643			14,425,103			13,548,829
	Administrative expenses		30,304,596			30,809,901			26,699,659
	Financial integral cost (income), net		(3,278,699	)		1,902,312			(3,636,675	)
	Other expenses		6,784,456			5,791,955			5,580,943
	Total costs and operating expenses		221,090,125			236,296,549			179,379,104
Income before hydrocarbon extraction duties and other			151,334,967			206,739,959			122,081,968
Hydrocarbon extraction duties and other			171,667,559			243,312,912			143,150,677
Cumulative effect of adoption of new financial instruments standard			3,791,269			—			—
Minority interest			(709,270	)		—			—
		Ps.	(17,250,593	)	Ps.	(36,572,953	)	Ps.	(21,068,709	)

(1)

As discussed in Note 19 II (a), under Mexican GAAP, the IEPS Tax is reflected in revenue when charged to customers and, at the same time, deducted from "Income before hydrocarbon extraction duties and other". Under U.S. GAAP, the IEPS Tax would have no effect on revenues nor would it be deducted from "Income before hydrocarbon extraction duties and other".

The accompanying notes are an integral part of this unaudited supplemental consolidated financial information.

F-89

PETRÓLEOS MEXICANOS, SUBSIDIARY ENTITIES AND SUBSIDIARY COMPANIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999

(In thousands of constant pesos as of December 31, 2001)

		2001			2000			1999
Operating Activities
Net loss		Ps.	(17,250,593	)	Ps.	(36,572,953	)	Ps.	(21,068,709	)
Adjustments to reconcile net loss to cash (used in) provided by operating activities:
	Depreciation and amortization		31,519,357			31,455,461			29,378,126
	Reserve for retirement payments, pensions and indemnization		40,991,295			38,938,803			35,766,087
	Impairment of fixed assets		(6,675,464	)		14,098,772			4,218,380
	Loss on disposal of fixed assets		8,704,192			14,437,041			6,368,144
	Allowance for uncollectible trade accounts		51,911			258,138			363,548
	Allowance for slow-moving inventory and obsolescence		(284,127	)		(173,400	)		165,750
	Minority interest		622,605			—			—
	Foreign exchange loss		(8,570,914	)		(500,295	)		(4,318,902	)
	Accounting for financial instruments		(7,759,320	)		—			—
	Gain from monetary position		(11,847,359	)		(8,919,186	)		(14,271,958	)
Changes in operating assets and liabilities:
	Accounts and notes receivable		7,415,151			(10,144,323	)		(24,768,975	)
	Inventories		7,972,037			(8,317,751	)		(4,755,693	)
	Other assets		(2,726,497	)		(2,293,709	)		(3,106,346	)
	Accounts payable and accrued liabilities		(29,313,112	)		11,768,546			24,778,762
	Sales of future accounts receivable		750,777			11,587,521			42,507,793
Cash flows provided by operating activities		Ps.	13,599,939		Ps.	55,622,665		Ps.	71,256,007

The accompanying notes are an integral part of this unaudited supplemental consolidated financial information.

F-90

PETRÓLEOS MEXICANOS, SUBSIDIARY ENTITIES AND SUBSIDIARY COMPANIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999

(In thousands of constant pesos as of December 31, 2001)

		2001			2000			1999
Investing Activities
	Loans granted to Pemex Finance	Ps.	—		Ps.	(7,231,124	)	Ps.	(6,339,698	)
	Acquisition of fixed assets		(47,530,126	)		(63,766,718	)		(46,628,132	)
Cash flows used in investing activities			(47,530,126	)		(70,997,842	)		(52,967,830	)
Financing Activities
	New long term financing		126,025,184			103,020,969			108,395,570
	Financing payments		(91,758,836	)		(70,221,469	)		(100,512,746	)
	Effect of consolidating Pemex Finance		849,627			—			—
	Dividends paid to the Mexican Government		(2,297,701	)		(6,303,155	)		(6,350,917	)
Cash flows provided by financing activities			32,818,274			26,496,345			1,531,907
Effects of inflation on cash and cash equivalents			(13,451,854	)		(9,355,733	)		(11,227,844	)
(Decrease) increase in cash and equivalents			(14,563,767	)		1,765,435			8,592,240
Cash and cash equivalents, beginning of period			29,052,202			27,286,767			18,694,527
Cash and cash equivalents, end of period		Ps.	14,488,435		Ps.	29,052,202		Ps.	27,286,767

The accompanying notes are an integral part of this unaudited supplemental consolidated financial information.

F-91

PETRÓLEOS MEXICANOS, SUBSIDIARY ENTITIES AND SUBSIDIARY COMPANIES

NOTES TO THE UNAUDITED SUPPLEMENTAL CONSOLIDATED FINANCIAL INFORMATION

PREPARED ON A PRICE-LEVEL ADJUSTED BASIS

For the Years Ended December 31, 2001, 2000 and 1999
(In thousands of constant pesos as of December 31, 2001)

1.    Effects of inflation on the financial information

        The following is the methodology utilized in preparing the price-level adjusted financial information.

a)

Effects of inflation on the financial information

        The consolidated supplemental financial information of PEMEX has been restated to recognize the effects of inflation and is expressed in thousands of pesos of constant purchasing power as of December 31, 2001, determined as follows:

•

The consolidated statement of operations (excluding depreciation and cost of sales which is described below) for the years ended December 31, 1999 and 2000 were restated applying the Mexican National Consumer Price Index ("NCPI") from the periods in which the transactions occurred to December 31, 2001. In accordance with U.S. GAAP, the "Net Sales" line item as presented excludes IEPS Tax, an amount which equaled Ps. 97,124,599, Ps. 75,482,448 and Ps. 104,976,512, for the years ended December 31, 2001, 2000 and 1999, respectively.



•

For comparability purposes, balance sheet information as of December 31, 2000 has been restated to pesos as of December 31, 2001 by utilizing the change in the NCPI from December 31, 2000 to December 31, 2001.



•

The NCPI factor used to recognize the effects of inflation were:

Year	Change in National Consumer Price Index
1999	12.3187	%
2000	8.9593	%
2001	4.4035	%

b)

The methodology used to restate financial statement items is as follows:

Restatement of non-monetary assets

Inventory and fixed assets

        Inventory and fixed assets are restated to replacement cost as set forth in Note 2 to the financial statements. Fixed assets were evaluated for impairment on this basis. Cost of sales is determined based on the replacement costs calculated from when inventories were sold. Depreciation is based upon the restated carrying value of the respective assets.

Equity

        Equity represents the combined historical movements in the amounts of the Certificates of Contribution "A", dividends and accumulated earnings, restated from their date of origin to December 31, 2001 using the change in the NCPI during such period.

F-92

        Accumulated deficit from holding non-monetary assets represents the excess or deficit resulting from restating non-monetary assets via the methods described in Note 2 to the financial statements and the NCPI.

Comprehensive cost of financing

        Monetary position gain represents the inflationary effect, as measured by the NCPI, on net balance of monetary assets and liabilities as expressed in constant pesos. The monetary gain related to the pension and other post retirement obligations that is attributable to the excess of the actual rate of inflation over the assumed rate of inflation included in the actuarial calculations has been deferred as part of the actuarial gain or loss.

        Foreign exchange gains or losses are recognized as incurred.

•

Cash flow information

        The price level adjusted cash flow has been prepared reflecting the impact of the U.S. GAAP adjustments. In accordance with the recommendation of the AICPA SEC Regulations Committee International Practices Task Force the effects of inflation on cash flows are presented separately.

        For the purposes of the cash flow, PEMEX considers all highly liquid temporary investments with original maturities of three months or less, to be cash equivalents.

        Supplemental disclosures of interest and taxes paid are as follows:

	2001		2000		1999
Interest paid (net of amounts capitalized)	Ps.	18,687,520	Ps.	20,831,854	Ps.	16,387,688
Taxes paid		288,679,019		301,177,068		220,873,820

        Supplemental disclosures of non-cash transactions are as follows:

	2001			2000			1999
Acquisition of fixed assets via contractor financing	Ps.	—		Ps	16,864,056		Ps.	—
Unrealized gains (losses) on available for sale securities		(1,240,660	)		(7,767,695	)		3,500,751
Additional minimum pension liability		7,267,261			12,693,304			8,389,688
Accounting for financial instruments		7,605,462			—			—

F-93

2.    Segment information

        The following segment information is prepared on a price level adjusted basis.

Year ended December 31:		Exploration and Production		Refining(1)		Gas and Basic Petrochemicals		Petrochemicals		Corporate and other		Intersegment Eliminations			Total
2001
Sales:
	Trade	Ps.	113,415,821	Ps.	244,069,822	Ps.	66,603,479	Ps.	9,196,254	Ps.	21,053,815	Ps.	—		Ps.	454,339,191
	Intersegment		156,950,286		8,966,080		28,073,315		2,851,186		183,508,301		(380,349,168	)		—
Total net sales		Ps.	270,366,107	Ps.	253,035,902	Ps.	94,676,794	Ps.	12,047,440	Ps.	204,562,116	Ps.	(380,349,168	)	Ps.	454,339,191
2000
Sales:
	Trade	Ps.	149,029,586	Ps.	249,665,424	Ps.	69,404,160	Ps.	13,221,174	Ps.	26,841,722	Ps.	—		Ps.	508,162,066
	Intersegment		189,768,438		10,417,765		28,104,987		2,948,565		240,882,596		(472,122,351	)		—
Total net sales		Ps.	338,798,024	Ps.	260,083,189	Ps.	97,509,147	Ps.	16,169,739	Ps.	267,724,318	Ps.	(472,122,351	)	Ps.	508,162,066
1999
Sales:
	Trade	Ps.	99,374,405	Ps.	222,647,064	Ps.	45,965,543	Ps.	12,007,200	Ps.	17,831,375	Ps.	—		Ps.	397,825,587
	Intersegment		109,648,239		7,960,424		16,514,324		2,293,449		164,570,532		(300,986,968	)		—
Total net sales		Ps.	209,022,644	Ps.	230,607,488	Ps.	62,479,867	Ps.	14,300,649	Ps.	182,401,907	Ps.	(300,986,968	)	Ps.	397,825,587

(1)

Net sales include IEPS Tax amounting to Ps. 97,124,599, Ps. 75,482,449 and Ps. 104,976,512 in 2001, 2000 and 1999, respectively.

3.    Financial integral result

        Financial integral result is analyzed as follows:

		2001			2000			1999
Exchange loss		Ps.	(8,570,874	)	Ps.	(500,295	)	Ps.	(3,642,818	)
Monetary position result			(11,847,359	)		(8,919,186	)		(14,271,961	)
Interest cost and other			17,139,534			11,321,793			14,278,104
	Total	Ps.	(3,278,699	)	Ps.	1,902,312		Ps.	(3,636,675	)

F-94

APPENDIX

Reports of Other Independent Accountants

F/A-1

Report of Independent Accountants

To the Board of Directors of
Integrated Trade Systems, Inc.:

In our opinion, the accompanying balance sheet and the related statements of operations, stockholder's equity and cash flows present fairly, in all material respects, the financial position of Integrated Trade Systems, Inc. (the "Company") as of December 31, 2000 and 1999, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America which require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.

/s/  PRICEWATERHOUSECOOPERS LLP PricewaterhouseCoopers LLP

March 23, 2001

F/A-2

REPORT OF THE INDEPENDENT ACCOUNTANT
(Translated from the original issued in Spanish)

Mexico City, March 30, 2001

To the Stockholders' Meeting of
P.M.I. Trading Limited Mexican Branch:

We have audited the accompanying balance sheets of P.M.I. Trading Limited Mexican Branch, as of December 31, 2000 and 1999, and the related statements of income and expenses, changes in equity and changes in financial position for the years then ended. These financial statements are the responsibility of the Branch's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement and are prepared in accordance with accounting principles generally accepted in Mexico. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statement. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

The Mexican Branch carries out its transactions in foreign currencies and its Parent Company is also located abroad. The accounting policies applied are described in Note 2 to the financial statements. In view of the foregoing, it is not required to recognize the impact of inflation in Mexico on these financial statements.

As mentioned in Notes 2.1 and 8 to the financial statements, starting January 1, 2000, the Branch adopted the guidelines of the new Bulletin D-4 "Accounting Treatment of Income Tax, Assets Tax and Employee Statutory Profit-Sharing".

In our opinion, the aforementioned financial statements, stated in Mexican pesos, present fairly, in all material respects, the assets, liabilities and equity accounts assigned (Note 1 to the financial statements) to P.M.I. Trading Limited Mexican Branch, as of December 31, 2000 and 1999, and the income and expenses, changes in equity and changes in financial position for the years then ended, in conformity with accounting principles generally accepted in Mexico.

PricewaterhouseCoopers

/s/  MANUEL GARCIA BRAÑA Manuel Garcia Braña
Public Accountant

F/A-3

Report of Independent Accountants

To the Board of Directors of
P.M.I. Holdings North America, Inc.

In our opinion, the accompanying balance sheet and the related statements of income, stockholder's equity and cash flows present fairly, in all material respects, the financial position of P.M.I. Holdings North America, Inc. as of December 31, 2000 and 1999, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America which require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.

Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedule of operating and general expenses for the years ended December 31, 2000 and 1999 on page 6 is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such supplemental information has been subjected to the auditing procedures applied in our audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.

/s/  PRICEWATERHOUSECOOPERS LLP PricewaterhouseCoopers LLP

February 2, 2001

F/A-4

To the Management and the
Shareholder of
P.M.I. Holdings N.V.
Curaçao

Auditor's report

We have audited the accompanying balance sheet of P.M.I. Holdings N.V., Curaçao, as at December 31, 2000 and the related statements of income, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with United States Generally Accepted Auditing Standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2000, and of the results of its operations and its cash flows for the year then ended in accordance with International Accounting Standards.

Curaçao, March 22, 2001

/s/  PRICEWATERHOUSECOOPERS PricewaterhouseCoopers

F/A-5

To the Management and the
Shareholder of
P.M.I. Holdings N.V.
Curaçao

Auditor's report

We have audited the accompanying balance sheet of P.M.I. Holdings N.V., Curaçao, as at December 31, 1999 and the related statements of income, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with United States Generally Accepted Auditing Standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 1999, and of the results of its operations and its cash flows for the year then ended in accordance with International Accounting Standards.

Curaçao, March 17, 2000

/s/  PRICEWATERHOUSECOOPERS PricewaterhouseCoopers

F/A-6

To the Board of Directors and the Shareholder of
P.M.I. Holdings B.V., Amsterdam

Auditors' report

Introduction

In accordance with your instructions we have audited the financial statements of P.M.I. Holdings B.V., Amsterdam, for the year ended December 31, 2000. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audit.

Scope

We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

Opinion

In our opinion, the financial statements give a true and fair view of the financial position of the company as at December 31, 2000 and of the result for the year then ended in accordance with accounting principles generally accepted in the Netherlands and comply with the financial reporting requirements included in part 2, Book 2 of the Netherlands Civil Code.

Amsterdam, April 17, 2001

/s/  PRICEWATERHOUSECOOPERS N.V. PricewaterhouseCoopers N.V.

F/A-7

To the Board of Directors and the Shareholder of
P.M.I. Holdings B.V., Amsterdam

Auditors' report

Introduction

In accordance with your instructions we have audited the financial statements of P.M.I. Holdings B.V., Amsterdam, for the year ended December 31, 1999. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audit.

Scope

We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

Opinion

In our opinion, the financial statements give a true and fair view of the financial position of the company as at December 31, 1999 and of the result for the year then ended in accordance with accounting principles generally accepted in the Netherlands and comply with the financial reporting requirements included in part 2, Book 2 of the Netherlands Civil Code.

Amsterdam, May 10, 2000

/s/  PRICEWATERHOUSECOOPERS N.V. PricewaterhouseCoopers N.V.

F/A-8

REPORT OF THE INDEPENDENT ACCOUNTANT
(Translated from the original issued in Spanish)

Mexico City, March 23, 2001

To the Stockholders' Meeting of
P.M.I. Norteamérica, S.A. de C.V.:

We have audited the accompanying balance sheets of P.M.I. Norteamérica, S.A. de C.V., as of December 31, 2000 and 1999, and the related statements of income, changes in stockholders' equity and changes in financial position for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement and are prepared in accordance with accounting principles generally accepted in Mexico. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statement. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

The Company carries out its transactions in foreign currencies and its activity is in the United States of America. The accounting policies applied are described in Note 2 to the financial statements. In view of the foregoing, it is not required to recognize the impact of inflation in Mexico on these financial statements.

