TEXT-S&P on Pemex Project Funding Master Trust notes

(The following statement was released by the rating agency)

June 9 - Standard & Poor's Ratings Services said today that it assigned its
'BBB+' foreign currency, long-term, senior unsecured debt rating to Pemex
Project Funding Master Trust's $1 billion, 5.75% notes due 2018 and its $500
million, 6.625% notes due 2038. Pemex Project Funding Master Trust issued the
debt and benefits from Petroleos Mexicanos' (PEMEX; BBB+/Stable/--) and its
subsidiary entities' irrevocable and unconditional guarantee.

Our ratings on PEMEX reflect the United Mexican States' (FC:
BBB+/Stable/A-2; LC: A+/Stable/A-1; national scale rating: mxAAA/Stable/--)
significant support, Mexico's large oil and gas reserve base, PEMEX's monopoly
status in the large Mexican oil and gas market, and its central role in
Mexico's energy sector.

Nevertheless, the local currency rating on PEMEX is two notches below
that on the United Mexican States. This reflects PEMEX's highly leveraged
financial profile and its unfavorable reserve replacement compared with that
of other investment-grade oil companies. The company's after-tax financial
measures are very weak for the rating category because of large unfunded
pension obligations and the large amount that of PEMEX's tax burden the
government takes. Because of this, PEMEX financed most of its capital
expenditures with debt during the past several years.

The ratings on PEMEX and Mexico are linked because the Mexican government
owns the company and, because PEMEX has an important role in Mexico's economy,
the government depends heavily on oil revenues. The government exercises
considerable oversight of PEMEX, particularly with respect to all fiscal
management.

PEMEX accounts for about 40% of Mexico's public-sector revenue through
taxes and dividends, and petroleum and derivatives account for about 15% of
the country's total exports (net of "maquila" imports). We believe PEMEX's
importance as a source of tax revenues and export receipts and as a funding
vehicle is a strong economic incentive for Mexico to support the issuer during
periods of financial distress.

PEMEX enjoys a satisfactory business position. Mexico's extensive base of
proved developed and undeveloped hydrocarbon reserves supports this. As of
Dec. 31, 2007, reserves were about 14.7 billion barrels of oil equivalent (as
determined in accordance with Rule 40[a] of Regulation S-X of the Securities
Act of 1933, the reporting standard of the U.S. SEC). Also supporting PEMEX's
business position is its constitutionally protected monopoly status in most
segments of the large Mexican oil and gas market, including exploration and
production (E&P), refining, marketing, and certain petrochemicals. However,
commodity price volatility and government interference--including the high
transfers to the government that keep the company from appropriate capital
spending--are primary risks to its business.

Although the company has made important investments in the past six
years, government ownership has created a heavy tax burden that has kept it
from increasing investment. This has led to a weak reserve-replacement ratio,
other operating inefficiencies, and after-tax financial measures that compare
unfavorably with those of other investment-grade oil and gas issuers. We
believe the increase in PEMEX's financial obligations has exposed it more to
commodity price volatility, which could further weaken its after-tax key
financial measures and reduce its liquidity if crude oil prices fall.

PEMEX's strong EBITDA generation (about $60.5 million in 2007) reflects
its extensive proved reserves, competitive lifting costs, and proximity to the
U.S. market. Consequently, the company's upstream operations are profitable in
most pricing scenarios, although a high percentage of heavy crude oil in the
production mix can exacerbate margin compression when pricing is depressed. In
2007, the company posted funds from operations (FFO)-to-total debt, EBITDA
interest coverage, and total debt-to-EBITDA ratios of 11.7%, 11.9x, and 1.7x,
respectively. (These ratios consider as debt-like obligations the company's
unfunded pension liabilities of about $48 billion.)

During the past two years, PEMEX has posted more reasonable after-tax
cash flow figures as a result of the use of a cash-flow proxy to determine the
taxes levied on its E&P operations, coupled with its ability to credit against
other duties the negative indirect taxes arising when gasoline reference
prices exceed the price at the pump in Mexico. Nevertheless, we expect taxes
to remain an important burden on the company's finances. Therefore, we expect
after-tax financial performance to remain weak for the rating, evidenced by
the FFO-to-total debt ratio mentioned above. Without the changes needed to
moderate the issuer's growth in unfunded pension liabilities, it is unlikely
that PEMEX will improve its key financial ratios significantly.

The outcome of the government's proposed energy reform in early April
2008 and its effects on PEMEX are still uncertain. Six bills were presented to
the Mexican Congress. The reforms include important changes to the legal
framework under which PEMEX operates, intended to increase the company's
accountability, transparency, and managerial autonomy. The package also
includes proposals for contracts with the private sector for refinery
construction and operation, storage facilities, and pipelines. Opposition in
Congress has been intense, and the discussion period has been extended to
allow for a national debate on the energy reform.
Liquidity
PEMEX's liquidity is adequate. The company has high cash balances and ample
access to bank financing and domestic and international capital markets. As of
December 2007, PEMEX had cash and cash equivalents of about $15.9 billion,
comparing favorably with short-term debt of $6.6 billion. The company also has
a $2.50 billion committed revolving credit facility, currently 100% utilized.
Despite being free operating cash flow positive in 2006 and 2007, the company
more consistently registers negative free operating cash flow because its
capital expenditures are higher than its FFO--a figure that is significantly
depleted by the large amount that the government takes. This leads us to
believe that PEMEX will continue to require external financing to support its
investment program. If necessary, PEMEX's oil and gas reserve life of about
9.2 years provides it with flexibility to briefly defer investment in
exploration during periods of depressed pricing, without immediately affecting
production. PEMEX's 2008 capital expenditures will be about $19.4 billion.

The company has received approval from the government to fund some of its
capital expenditures with cash in hand. This could mean using an important
portion of its cash balance, which PEMEX should be able to offset by extending
its debt maturities.
Outlook
The stable outlook on the foreign currency rating on PEMEX reflects our
outlook on the United Mexican States. Even if some proposals of the energy
reform mentioned above are approved, we don't expect PEMEX's relationship with
the government to change significantly in the next two to three years, nor do
we expect the government's heavy involvement in the sector or the company to
reduce significantly.

The stable outlook on the local currency rating reflects our expectations
that PEMEX's current tax regime will allow it to retain more cash and that it
will slow its growth in debt leverage. We are not likely to raise the local
currency rating in the medium term.

Any upgrade would require a combination of the government contributing
sufficient capital to allow significant deleveraging or sharply reducing
PEMEX's tax burden, so that the company could internally fund the bulk of its
capital expenditures for maintenance and expansion; PEMEX improving its
operations, particularly in reserve replacement; and a reduction in the
company's growing unfunded pension liabilities. We could lower the local
currency rating if PEMEX's leverage continues to rise significantly, pension
liabilities grow disproportionately, and reserve-replacement trends do not
improve.

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then Ratings in the left navigation bar, followed by Credit Ratings Search.
(New York Ratings Team)