Pemex Suffers Biggest Loss in Two Years as Output Stagnates
(Bloomberg) -- Mexico’s state-owned oil company Petroleos Mexicanos reported its biggest quarterly loss in two years as production growth stalled during its first full year under a new government.
Despite an accelerated drilling program at a group of onshore and shallow-water fields, crude and condensate production was 1.69 million barrels a day, little changed from the previous quarter. Revenue slumped in the fourth quarter, boosting Pemex’s net loss to 169.8 billion pesos ($8.8 billion), the biggest drop since the the same period in 2017.
Pemex bonds maturing in 2027 fell 1.4%, the biggest drop in nearly seven months. Yields rose 26 basis points to 5.4% on the day.
“It is worth remembering that a strategic transition period was established in our business plan,” said Pemex Chief Financial Officer Alberto Velazquez on a call with investors on Thursday. “The first year was dedicated to solve structural problems and establish precedence for a new management policy within Pemex. But on the operation and on the financial side, as of 2020, we will continue to consolidate these initiatives in order to achieve financial equilibrium at the end of the year and beginning of 2021.”
Mexico President Andres Manuel Lopez Obrador, also known as AMLO, has placed Pemex at the heart of his ambitions to upend three decades of neoliberal policies and limit the country’s dependence on foreign energy markets. The leftist leader’s plans for Pemex include the construction of a seventh refinery in his home state of Tabasco for about $8 billion.
Pemex is struggling to be profitable while balancing the need to finance the nation’s budget, which relies on it for nearly a fifth of its revenue. While onshore and shallow-water fields helped the company boost production, Lopez Obrador has frozen competitive oil auctions and farm-out tenders that enabled Pemex to share the cost of developing oil fields with partners.
Earlier this month, Pemex’s bonds hovered near a record high on the expectation that production will continue to stabilize and that Pemex will be supported by the government. Pemex has already met almost half of its financing needs for this year after selling $5 billion in bonds in January.
The Mexican driller, which is the world’s biggest borrower, was hit last year by a Fitch Ratings downgrade in June to junk. A similar move by either Moody’s Investors Service or S&P Global Ratings could lead to Pemex’s removal from investment-grade indexes around the world and a subsequent forced sell-off.
The company’s debt reached 1.98 trillion pesos as of the end of 2019, from 1.96 trillion pesos in the previous period.
Investors fear Pemex lacks the resources and technology to develop Mexico’s more complex deep-water and unconventional oil fields on its own. Pemex has stopped deep-water exploration, with the exception of the giant Trion field in the Gulf of Mexico where BHP Group is the operator. The joint venture between BHP and Pemex is the most advanced deep-water project in Mexico and first oil is expected in late 2024.
Preliminary data showed that Pemex’s proved reserves, or 1P, rose for the first time in 14 years to 7.18 billion barrels of oil equivalent at the end of the year, an increase of 170.5 million barrels. Pemex also highlighted its giant condensate and natural gas discovery at the Quesqui field, which was first announced in December.
Mexico’s National Hydrocarbons Commission, or CNH, is expected to report on Mexico’s reserves in late March or early April. The reserves Pemex reported have yet to be reviewed by a third party, said John Padilla, managing director of IPD Latin America. “Of particular concern, the incorporation of 1P reserves from Quesqui, which has yet to drill appraisal wells,” he said.
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