As mentioned in Note 2g to the financial statements, starting January 1, 2000, the Company adopted the guidelines of the new Bulletin D-4 "Accounting Treatment of Income Tax, Assets Tax and Employee Statutory Profit-Sharing".

In our opinion, the aforementioned financial statements, stated in Mexican pesos, present fairly, in all material respects, the financial position of P.M.I. Norteamérica, S. A. de C. V., as of December 31, 2000 and 1999, and the results of its operations, changes in stockholders' equity and changes in financial position for the years then ended, in conformity with accounting principles generally accepted in Mexico.

PricewaterhouseCoopers

/s/  MANUEL GARCIA BRAÑA Manuel Garcia Braña
Public Accountant

F/A-9

REPORT OF THE INDEPENDENT ACCOUNTANT
(Translated from the original issued in Spanish)

Mexico City, March 5, 2001

To the Stockholders' Meeting of
P.M.I. Marine Limited Mexican Branch:

We have audited the accompanying balance sheets of P.M.I. Marine Limited Mexican Branch, as of December 31, 2000 and 1999, and the related statements of income and expenses, changes in equity and changes in financial position for the years then ended. These financial statements are the responsibility of the Branch's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement and are prepared in accordance with accounting principles generally accepted in Mexico. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statement. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

The Mexican Branch carries out its transactions in foreign currencies and its Parent Company is also located abroad. The accounting policies applied are described in Note 2 to the financial statements. In view of the foregoing, it is not required to recognize the impact of inflation in Mexico on these financial statements.

As mentioned in Notes 2g and 7 to the financial statements, starting January 1, 2000, the Branch adopted the guidelines of the new Bulletin D-4 "Accounting Treatment of Income Tax, Assets Tax and Employee Statutory Profit-Sharing".

In our opinion, the aforementioned financial statements, stated in Mexican pesos, present fairly, in all material respects, the assets, liabilities and equity accounts assigned (Note 1 to the financial statements) to P.M.I. Marine Limited Mexican Branch, as of December 31, 2000 and 1999, and the income and expenses, changes in equity and changes in financial position for the years then ended, in conformity with accounting principles generally accepted in Mexico.

PricewaterhouseCoopers

/s/  MANUEL GARCIA BRAÑA Manuel Garcia Braña
Public Accountant

F/A-10

To the Board of Directors and the Shareholder of
P.M.I. Services B.V., Amsterdam

Auditors' report

Introduction

In accordance with your instructions we have audited the financial statements of P.M.I. Services B.V., Amsterdam, for the year ended December 31, 2000. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audit.

Scope

We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

Opinion

In our opinion, the financial statements give a true and fair view of the financial position of the company as at December 31, 2000 and of the result for the year then ended in accordance with accounting principles generally accepted in the Netherlands and comply with the financial reporting requirements included in part 2, Book 2 of the Netherlands Civil Code.

Amsterdam, March 21, 2001

/s/  PRICEWATERHOUSECOOPERS N.V. PricewaterhouseCoopers N.V.

F/A-11

To the Board of Directors and the Shareholder of
P.M.I. Services B.V., Amsterdam

Auditors' report

Introduction

In accordance with your instructions we have audited the financial statements of P.M.I. Services B.V., Amsterdam, for the year ended December 31, 1999. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audit.

Scope

We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

Opinion

In our opinion, the financial statements give a true and fair view of the financial position of the company as at December 31, 1999 and of the result for the year then ended in accordance with accounting principles generally accepted in the Netherlands and comply with the financial reporting requirements included in part 2, Book 2 of the Netherlands Civil Code.

Amsterdam, March 28, 2000

/s/  PRICEWATERHOUSECOOPERS N.V. PricewaterhouseCoopers N.V.

F/A-12

Report of Independent Accountants

To the Board of Directors of
P.M.I. Services North America, Inc.

In our opinion, the accompanying balance sheet and the related statements of income, stockholder's equity and cash flows present fairly, in all material respects, the financial position of P.M.I. Services North America, Inc. as of December 31, 2000 and 1999, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America which require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.

Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedule of operating and general expenses for the years ended December 31, 2000 and 1999 on page 7 is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such supplemental information has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated in all material respects, in relation to the basic financial statements taken as a whole.

/s/  PRICEWATERHOUSECOOPERS LLP PricewaterhouseCoopers LLP

February 2, 2001

F/A-13

February 25, 2000

Auditors' Report

To the Shareholder of
Kot Insurance Company Ltd.

We have audited the balance sheet of Kot Insurance Company Ltd. as at December 31, 1999 and the statements of earnings and retained earnings and cash flows for the year then ended. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in Bermuda and Canada, which are substantially similar to auditing standards generally accepted in the United States of America. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

In our opinion, these financial statements present fairly, in all material respects, the financial position of the company as at December 31, 1999 and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in Bermuda and Canada.

/s/  PRICEWATERHOUSECOOPERS PricewaterhouseCoopers

Chartered Accountants

MAILING ADDRESS: PO BOX HM 1171, Hamilton, Bermuda HM EX.

A list of partners can be obtained from the above address

F/A-14

SIGNATURE

        Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant certifies that it meets all of the requirements for filing on Form 20-F and has duly caused this annual report to be signed on its behalf by the undersigned, thereunto duly authorized.

PETRÓLEOS MEXICANOS
By:	/s/  JUAN JOSÉ SUÁREZ COPPEL Name: Juan José Suárez Coppel Title: Chief Financial Officer

Date: December 2, 2002

CERTIFICATIONS

I, Raúl Muñoz Leos, certify that:

1.

I have reviewed this annual report on Form 20-F of Petróleos Mexicanos;



2.

Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; and



3.

Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report.

Date: December 2, 2002
By:
/s/  RAÚL MUÑOZ LEOS Name: Raúl Muñoz Leos
Title: Director General/Chief Executive Officer

CERTIFICATIONS

I, Juan José Suárez Coppel, certify that:

1.

I have reviewed this annual report on Form 20-F of Petróleos Mexicanos;



2.

Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; and



3.

Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report.

Date: December 2, 2002
By:
/s/  JUAN JOSÉ SUÁREZ COPPEL Name: Juan José Suárez Coppel
Title: Chief Financial Officer

PETRÓLEOS MEXICANOS, SUBSIDIARY ENTITIES
AND SUBSIDIARY COMPANIES

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AS OF JUNE 30, 2002 AND FOR THE SIX-MONTH PERIODS

ENDED JUNE 30, 2002 and 2001

F/B-1

PETRÓLEOS MEXICANOS, SUBSIDIARY ENTITIES AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2002 (unaudited) AND DECEMBER 31, 2001 (audited)

(In thousands of pesos and thousands of U.S. dollars)
(Notes 1 and 2)

				As of June 30,
										As of December 31, 2001
				2002			2002
ASSETS:
	Current assets:
		Cash and cash equivalents		US$	3,541,733		Ps.	35,264,330		Ps.	14,441,864
		Accounts, notes receivable and other, net (Note 3)			5,112,692			50,906,055			44,869,427
		Inventories, net (Note 4)			2,191,773			21,823,043			17,222,714
			Total current assets		10,846,198			107,993,428			76,534,005
	Properties and equipment, net (Note 5)				43,309,886			431,227,875			406,913,266
	Intangible asset derived from the actuarial computation of labor obligations and other assets				7,414,502			73,824,717			73,435,977
			Total assets	US$	61,570,586		Ps.	613,046,020		Ps.	556,883,248
LIABILITIES:
	Current liabilities:
		Current portion of long-term debt		US$	3,018,093		Ps.	30,050,544		Ps.	36,246,106
		Current portion of notes payable to contractors			146,517			1,458,839			1,256,395
		Suppliers			1,522,471			15,158,947			23,503,971
		Accounts payable and accrued expenses			982,188			9,779,453			8,426,580
		Taxes payable			2,009,426			20,007,456			2,515,370
			Total current liabilities		7,678,695			76,455,239			71,948,422
	Long-term debt				16,015,029			159,458,440			123,169,995
	Notes payable to contractors				1,359,268			13,533,960			13,644,370
	Sale of future accounts receivable				4,443,579			44,243,828			44,685,602
	Reserve for sundry creditors and others				802,766			7,992,980			7,537,122
	Reserve for retirement payments, pensions and seniority premiums				19,074,308			189,919,067			173,031,504
			Total long-term liabilities		41,694,950			415,148,275			362,068,593
			Total liabilities		49,373,645			491,603,514			434,017,015
	Commitments and contingencies (Note 10)
EQUITY:
	Certificates of Contribution "A"				1,026,682			10,222,463			10,222,463
	Specific oil-field exploration and depletion reserve				1,224,138			12,188,498			16,278,784
	Revaluation surplus				18,549,661			184,695,269			181,837,738
	Accumulated losses				(8,603,540	)		(85,663,724	)		(85,472,752	)
			Total equity		12,196,941			121,442,506			122,866,233
			Total liabilities and equity	US$	61,570,586		Ps.	613,046,020		Ps.	556,883,248

The accompanying notes are an integral part of these condensed consolidated financial statements.

F/B-2

PETRÓLEOS MEXICANOS, SUBSIDIARY ENTITIES AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2002 AND 2001 (unaudited)

(In thousands of pesos and thousands of U.S. dollars)
(Notes 1 and 2)

	For the six-month periods ended,
	2002			2002		2001
Net sales:
Domestic	US$	14,623,633		Ps. 145,604,588		Ps. 156,014,442
Export		7,737,468		77,040,425		71,039,865
		22,361,101		222,645,013		227,054,307
Foreign exchange (loss) gain, net		(140,914	)	(1,403,056	)	4,740,159
Other revenues		526,539		5,242,648		4,444,438
Total revenues		22,746,726		226,484,605		236,238,904
Costs and operating expenses:
Cost of sales		7,256,643		72,252,943		75,898,593
Transportation and distribution expenses		681,445		6,785,007		6,296,841
Administrative expenses		1,397,853		13,918,144		12,251,288
Interest, net		751,576		7,483,293		5,470,488
Other expenses		165,687		1,649,717		2,239,466
Total costs and operating expenses		10,253,204		102,089,104		102,156,676
Income before hydrocarbon extraction duties and other, special tax on production and services, and cumulative effect of adoption of new financial instruments standard		12,493,522		124,395,501		134,082,228
Hydrocarbon extraction duties and other		7,089,897		70,592,685		98,903,335
Special tax on production and services (IEPS Tax)		6,042,520		60,164,165		39,872,564
		13,132,417		130,756,850		138,775,899
Cumulative effect of adoption of new financial instruments standard (Note 2)		—		—		1,331,247
Net loss for the period	US$	(638,895	)	Ps. (6,361,349	)	Ps. (6,024,918	)

The accompanying notes are an integral part of these condensed consolidated financial statements.

F/B-3

PETRÓLEOS MEXICANOS, SUBSIDIARY ENTITIES AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (audited) and SIX-MONTH PERIOD ENDED JUNE 30, 2002 (unaudited)

(In thousands of pesos and thousands of U.S. dollars)
(Notes 1 and 2)

									Accumulated losses
				Specific oil-field exploration and depletion reserve
		Certificates of Contribution "A"
							Revaluation Surplus		From prior years			Net loss from Current period			Total
Balances at December 31, 1998		Ps.	10,222,463	Ps.	8,394,132		Ps.	145,704,773	Ps.	14,404,562			Ps.(11,587,990	)		Ps. 167,137,940
	Transfer to prior years' retained earnings		—		—			—		(11,587,990	)		11,587,990			—
	Minimum guaranteed dividends paid to the Mexican Government approved by the Board of Directors on August 3, 1999		—		—			—		(3,063,747	)		—			(3,063,747	)
	Dividends paid to the Mexican Government approved by the Board of Directors on August 3, 1999		—		—			—		(779,517	)		—			(779,517	)
	Comprehensive loss for the year		—		2,055,350			16,306,888		968,774			(21,156,771	)		(1,825,759	)
Balances at December 31, 1999			10,222,463		10,449,482			162,011,661		(57,918	)		(21,156,771	)		161,468,917
	Transfer to prior years' accumulated losses		—		—			—		(21,156,771	)		21,156,771			—
	Minimum guaranteed dividends paid to the Mexican Government approved by the Board of Directors on May 9, 2000		—		—			—		(5,137,889	)		—			(5,137,889	)
	Dividends paid to the Mexican Government approved by the Board of Directors on May 9, 2000		—		—			—		(231,074	)		—			(231,074	)
	Comprehensive loss for the year		—		2,241,993			12,042,509		(68,692	)		(19,710,392	)		(5,494,582	)
Balances at December 31, 2000			10,222,463		12,691,475			174,054,170		(26,652,344	)		(19,710,392	)		150,605,372
	Transfer to prior years' accumulated losses		—		—			—		(19,710,392	)		19,710,392			—
	Minimum guaranteed dividends paid to the Mexican Government approved by the Board of Directors on May 7, 2001		—		—			—		(5,563,799	)		—			(5,563,799	)
	Comprehensive loss for the year		—		3,587,309			7,783,568		544,370			(34,090,587	)		(22,175,340	)
Balances at December 31, 2001			10,222,463		16,278,784			181,837,738		(51,382,165	)		(34,090,587	)		122,866,233
	Transfer to prior years' accumulated losses		—		—			—		(34,090,587	)		34,090,587			—
	Minimum guaranteed dividends paid to the Mexican Government approved by the Board of Directors on April 24, 2002		—		—			—		(2,152,788	)		—			(2,152,788	)
	Transfer to prior years' accumulated losses from specific oil field exploration and depletion reserve, approved by the Board of Directors on April 24, 2002 (Note 11)		—		(8,222,385	)		—		8,222,385			—			—
	Comprehensive income for the period (Note 7)		—		4,132,099			2,857,531		100,780			(6,361,349	)		729,061
Balances at June 30, 2002		Ps.	10,222,463	Ps.	12,188,498		Ps.	184,695,269	Ps.	(79,302,375	)	Ps.	(6,361,349	)	Ps.	121,442,506
		US$	1,026,682		1,224,138			18,549,661		(7,964,645	)		(638,895	)		12,196,941

The accompanying notes are an integral part of these condensed consolidated financial statements.

F/B-4

PETRÓLEOS MEXICANOS, SUBSIDIARY ENTITIES AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
FINANCIAL POSITION
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2002 AND 2001 (unaudited)

(In thousands of pesos and thousands of U.S. dollars)
(Notes 1 and 2)

				For the six-month periods ended,
				2002			2002			2001
Funds provided by (used in):
Operating activities:
	Net loss for the period			US$	(638,895	)	Ps.	(6,361,349	)	Ps.	(6,024,918	)
		Charges to operations not requiring the use of funds:
			Depreciation and amortization		1,432,348			14,261,602			13,962,924
			Reserve for retirement payments, pensions and seniority premiums		1,864,787			18,567,309			16,925,013
			Specific oil-field exploration and depletion reserve		410,296			4,085,236			4,027,670
					3,068,536			30,552,798			28,890,689
Variances in:
	Accounts, notes receivable and other				(776,182	)		(7,728,285	)		7,980,227
	Inventories				(462,029	)		(4,600,329	)		6,143,216
	Intangible asset derived from the actuarial computation of labor obligations and other assets				130,857			1,302,917			434,426
	Suppliers				(838,123	)		(8,345,024	)		(15,218,952	)
	Accounts payable and accrued expenses				135,874			1,352,873			2,084,406
	Taxes payable				1,756,798			17,492,086			(11,648,111	)
	Reserve for sundry creditors and others				45,783			455,858			(282,239	)
	Reserve for retirement payments, pensions and seniority premiums				(168,703	)		(1,679,746	)		(345,003	)
	Exploration and well-drilling expenses charged to the specific oil-field exploration and depletion reserve				4,707			46,863			(2,978,626	)
	Funds provided by operating activities				2,897,518			28,850,011			15,060,033
Financing activities:
	Minimum guaranteed dividends paid to the Mexican Government				(216,213	)		(2,152,788	)		(5,563,799	)
	Other equity movements				10,122			100,780			123,629
	Notes payable to contractors				9,243			92,034			(847,059	)
	Debt				3,022,345			30,092,883			7,298,049
	Sale of future accounts receivable				(44,369	)		(441,774	)		(2,783,470	)
	Funds provided by (used in) financing activities				2,781,128			27,691,135			(1,772,650	)
Investing activities:
	Increase in fixed assets, net				(3,587,365	)		(35,718,680	)		(11,150,064	)
	Funds used in investing activities				(3,587,365	)		(35,718,680	)		(11,150,064	)
Net increase in cash and cash equivalents					2,091,281			20,822,466			2,137,319
Cash and cash equivalents at beginning of the period					1,450,452			14,441,864			27,826,846
Cash and cash equivalents at end of the period				US$	3,541,733		Ps.	35,264,330		Ps.	29,964,165

The accompanying notes are an integral part of these condensed consolidated financial statements.

