Mexico’s state-owned oil company Pemex (Petróleos Mexicanos), which posted disappointing results in 2019, could increase production and replace nearly 50% of its proved reserves by 2020.
“By 2020, we hope that Pemex can increase production by 1%, replacing about 50% of its proved reserves,” rating company Moody’s said in its report.
The announcement comes just two days after Pemex announced that its net losses nearly doubled in 2019; while its debt to suppliers and reserve for employee benefits skyrocketed. All of which has increased doubts over the government’s promises of reinvigorating the indebted Mexican oil company.
Risks of a drop
Overcome with debt, Pemex has been on the brink of a downgrade since June. It was then that Fitch Ratings changed the tune. The main rating agencies have a negative forecast for the company.
In this context, President Andrés Manuel Lopez Obrador launched several lifelines for the company last year, providing millions in capital injections, tax exemptions, and debt refinancing.
Thanks to a $5 billion capital injection from the Mexican government in September 2019, Pemex improved its liquidity and its debt maturity profile in 2019.
Lower production and revenue
In 2019, the company’s crude production went down by 4%. At the same time, its revenue decreased by 16%, compared with 2018.
This drop stemmed mainly from a scenario of lower crude production, on par with lower sales in the domestic market and the international market as well.
Oil production averaged 1.68 million barrels in 2019, down by 7.6% from 2018.
A negative 2019 for Pemex
The results presented by Alberto Velázquez, Chief Financial Officer, reveal that Pemex recorded losses of $18 billion in 2019 – up by 92% from the previous year. Income also fell to $73 billion, down by 16% from 2018.
Crude exports were down by 6.8%, while the Mexican oil export mix decreased by 9% and petrol sales by 5.7%, factors that affected the sharp fall of Petroleos Mexicanos.
“The most important variables that explain the situation are the price of the Mexican mix; lower reference prices for gasoline and diesel; and lower sales in the domestic and foreign markets,” Velázquez explained.
According to the report, the company’s total financial debt dropped by 4.8%, as compared with 2018.
In short, debt stood at $105.2 billion, a result of the pre-payment made past year and a strong capital injection of $5 billion made by the government in 2019.
Similarly, the report mentioned that Pemex’s crude production averaged 1,712,000 million barrels, down by 29,000 barrels compared with the same quarter of 2018.
The company explained that the performance can stem from the natural decline of some mature fields and the rise of water flow in some shallow water fields. However, this decline was slightly reduced by production at new fields.
Meanwhile, Pemex’s natural gas production – not including nitrogen – stood at 3,767 cubic feet per day, up by 19 million from the previous year.
A challenge for AMLO
These disappointing results put the government of Andrés Manuel Lopez Obrador in a tough spot. His administration has made the recovery of Pemex one of its priorities.
After swearing in, the Mexican president established the goal of reaching 2.4 million barrels per day by the end of the sexennial period in 2024.
In this scenario, the state-owned company has asked for patience. According to Velázquez, in the first year, the efforts focused on laying the foundation for a transition expected to last 3 years.
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