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Felicity Bradstock

Felicity Bradstock

Felicity Bradstock is a freelance writer specialising in Energy and Finance. She has a Master’s in International Development from the University of Birmingham, UK.

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Debt Stricken Mexican Oil Major Pemex Scrambles To Boost Production

After decreasing production to match lower demand in 2020, Mexico plans to boost oil exports  in 2021 as worldwide demand gradually increases once again.

OPEC members heavily reduced oil production and export levels in 2020 amid a precipitous drop in demand. Although Mexico initially supported this initiative to stabilise pricing, the head of state-owned Mexico’s Petroleos Mexicanos (Pemex) announced this week that production would pick up to pre-reduction levels this year. 

Ulises Hernandez, general director of PMI – which manages many of Pemex’ trade deals stated, “Because of the low (production) costs and, of course, the blend of heavy and light oil that we produce has good demand in the international market, we have not had the need to reduce exports.”

Pemex produced an average of 1.65 million bpd of crude in January, barely less than the previous year. This is expected to pick up over the next few weeks as the cuts come to an end. 

The state-owned oil giant announced in 2020 that it would focus on shallow water projects, leaving deep sea drilling to international oil majors, to maintain low production costs. 

However, the effect of Covid-19 did not go unnoticed. Pemex announced in February that it had experienced a loss of around $23 billion in 2020 due to the reduction in oil demand. This average takes into account the return to profit in the second half of the year, showing how devastating the pandemic was in the first two quarters. 

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The company criticised "the unprecedented combination of low prices for crude oil and petroleum products" and "a steep fall in fuel consumption that eroded the cash flows of all oil companies." for the loss. 

Despite failing to reach its goal of 1.84 million bpd in 2020, remaining at its 2019 average of 1.7 million bpd, it is hopeful for 2021 production, aiming for an average production level of 1.94 million bpd and 2 million bpd in 2022. 

The government stepped in last year to alleviate the company’s financial burden, announcing tax cuts and $100 billion in aid. A further $3.5 billion has been allocated to support Pemex in 2021. 

Mexican President Andres Manuel Lopez Obrador (AMLO) guaranteed his backing for the indebted oil company, vowing to support Pemex in its recovery. 

According to AMLO, the previous Mexican government “deliberately destroyed Pemex to leave the market in the hands of foreigners.”. This coupled with the pandemic that followed AMLO’s first year in government left the company in need of bailing out.

While the company is grappling with its debt and coming out of a difficult year, it has encouraging plans for the future. In December, Pemex announced it would switch its exploration strategy to work in the Tampico-Misantla basin in search of shale.

The company is expected to invest $437mn in the drilling of as many as 32 wells, including 12 wells in unconventional resources in Veracruz. Despite efforts by ALMO to rule out the pursuit of shale, Mexican oil regulator the National Hydrocarbons Commission (CNH) approved further exploration by Pemex.

It seems that the regulator is at odds with the government as commissioner Sergio Pimentel stated, "It is desirable that Pemex explores those areas with huge potential, as the country needs those resources,". Suggesting that if Pemex did not, other private companies would step in. 

While Pemex continues to battle with its increasing debt and return to pre-covid production and exportation levels, the potential for shale exploration in promising areas could mean a bright future for the Mexican oil giant. 

By Felicity Bradstock for Oilprice.com

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  • Dan Pimental on June 17 2021 said:
    An excellent information provided thanks for all the information.

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