F/B-5

PETRÓLEOS MEXICANOS, SUBSIDIARY ENTITIES AND SUBSIDIARY COMPANIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF
DECEMBER 31, 2001 (AUDITED) AND JUNE 30, 2002 (UNAUDITED) AND FOR THE SIX-MONTH
PERIODS ENDED JUNE 30, 2002 AND 2001 (UNAUDITED)
(Amounts expressed in thousands of pesos and thousands of U.S. dollars)

1.    Basis of presentation

        The interim condensed consolidated financial statements of Petróleos Mexicanos, the Subsidiary Entities and the Subsidiary Companies (collectively, "PEMEX"), as of June 30, 2002, and for the six-month periods ended June 30, 2002 and 2001, are unaudited. In the opinion of management, all adjustments (consisting principally of normal recurring adjustments) necessary for a fair presentation of the consolidated financial statements have been included herein. The results of interim periods are not necessarily indicative of results for the entire year.

        For the purposes of these interim unaudited condensed consolidated financial statements, certain information and disclosures, normally included in financial statements prepared in accordance with generally accepted accounting principles, have been condensed or omitted. These unaudited condensed consolidated statements should be read in conjunction with PEMEX's consolidated audited financial statements and notes thereto for the years ended December 31, 2001, 2000 and 1999.

2.    Significant accounting policies

        The principal accounting policies followed by PEMEX in the preparation of these consolidated financial statements are summarized below:

a)  Accounting basis for the preparation of financial information

        The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in Mexico ("Mexican GAAP") as issued by the Mexican Institute of Public Accountants ("MIPA"), and as to the recognition of inflation, in accordance with Financial Reporting Standard ("NIF") 06-BIS "A", Section A as issued by the Ministry of Finance and Public Credit ("SHCP") and by the General Comptroller's Office ("SECODAM").

b)  Change in accounting principle

        In February 2000, the MIPA issued Bulletin C-2, "Financial Instruments", which became effective on January 1, 2001. Bulletin C-2 provides guidance for recognizing, measuring and disclosing information about financial assets and financial liabilities, including accounting for derivative financial transactions. Bulletin C-2 requires that all financial instruments, with the exception of derivative financial instruments designated as hedges and held to maturity investments, be recorded on the balance sheet at their fair values and changes in their fair value be recognized in earnings of each period. With respect to derivative financial instruments accounted for as hedges, Bulletin C-2 requires that they be accounted for in the same manner as the items being hedged; held to maturity investments are recorded at amortized cost, subject to impairment evaluation. As a result of the adoption of this new accounting standard, as of January 1, 2001, PEMEX recognized a charge to earnings totaling Ps. 1,331,247.

c)  Convenience translation

        United States dollar ("U.S. dollar") amounts shown in the balance sheets, the statements of operations, the statements of changes in equity and the statements of changes in financial position have been included solely for the convenience of the reader. Such amounts are translated from pesos, as a

F/B-6

matter of arithmetic computation only, at an exchange rate of 9.9568 pesos per U.S. dollar, which is the June 30, 2002 exchange rate for the settlement of obligations in foreign currencies provided by Banco de México and the SHCP. These translations should not be construed as a representation that the peso amounts have been or could be converted into U.S. dollars at the foregoing rate or any other rate.

3.    Accounts, notes receivable and other

        Accounts, notes receivable and other amounts are as follows:

	As of June 30, 2002			As of December 31, 2001
Trade—domestic	Ps.	22,812,890		Ps.	19,757,188
Trade—foreign		5,994,495			4,707,899
Pemex Finance, Ltd.		7,223,750			6,576,272
Mexican Government advance payments on minimum guaranteed dividends		4,728,526			2,152,788
Other accounts receivable		11,197,990			12,933,575
Less: allowance for doubtful accounts		(1,051,596	)		(1,258,295	)
	Ps.	50,906,055		Ps.	44,869,427

4.    Inventories

        Inventories are as follows:

	As of June 30, 2002			As of December 31, 2001
Crude oil, refined products, derivatives and petrochemical products	Ps.	19,501,238		Ps.	14,018,513
Materials and supplies in stock		3,635,736			4,205,193
Materials and products in transit		483,903			981,580
Less: allowance for slow-moving inventory and obsolescence reserve		(1,797,834	)		(1,982,572	)
	Ps.	21,823,043		Ps.	17,222,714

F/B-7

5.    Property and equipment

        Property and equipment, net of accumulated depreciation and amortization, are as follows:

	As of June 30, 2002		As of December 31, 2001
Land	Ps.	35,497,880	Ps.	34,637,920
Buildings		14,772,633		14,863,887
Wells and field assets		64,614,160		65,994,431
Plants, furnishings and equipment		203,170,205		201,644,888
Offshore platforms		25,205,914		24,205,124
		343,260,792		341,346,250
Fixed assets pending disposition		286,419		287,950
Construction spares		190,628		223,142
Construction in progress		87,490,036		65,055,924
Total	Ps.	431,227,875	Ps.	406,913,266

        Depreciation and amortization expense recorded in operating expenses for the six-month periods ended June 30, 2002 and 2001 was Ps. 14,261,602 and Ps. 13,962,924, respectively, which includes Ps. 532,895 and Ps. 772,703, respectively, related to dismantlement and abandonment costs. Accumulated depreciation and amortization at June 30, 2002 and December 31, 2001 was Ps. 402,534,657 and Ps. 378,586,975, respectively.

6.    Debt

        As of June 30, 2002, PEMEX had Ps. 15,013,670 in lines of credit bearing various interest rates. As of June 30, 2002, the unused portion of the lines of credit was Ps. 5,066,978.

        During the six-month period ended June 30, 2002, PEMEX undertook the following financing activities:

a.

PEMEX obtained U.S. $95,672 (Ps. 952,587) of purchasing loans and project financing. The purchasing loans and project financing bear fixed interest rates of between 4.14% to 5.51% and LIBOR plus 0.065% to 0.50%. The amounts are repayable between 2003 and 2010.



b.

PEMEX obtained unsecured loans of U.S. $200,000 (Ps. 1,991,360) from Banco Santander Mexicano for U.S. $100,000 (Ps. 995,680) and Banco Nacional de Comercio Exterior, S.N.C. for U.S. $100,000 (Ps. 995,680). These loans bear interest at LIBOR plus 0.625% and 0.76% and are repayable between 2002 and 2003.



c.

PEMEX obtained trade loans for U.S. $125,000 (Ps. 1,244,600) granted by various export credit agencies. The applicable interest rate on the trade loans is LIBOR plus 0.625% to 0.65%. All the trade loans are repayable during 2003.



d.

U.S. $500,000 (Ps. 4,978,440) was received from the commercial paper program established by Pemex Capital, Inc. This program is repayable during 2003. During the six-month periods ended June 30, 2002, PEMEX repaid U.S. $525,000 (Ps. 5,227,320) of commercial paper. The commercial paper bears interest at the discount rate prevailing in the market.

F/B-8

        During the six-month period ended June 30, 2002, the Master Trust undertook the following financing activities:

a.

On January 7, 2002, the Master Trust issued U.S. $500,000 (Ps. 4,978,400) of Floating Rate Notes due 2005. The Notes were issued under the Master Trust's Medium-Term Note program, Series A, and are guaranteed by Petróleos Mexicanos.



b.

On February 1, 2002, the Master Trust issued U.S. $1,000,000 (Ps. 9,956,800) of 7.875% Notes due 2009. The Notes were issued under the Master Trust's Medium-Term Note program, Series A, and are guaranteed by Petróleos Mexicanos.



c.

On February 1, 2002, the Master Trust issued U.S. $500,000 (Ps. 4,978,400) of 8.625% Bonds due 2022. The bonds were issued under the Master Trust's Medium-Term Note program, Series A, and are guaranteed by Petróleos Mexicanos.



d.

At various dates during the six-month period ended June 30, 2002, the Master Trust obtained U.S. $524,192 (Ps. 5,219,274) and ¥13,962 (Ps. 1,173 million) in project financing from several financial institutions. The project financing bears fixed interest at rates between 4.14% and 5.04% and Yen Prime rate from 1.95% to 2.20% and at variable rates of LIBOR plus 0.08% and 0.90%. The project financing is payable between 2007 and 2013.

7.    Comprehensive income

        Comprehensive income is as follows:

	For the six-month periods ended June 30,
	2002			2001
Net loss for the period	Ps.	(6,361,349	)	Ps.	(6,024,918	)
Net effect of restatement in the period		2,857,531			4,910,360
Net increase in specific oil-field exploration and depletion reserve		4,132,099			2,498,828
Other equity movements(1)		100,780			123,629
Comprehensive income for the period	Ps.	729,061		Ps.	1,507,899

(1)

Represents primarily translation adjustments from non-Mexican subsidiaries.

F/B-9

8.    Foreign currency position

        PEMEX had the following assets and liabilities denominated in foreign currencies, which are stated in Pesos at the exchange rate prevailing at June 30, 2002 and December 31, 2001, respectively:

	Amount in foreign currency (Thousands)
	Assets	Liabilities	Long (short) position		Exchange rate	Amounts in pesos
June 30, 2002:
U.S. dollars	3,802,147	20,592,124	(16,789,977	)	9.9568		(167,174,443	)
Japanese yen	—	187,009,270	(187,009,270	)	0.08404		(15,716,259	)
Pounds sterling	—	51,921	(51,921	)	15.3036		(794,578	)
Euros	2,619	508,810	(506,191	)	9.9329		(5,027,945	)
Net-short position, before foreign-currency hedging						Ps.	(188,713,225	)
December 31, 2001:
U.S. dollars	2,693,204	13,967,347	(11,274,143	)	9.1423	Ps.	(103,071,598	)
Japanese yen	—	71,758,328	(71,758,328	)	0.0697		(5,001,555	)
Pounds sterling	—	165,377	(165,377	)	13.2600		(2,192,899	)
Austrian schillings	—	212	(212	)	0.5880		(125	)
Dutch guilders	40	—	40		3.6715		147
Euros	467	1,383,966	(1,383,499	)	8.0909		(11,193,752	)
Other currencies	various	various	Various		various		(4,686	)
Net-short position, before foreign-currency hedging						Ps.	(121,464,468	)

F/B-10

9.    Effects of inflation on the financial information

        The following table reflects the approximate effects of inflation on PEMEX's financial information in accordance with Bulletin B-10 (Restated amounts columns). The Basic Financial Statements column is prepared in accordance with NIF-06 BIS "A", Section A.

		Effect on balance sheets
		As of June 30, 2002				As of December 31, 2001
		NIF-06 BIS "A" Basic financial statements		Bulletin B-10 Restated amounts
Equity:
Certificates of Contribution "A"		10,222,463		10,222,463		10,222,463
Specific oil-field exploration and depletion reserve		12,188,498		12,188,498		16,278,784
Revaluation surplus		184,695,269
Retained earnings (losses)		(85,663,724	)	(78,144,570	)	(71,290,571	)
Restatement of equity				669,935,258		653,837,966
Deficiency from the restatement of equity:
	Loss on accumulated monetary position	—		(79,620,395	)	(77,577,999	)
	Equity monetary result	—		9,027,833		8,796,254
	Accumulated deficit from holding non-monetary assets	—		(422,166,581	)	(417,400,664	)
		121,442,506		121,442,506		122,866,233

		Effect on statements of income
		For the six-month periods ended June 30,
		2002			2001
Comprehensive cost of financing:
	Interest expense and exchange loss capitalized in fixed assets	Ps.	(6,464,559	)	Ps.	(3,779,541	)
	Monetary position gain, net		8,124,697			11,847,359
		Ps.	1,660,138		Ps.	8,067,818

10.  Commitments and contingencies

a.

PEMEX is involved in various lawsuits filed against it by dismissed personnel. If any of these lawsuits were resolved in favor of the dismissed personnel, there would be a charge to operations in the year in which the payment is made. Management does not believe that the ultimate outcome of these events will have a material effect on its financial position or results of operations.



b.

PEMEX is subject to the Ley General de Equilibrio Ecológico y Protección al Ambiente (the General Law on Ecology and Protection of the Environment, or the "Environmental Law"). To comply with this law, PEMEX has contracted environmental audits for its larger operating, storage and transportation facilities. To date, audits of refineries, secondary petrochemical plants and certain other facilities have been concluded. Following the completion of such audits, PEMEX signed various agreements with the Procuraduría Federal de Protección al Ambiente (the Federal Attorney of Environmental Protection, or "PROFEPA") to implement environmental remedy and improvement plans. Such plans consider remedy for environmental damages previously caused, as well as related investments for the improvement of equipment, maintenance, labor and materials.

F/B-11

PEMEX has recorded obligations for environmental remediation as of June 30, 2002 and December 31, 2001 of Ps. 2,223,953 and Ps. 2,316,175, respectively. These liabilities are included in the "Reserve for sundry creditors and others".

c.

A trust agreement has been formed between Pemex-Gas and Basic Petrochemicals as beneficiary, Distribuidora de Gas de Querétaro, S.A. de C.V.; DGN de la Laguna Durango, S. de R.L. de C.V.; DGN de Chihuahua, S. de R.L. de C.V.; Repsol México, S.A. de C.V. (now Gas Natural de México, S.A. de C.V.); Gas Natural del Río Pánuco, S.de R.L. de C.V.; Tamauligas, S.A. de C.V.; NATGASMEX, S.A. de C.V.; Consorcio Mexigas, S.A. de C.V.; Comercializadora Metrogas, S.A. de C.V. (formerly DIGANAMEX, S.A. de C.V.) and Distribuidora de Gas Natural de Jalisco, S.A. de C.V., as trustees, and the Banco Nacional de Obras y Servicios Públicos, S.N.C. (National Bank of Public Works and Services, S.N.C.) as trust administrator. Pursuant to this agreement, Pemex-Gas and Basic Petrochemicals is obligated to transfer the right to the use of assets associated with natural gas distribution from Pemex-Gas and Basic Petrochemicals to the trustees and, in return, the trustees are obligated to deposit in the trust a payment for the right of use of the transferred assets. This payment was approximately Ps. 332,799 at June 30, 2002 and at December 31,2001. The trust administrator is obligated to transfer the ownership of the assets to the trustees once the title and control of the assets has been formalized and properly accredited into the name of the trustees.



d.

PEMEX, through its subsidiaries PMI and PMI-NASA, has executed several long-term purchase and sale contracts for Maya crude oil with various refineries. These contracts oblige the buyers to construct conversion units (coking/catalyst conversion units) that permit the optimization of yields from the refining process of Maya crude. PMI, in its role, principally has the obligation to assign Maya crude oil once the new investments have been completed.

        The contracts which have been signed to date include:

(i)

An agreement with Clark Refining and Marketing Inc. (now Port Arthur Coker Company), signed in March 1998 for delivery of crude oil to its refinery in Port Arthur, Texas, U.S.A. The contract is for approximately 158,000 barrels per day of Maya crude oil to be delivered for a period of seven years following project completion, which occurred in April 2001.



(ii)

An agreement with Coastal Aruba Refining Company N.V., signed in July 1998, for delivery of crude oil to its refinery in Lagoweg, Aruba. The contract is for approximately 100,000 barrels per day of Maya crude oil to be delivered for a period of five years following project completion, which occurred in April 2000.



(iii)

An agreement with Exxon Company U.S.A. and Exxon Trading Company International, signed in September 1998 for delivery of crude oil to its refinery in Baytown, Texas, U.S.A. The contract is for approximately 65,000 barrels per day of Maya crude oil to be delivered for a period of five years following project completion, which occurred in December 2001.



(iv)

In May 1999, an agreement, signed with Pecten Trading Company, which is a trading subsidiary of Shell Oil Company and PMI-NASA to expand the refinery at Deer Park Refining Limited Partnership by increasing its total processing capacity from 280,000 barrels per day to 340,000 barrels per day; the project was completed in April 2001. The increased requirements for heavy crude are satisfied through an increase in the supply of Maya crude oil from PMI, which increased its existing agreements with Pecten and PMI-NASA from 140,000 barrels per day to 200,000 barrels per day, 50,000 barrels per day of the additional contractual quantity are contracted under terms similar to the other agreements mentioned in this section.

