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PEMEX: We Will Be Profitable In 2019-2020

Offshore rig

“Things are moving, and it is hard, but we are on the right track” – PEMEX CEO Jose Antonio Gonzalez Anaya

During a conference call outlining the company’s five-year plan on Wednesday, PEMEX CEO Jose Antonio Gonzalez Anaya said the company will meet its financial targets for the year, and that he believes they are on the right track to make the company profitable before the end of the decade. Anaya said PEMEX believes it will be free cash flow positive in 2019 or 2020, but interest payments appear to still be weighing heavily on the company.

During the call, Anaya focused on PEMEX posting a primary surplus next year, meaning that the company will have positive cash flow if it removes interest and amortization from the equation. When asked for more concrete numbers, Anaya said that the company is looking at a primary surplus of 8 billion pesos for next year, but once interest payments are factored in, PEMEX will post a deficit of approximately 94 billion pesos.

Anaya emphasized that this a positive direction for the company, reminding those on the call that PEMEX posted a loss of 150 billion pesos both this year and last.

“We’ve financed more or less half of [the 94 billion peso deficit] for next year,” he said. Anaya added that he used “more or less” because the company could potentially tap lines of credit, reducing its need for further financing “substantially.”

PEMEX’s CEO said its forecast for positive free cash flow in 2019 or 2020 were based on a conservative estimate that used the futures markets for Brent crude, and then discounted it $4-$5 per barrel for Mexico’s crude oil grades. The forecast did not include possible divestitures or future improvements to operational efficiencies, meaning more potential upside exists as well.

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“Profitability is a guiding force,” Anaya said at the beginning of the call. “It has been an issue in the past, but now it’s a guiding force.”

PEMEX sees benefits from partnerships, ahead of schedule with 6 farmouts

A major focus of the company’s call today was PEMEX’s farmouts and potential JVs moving forward. The tax regime for farmout fields is much more favorable, said Anaya, whose company pays roughly 60 percent-65 percent of what it makes to the government in taxes, according to one analyst on the call. This tax structure means that some fields are profitable before tax, but not after, and finding ways to get them into more favorable tax regimes would be a focus for the company.

PEMEX currently has about 90 MBOPD of production in fields that is profitable before tax, according to Anaya. The migration of fields to a more favorable tax structure could mean a 15-20 billion peso uplift for the company.

The company is ahead of schedule on farmouts, Anaya added. PEMEX had planned on starting the farmout process at the end of the year and already has assigned six before December. The company’s CEO said there are currently seven more fields that they plan to farmout, but they could change depending on interest from partner companies.

By Oil & Gas 360

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