Economics: Pemex ‒ even worse than 2018

MEXICO - Report 09 Mar 2020 by Mauricio González and Francisco González

This week we are revisiting a topic we touched on three weeks ago in offering a preliminary assessment of Petróleos Mexicanos’ latest quarterly and full-year results, which for 2019 revealed a further deterioration of the company’s operational and financial health. The report showed some areas of progress in reducing the company’s financial leverage thanks to the government's 97.0 billion peso infusion last fall to help Pemex pay down debt. Unfortunately, however, the highlight of Pemex’s 2019 performance was an abrupt drop in operating income in response to a substantial contraction of domestic and export revenues, which, added to a number of negative financial factors, resulted in a 658.13 billion peso loss in Pemex’s bottom line.

Output in almost all major product areas fell compared to 2018, including crude, gas and fuels, even as private firms building on the exploratory and production opening of the prior administration’s energy reform expanded their incipient share of these markets.

There are many reasons for concern going forward, including more displays of a lack of official transparency, such as the company’s decision to forgo the traditional Q&A session with investors and analysts. Moreover, the long awaited list of energy infrastructure projects to be undertaken jointly by the government and private companies has yet to be released. Industry players also complain of a lack of communication with Pemex that greatly impairs strategic planning on the part of all those involved, an issue further aggravated by the obvious differences pitting the Ministry of Energy and the Pemex CEO against one another.

But markets and ratings agencies took the report in stride. Despite Pemex's remaining on the brink of being cut to speculative or junk status since Fitch Ratings’ June downgrade, and a broad recognition that the indispensable need for high capital expenditure levels would demand greater government commitment as well as a significant turnaround in crude and fuel prices even as they continue to slide as coronavirus fears take hold, key analysts have expressed reserved optimism over the company’s seeming single-minded focus on exploration and production, a reported 100% replacement rate, and the potential for the sorts of new discoveries that could revive confidence in the company’s prospects.

Now read on...

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