F/B-12

(v)

An agreement with Marathon Ashland Supply LLC, signed in May 1999 to supply its Garyville, Louisiana, U.S.A. refinery with approximately 90,000 barrels per day, which by today has been increased to up to 100,000 barrels per day, of Maya crude oil for a period of five years following project completion, which occurred in December 2001.



(vi)

An agreement with Valero Marketing & Supply Company and Valero Refining-Texas, L.P., signed in December 2001 to supply its Texas City, Texas, U.S.A. refinery with approximately 90,000 barrels per day of Maya crude oil for a period of five years following project completion, which is scheduled to occur on or before October 1, 2003.



(vii)

An agreement with Chevron Products Company, signed in March 2002 to supply its Pascagoula, Mississippi, U.S.A. refinery with approximately 130,000 barrels per day of Maya crude oil for a period of five years following project completion, which is scheduled to occur in April 2003.




e.

At June 30, 2002, PEMEX is involved in various civil, labor, tax and administrative lawsuits with a total claim amount of Ps. 12,049,780. At June 30, 2002 and December 31, 2001, PEMEX has accrued Ps. 961,695, related to those contingencies for which management believes that the outcome will be unfavorable. The most important lawsuits are as follows:



(i)

PEMEX presently faces claims in courts, filed by service providers for damages amounting to U.S. $497,300 (Ps. 4,951,517). Those legal proceedings have recently begun and PEMEX believes that to date it is not necessary to create any provision.



(ii)

PEMEX has been sued by a supplier for late and non-payment of billings and other items for a total of U.S. $79,276 (Ps. 789,335). Based on an analysis of the documentation presented by the supplier, PEMEX recognized a liability of U.S. $4,576 (Ps. 45,562). In addition, PEMEX will file suit against the supplier for U.S. $4,949 (Ps. 49,276) for unsatisfactory work. At the present time, documentary evidence is now in the process of being presented to the court.



(iii)

The Comisión Federal de Competencia ("Federal Competition Commission") handed down a resolution against PEMEX for presumed monopolistic policies relative to exclusivity clauses for the sale of lubricants, grease and oil.

The resolution established the following measures:

•

The payment of a fine in the amount of Ps. 17,055;



•

Amendment of the joint venture agreements, use of trademark license contract, franchise supply contract, as well as documents containing the exclusivity clause;



•

Amendment of contracts with franchise service stations to adjust franchise and supply contracts; and



•

Report the resolution handed down by the Federal Competition Commission to the legal representatives of service stations.

To date, PEMEX has filed two appeals for constitutional relief from this resolution. Both appeals were resolved favorably in the first instance; however one of them is still subject to be challenged through an appeal for review.

f.

PEMEX has a nitrogen supply contract for the pressure maintenance program for the Cantarell field that expires in 2015. At June 30, 2002 and December 31, 2001, the value of the nitrogen to be supplied during the term of the contract is approximately Ps. 20,846,960 and Ps. 22,015,737, respectively. In the event of the annulment of the contract for causes

F/B-13

attributable to PEMEX, PEMEX would be required to purchase the nitrogen production plant from the supplier for Ps. 7,331,192.

g.

PEMEX sold 13,679,704 shares of Repsol and simultaneously contracted an equity swap on such shares with an international financial institution. The agreement contains a mandatory re-purchase clause for the shares. The repurchase commitment is for U.S. $292,000.



h.

At June 30, 2002, PEMEX has entered into contracts with various contractors for an approximate amount of Ps. 58,079,877. These contracts are for the development of PIDIREGAS and, therefore, subject to standards required in NIF-09-A.



i.

In the normal course of business, PEMEX is named in a number of lawsuits of various natures. PEMEX evaluates the merit of each claim and assesses the likely outcome, accruing a contingent liability when an unfavorable decision is probable and the amount is reasonably estimable. PEMEX does not believe a materially unfavorable outcome is probable for any known or pending lawsuits or threatened litigation for which PEMEX has not made accruals.

11.  Specific Oil-Field Exploration and Depletion Reserve Reclass

        On April 24, 2002, the Board of Directors approved a transfer of Ps. 8,222,385 from the specific oil field exploration and depletion equity reserve to the accumulated losses from prior years equity account.

12.  Differences between Mexican GAAP and U.S. GAAP

        A summary of the significant differences between the accounting principles followed by PEMEX and generally accepted accounting principles in the United States ("U.S. GAAP") is presented below.

        The accompanying consolidated financial statements have been prepared in accordance with Mexican GAAP and, as to the recognition of inflation, in accordance with NIF-06-BIS "A", Section A, applicable to public-sector entities, which differs in certain significant respects from U.S. GAAP. Such differences involve methods for measuring the amounts shown in the consolidated financial statements, as well as additional disclosures required by U.S. GAAP.

F/B-14

I. Differences in measurement methods:

        The principal differences between Mexican GAAP and U.S. GAAP are disclosed below. Loss represents pre-tax loss, because PEMEX is not subject to Mexican income taxes, and is reconciled as follows:

		For the six-month periods ended June 30,
		2002			2001
Net loss for the period under Mexican GAAP		Ps.	(6,361,349	)	Ps.	(6,024,918	)
U.S. GAAP adjustments:
	Exploration and drilling costs (a)		2,871,606			1,918,757
	Pensions and seniority premiums (b)		(293,217	)		(131,738	)
	Post retirement benefits (c)		(4,544,375	)		(2,888,648	)
	Accrued vacation (d)		6,406			(16,802	)
	Fixed asset adjustments:
	• Depreciation (f)		5,775,111			5,566,325
	• Foreign currency exchange losses (g)		(3,819,050	)		—
	• Capitalization of interest, net (h)		651,242			405,285
	• Fixed asset impairment (i)		—			(6,092,887	)
	• Depreciation convention (j)		(65,838	)		(87,050	)
	Accounting for financial instruments:
	• Cumulative effect of adoption of new financial instruments standard (k)		—			5,122,515
	• Current period effect (k)		1,303,312			902,225
	Profit in inventory (l)		(323,602	)		(197,110	)
Total U.S. GAAP adjustments, net			1,561,595			4,500,872
Net loss for the period under U.S. GAAP		Ps.	(4,799,754	)	Ps.	(1,524,046	)

		For the six-month periods ended June 30,
		2002			2001
Components of U.S. GAAP net loss:
	Loss from continuing operations	Ps.	(4,799,754	)	Ps.	(6,646,561	)
	Cumulative effect of accounting change (k)		—			5,122,515
	Net loss for the period	Ps.	(4,799,754	)	Ps.	(1,524,046	)
Comprehensive loss under U.S. GAAP
Net loss for the period under U.S. GAAP:		Ps.	(4,799,754	)	Ps.	(1,524,046	)
Other comprehensive loss income:
	Derivative financial instruments		738,352			—
	Unrealized losses on securities (o)		(900,011	)		(207,064	)
	Translation adjustments and other movements in equity		92,769			123,629
	Other comprehensive (loss) income		(68,890	)		(83,435	)
Comprehensive loss		Ps.	(4,868,644	)	Ps.	(1,607,481	)

F/B-15

				As of June 30, 2002			As of December 31, 2001
Equity (deficit) is reconciled as follows:
Equity under Mexican GAAP				Ps.	121,442,506		Ps.	122,866,233
U. S. GAAP adjustments:
	Exploration and drilling costs (a)				14,620,778			15,881,285
	Pensions and seniority premiums (b)				(3,801,894	)		(3,508,677	)
	Post retirement benefits (c)				(30,165,520	)		(25,621,145	)
	Accrued vacation (d)				(457,350	)		(463,756	)
	Fixed asset adjustments:
	• Inflation accounting—fixed assets valuation (e)				(115,238,566	)		(112,381,035	)
	• Accumulated depreciation (f)				50,641,547			44,866,436
	• Foreign currency exchange losses (g)				(68,326,618	)		(64,507,568	)
	• Capitalization of interest, net (h)				(1,647,370	)		(2,298,612	)
	• Impairment (i)				(22,595,353	)		(22,595,353	)
	• Depreciation convention (j)				(2,529,758	)		(2,463,920	)
	Accounting for derivatives (k)				9,168,476			7,134,809
	Sale of shares of Repsol (m)				(361,150	)		(361,150	)
	Profit in inventory (l)				(894,513	)		(570,911	)
	Advanced payments on minimum guaranteed dividend (n)				(4,728,526	)		(2,152,788	)
	Available-for-sale investment securities (o)				2,945,603			3,845,614
Total U. S. GAAP adjustments, net					(173,370,214	)		(165,196,771	)
Deficit under U. S. GAAP				Ps.	(51,927,708	)	Ps.	(42,330,538	)
Changes in U.S. GAAP equity for the six-month periods ended June 30, 2002:
	Deficit at December 31, 2001						Ps.	(42,330,538	)
		Net loss for the period						(4,799,754	)
		Minimum guaranteed dividends						(4,728,526	)
		Other comprehensive income:
			Derivative financial instruments					738,352
			Unrealized losses on available-for-sale investment securities					(900,011	)
			Translation adjustment and other movements in equity					92,769
Deficit at June 30, 2002							Ps.	(51,927,708	)

F/B-16

Explanation of reconciling items:

(a)

Exploration and drilling costs

        Under Mexican GAAP, exploration and drilling costs are charged to the equity reserve for exploration and depletion of oil fields. Exploration and drilling costs related to successful oil wells are credited to the equity reserve and recorded as fixed assets. Cost of sales is recognized by recording a per-crude oil barrel quota charge in the statement of operations and recording a credit to the equity reserve.

        Under U.S. GAAP, costs of drilling exploratory wells and exploratory-type stratigraphic test wells are initially capitalized and are charged to expense if proved reserves are not discovered. Development costs, including the costs of drilling development wells and development-type stratigraphic test wells are capitalized. The capitalized costs of wells and related equipment are amortized on a units-of-production (UOP) basis, as the related oil and gas reserves are extracted. Costs of unproved properties are assessed periodically and a loss is recognized if the properties are determined to be impaired. PEMEX has accordingly adjusted the results of operations and equity to reflect the impact of U.S. GAAP on exploration and drilling costs; i.e., the Mexican GAAP operations charge related to the cost per barrel has been reversed, the equity account related to the specific oil field exploration and drilling reserve has been reversed to zero, and costs related to properties in the exploration and development phase have been capitalized in accordance with U.S. GAAP. The adjustment is net of the difference in amortization for capitalized amounts.

(b)

Pensions and seniority premiums

        Under Mexican GAAP, PEMEX follows the guidance in Bulletin D-3, "Labor Obligations," which establishes the procedures for measuring the expenses and liabilities for pension plans and seniority premiums. The primary differences between PEMEX's application of Bulletin D-3 and the U.S. GAAP guidance provided in Statement of Financial Accounting Standards ("SFAS") No. 87, "Employers Accounting for Pensions" ("SFAS 87") relate to actuarial assumptions and implementation dates. PEMEX adopted SFAS 87 effective January 1, 1989 and recorded a transition obligation on adoption which is being amortized over 15 years.

(c)

Post-retirement benefits

        Under Mexican GAAP, PEMEX accounts for supplemental payments under its Bulletin D-3 calculations. PEMEX, however, accounts for other health service benefits on a pay-as-you-go basis. Under U.S. GAAP, PEMEX follows the guidelines of SFAS No. 106, "Employers' Accounting for Post-Retirement Benefits Other Than Pensions," ("SFAS 106") in accounting for health service and other supplemental payments provided to retirees. SFAS 106 requires the accrual of the expected cost of providing such benefits to employees during the years that the employees render service.

(d)

Accrued vacation

        Under Mexican GAAP, vacation expense is recognized when the vacation is utilized by the employee. Under U.S. GAAP, vacation expense is accrued for when earned by the employee.

(e)

Inflation accounting

        As mentioned in Note 2 b) to the 2001 Financial Statements, PEMEX's consolidated financial statements recognize the effects of inflation pursuant to NIF-06-BIS "A", section A, which requires that non-monetary assets, including inventories of materials and supplies and fixed assets be restated to their net realizable value (in the case of inventories) or in the case of fixed assets, through appraisals made by independent appraisers or by using the specific price index; the difference is recorded as a revaluation surplus in equity.

F/B-17

        U.S. GAAP does not require the recognition of the effects of inflation on the consolidated financial statements. Since NIF-06-BIS "A", Section A is not deemed to be a comprehensive method of accounting for inflation, PEMEX has eliminated, retroactively to 1992, the effect of revaluation of fixed assets, inventories and costs of sales from the reconciliation of income and equity. PEMEX has not adjusted the depreciation effect of fixed asset revaluations prior to 1992 under NIF-06-BIS "A", Section A for the reconciliation of income and equity. For U.S. GAAP purposes, the 1992 balances became the historical basis of the fixed assets.

(f)

Fixed assets-depreciation

        Under Mexican GAAP, PEMEX depreciates the book value of its fixed assets which includes amounts capitalized for foreign exchange losses and restatements for inflation. Also, under Mexican GAAP the book value of the fixed assets does not include impairment charges. For U.S. GAAP purposes, PEMEX has reversed the depreciation expense attributable to restatements for inflation (adjustment (e)), foreign currency exchange losses (adjustment (g)) and impairment charges (adjustment (i)) which are included in the Mexican GAAP basis of the fixed assets.

(g)

Fixed assets-foreign currency exchange losses

        Under Mexican GAAP, exchange losses arising from debt are capitalized as part of fixed assets; any remaining net exchange differences are reflected in the statement of operations as either a debit to costs and operating expenses or a credit to revenues.

        Under U.S. GAAP, all exchange gains or losses have been recognized in results of operations in the reconciliation of income and equity. In addition, under U.S. GAAP, foreign currency transaction gains or losses would be reported as non-operating income or expenses. There were no foreign currency exchange losses capitalized for the six-month period ended June 30, 2001, primarily as a result of the appreciation of the peso against the U.S. dollar, and therefore, no adjustment has been recognized.

(h)

Fixed assets-capitalization of interest

        Under Mexican GAAP, interest is capitalized to property, plant and equipment based upon total interest cost incurred on loans allocated to construction projects, regardless of whether or not the amounts borrowed have been spent on such projects. Under U.S. GAAP, interest is capitalized based upon total interest incurred in proportion to additions to construction in progress. PEMEX has accordingly adjusted its results of operations and equity to reflect the U.S. GAAP requirements for capitalizing interest. The adjustment for capitalized interest is presented net of the effects of depreciation related to amounts previously capitalized for such assets.

(i)

Fixed asset impairment

        For U.S. GAAP purposes, beginning on January 1, 2002, PEMEX follows SFAS No.144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). For the six-month period ended June 30, 2001, Pemex followed SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"). SFAS 144 and 121 provide criteria for when and in what circumstances an impairment loss (write-down) should be recorded and the manner in which the write-down should be measured. An evaluation of impairment is undertaken whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. Under SFAS 144 and 121, the impairment criteria is met when the carrying value of assets exceeds the sum of expected future cash flows (undiscounted and without interest charges) of the related assets. The asset is written down to fair value, if available, or the present value of expected future cash flows. PEMEX measures impairment of its oil and gas producing assets based on the undiscounted estimated future cash flows associated with estimated proved reserves on a field by field basis.

F/B-18

        The reversal of the depreciation expense related to impairment charges for the year ended December 31, 2001 was reclassified to fixed-assets depreciation (adjustment (f)) to conform to the current period presentation.

(j)

Depreciation convention

        Under Mexican GAAP, PEMEX begins to depreciate assets the year after which they are placed in service. In accordance with U.S. GAAP, assets should be depreciated from the date placed in service or using a mid-year convention.

(k)

Accounting for derivatives

        SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"), as amended by SFAS 137 and SFAS 138 and as interpreted by the Derivative Implementation Group ("DIG"), was adopted by PEMEX effective as of January 1, 2001. SFAS 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities. SFAS 133 requires that an entity recognize all derivatives as either assets or liabilities in the consolidated balance sheet and measure those instruments at fair value. SFAS 133 prescribes requirements for designation and documentation of hedging relationships and ongoing assessments of effectiveness in order to qualify for hedge accounting. As a result, PEMEX recognized a cumulative effect credit to earnings of Ps. 3,791,269.

(l)

Profit in inventory

        Under Mexican GAAP, PEMEX values crude oil and derivatives for export at net realizable value with the difference between the net realizable value and cost recorded in earnings. In contrast, U.S. GAAP requires that inventories be recorded at net realizable value, but not to exceed cost. For U.S. GAAP purposes, PEMEX has eliminated the effect of profit in inventory and has increased such amount to the U.S. GAAP loss presented.

