It’s been a rough couple of years--make that decades--for Mexico’s state-owned oil company Petroleos Mexicanos. The country’s oil production rates have been in freefall for the last 15 years, and the struggling organization has subsequently become one of the most indebted oil companies in the world with “about $105 billion of bonds and loans outstanding,” according to the Wall Street Journal. Mexico’s new leftist President Andrés Manuel López Obrador, who won in a landslide election last year, ran on a platform that included reviving the long-ailing Pemex and a radical fight against corruption, including within the state oil company, as well as putting a stop to the nation’s rampant fuel theft.
So far, however, Pemex has continued to flounder under its new administration. The company reported a 36 billion-peso ($1.9 billion U.S. dollars) loss in the first quarter, but this is not the complete story. As we reported in May, “while these numbers are grim, especially compared to the 113-billion-peso profit reported in the first quarter last year, Mexican officials say that things are headed in the right direction for Pemex. It’s true that a loss of 36 billion pesos in the first quarter is a marked improvement over the previous quarter’s crushing loss of 157.3 billion pesos.”
Now Pemex is “on the verge of being downgraded to below investment grade by two major ratings firms,” says the Wall Street Journal. “Its bonds are showing signs of forced selling by funds with limits on owning junk debt. And the selling is far from over,” according to reporting based on an analysis by Citigroup Inc.’s Eric Ollom. Investors are understandably wary, as “earlier this month Fitch Ratings cut Pemex to a high-yield rating, while Moody’s Investors Service dropped the company to its lowest investment-grade rating.” Related: Protracted Trade War Inflicts Lasting Damage To U.S. LNG
Mexican officials, however, are still keeping a brave face for the public and spreading a message of optimism and overall improvement going forward. Although output has continued to fall, with recently released data showing that output fell in May from its April levels (although exports increased by 17.8 percent), López Obrador contradicted this reported version of events in a public statement on Thursday, saying that he has “different information,” and that, “not only has (the fall in production) stopped, but it has stabilized.” He went on to say, reinforcing his crusade against corruption, that Pemex has actually reduced its operational costs by 30 percent by reducing corruption within the company.
Furthermore, Pemex has responded to investors’ balking with aggressive plans to balance the company’s finances with a two-pronged approach. Firstly, the company aims to refinance $2.5 billion of its approximately $105 billion in debt this year. Secondly, it will continue to focus on increasing its still-low output to start turning more profits. López Obrador has promised to revive the company,” says Reuters, “which is saddled with some $106 billion in debt, by cutting its tax bill and lifting oil production by at least 50% by the end of his administration in 2024.” Pemex is already on track to ramp up production by around 260,000 bpd of new crude output over the next couple of years thanks to 22 shallow water and onshore fields.
Another Reuters report says that Pemex’s CFO Alberto Velazquez is in line with López Obrador in saying that despite their poor recent ratings and myriad other problems, overall Pemex is heading in the right direction. “Pemex is showing better financial results,” Reuters paraphrases, “including benefits in April and May, savings from an anti-fuel theft plan, lower costs for exploration and production contracts and cuts to expenses.”
By Haley Zaremba for Oilprice.com
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