Piecing together the puzzle of Mexican Energy Reform: 7 Business Opportunities

Piecing together the puzzle of Mexican Energy Reform: 7 Business Opportunities David Eaton, VP Sales & Marketing 9/12/16

Key Messages How did we get here? Over time, Pemex became inefficient and bloated reform was needed What does the reform do? Breaks Pemex's integrated monopoly and opens the energy market to private participants What s in it for me? Seven rail, port and transload business opportunities Where do we go from here? Logistics infrastructure for the midstream sector must develop 2

How did we get here? 1910 - United States, Dutch and English investments in the first Mexican oil fields 3

1938 - Mexico nationalizes the oil industry and created Pemex 4

Over time, Pemex became inefficient and bloated. Reform was needed. 5

2013 - Mexico Energy Reform is passed Sweeping reforms were made to the constitution and Mexican Energy reform became a reality Mexico's President Enrique Pena Nieto 6

What does the reform do? Breaks Pemex s integrated monopoly and opens the energy market to private participants 7

Pemex trims down and stays in the fight: Reduced focus/new contracting authority 8

Private investment in mature and new basins Source: SENER Plan Quinquenal de Licitaciones para la Exploración y Explotación de Hidrocarburos 2015-2019 9

Private sector midstream environment 10

New Retail Market Branding January 1, 2016 Importation April 1, 2016 Price Controls January 1, 2018 11

What s in it for me? 7 Business Opportunities 1. Importation of refined products (gasoline, diesel & biofuels) 2. Importation of LPG s 3. Exportation of heavy fuel oil 4. Movement of steel pipe for natural gas transmission 5. Heavy Mexican crude from mature wells for US refineries 6. US crude exports for Mexican refineries 7. Importation of frac sand 12

Topography of Mexico A 13

Gaps in the Pipeline Network Saltillo SLP Sources: SENER and Pemex 14

KCSM Network Saltillo KCS Bridges the Gap San Luis Potosi 15

REFINING CAPACITY 1.27 Mbbl/day CADEREYTA Refining Capacity: 275,000 bpd % Capacity Utilization: 64.85% Serving Carrier: KCSM MADERO Refining Capacity: 190,000 bpd % Capacity Utilization: 84.99% Serving Carrier: KCSM SALAMANCA Refining Capacity: 245,000 bpd % Capacity Utilization: 61.70% Serving Carrier: KCSM through FXE haulage TULA Refining Capacity: 315,000 bpd % Capacity Utilization: 88.09% Serving Carrier: FXE MINATITLAN Refining Capacity: 246,000 bpd % Capacity Utilization: 71.95% Serving Carrier: FSRR Sources: Reuters1, Reuters2, Bloomberg, T21 SALINA CRUZ Refining Capacity: 330,000 bpd % Capacity Utilization: 89.58% Serving Carrier: FIT 16

1. Importation of refined products (gasoline, diesel & biofuels) Demand in Mexico is increasing Mexican production is dropping Exports from the United States will grow Theft is a concern KCS bridges the gap in the pipline network Result Product shortages in emerging population centers 17

Refined products Houston Area: multiple refineries/origins Rail SLP MTY POB Tampico Veracruz Huehuetoca By Ship Origin Destination KCS bridges the gap to reach key markets in central Mexico 18

2. Importation of LPGs 19

Demand exceeds supply in Central Mexico Mexico - Highest per-capita residential/commercial consumer of LPG in the world 8 out of 10 homes uses LPG 30% of demand is imported growing KCS rail bridges the gap in the current distribution system 20

3. Exportation of heavy fuel oil Pemex cannot convert heavy fuel oil into pet coke or asphalt 21

3. Exportation of heavy fuel oil Pemex refineries are old and generate a lot of heavy fuel oil Uses: Power generation Bunker fuel CFE has converted to natural gas - fuel oil inventories build Heavy fuel oil out / natural gas in = inventories build No capability to convert heavy fuel oil to asphalt or pet coke High volume of fuel oil must be exported out Lazaro Cardenas and Brownsville 22

Suezmax ships in Lazaro Cardenas for HFO Natural deep water Port Maximum vessel depth 16.5 meters (54.13 ft) 23

4. Movement of steel pipe for natural gas transmission 24

Mexico s Pipelines are Expected to Grow 89% from 2012-2018 An estimated 6,267 miles of pipe will be constructed from 2012-2018 25

Los Ramones South pipeline project 291 Km pipeline Project (KCS moved +68 Km) Pipeline crosses: San Luis Potosí, Guanajuato and Queretaro states 26

Crude Swaps Business Opportunities #5 & #6 Heavy Mexican crude from mature wells for US Gulf refineries Light crude from the US for Pemex refineries - increase production of refined products and less heavy fuel oil 27