(m)

Sale of shares of Repsol

        Under Mexican GAAP, PEMEX recorded gains totalling Ps. 361,150 in prior years on the transfer of its Repsol shares to Chase and J.P. Morgan trusts. For U.S. GAAP purposes, the transfer of the shares does not meet the criteria for sale recognition and accordingly, the gain was reversed and the transfer of the shares was treated as a financing transaction. Therefore, under U.S. GAAP, the Repsol shares would be evaluated pursuant to SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS 115") and the liability equal to the notional amount resulting from these transactions would also be reflected on the balance sheet.

(n)

Advance payments on minimum guaranteed dividend

        Under Mexican GAAP, advance payments on the minimum guaranteed dividend owed to the Mexican Government, derived from the capitalization of debt, are recorded as an account receivable prior to formalization of the amount by the Board of Directors of PEMEX.

        Under U.S. GAAP, such receivable balances are considered as a reduction in equity. PEMEX has accordingly adjusted equity to reflect the minimum guaranteed dividend payment as a reduction in equity.

        The effective rate used to calculate the minimum guaranteed dividend is LIBOR plus 0.8125% (which was in a range from 2.71625% to 2.86% during the first six-month period of 2002 and from 3.4475% to 7.4626% for the year 2001).

(o)

Accounting for investment securities

F/B-19

        PEMEX follows SFAS 115 for U.S. GAAP purposes. PEMEX has classified its investment securities as "Available-for-Sale" and, accordingly, they are recorded at fair value with unrealized gains and losses excluded from the statement of operations and reported in other comprehensive income (loss). The fair value of the securities is determined by quoted market prices.

        Under Mexican GAAP, investment securities are carried at cost. The unrealized gain for U.S. GAAP purposes is largely explained by the appreciation of the underlying security price.

II.    Additional disclosure requirements:

(a)

Consolidation of Pemex Finance

        PEMEX and certain subsidiaries entered into several agreements with Pemex Finance. Under these contracts, Pemex Finance purchases certain accounts receivable and rights to future receivables. Pemex Finance obtains resources for such purchases through the placement of debt instruments in the international markets.

        In conjunction with the adoption of SFAS No. 140, "Accounting for the Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," which serves as a replacement of SFAS No. 125, PEMEX has evaluated the Pemex Finance structure in light of the permitted and non-permitted activities as well as the transition provisions of a Qualified Special Purpose Entity ("QSPE") and determined that Pemex Finance does not qualify as a QSPE under the new standard. Consequently, as of June 30, 2002, the U.S. GAAP consolidated total assets would have increased by Ps. 2,511,640 and total liabilities would have increased by Ps. 501,325. Had Pemex Finance been consolidated, there would not have been any effect on equity or net income.

(b)

Special Tax on Production and Services

        Under Mexican GAAP, the IEPS is reflected as part of "Net domestic sales" when charged to customers and then deducted from "Income before hydrocarbon extraction duties, special tax on production and services and other."

        Under U.S. GAAP, this tax would have no net effect on revenues nor would it be deducted after "Income before hydrocarbon extraction duties, special tax on production and services and other," as both the amount charged to customers and the amount accrued as payable to the tax authorities would be reflected within revenues.

        As a result, under U.S. GAAP, revenues would have been less than those reflected under Mexican GAAP by Ps. 60,164,165 and Ps. 39,872,564, for the six-month periods ended June 30, 2002 and 2001, respectively. Additionally those amounts would not have been deducted after "Income before hydrocarbon extraction duties, special tax on production and services and other."

(c)

Cash flow information

        Under Mexican GAAP, PEMEX presents statements of changes in financial position. In contrast with the statements of cash flows required by U.S. GAAP, PEMEX's statements of changes in financial position do not include certain information relating to the three major categories of sources and uses of funds: operating, financing and investing activities.

        Under U.S. GAAP, the following information would be disclosed separately in reconciling the loss for the year to funds provided by operations: changes in hydrocarbon extraction duties, changes in allowances for doubtful accounts and slow-moving inventories, net exchange gains or losses and accrued interest income from affiliates. Additionally, under U.S. GAAP, borrowings and repayments of debt would be presented separately in arriving at funds from financing activities, and investments in and the proceeds from the sale of property, wells, plants and transportation equipment would be presented separately in arriving at funds from investment activities. In the statements of changes in financial

F/B-20

position, PEMEX has disclosed information within the financing and investment categories on a net basis.

        The following table details the effects discussed above using Mexican GAAP measurement methods and U.S. GAAP presentation:

	For the six periods ended June 30,
	2002			2001
Cash flows from operating activities:
Net loss for the period plus or less charges or credits not requiring the use of cash:
Following U.S. GAAP presentation	Ps.	30,382,480		Ps.	27,892,425
Difference(1)		170,318			998,264
Under Mexican GAAP		30,552,798			28,890,689
Increase (decrease) in assets and liabilities:
Following U.S. GAAP presentation		(3,982,791	)		(9,040,638	)
Differences:
Accounts receivable(2)		2,008,885			(4,248,589	)
Inventory(1)		(184,739	)		(259,190	)
Sundry credits reserve(1)		455,858			(282,239	)
Under Mexican GAAP		(1,702,787	)		(13,830,656	)
Cash flows provided by operating activities:
Following U.S. GAAP presentation		26,399,689			18,851,787
Differences		2,450,322			(3,791,754	)
Under Mexican GAAP	Ps.	28,850,011		Ps.	15,060,033

F/B-21

			For the six-month periods ended June 30,
			2002			2001
Cash flows from financing activities:
	New long-term financing		Ps.	35,542,629		Ps.	46,506,077
	Financing payments			(23,481,598	)		(29,968,437	)
	Dividends paid to the Mexican Government			(4,728,526	)		(1,330,892	)
	Sale of future accounts receivable			(441,774	)		(2,783,470	)
		Net increase in financing following U.S. GAAP presentation		6,890,731			12,423,278
Difference:
	Other equity movements			100,780			123,629
	Foreign currency exchange (gain) loss			17,307,750			(9,699,656	)
	Interest accrued, not paid			724,102			460,065
	Dividends paid to the Mexican Government(3)			2,575,738			(4,232,907	)
	Notes payable to contractors			92,034			(847,059	)
		Net increase (decrease) in financing under Mexican GAAP	Ps.	27,691,135		Ps.	(1,772,650	)
Cash flows from investing activities:
	Acquisition of fixed assets		Ps.	(32,945,105	)	Ps.	(11,422,488	)
	Disposal of fixed assets(4)			1,045,475			272,424
Net investment at cost in property, wells, plants and transportation equipment under U.S. GAAP				(31,899,630	)		(11,150,064	)
Capitalized exchange loss				(3,819,050	)		—
Net investment at cost in property, wells, plants and transportation equipment under Mexican GAAP (including capitalized exchange loss and interest)			Ps.	(35,718,680	)	Ps.	(11,150,064	)
	Supplemental cash flow information:
		Cash payments for taxes	Ps.	113,856,950		Ps.	152,165,282
		Cash payments for interest, net of amount Capitalized		11,150,191			9,093,053

(1)

The items that are excluded from the determination of cash flows under SFAS 95 are the provision for both doubtful accounts and obsolete inventories.

(2)

The difference is due to the effects of the advanced payments on minimum guaranteed dividend and the foreign currency translation gain on accounts receivable.

(3)

The difference is because for Mexican GAAP purposes, the dividends to the Mexican Government are those approved by the Board of Directors of Petróleos Mexicanos in a given year whereas for U.S. GAAP purposes, such dividends are the amount paid in that year.

(4)

Disposal of fixed assets did not generate material cash flow.

(d)    Business segment information

        PEMEX's primary business is the exploration for, and production of, crude oil and natural gas, and the refining and marketing of petroleum products conducted through four business segments: Pemex-Exploration and Production, Pemex-Refining, Pemex-Gas and Basic Petrochemicals, and Pemex-

F/B-22

Petrochemicals. Management makes decisions related to the operations of the consolidated business along these four strategic lines.

		Exploration and Production		Refining			Gas and Basic Petrochemicals		Petrochemicals			Corporate and Other			Intersegment Eliminations			Total
Six-month period ended June 30, 2002
Sales:
	Trade	Ps.	55,058,389	Ps.	120,879,143		Ps.	26,525,722	Ps.	3,829,059		Ps.	16,352,700		Ps.	—		Ps.	222,645,013
	Intersegment		64,239,782		3,481,857			8,560,174		1,240,668			89,237,651			(166,760,132	)		—
Total net sales			119,298,171		124,361,000			35,085,896		5,069,727			105,590,351			(166,760,132	)		222,645,013
Net income (loss) for the period			11,945,309		(13,772,829	)		682,217		(4,246,809	)		(5,641,514	)		4,672,277			(6,361,349	)
Total assets			315,632,222		203,775,545			56,313,286		35,097,574			511,459,089			(509,231,696	)		613,046,020
Six-month period ended June 30, 2001
Sales:
	Trade	Ps.	58,980,558	Ps.	118,456,974		Ps.	38,072,250	Ps.	5,128,180		Ps.	6,416,345		Ps.	–		Ps.	227,054,307
	Intersegment		88,304,942		5,048,667			18,921,787		1,521,267			102,220,550			(216,017,213	)		—
Total net sales			147,285,500		123,505,641			56,994,037		6,649,447			108,636,895			(216,017,213	)		227,054,307
Net income (loss) for the period			6,709,718		(10,042,831	)		1,147,120		(5,490,831	)		(7,367,281	)		9,019,187			(6,024,918	)
Total assets			281,881,325		186,459,493			52,170,149		24,793,031			443,692,472			(435,851,997	)		553,144,473

(e)    Recently issued accounting standards

        In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 141, "Business Combinations" ("SFAS 141"), which supersedes APB Opinion No. 16, "Business Combinations," and amends or supersedes a number of related interpretations of APB 16. The statement is effective for all business combinations initiated after June 30, 2001 and for all business combinations accounted for by the purchase method that are completed after June 30, 2001. SFAS 141 addresses financial accounting and reporting for business combinations, eliminates the pooling-of-interests method of accounting for business combinations, and prescribes the initial recognition and measurement of goodwill and other intangible assets, accounting for negative goodwill and the required disclosures in respects of business combinations. The adoption of SFAS 141 did not have a material impact on the consolidated financial statements.

        Also in July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"), which supersedes APB Opinion No. 17, "Intangible Assets." SFAS 142 addresses how intangible assets that are acquired individually or with a group of other assets (but not those acquired in a business acquisition) should be accounted for in financial statements upon their acquisition. SFAS 142 also addresses how goodwill and other intangible assets should be accounted for after they have been initially recognized in the financial statements. The provisions of SFAS 142 are required to be applied starting with fiscal years beginning after December 15, 2001. SFAS 142 is required to be applied at the beginning of an entity's fiscal year and to be applied to all goodwill and other intangible assets recognized in its financial statements at that date. The adoption of SFAS 142 did not have a material impact on the consolidated financial statements.

        In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations" ("SFAS 143"). SFAS 143 requires the recognition of a liability for the legal obligations associated with the retirement of a tangible long-lived asset that results from the acquisition, construction and/or normal operation of the asset. The liability is recognized at fair value in the period in which it is

F/B-23

incurred if a reasonable estimate of fair value can be made. A corresponding asset retirement cost is added to the carrying value of the long-lived asset and is depreciated to expense using a systematic and rational method over its useful life. SFAS 143 is effective for fiscal years beginning after June 15, 2002. Upon initial adoption, a liability is recognized for existing asset retirement obligations and the associated asset retirement cost is capitalized as an increase to the carrying value of the asset. The recognized liability and asset are adjusted for cumulative accretion and accumulated depreciation, respectively, from the time period when the asset retirement obligation would have originally been recognized had this statement been in effect to the date of initial adoption. Management is currently evaluating the impact that the adoption of SFAS No. 143 will have on the consolidated financial statements.

        In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS 144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" and the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations—Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions." SFAS 144 retains the fundamental provisions of SFAS 121 for recognition and measurement of the impairment of long-lived assets to be held and used, but resolves a number of implementation issues and establishes a single accounting model for assets to be disposed of. SFAS 144 also retains the requirements to report discontinued operations separately from continuing operations and extends that reporting to a component of an entity that either has been disposed of by sale, abandonment or distribution to owners or is classified as held for sale. The provisions of SFAS 144 are effective for financial statements issued for fiscal years beginning after December 15, 2001 and their interim periods. The provisions of SFAS 144 for long-lived assets to be disposed of by sale or otherwise are effective for disposal activities initiated after the effective date of SFAS 144 or after its initial application. The adoption of SFAS 144 did not have a material impact on the consolidated financial statements.

        In April 2002, the FASB issued SFAS No. 145, "Rescission of SFAS Nos. 4, 44, and 64, Amendment of SFAS No. 13, and Technical Corrections as of April 2002." SFAS No. 145 rescinds SFAS No. 4, "Reporting Gains and Losses from Extinguishment of Debt," SFAS No. 44, "Accounting for Intangible Assets of Motor Carriers," and SFAS No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements." As a result, gains and losses from extinguishment of debt will no longer be classified as extraordinary items unless they meet the criteria of unusual or infrequent as described in Accounting Principles Boards Opinion 30, "Reporting the Results of Operations—Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions." In addition, SFAS No. 145 amends SFAS No. 13, "Accounting for Leases," to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. SFAS No. 145 also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. SFAS No. 145 is effective for fiscal years beginning after May 15, 2002. Management does not expect the adoption of SFAS No. 145 to have a significant impact on the consolidated financial statements.

        In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS No. 146"). The issuance of SFAS No. 146 nullifies the former guidance provided by the Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring" ("EITF 94-3"). SFAS No. 146 requires the recognition of a liability for costs associated with exit or disposal activity when the liability is incurred, rather than on the date commitment to an exit or disposal plan. SFAS No. 146 is effective for liabilities, related to exit or

F/B-24

disposal activities, which are incurred after December 31, 2002, while earlier application is encouraged. Management is currently evaluating the impact that the adoption of SFAS No. 146 will have on the consolidated financial statements.

        In November 2002, the FASB issued Interpretation No. 45 ("FIN 45"), "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (an interpretation of FASB Statements No. 5, 57, and 107 and rescission of Interpretation No. 34)." FIN 45 clarifies the requirements of SFAS No. 5, "Accounting for Contingencies, relating to a guarantor's accounting for, and disclosure of, the issuance of certain types of guarantees. FIN 45 requires that upon issuance of a guarantee, the guarantor must recognize a liability for the fair value of the obligation it assumes under that guarantee. FIN 45's provisions for initial recognition and measurement should be applied on a prospective basis to guarantees issued or modified after December 31, 2002, irrespective of the guarantor's fiscal year-end. The guarantor's previous accounting for guarantees that were issued before the date of FIN 45's initial application may not be revised or restated to reflect the effect of the recognition and measurement provisions of the Interpretation. The disclosure requirements are effective for financial statements of both interim and annual periods that end after December 15, 2002. Management is currently evaluating the impact that the adoption of FIN 45 will have on the consolidated financial statements.

        In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities, an interpretation of ARB 51." The primary objectives of FIN 46 are to provide guidance on the identification of entities for which control is achieved through means other than through voting rights ("variable interest entities" or "VIEs") and how to determine when and which business enterprise should consolidate the VIE (the "primary beneficiary"). This new model for consolidation applies to an entity which either (1) the equity investors (if any) do not have a controlling financial interest or (2) the equity investment at risk is insufficient to finance that entity's activities without receiving additional subordinated financial support from other parties. In addition, FIN 46 requires that both the primary beneficiary and all other enterprises with a significant variable interest in a VIE make additional disclosures. FIN 46 applies immediately to variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. It applies in the first fiscal year or interim period beginning after June 15, 2003, to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. FIN 46 applies to public enterprises as of the beginning of the applicable interim or annual period, and it applies to nonpublic enterprises as of the end of the applicable annual period. Management is currently evaluating the impact that the adoption of FIN 46 will have on the consolidated financial statements.

