- Pemex must first show credible long-term profitability plan
- Pemex needs to adjust to reality of lower global oil prices
Mexico could inject capital into slumping state-owned Petroleos Mexicanos and allow it to increase debt more than planned if the oil producer presents a plan to ensure its long-term sustainability and profitability, Deputy Finance Minister Miguel Messmacher said.
Pemex needs to show it can lower costs, make better investments and accelerate partnerships with other companies, Messmacher said in an interview at Bloomberg’s Mexico City offices. Only then can the government clear the way to fresh funds, said Messmacher, who participates in Pemex board meetings when Finance Minister Luis Videgaray is unavailable.
Pemex reported a record $10.2 billion loss in the third quarter, resulting in a credit-rating downgrade from Moody’s Investor Service, and has seen production fall for 11 straight years. While the company is focused on improving output from mature fields through partnerships, Pemex last year failed to put them in place and now hopes to begin the joint ventures in 2016, Chief Financial Officer Rodolfo Campos said in an interview last month.
"We will be evaluating the possibility of allowing some change in Pemex’s balance sheet or the possibility of some contribution in capital terms," Messmacher said. "For us, a prerequisite is that Pemex has a credible adjustment plan that guarantees that Pemex can be sustainable on its own in a scenario of lower oil prices than they’ve been accustomed to. This is a prerequisite for whatever type of support we could give them."
Pemex has been struggling after the price for Mexico’s oil exports fell 76 percent in the past 18 months amid a slump in global crude prices. Pemex’s Campos said last month that the company plans to cut jobs as it seeks to become more efficient. Pemex had 150,657 employees as of 2014, or one employee per $792,000 of revenue. In comparison, each of the 75,300 Exxon Mobil Corp’s employees produced about $4.8 million in revenue in the same year.
In few areas is Pemex more inefficient than in refining, where the company utilizes just 63 percent of the capacity of its six refineries.
Messmacher said it’s too early to know if Mexico will hedge its oil exports for next year given the fall in crude prices. Mexico hedged oil for this year at $49 a barrel using put options, and the nation’s crude mix is currently trading at less than half that level, closing on Tuesday at $22.55 per barrel. For years, the nation has used hedges to protect federal revenue from lower oil prices for a country that has historically depended on crude to fund about one third of federal spending.
Buying put options with a strike price much above the oil price at any moment in time is "incredibly, prohibitively expensive," Messmacher said.
It’s also too early to say whether Mexico will need to cut spending next year, since that will depend largely on whether oil prices rebound, Messmacher said.
One bright spot for the Mexican economy is personal consumption and retail spending, which will continue to benefit from low inflation, a drop in phone costs, higher salaries and less pressure from gasoline prices, Messmacher said.