Pemex Gets a $7.4 Billion Boost, But Half Is for AMLO’s Refinery

(Bloomberg) -- Mexico President Andres Manuel Lopez Obrador is planning a $7.4 billion cash injection for Petroleos Mexicanos over the next three years. But there’s a catch: More than half will go to his pet refinery project.

Pemex will get a $3.5 billion capital boost in 2020, with an undefined amount for exploration and production. But in the two years after that, its E&P unit won’t get a single peso from the government. By then, the company should have a “financial balance surplus” to be used for investment, according to a five-year business plan published online.

While Pemex won’t get added funds to drill in 2021 and 2022, it will get as much as $3.9 billion for the Dos Bocas refinery, to be built in Lopez Obrador’s home state of Tabasco. Investors have complained the project could keep Pemex from reversing output declines and reducing its $106.5 billion debt load, the largest among oil companies.
“Of special relevance will be the capitalization destined to finance the new Dos Bocas refinery, which will not put pressure on the investment requirements of the company since this work is included among the strategic projects of the federal government,” Pemex stated in its business plan.

The plan also includes about $6.7 billion in tax breaks for 2020 and 2021, depending on the company’s production. While Pemex aims to boost production in shallow-water and onshore fields, the government has canceled bid rounds that would have enabled the state-owned driller to share the cost of developing resource-rich deep-water areas with private partners.

Pemex’s answer to the previous administration’s joint-venture agreements with private companies in oil fields are drilling service agreement, known as CSIEEs. They are expected to contribute $5.7 billion over four years, which is not nearly enough to move the needle, analysts have said.

More government support is needed for Pemex to meet its 2024 oil production goal of 2.7 million barrels a day, up from 1.66 million daily barrels in May, with no increase in net debt, Moody’s Investors Service said in a report on Wednesday.

“This amounts to far more support from the government than the specific commitments outlined to date,” according to the report.

--With assistance from Eric Martin.

To contact the reporter on this story: Amy Stillman in Mexico City at astillman7@bloomberg.net

To contact the editors responsible for this story: David Marino at dmarino4@bloomberg.net, Reg Gale, Carlos Caminada

©2019 Bloomberg L.P.