F/B-25

SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
BALANCE SHEET
As of June 30, 2002

			Corporate			Subsidiary Guarantors		Non-Guarantor Subsidiaries			Eliminations			PEMEX Consolidated
ASSETS
Current assets:
	Cash and cash equivalents		Ps.	18,019,795		Ps.	1,842,975	Ps.	15,401,560		Ps.	—		Ps.	35,264,330
	Accounts, notes receivable and other, net			26,246,031			175,304,422		31,173,141			(181,817,539	)		50,906,055
	Inventories, net			322,167			19,426,753		2,264,751			(190,628	)		21,823,043
		Total current assets		44,587,993			196,574,150		48,839,452			(182,008,167	)		107,993,428
Long term debt receivable — intercompany				60,211,481			—		67,000,839			(127,212,320	)		—
Investments in subsidiaries				211,215,618			—		5,071,505			(209,326,472	)		6,960,651
Properties, net				8,329,378			338,274,924		84,432,948			190,625			431,227,875
Intangible asset derived from the actuarial computation of labor obligations and other assets				12,774,667			40,871,979		4,092,780			9,124,640			66,864,066
		Total assets	Ps.	337,119,137		Ps.	575,721,053	Ps.	209,437,524		Ps.	(509,231,694	)	Ps.	613,046,020
LIABILITIES
Current liabilities:
	Current portion of long-term debt		Ps.	37,801,359		Ps.	12,747,091	Ps.	14,676,565		Ps.	(35,174,471	)	Ps.	30,050,544
	Accounts payable—intercompany			73,703,467			42,983,221		16,302,517			(132,989,205	)		—
	Other current liabilities			5,974,651			32,845,816		10,898,825			(3,314,597	)		46,404,695
		Total current liabilities		117,479,477			88,576,128		41,877,907			(171,478,273	)		76,455,239
Long-term debt				77,656,910			59,985,687		95,876,727			(74,060,884	)		159,458,440
Sale of future accounts receivable				—			51,740,437		—			(7,496,609	)		44,243,828
Reserve for retirement payments, pensions, indemnities, sundry creditors, and others				23,548,290			166,601,288		63,107,957			(41,811,528	)		211,446,007
		Total liabilities		218,684,677			366,903,540		200,862,591			(294,847,294	)		491,603,514
EQUITY
Equity accounts				(60,257,038	)		101,166,105		(4,021,635	)		(100,140,195	)		(63,252,763	)
Revaluation surplus				178,691,498			107,651,408		12,596,568			(114,244,205	)		184,695,269
				118,434,460			208,817,513		8,574,933			(214,384,400	)		121,442,506
		Total liabilities and equity	Ps.	337,119,137		Ps.	575,721,053	Ps.	209,437,524		Ps.	(509,231,694	)	Ps.	613,046,020

F/B-26

SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
BALANCE SHEET
As of December 31, 2001

			Corporate			Subsidiary Guarantors		Non-Guarantor Subsidiaries			Eliminations			PEMEX Consolidated
ASSETS
Current assets:
	Cash and cash equivalents		Ps.	5,522,511		Ps.	722,477	Ps.	8,196,876		Ps.	—		Ps.	14,441,864
	Accounts, notes receivable and other, net			2,699,390			94,357,062		23,416,641			(75,603,666	)		44,869,427
	Inventories, net			165,166			14,222,954		2,834,594			—			17,222,714
		Total current assets		8,387,067			109,302,493		34,448,111			(75,603,666	)		76,534,005
Long term debt receivable — intercompany				50,509,012			—		63,413,676			(113,922,688	)		—
Investments in subsidiaries				178,487,519			—		4,924,513			(174,969,287	)		8,442,745
Properties, net				8,826,710			335,022,388		63,064,168			—			406,913,266
Intangible asset derived from the actuarial computation of labor obligations and other assets				12,468,275			95,749,586		4,526,275			(47,750,904	)		64,993,232
		Total assets	Ps.	258,678,583		Ps.	540,074,467	Ps.	170,376,743		Ps.	(412,246,545	)	Ps.	556,883,248
LIABILITIES
Current liabilities:
	Current portion of long-term debt		Ps.	28,328,581		Ps.	12,724,756	Ps.	14,654,660		Ps.	(19,461,891	)	Ps.	36,246,106
	Accounts payable—intercompany			16,290,049			12,017,704		13,163,044			(41,470,797	)		—
	Other current liabilities			4,324,874			23,938,251		19,580,324			(12,141,133	)		35,702,316
		Total current liabilities		48,943,504			48,680,711		47,398,028			(73,073,821	)		71,948,422
Long-term debt				67,730,850			113,673,593		61,290,605			(119,525,053	)		123,169,995
Sale of future accounts receivable				—			48,923,317		—			(4,237,715	)		44,685,602
Reserve for retirement payments, pensions, indemnities, sundry creditors and others				21,233,452			157,797,694		59,179,262			(43,997,412	)		194,212,996
		Total liabilities		137,907,806			369,075,315		167,867,895			(240,834,001	)		434,017,015
EQUITY
Equity accounts				(60,610,938	)		65,873,943		(9,671,154	)		(54,563,356	)		(58,971,505	)
Revaluation surplus				181,381,715			105,125,209		12,180,002			(116,849,188	)		181,837,738
				120,770,777			170,999,152		2,508,848			(171,412,544	)		122,866,233
		Total liabilities and equity	Ps.	258,678,583		Ps.	540,074,467	Ps.	170,376,743		Ps.	(412,246,545	)	Ps.	556,883,248

F/B-27

SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
STATEMENT OF INCOME
For the six-month period ended June 30, 2002

			Corporate			Subsidiary Guarantors			Non-Guarantor Subsidiaries			Eliminations			PEMEX Consolidated
Net sales			Ps.	10,602,012		Ps.	278,745,067		Ps.	100,058,066		Ps.	(166,760,132	)	Ps.	222,645,013
Other revenues				(1,553,202	)		5,597,071			741,607			(945,884	)		3,839,592
Total revenues				9,048,810			284,342,138			100,799,673			(167,706,016	)		226,484,605
Costs and operating expenses:
	Cost of sales			53,030			126,315,014			100,995,997			(155,111,098	)		72,252,943
	Transportation and distribution expenses			—			6,589,444			240,500			(44,937	)		6,785,007
	Administrative expenses			7,553,851			15,093,363			2,098,116			(10,827,186	)		13,918,144
	Other expenses			2,707,130			7,104,960			856,775			(1,535,855	)		9,133,010
		Total costs and operating expenses		10,314,011			155,102,781			104,191,388			(167,519,076	)		102,089,104
Equity participation in subsidiaries				(4,859,217	)		—			—			4,859,217			—
(Loss) income before hydrocarbon extraction duties, and other special tax on production and services				(6,124,418	)		129,239,357			(3,391,715	)		4,672,277			124,395,501
	Hydrocarbon extraction duties and other			—			70,220,495			372,190			—			70,592,685
	Special tax on production and services (IEPS)			—			60,164,165			—			—			60,164,165
				—			130,384,660			372,190			—			130,756,850
Net (loss) income for the period			Ps.	(6,124,418	)	Ps.	(1,145,303	)	Ps.	(3,763,905	)	Ps.	4,672,277		Ps.	(6,361,349	)

F/B-28

SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
STATEMENT OF INCOME
For the six-month period ended June 30, 2001

			Corporate			Subsidiary Guarantors			Non-Guarantor Subsidiaries			Eliminations			PEMEX Consolidated
Net sales			Ps.	4,913,982		Ps.	327,785,188		Ps.	110,372,359		Ps.	(216,017,222	)	Ps.	227,054,307
Other revenues				2,347,444			6,894,420			921,589			(978,856	)		9,184,597
Total revenues				7,261,426			334,679,608			111,293,948			(216,996,078	)		236,238,904
Costs and operating expenses:
	Cost of sales			(11	)		176,186,640			113,094,708			(213,382,744	)		75,898,593
	Transportation and distribution expenses			—			6,138,548			209,074			(50,781	)		6,296,841
	Administrative expenses			6,617,626			8,837,142			1,946,125			(5,149,605	)		12,251,288
	Other expenses			248,247			7,305,613			598,807			(442,713	)		7,709,954
		Total costs and operating expenses		6,865,862			198,467,943			115,848,714			(219,025,843	)		102,156,676
Equity participation in subsidiaries				(6,989,423	)		—			—			6,989,423			—
Cumulative effect of adoption of new financial instruments standard				(1,301,451	)		(29,796	)		—			—			(1,331,247	)
(Loss) income before hydrocarbon extraction duties, and other special tax on production and services				(7,895,310	)		136,181,869			(4,554,766	)		9,019,188			132,750,981
	Hydrocarbon extraction duties and other			—			98,495,298			408,037			—			98,903,335
	Special tax on production and services (IEPS)			—			39,872,564			—			—			39,872,564
				—			138,367,862			408,037			—			138,775,899
Net (loss) income for the period			Ps.	(7,895,310	)	Ps.	(2,185,993	)	Ps.	(4,962,803	)	Ps.	9,019,188		Ps.	(6,024,918	)

F/B-29

SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
STATEMENT OF CHANGES IN FINANCIAL POSITION
For the six-month period ended June 30, 2002

		Corporate			Subsidiary Guarantors			Non-Guarantor Subsidiaries			Eliminations			PEMEX Consolidated
Funds provided by (used in) operating activities		Ps.	(238,986	)	Ps.	45,970,298		Ps.	(19,096,107	)	Ps.	2,214,806		Ps.	28,850,011
Financing activities:
	Sale of future accounts receivable		—			2,817,120			—			(3,258,894	)		(441,774	)
	Long-term debt		19,398,837			(54,902,950	)		34,608,028			31,081,002			30,184,917
	Net income distributions to Petróleos Mexicanos		(4,909,209	)		1,145,302			3,763,907			—			—
	Other equity movements		797,690			20,189,134			9,369,728			(32,408,560	)		(2,052,008	)
Funds provided by (used in) financing activities			15,287,318			(30,751,394	)		47,741,663			(4,586,452	)		27,691,135
Investing activities:
	Increase in fixed assets, net		(2,551,045	)		(14,098,406	)		(21,440,875	)		2,371,646			(35,718,680	)
Funds provided by (used in) investing activities			(2,551,045	)		(14,098,406	)		(21,440,875	)		2,371,646			(35,718,680	)
Increase in cash and cash equivalents			12,497,287			1,120,498			7,204,681			—			20,822,466
Cash and cash equivalents at beginning of the period			5,522,511			722,477			8,196,876			—			14,441,864
Cash and cash equivalents at the end of the period		Ps.	18,019,798		Ps.	1,842,975		Ps.	15,401,557		Ps.	—		Ps.	35,264,330

F/B-30

SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
STATEMENT OF CHANGES IN FINANCIAL POSITION
For the six-month period ended June 30, 2001

		Corporate			Subsidiary Guarantors			Non-Guarantor Subsidiaries			Eliminations			PEMEX Consolidated
Funds provided by (used in) operating activities		Ps.	85,481,226		Ps.	24,473,721		Ps.	84,338,368		Ps.	(179,233,282	)	Ps.	15,060,033
Financing activities:
	Sale of future accounts receivable		—			(2,783,470	)		—			—			(2,783,470	)
	Long-term debt		(77,966,177	)		(35,393,372	)		(33,603,327	)		153,413,866			6,450,990
	Net income distributions to Petróleos Mexicanos		(7,148,796	)		2,185,993			4,962,803			—			—
	Other equity movements		630,671			16,327,684			(2,381,759	)		(20,016,766	)		(5,440,170	)
Funds provided by (used in) financing activities			(84,484,302	)		(19,663,165	)		(31,022,283	)		133,397,100			(1,772,650	)
Investing activities:
	Increase in fixed assets, net		273,876			(4,527,089	)		(52,733,033	)		45,836,182			(11,150,064	)
Funds provided by (used in) investing activities			273,876			(4,527,089	)		(52,733,033	)		45,836,182			(11,150,064	)
Increase in cash and cash equivalents			1,270,800			283,467			583,052			—			2,137,319
Cash and cash equivalents at beginning of the period			14,428,209			1,452,602			11,946,035			—			27,826,846
Cash and cash equivalents at the end of the period		Ps.	15,699,009		Ps.	1,736,069		Ps.	12,529,087		Ps.	—		Ps.	29,964,165

F/B-31

SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
BALANCE SHEET
As of June 30, 2002

			Corporate			Master Trust		Subsidiary Guarantors		Non-Guarantor Subsidiaries			Eliminations			PEMEX Consolidated
ASSETS
Current assets:
	Cash and cash equivalents		Ps.	18,019,795		Ps.	10,812,374	Ps.	1,842,975	Ps.	4,589,186		Ps.	—		Ps.	35,264,330
	Accounts, notes receivable and other, net			26,246,031			9,022,024		175,304,422		22,151,117			(181,817,539	)		50,906,055
	Inventories, net			322,167			—		19,426,753		2,264,751			(190,628	)		21,823,043
		Total current assets		44,587,993			19,834,398		196,574,150		29,005,054			(182,008,167	)		107,993,428
Long-term debt receivable—intercompany				60,211,481			67,000,839		—		—			(127,212,320	)		—
Investments in subsidiaries				211,215,618			—		—		5,071,505			(209,326,472	)		6,960,651
Properties, net				8,329,378			65,477,154		338,274,924		18,955,794			190,625			431,227,875
Intangible asset derived from the actuarial computation of labor obligations and other assets				12,774,667			718,388		40,871,979		3,374,392			9,124,640			66,864,066
		Total assets	Ps.	337,119,137		Ps.	153,030,779	Ps.	575,721,053	Ps.	56,406,745		Ps.	(509,231,694	)	Ps.	613,046,020
LIABILITIES
Current liabilities:
	Current portion of long-term debt		Ps.	37,801,359		Ps.	10,186,812	Ps.	12,747,091	Ps.	4,489,753		Ps.	(35,174,471	)	Ps.	30,050,544
	Accounts payable—intercompany			73,703,467			454,882		42,983,221		15,847,635			(132,989,205	)		—
	Other current liabilities			5,974,651			4,594,725		32,845,816		6,304,100			(3,314,597	)		46,404,695
		Total current liabilities		117,479,477			15,236,419		88,576,128		26,641,488			(171,478,273	)		76,455,239
Long-term debt				77,656,910			93,144,398		59,985,687		2,732,329			(74,060,884	)		159,458,440
Sale of future accounts receivable				—			—		51,740,437		—			(7,496,609	)		44,243,828
Reserve for retirement payments, pensions, indemnities sundry creditors, and others				23,548,290			44,649,962		166,601,288		18,457,995			(41,811,528	)		211,446,007
		Total liabilities		218,684,677			153,030,779		366,903,540		47,831,812			(294,847,294	)		491,603,514
EQUITY
Equity accounts				(60,257,038	)		—		101,166,105		(4,021,635	)		(100,140,195	)		(63,252,763	)
Revaluation surplus				178,691,498			—		107,651,408		12,596,568			(114,244,205	)		184,695,269
				118,434,460			—		208,817,513		8,574,933			(214,384,400	)		121,442,506
		Total liabilities and equity	Ps.	337,119,137		Ps.	153,030,779	Ps.	575,721,053	Ps.	56,406,745		Ps.	(509,231,694	)	Ps.	613,046,020

F/B-32

SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
BALANCE SHEET
As of December 31, 2001

			Corporate			Master Trust		Subsidiary Guarantors		Non-Guarantor Subsidiaries			Eliminations			PEMEX Consolidated
Assets
Current assets:
	Cash and cash equivalents		Ps.	5,522,511		Ps.	5,288,454	Ps.	722,477	Ps.	2,908,422		Ps.	—		Ps.	14,441,864
	Accounts, notes receivable and other, net			2,699,390			7,804,623		94,357,062		15,612,018			(75,603,666	)		44,869,427
	Inventories, net			165,166			—		14,222,954		2,834,594			—			17,222,714
		Total current assets		8,387,067			13,093,077		109,302,493		21,355,034			(75,603,666	)		76,534,005
Long-term debt receivable — intercompany				50,509,012			63,413,676		—		—			(113,922,688	)		—
Investments in subsidiaries				178,487,519			—		—		4,924,513			(174,969,287	)		8,442,745
Properties, net				8,826,710			44,326,188		335,022,388		18,737,980			—			406,913,266
Intangible asset derived from the actuarial computation of labor obligations and other assets				12,468,275			1,395,274		95,749,586		3,131,001			(47,750,904	)		64,993,232
		Total assets	Ps.	258,678,583		Ps.	122,228,215	Ps.	540,074,467	Ps.	48,148,528		Ps.	(412,246,545	)	Ps.	556,883,248
Liabilities
Current liabilities:
	Current portion of long-term debt		Ps.	28,328,581		Ps.	8,707,639	Ps.	12,724,756	Ps.	5,947,021		Ps.	(19,461,891	)	Ps.	36,246,106
	Accounts payable—intercompany			16,290,049			436,459		12,017,704		12,726,585			(41,470,797	)		—
	Other current liabilities			4,324,874			9,468,451		23,938,251		10,111,873			(12,141,133	)		35,702,316
		Total current liabilities		48,943,504			18,612,549		48,680,711		28,785,479			(73,073,821	)		71,948,422
Long-term debt				67,730,850			61,041,007		113,673,593		249,598			(119,525,053	)		123,169,995
Sale of future accounts receivable				—			—		48,923,317		—			(4,237,715	)		44,685,602
Reserve for retirement payments, pensions, indemnities sundry creditors and others				21,233,452			42,574,659		157,797,694		16,604,603			(43,997,412	)		194,212,996
		Total liabilities		137,907,806			122,228,215		369,075,315		45,639,680			(240,834,001	)		434,017,015
Equity
Equity accounts				(60,610,938	)		—		65,873,943		(9,671,154	)		(54,563,356	)		(58,971,505	)
Revaluation surplus				181,381,715			—		105,125,209		12,180,002			(116,849,188	)		181,837,738
				120,770,777			—		170,999,152		2,508,848			(171,412,544	)		122,866,233
		Total liabilities and equity	Ps.	258,678,583		Ps.	122,228,215	Ps.	540,074,467	Ps.	48,148,528		Ps.	(412,246,545	)	Ps.	556,883,248

