Pemex's Trevino Rushes to Put House in Order Before Vote

(Bloomberg) -- Petroleos Mexicanos is in a race to get deals and bond sales done before an election that could scuttle efforts to lure international investments into Mexico’s battered oil industry.

Carlos Trevino, the company’s third chief executive officer in about two years, plans to raise $4 billion in debt markets, seal three refinery partnerships and hedge about a third of the company’s production. All that hopefully before a new government takes office in December, following a July 1 vote.

“We have been opportunistic” in issuing bonds to meet liquidity in the market and consider the political risk following Mexico’s elections in July, Trevino, 48, said in an interview. Pemex must consider “what the bond market will think of the outcome of the elections,” he said.

Presidential front-runner Andres Manuel Lopez Obrador has threatened to dial back reforms that have lured oil majors back into Mexico after decades of state monopoly. He said he will freeze fuel prices for three years, review oil contracts that have already been awarded because of alleged signs of corruption, and could cancel or suspend new oil licensing.

Controlling fuel prices would be “very bad news for Pemex,” Trevino said. “I don’t know what he’s expecting to do and I don’t know how, but it’s going to be very hard for the public finances of Mexico.”

Bond Sales

The Mexican state oil giant will borrow about $4 billion through bonds and, to a lesser extent, export credit facilities before the end of 2018, Chief Financial Officer David Ruelas said in a subsequent interview. The sales could be in the U.S. or Europe, including one ahead of the vote, Trevino said.

On Wednesday, Pemex issued 3.15 billion in euro-denominated bonds in four parts, maturing between 4.5 years and 10.75 years.

Pemex will have a difficult time managing its financial obligations “if there is increased volatility under the next administration,” said John Padilla, managing director of energy consulting firm IPD Latin America LLC. “Pemex has been successfully refinancing at better terms over the past couple of years but as interest rates rise, the appeal of emerging market debt like that of Pemex will almost certainly reduce.”

Refinery Deals

Pemex is “very close” to signing partnership deals for units at three of its refineries and expects to make an announcement in late July, Trevino said. It’s also close to sealing a deal with a group led by Mitsui & Co. that will help increase the amount of fuels produced at the flagship Tula refinery by about 40 percent.

Separately, Pemex is seeking to relaunch tenders this year for the Ayin-Batsil and Nobilis-Maximino offshore areas with reduced minimum work commitments after the farm-outs failed to attract interest last year. And it will auction seven onshore blocks in the states of Chiapas, Tabasco and Veracruz in farm-out deals at the end of October.

Pemex will probably hedge its 2019 crude production at $51 a barrel, Trevino said, after already hedging its output for 2018 at $48.50. The hedge is likely to occur in September or October. Next year’s hedge will be similar to this year’s in scope, covering between one-quarter and one-third of the company’s crude production, Ruelas said.

Pemex’s hedge is separate from a Mexican finance ministry program that has been in place almost every year since 2001.

©2018 Bloomberg L.P.

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