Feb. 27 (Bloomberg) -- Petroleos Mexicanos, Mexico's state- owned oil monopoly, reported a fourth-quarter loss as sales declined because of lower production.

Pemex, as the Mexico City company is known, had a loss of 6.9 billion pesos ($635 million) compared with a loss of 76 billion pesos a year earlier, according to a Mexican stock exchange report. Sales fell 11 percent to 236 billion pesos. Average daily output slid 6 percent to 3.1 million barrels.

Exports fell 12 percent to 1.66 million barrels a day. The U.S. buys about 80 percent of Pemex's crude exports. The Mexican government this year will likely cut spending from 2006 as oil tax revenue, accounting for more than a third of its budget, drops because of lower output and oil prices.

Pemex ``will face the challenge of maintaining production levels, making it a priority to attend the growing investment needs that are required for exploration and extraction of oil and gas,'' the company said in an e-mailed statement.

On Feb. 7, Chief Executive Officer Jesus Reyes Heroles said Pemex's largest oil field, Cantarell, will decline about 15 percent this year following a 12 percent drop in 2006. Cantarell last year accounted for 55 percent of Pemex's production.

Prices for Pemex's crude exports dropped to $49.24 a barrel today after rising as high as $64.85 on Aug. 7.

Fourth-quarter operating income rose 7 percent to 107 billion pesos from 100 billion pesos a year earlier as the company reduced cost of sales by 28 percent to 106 billion pesos. Pemex paid taxes of 121 billion pesos in the quarter.

For 2006, Pemex's reported net income of 42.5 billion pesos, compared with a loss of 79.4 billion pesos in 2005. Sales in 2006 rose 10 percent to 1.06 billion pesos.

Last year, the company paid taxes of 584 billion pesos, or 55 percent of sales, down from 604 billion pesos, or 62.5 percent of sales, after Congress approved a bill that took affect in 2006 to reduce Pemex's tax burden.

At the end of the December, Pemex had liabilities of 1.17 trillion pesos ($108 billion), including unfunded pension liabilities of 454 billion pesos.

To contact the reporter on this story: Thomas Black in Monterrey at tblack@bloomberg.net

Last Updated: February 27, 2007 21:35 EST