F/B-33

SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
STATEMENT OF INCOME
For the six-month period ended June 30, 2002

			Corporate			Master Trust		Subsidiary Guarantors			Non-Guarantor Subsidiaries			Eliminations			PEMEX Consolidated
Net sales			Ps.	10,602,012		Ps.	—	Ps.	278,745,067		Ps.	100,058,066		Ps.	(166,760,132	)	Ps.	222,645,013
Other revenues				(1,553,202	)		—		5,597,071			741,607			(945,884	)		3,839,592
Total revenues				9,048,810			—		284,342,138			100,799,673			(167,706,016	)		226,484,605
Costs and operating expenses:
	Cost of sales			53,030			—		126,315,014			100,995,997			(155,111,098	)		72,252,943
	Transportation and distribution expenses			—			—		6,589,444			240,500			(44,937	)		6,785,007
	Administrative expenses			7,553,851			—		15,093,363			2,098,116			(10,827,186	)		13,918,144
	Other expenses			2,707,130			—		7,104,960			856,775			(1,535,855	)		9,133,010
		Total costs and operating expenses		10,314,011			—		155,102,781			104,191,388			(167,519,076	)		102,089,104
Equity participation in subsidiaries				(4,859,217	)		—		—			—			4,859,217			—
(Loss) income before hydrocarbon extraction duties and other and special tax on production and services				(6,124,418	)		—		129,239,357			(3,391,715	)		4,672,277			124,395,501
	Hydrocarbon extraction duties and other			—			—		70,220,495			372,190			—			70,592,685
	Special tax on production and services (IEPS)			—			—		60,164,165			—			—			60,164,165
				—			—		130,384,660			372,190			—			130,756,850
Net (loss) income for the period			Ps.	(6,124,418	)	Ps.	—	Ps.	(1,145,303	)	Ps.	(3,763,905	)	Ps.	4,672,277		Ps.	(6,361,349	)

F/B-34

SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
STATEMENT OF INCOME
For the six-month period ended June 30, 2001

			Corporate			Master Trust		Subsidiary Guarantors			Non-Guarantor Subsidiaries			Eliminations			PEMEX Consolidated
Net sales			Ps.	4,913,982		Ps.	—	Ps.	327,785,188		Ps.	110,372,359		Ps.	(216,017,222	)	Ps.	227,054,307
Other revenues				2,347,444			—		6,894,420			921,589			(978,856	)		9,184,597
Total revenues				7,261,426			—		334,679,608			111,293,948			(216,996,078	)		236,238,904
Costs and operating expenses:
	Cost of sales			(11	)		—		176,186,640			113,094,708			(213,382,744	)		75,898,593
	Transportation and distribution expenses			—			—		6,138,548			209,074			(50,781	)		6,296,841
	Administrative expenses			6,617,626			—		8,837,142			1,946,125			(5,149,605	)		12,251,288
	Other expenses			248,247			—		7,305,613			598,807			(442,713	)		7,709,954
		Total costs and operating expenses		6,865,862			—		198,467,943			115,848,714			(219,025,843	)		102,156,676
Equity participation in subsidiaries				(6,989,423	)		—		—			—			6,989,423			—
Cumulative effect of adoption of new financial instruments standard				(1,301,451	)		—		(29,796	)		—			—			(1,331,247	)
(Loss) income before hydrocarbon extraction duties and other and special tax on production and services				(7,895,310	)		—		136,181,869			(4,554,766	)		9,019,188			132,750,981
	Hydrocarbon extraction duties and other			—			—		98,495,298			408,037			—			98,903,335
	Special tax on production and services (IEPS)			—			—		39,872,564			—			—			39,872,564
				—			—		138,367,862			408,037			—			138,775,899
Net (loss) income for the period			Ps.	(7,895,310	)	Ps.	—	Ps.	(2,185,993	)	Ps.	(4,962,803	)	Ps.	9,019,188		Ps.	(6,024,918	)

F/B-35

SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
STATEMENT OF CHANGES IN FINANCIAL POSITION
For the six-month period ended June 30, 2002

		Corporate			Master Trust			Subsidiary Guarantors			Non-Guarantor Subsidiaries			Eliminations			PEMEX Consolidated
Funds (used in) provided by operating activities		Ps.	(238,986	)	Ps.	(6,907,678	)	Ps.	45,970,298		Ps.	(12,188,429	)	Ps.	2,214,806		Ps.	28,850,011
Financing activities:
	Sale of future accounts receivable		—			—			2,817,120			—			(3,258,894	)		(441,774	)
	Long-term debt		19,398,837			33,582,564			(54,902,950	)		1,025,464			31,081,002			30,184,917
	Net income distributions to Petróleos Mexicanos		(4,909,209	)		—			1,145,302			3,763,907			—			—
	Other changes in equity and retained earnings		797,690			—			20,189,134			9,369,728			(32,408,560	)		(2,052,008	)
Funds provided by (used in) financing activities			15,287,318			33,582,564			(30,751,394	)		14,159,099			(4,586,452	)		27,691,135
Investing activities:
	Increase in fixed assets, net		(2,551,045	)		(21,150,966	)		(14,098,406	)		(289,909	)		2,371,646			(35,718,680	)
	Investments in subsidiaries		—			—			—			—			—			—
Funds provided by (used in) investing activities			(2,551,045	)		(21,150,966	)		(14,098,406	)		(289,909	)		2,371,646			(35,718,680	)
Increase in cash and cash equivalents			12,497,287			5,523,920			1,120,498			1,680,761			—			20,822,466
Cash and cash equivalents at beginning of the year			5,522,511			5,288,454			722,477			2,908,422			—			14,441,864
Cash and cash equivalents at the end of the year		Ps.	18,019,798		Ps.	10,812,374		Ps.	1,842,975		Ps.	4,589,183		Ps.	—		Ps.	35,264,330

F/B-36

SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
STATEMENT OF CHANGES IN FINANCIAL POSITION
For the six-month period ended June 30, 2001

		Corporate			Master Trust			Subsidiary Guarantors			Non-Guarantor Subsidiaries			Eliminations			PEMEX Consolidated
Funds (used in) provided by operating activities		Ps.	85,481,226		Ps.	87,454,710		Ps.	24,473,721		Ps.	(3,116,342	)	Ps.	(179,233,282	)	Ps.	15,060,033
Financing activities:
	Sale of future accounts receivable		—			—			(2,783,470	)		—			—			(2,783,470	)
	Long-term debt		(77,966,177	)		(34,245,034	)		(35,393,372	)		641,707			153,413,866			6,450,990
	Net income distributions to Petróleos Mexicanos		(7,148,796	)		—			2,185,993			4,962,803			—			—
	Other changes in equity and retained earnings		630,671			—			16,327,684			(2,381,759	)		(20,016,766	)		(5,440,170	)
Funds provided by (used in) financing activities			(84,484,302	)		(34,245,034	)		(19,663,165	)		3,222,751			133,397,100			(1,772,650	)
Investing activities:
	Increase in fixed assets, net		273,876			(53,256,569	)		(4,527,089	)		523,536			45,836,182			(11,150,064	)
	Investments in subsidiaries		—			—			—			—			—			—
Funds provided by (used in) investing activities			273,876			(53,256,569	)		(4,527,089	)		523,536			45,836,182			(11,150,064	)
(Decrease) increase in cash and cash equivalents			1,270,800			(46,893	)		283,467			629,945			—			2,137,319
Cash and cash equivalents at beginning of the year			14,428,209			8,057,964			1,452,602			3,888,071			—			27,826,846
Cash and cash equivalents at the end of the year		Ps.	15,699,009		Ps.	8,011,071		Ps.	1,736,069		Ps.	4,518,016		Ps.	—		Ps.	29,964,165

F/B-37

UNAUDITED SUPPLEMENTAL CONSOLIDATED FINANCIAL INFORMATION
PREPARED ON A PRICE-LEVEL ADJUSTED BASIS

For the Six-Month Periods Ended June 30, 2002 and 2001 and for the Year
Ended December 31, 2001

General

        The unaudited supplementary consolidated price-level adjusted financial information included in the following pages has been prepared pursuant to Rule 3-20 (c) of Regulation S-X promulgated by the United States Securities and Exchange Commission. For the periods presented, Mexico was not considered a hyperinflationary economy. However, PEMEX has continued to provide supplemental price-level adjusted financial information for these subsequent periods in lieu of adoption of Mexican GAAP Bulletin B-10.

        The supplemental financial information reflects all appropriate U.S. GAAP adjustments and, in the opinion of PEMEX management, all adjustments which are necessary for a fair presentation of the supplemental price-level adjusted financial information have been included herein. Unless otherwise noted, this financial information has been prepared in a manner consistent with the historical financial statements and should be read in conjunction with the audited consolidated financial statements as of December 31, 2001, 2000 and 1999 and for the three years then ended and the unaudited condensed consolidated financial statements as of June 30, 2002 and the six-month periods ended June 30, 2002 and 2001, presented herein.

				As of June 30, 2002		As of December 31, 2001
ASSETS
	Current assets:
		Cash and cash equivalents		Ps.	36,055,743	Ps.	14,869,872
		Accounts, notes receivable and other, net			57,051,210		48,519,596
		Inventories, net			20,928,530		17,090,195
			Total current assets		114,035,483		80,479,663
	Properties, net				442,984,408		430,141,203
	Intangible asset derived from the actuarial computation of labor obligations and other assets				76,509,365		80,769,022
			Total assets	Ps.	633,529,256	Ps.	591,389,888
LIABILITIES
	Current liabilities:
		Current portion of long-tem debt		Ps.	34,778,532	Ps.	37,200,357
		Other current liabilities			46,003,650		40,567,875
			Total current liabilities		80,782,182		77,768,232
	Long-term debt				200,430,672		166,564,070
	Sale of future accounts receivable						—
	Reserve for retirement payments, pensions and indemnities, sundry creditors, and others				248,153,112		231,748,417
			Total liabilities		529,365,966		476,080,719
	Minority interest				1,731,492		1,499,810
TOTAL EQUITY					102,431,798		113,809,359
			Total liabilities and equity	Ps.	633,529,256	Ps.	591,389,888

The accompanying notes are an integral part of this unaudited supplemental condensed consolidated financial information.

F/B-38

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR
THE SIX-MONTH PERIODS ENDED JUNE 30, 2002 AND 2001
(In thousands of constant pesos as of June 30, 2002)

		2002			2001
Net sales (1)		Ps.	164,064,565		Ps.	198,001,205
Other revenues			5,309,859			10,963,471
Total revenues			169,374,424			208,964,676
Cost and operating expenses:
	Cost of sales		74,045,416			81,158,657
	Transportation and distribution Expenses		7,394,656			7,021,242
	Administrative expenses		15,329,577			13,815,808
	Financial integral cost, net		5,403,404			(4,045,548	)
	Other expenses		1,665,796			2,368,912
	Total costs and operating Expenses		103,838,849			100,319,071
Income before hydrocarbon extraction duties and other			65,535,575			108,645,605
Hydrocarbon extraction duties and other			71,280,759			104,620,137
Cumulative effect of adoption of new financial instruments standard						3,995,583
Minority interest			(125,827	)		(269,441	)
Net (loss) income for the period		Ps.	(5,871,011	)	Ps.	7,751,610

(1)

As discussed in Note 12 II (b), under Mexican GAAP, the IEPS tax is reflected in revenue when charged to customers and, at the same time, deducted from "Income before hydrocarbon extraction duties, special tax on production and services and other." Under U.S. GAAP the IEPS tax would have no effect on revenues nor would it be deducted from "Income before hydrocarbon extraction duties, special tax on production and services and other".

The accompanying notes are an integral part of this unaudited supplemental condensed consolidated financial information.

F/B-39

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR
THE SIX-MONTH PERIODS ENDED JUNE 30, 2002 AND 2001
(In thousands of constant pesos as of June 30, 2002)

		2002			2001
Operating Activities
Net loss		Ps.	(5,871,011	)	Ps.	7,751,610
Adjustments to reconcile net loss to cash (used in) provided by operating activities:
	Depreciation and amortization		15,236,279			15,777,402
	Reserve for retirement payments, pensions and indemnization		23,633,029			21,098,281
	Impairment of fixed assets		—			(6,164,234	)
	Loss on disposal of fixed assets		2,795,676			1,843,827
	Allowance for uncollectible trade Accounts
	Allowance for slow-moving inventory and obsolescence
	Minority interest		270,155			221,373
	Repsol collar
	Foreign exchange loss		5,273,006			(4,906,839	)
	Accounting for financial instruments		(786,176	)		(5,368,060	)
	Gain from monetary position		(8,124,697	)		(5,815,806	)
Changes in operating assets and liabilities:
	Accounts and notes receivable		(6,783,826	)		(518	)
	Inventories		(4,276,727	)		6,653,475
	Other assets		2,088,087			297,836
	Accounts payable and accrued Liabilities		9,842,731			(23,786,744	)
	Sales of future accounts receivable		1,545,266			(2,768,600	)
Cash flows provided by operating activities			34,841,792			4,833,003
Investing Activities
	Acquisition of fixed assets		(19,764,014	)		(17,254,756	)
Cash flows used in investing activities			(19,764,014	)		(17,254,756	)
Financing Activities
	New long term financing		48,567,541			52,125,822
	Financing payments		(24,808,503	)		(31,371,702	)
	Effect of consolidating PEMEX finance		—			740,998
	Dividends paid to the Mexican Government		(4,801,854	)		(1,512,669	)
Cash flows provided by financing activities			18,957,184			19,982,449
Effects of inflation and exchange rate fluctuations on cash and cash equivalents			(12,849,091	)		(4,016,622	)
	Increase in cash and cash equivalents		21,185,871			3,544,074
Cash and cash equivalents, beginning of period			14,869,872			29,816,776
Cash and cash equivalents, end of period		Ps.	36,055,743		Ps.	33,360,850

The accompanying notes are an integral part of this unaudited supplemental condensed consolidated financial information.

F/B-40

NOTES TO THE UNAUDITED SUPPLEMENTAL CONDENSED CONSOLIDATED
FINANCIAL INFORMATION PREPARED ON A PRICE-LEVEL ADJUSTED BASIS

For the Six-Month Periods Ended June 30, 2002 (unaudited) and 2001 (unaudited)
(In thousands of constant pesos as of June 30, 2002)

1.    Effects of inflation on the financial information

        The methodology utilized in preparing the price-level adjusted financial information is consistent with the information presented for the three years ended December 31, 2001, 2000 and 1999 and included elsewhere in this registration statement.

a)

Effects of inflation on the financial information

        The consolidated supplemental financial information of PEMEX has been restated to recognize the effects of inflation and is expressed in thousands of pesos of constant purchasing power as of June 30, 2002, determined as follows:

•

The consolidated statement of operations (excluding depreciation and cost of sales which is described below) for the six-month periods ended June 30, 2002 and 2001 were restated applying the Mexican National Consumer Price Index ("NCPI") from the periods in which the transactions occurred to June 30, 2002. In accordance with U.S. GAAP, the "Net Sales" line item as presented excludes the IEPS Tax; an amount which equaled Ps. 60,750,591 and Ps. 42,177,274 for the six-month periods ended June 30, 2002 and 2001, respectively.