5. Heavy Mexican crude from mature wells for US refineries 28

Ebano basin - Mexican heavy crude for US refineries KCSM L Line crosses the field Current production: 15,000 Bbls per day Potential: 50,000 Bbls per day 29

Ebano Rail Project Delivery Options oil by rail from Ebony S.L.P. Contract Areas (Altamira Area) Crude storage specification Proposed Stations Actual pumping G-Méndez Crude analysis to be dehydrated Gross: 6,500 bls Water: 8-12% API: 10-12 Refinería Madero Pipeline Railroad Ébano 4 Raya 5 Escudo Nacional Las Flores E-112 1 Sábalo Corc. 5 Águila Méndez 2 Corc. 2 Águila G-Méndez E-114 E-M K P Paciencia Chijolito Chijol-D17 E-41 6 Internacional Ébano 3 Oficinas Ébano A-21

6. Importation of US crude for Mexican refineries Houston Pemex's older refineries would benefit from lighter sweet crude from the US: KCS bridges the gap Tula 31

7. Importation of frac sand 32

Fracking in Northern Mexico When? Laredo, TX Ciudad Miguel Aleman Zapata County, TX 33

Perspective Shale Basins of Eastern Mexico Source:www.grieta.org.mx 34

Fracking in Northern Mexico is a few years off Low oil prices Efficiency of the US basins Existing infrastructure on the US side of the border Lack of infrastructure on the Mexican side of the border such as roads, terminals and water When fracking begins in Northern Mexico, terminals will be needed 35

Market Scenario Reform is a reality The energy sector will open Pemex crude and refining production continues to drop Social discontent with product shortages is growing Product must be imported KCS bridges the gap Terminals are needed 36

Terminals Coming Soon! Pt Arthur Houston Corpus Christi Brownsville Monterrey Tampico San Luis Potosi San Jose Queretaro Tula Lazaro Cardenas 37

Bronco Terminal Corpus Christi (Origin, existing, potential unit train) KCS lane Outside Storage - 130 acres Track Capacity - 300+ cars Over four miles of track on 120 acres and a maximum capacity of 325 railcars Commodities: Aggregates, catalyst, ethanol, frac sand, grain, petroleum coke, pipe, tubing 38

Greensport Houston Terminal (Origin, existing, unit train) Rail Logistics, Warehousing, Transloading, Trucking & Project Management 39

Rangeland Terminal Corpus Christi (Origin, future, unit train) Will receive and store refined products and LPG to be shipped to Mexico Located on KCS mainline. Subsequent phases are expected to include a marine-based facility as well as additional capacity to handle other commodities Rangeland Energy said it expects the terminal to be in service by Q1 of 2017 40

T & R Terminals Corpus Christi area (Origin, future, unit train) 222 acres on the Laredo Subdivision in Realitos, TX for a multi-modal transload facility Services are liquid bulk transload and storage, dry bulk transload, railcar storage Origin terminal for liquid transload with gas pipeline that currently runs though the property 41

Bulkmatic in Monterrey - Manifest (Destination, existing, manifest train) Monterrey Capacity: 150 cars Storage capacity: No cover: 182,986 ft 2 Cover: 21,527 ft 2 San Luis Potosi 42

FR Terminales in Monterrey - Manifest (Destination, existing, manifest train) Monterrey Capacity: 65 cars 43

WTC Refined Products Terminal in SLP (Destination, near future, unit train) Future FLUIDS & CARGO TERMINAL Rail to truck transload December 2016 44

Marsori LPG Terminal in SLP (Destination, near future,unit train) Estimated start date December, 2016 San Luis Potosi 45

Howard Energy Diesel Terminal in San Jose Iturbide (Destination, near future, unit train) San Jose Iturbide Estimated start date October 2016 46

Port of Brownsville - Maverick Existing destination for heavy fuel oil and potential origin for refined products 47

Destination Queretaro - existing LPG manifest and potential refined products unit train San Luis Potosi Queretaro 48

Tula - Existing manifest transload for LPGs and refined products KCSM North Connection Custom Area FERROSUR South Connection KCSM Rail Line Over pass Bridge Intermodal Yard TILH Phase 1 FERROSUR Rail Line Potential unit train terminal for refined products Tula Ahorcado 49

Bulkmatic Atitalaquia Existing unit train terminal for heavy fuel oil Existing LPG transload Potential destination for US light crude Atitalaquia Atotonilco de Tula 50

Tula Heavy Fuel Oil Terminal 51

What will Pemex do with its 77 TARs? 52

Possible Frac Sand Terminals on the KCSM KCSM B Line KCSM F Line 53

Where do we go from here? 54

Key Messages How did we get here? Over time, Pemex became inefficient and bloated reform was needed What does the reform do? Breaks Pemex's integrated monopoly and opens the energy market to private participants What s in it for me? Seven rail, port and transload business opportunities Where do we go from here? Logistics infrastructure for the midstream sector must develop 55