•

For comparability purposes, balance sheet information as of December 31, 2001 has been restated to pesos as of June 30, 2002 by utilizing the change in the NCPI from December 31, 2001 to June 30, 2002.



•

The NCPI factor used to recognize the effects of inflation were:

Six-Month Periods Ended June 30,	Change in National Consumer Price Index
2001	2.1084%
2002	2.6327%

•

Cash flow information

Supplemental disclosures of interest and taxes paid are as follows:

	2002	2001
Interest paid (net of amounts capitalized)	11,150,191	9,542,159
Taxes paid	113,856,950	159,680,725

Supplemental disclosures of non-cash transactions are as follows:

	2002		2001
Unrealized gains or (losses) on available for sale securities	(900,011	)	(217,291	)
Additional minimum pension liability	1,540,032		1,188,686
Accounting for financial instruments	2,053,489		6,450,202

F/B-41

2.    Segment information

        The following segment information is prepared on a price-level adjusted basis.

Six month periods ended June 30, 2002		Exploration and Production		Refining(1)		Gas and Basic Petrochemicals		Petrochemicals		Corporate and other		Intersegment Eliminations			Total
Sales:
	Trade	Ps.	55,595,043	Ps.	122,057,352	Ps.	26,784,268	Ps.	3,866,392	Ps.	16,512,101	Ps.	—		Ps.	224,815,156
	Intersegment		64,865,927		3,515,795		8,643,610		1,252,761		90,107,450		(168,385,543	)		—
Total net sales		Ps.	120,460,970	Ps.	125,573,147	Ps.	35,427,878	Ps	5,119,153	Ps	106,619,551	Ps.	(168,385,543	)	Ps.	224,815,156

Six-month periods ended June 30, 2001		Exploration and Production		Refining(1)		Gas and Basic Petrochemicals		Petrochemicals		Corporate and other		Intersegment Eliminations			Total
Sales:
	Trade	Ps.	62,389,747	Ps.	125,304,013	Ps.	40,272,899	Ps.	5,424,599	Ps.	6,787,222	Ps.			Ps.	240,178,480
	Intersegment		93,409,136		5,340,490		20,015,502		1,609,199		108,129,093		(228,503,420	)		—
Total net sales		Ps	155,798,883	Ps.	130,644,503	Ps.	60,288,401	Ps.	7,033,798	Ps.	114,916,315	Ps.	(228,503,420	)	Ps.	240,178,480

(1)

Net sales include IEPS Tax amounting to Ps. 60,750,591and Ps. 42,177,274 in 2002 and 2001, respectively.

3.    Financial integral result

        Financial integral result is analyzed as follows:

		2002			2001
Exchange (loss) gain		Ps.	(5,273,006	)	Ps.	4,906,839
Monetary position Result			8,124,697			5,815,806
Interest cost and other			(8,255,095	)		(6,677,097	)
	Total	Ps.	(5,403,404	)	Ps.	4,045,548

F/B-42

OFFICE OF THE MANAGING TRUSTEE OF THE ISSUER	OFFICE OF THE DELAWARE TRUSTEE OF THE ISSUER
The Bank of New York Corporate Trust Global Structured Finance Unit 101 Barclay Street, 21 West New York, NY 10286	The Bank of New York (Delaware) White Clay Center Newark, DE 19711
HEAD OFFICE OF PETRÓLEOS MEXICANOS AND EACH OF THE SUBSIDIARY GUARANTORS	AUDITORS OF PETRÓLEOS MEXICANOS
Avenida Marina Nacional No. 329 Colonia Huasteca México, D.F. 11311	PricewaterhouseCoopers, S.C. Mariano Escobedo No. 573 Colonia Rincón del Bosque México, D.F. 11580
TRUSTEE, PRINCIPAL PAYING AND TRANSFER AGENT	EXCHANGE AGENT
Deutsche Bank Trust Company Americas 280 Park Avenue 9th Floor New York, NY 10017	Deutsche Bank Trust Company Americas c/o DB Services Tennessee, Inc. Corporate Trust & Agency Services Reorganization Unit 648 Grassmere Park Road Nashville, Tennessee 37211
LUXEMBOURG LISTING AGENT	PAYING AND TRANSFER AGENT AND LUXEMBOURG EXCHANGE AGENT
Kredietbank S.A., Luxembourgeoise 43 Boulevard Royal L-2955 Luxembourg	Deutsche Bank Luxembourg S.A. 2 Boulevard Konrad Adenauer L-1115 Luxembourg
LEGAL ADVISORS
To the Issuer, the Guarantor and the Subsidiary Guarantors as to U.S. law: Cleary, Gottlieb, Steen & Hamilton One Liberty Plaza New York, NY 10006	To the Issuer as to Delaware law: Richards, Layton & Finger, P.A. One Rodney Square P.O. Box 551 Wilmington, DE 19899
To the Guarantor and the Subsidiary Guarantors as to Mexican law: General Counsel and Head of the Legal Department Petróleos Mexicanos Avenida Marina Nacional No. 329 Colonia Huasteca México, D.F. 11311

QuickLinks

TABLE OF CONTENTS
ABOUT THIS PROSPECTUS
AVAILABLE INFORMATION
CURRENCY OF PRESENTATION
PRESENTATION OF FINANCIAL INFORMATION
Use of Proceeds
Forward-Looking Statements
Principal Executive Offices
SELECTED FINANCIAL DATA
Selected Financial Data of PEMEX
Selected Financial Data of PEMEX (continued)
RISK FACTORS
USE OF PROCEEDS
RATIO OF EARNINGS TO FIXED CHARGES
PIDIREGAS Approved Budget Capital Expenditures
2001 and First Nine Months of 2002 Results; 2002 Revised Budget Assumptions and Targets; 2003 Budget Assumptions and Targets
PEMEX PROJECT FUNDING MASTER TRUST
Pemex Project Funding Master Trust Indebtedness Amortization Schedule
THE EXCHANGE OFFERS
BOOK ENTRY; DELIVERY AND FORM
TAXATION
PLAN OF DISTRIBUTION
VALIDITY OF SECURITIES
PUBLIC OFFICIAL DOCUMENTS AND STATEMENTS
CHANGE IN INDEPENDENT AUDITORS
EXPERTS
TABLE OF CONTENTS
CONSOLIDATED STRUCTURE OF PEMEX
PART I
SELECTED FINANCIAL DATA
Selected Financial Data of PEMEX
Selected Financial Data of PEMEX (continued)
EXCHANGE RATES
RISK FACTORS
HISTORY AND DEVELOPMENT
PIDIREGAS Capital Expenditures Year ended December 31,(1)
PIDIREGAS Approved Budget Capital Expenditures
Non-PIDIREGAS Capital Expenditures(1)
BUSINESS OVERVIEW
Infrastructure of PEMEX
Crude Oil and Condensate Reserves (including natural gas liquids)(1)
Dry Gas Reserves
Crude Oil Distribution
Refining Capacity by Production Process
Pemex-Refining Production
Value of Domestic Sales(1)
Volume of Domestic Sales
Natural Gas and Condensates Processing and Production(1)
Processing Capacity
Value of Domestic Sales of Pemex-Gas and Basic Petrochemicals(1)
Subsidiaries of Pemex-Gas and Basic Petrochemicals(1)
Pemex-Petrochemicals Production
Value of Domestic Sales(1)
Crude Oil Exports by Country
Composition and Geographic Distribution of Crude Oil Export Sales
Volume of Exports and Imports
Value of Exports and Imports(1)
Imports and Exports of Selected Refined Products
Imports and Exports of Selected Petrochemicals
GENERAL REGULATORY FRAMEWORK
ENVIRONMENTAL REGULATION
Pemex-Exploration and Production
Pemex-Refining
Pemex-Gas and Basic Petrochemicals
Pemex-Petrochemicals
TRADE REGULATIONS AND EXPORT AGREEMENTS
TAXES AND DUTIES
UNITED MEXICAN STATES
Party Representation in Congress
Real GDP Growth by Sector
2000 and 2001 Results; 2002 Budget Assumptions and Targets
Net Internal Public Debt
Summary of External Public Debt(1) By Type
By Currency(3)
Total Indebtedness and Sales of Receivables of PEMEX
Contractual Obligations and Other Commercial Commitments Outstanding(1)
Fair Value of OTC Contracts (in thousands of U.S. dollars)
Fair Value of OTC Contracts at Period-End by Maturity(1)
Petróleos Mexicanos—Directors and Executive Officers
Pemex-Exploration and Production—Directors and Executive Officers
Pemex-Refining—Directors and Executive Officers
Pemex-Gas and Basic Petrochemicals—Directors and Executive Officers
Pemex-Petrochemicals—Directors and Executive Officers
DOCUMENTS ON DISPLAY
Quantitative Disclosure of Market Risk (Interest Rate Sensitivity) as of December 31, 2001(1)
Quantitative Disclosure of Market Risk (Interest Rate Risk) as of December 31, 2001(1) Derivative financial instruments held or issued for purposes other than trading
Quantitative Disclosure of Market Risk (Equity Swap) as of December 31, 2001(1)
INDEX TO FINANCIAL STATEMENTS
REPORT OF THE INDEPENDENT ACCOUNTANTS
REPORT OF THE INDEPENDENT AUDITORS
PETRÓLEOS MEXICANOS, SUBSIDIARY ENTITIES AND SUBSIDIARY COMPANIES CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2001 and 2000 (In thousands of pesos and thousands of U.S. dollars) (Notes 1, 2 and 14)
PETRÓLEOS MEXICANOS, SUBSIDIARY ENTITIES AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 and 1999 (In thousands of pesos and thousands of U.S. dollars) (Notes 1 and 2)
PETRÓLEOS MEXICANOS, SUBSIDIARY ENTITIES AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 and 1999 (In thousands of pesos and thousands of U.S. dollars) (Notes 1 and 2)
PETRÓLEOS MEXICANOS, SUBSIDIARY ENTITIES AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 and 1999 (In thousands of pesos and thousands of U.S. dollars) (Notes 1 and 2)
PETRÓLEOS MEXICANOS, SUBSIDIARY ENTITIES AND SUBSIDIARY COMPANIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (Amounts expressed in thousands of pesos and thousands of U.S. dollars)
SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION BALANCE SHEET As of December 31, 2001
SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION BALANCE SHEET As of December 31, 2000
SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION STATEMENT OF INCOME For the year ended December 31, 2001
SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION STATEMENT OF INCOME For the year ended December 31, 2000
SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION STATEMENT OF INCOME For the year ended December 31, 1999
SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION STATEMENT OF CHANGES IN FINANCIAL POSITION For the year ended December 31, 2001
SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION STATEMENT OF CHANGES IN FINANCIAL POSITION For the year ended December 31, 2000
SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION STATEMENT OF CHANGES IN FINANCIAL POSITION For the year ended December 31, 1999
SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION BALANCE SHEET As of December 31, 2001
SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION BALANCE SHEET As of December 31, 2000
SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION STATEMENT OF INCOME For the year ended December 31, 2001
SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION STATEMENT OF INCOME For the year ended December 31, 2000
SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION STATEMENT OF INCOME For the year ended December 31, 1999
SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION STATEMENT OF CHANGES IN FINANCIAL POSITION For the year ended December 31, 2001
SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION STATEMENT OF CHANGES IN FINANCIAL POSITION For the year ended December 31, 2000
SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION STATEMENT OF CHANGES IN FINANCIAL POSITION For the year ended December 31, 1999
PETRÓLEOS MEXICANOS, SUBSIDIARY ENTITIES AND SUBSIDIARY COMPANIES UNAUDITED SUPPLEMENTAL CONSOLIDATED FINANCIAL INFORMATION PREPARED ON A PRICE-LEVEL ADJUSTED BASIS For the Years Ended December 31, 2001, 2000 and 1999
PETRÓLEOS MEXICANOS, SUBSIDIARY ENTITIES AND SUBSIDIARY COMPANIES UNAUDITED CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2001 AND 2000 (in thousands of constant pesos as of December 31, 2001)
PETRÓLEOS MEXICANOS, SUBSIDIARY ENTITIES AND SUBSIDIARY COMPANIES UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (In thousands of constant pesos as of December 31, 2001)
PETRÓLEOS MEXICANOS, SUBSIDIARY ENTITIES AND SUBSIDIARY COMPANIES UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (In thousands of constant pesos as of December 31, 2001)
PETRÓLEOS MEXICANOS, SUBSIDIARY ENTITIES AND SUBSIDIARY COMPANIES UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (In thousands of constant pesos as of December 31, 2001)
PETRÓLEOS MEXICANOS, SUBSIDIARY ENTITIES AND SUBSIDIARY COMPANIES NOTES TO THE UNAUDITED SUPPLEMENTAL CONSOLIDATED FINANCIAL INFORMATION PREPARED ON A PRICE-LEVEL ADJUSTED BASIS For the Years Ended December 31, 2001, 2000 and 1999 (In thousands of constant pesos as of December 31, 2001)
APPENDIX Reports of Other Independent Accountants
Report of Independent Accountants
Report of Independent Accountants
SIGNATURE
CERTIFICATIONS
CERTIFICATIONS
PETRÓLEOS MEXICANOS, SUBSIDIARY ENTITIES AND SUBSIDIARY COMPANIES CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2002 AND FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2002 and 2001
PETRÓLEOS MEXICANOS, SUBSIDIARY ENTITIES AND SUBSIDIARY COMPANIES CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2002 (unaudited) AND DECEMBER 31, 2001 (audited) (In thousands of pesos and thousands of U.S. dollars) (Notes 1 and 2)
PETRÓLEOS MEXICANOS, SUBSIDIARY ENTITIES AND SUBSIDIARY COMPANIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2002 AND 2001 (unaudited) (In thousands of pesos and thousands of U.S. dollars) (Notes 1 and 2)
PETRÓLEOS MEXICANOS, SUBSIDIARY ENTITIES AND SUBSIDIARY COMPANIES CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (audited) and SIX-MONTH PERIOD ENDED JUNE 30, 2002 (unaudited) (In thousands of pesos and thousands of U.S. dollars) (Notes 1 and 2)
PETRÓLEOS MEXICANOS, SUBSIDIARY ENTITIES AND SUBSIDIARY COMPANIES CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2002 AND 2001 (unaudited) (In thousands of pesos and thousands of U.S. dollars) (Notes 1 and 2)
PETRÓLEOS MEXICANOS, SUBSIDIARY ENTITIES AND SUBSIDIARY COMPANIES NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2001 (AUDITED) AND JUNE 30, 2002 (UNAUDITED) AND FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2002 AND 2001 (UNAUDITED) (Amounts expressed in thousands of pesos and thousands of U.S. dollars)
SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION BALANCE SHEET As of June 30, 2002
SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION BALANCE SHEET As of December 31, 2001
SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION STATEMENT OF INCOME For the six-month period ended June 30, 2002
SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION STATEMENT OF INCOME For the six-month period ended June 30, 2001
SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION STATEMENT OF CHANGES IN FINANCIAL POSITION For the six-month period ended June 30, 2002
SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION STATEMENT OF CHANGES IN FINANCIAL POSITION For the six-month period ended June 30, 2001
SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION BALANCE SHEET As of June 30, 2002
SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION BALANCE SHEET As of December 31, 2001
SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION STATEMENT OF INCOME For the six-month period ended June 30, 2002
SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION STATEMENT OF INCOME For the six-month period ended June 30, 2001
SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION STATEMENT OF CHANGES IN FINANCIAL POSITION For the six-month period ended June 30, 2002
SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION STATEMENT OF CHANGES IN FINANCIAL POSITION For the six-month period ended June 30, 2001
UNAUDITED SUPPLEMENTAL CONSOLIDATED FINANCIAL INFORMATION PREPARED ON A PRICE-LEVEL ADJUSTED BASIS
For the Six-Month Periods Ended June 30, 2002 and 2001 and for the Year Ended December 31, 2001
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2002 AND 2001 (In thousands of constant pesos as of June 30, 2002)
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2002 AND 2001 (In thousands of constant pesos as of June 30, 2002)
NOTES TO THE UNAUDITED SUPPLEMENTAL CONDENSED CONSOLIDATED FINANCIAL INFORMATION PREPARED ON A PRICE-LEVEL ADJUSTED BASIS
For the Six-Month Periods Ended June 30, 2002 (unaudited) and 2001 (unaudited) (In thousands of constant pesos as of June 30, 2002)