Pemex, Badly in Need of Cash, Works on Plan to List Some Assets

  • Company seen raising money through master limited partnerships
  • Pipelines and oil terminals seen garnering the most interest

With oil prices stuck near a 12-year low and output in free-fall, speculation is mounting that Petroleos Mexicanos will seek to raise cash by selling stakes in pipelines and oil terminals that might have otherwise been off limits.

The state-owned oil company will probably take advantage of new rules creating master limited partnerships in Mexico, according to company officials and the head of Mexico’s stock exchange. Known as MLPs in the U.S. and Fibra E in Mexico, the investment vehicles allow companies to sell shares of individual assets to investors lured by attractive tax exemptions.

For Mexico, it represents the latest attempt by the government and industry to lure private investment and spur faster growth in Latin America’s second-biggest economy after President Enrique Pena Nieto pushed through a series of measures ending the state’s 76-year oil monopoly. For Pemex, it could be a source of much-needed cash after the collapse of oil prices led to a record $10 billion loss in the third quarter.

“It’s not the cure-all for all woes, but it will provide a very nice vehicle for Pemex to drop assets into,” said Steven Otillar, partner at Akin Gump Strauss Hauer & Feld LLP who has acted as an adviser to energy companies in Mexico. “Pipelines and mid-stream assets would be ideal.”

Petroleos Mexicanos needs to raise cash after failing to stem an 11-year slide in its production as fields age, contributing to 12 straight quarterly losses. Selling stakes in some key assets through Fibra E trusts, which resemble the MLP structure but have some legal differences, will allow the company to monetize part of its infrastructure while continuing to operate it.

"We’ve been working on this for some time and the structure is being finalized," Pemex Treasurer Rodolfo Campos said in December. At the time, Campos said Pemex expected to make the first announcements on Fibra E in the first half of 2016.

The company is specifically considering selling stakes in mid-stream assets such as pipelines and other infrastructure that connect wells to ports, according to two people with knowledge of the matter who asked not be identified because the details are still being finalized. West Texas Intermediate oil futures slid as much as 3.4 percent on Thursday.

A recent management shuffle that saw Emilio Lozoya replaced by Jose Antonio Gonzalez Anaya as chief executive officer doesn’t change the company’s plans to raise money using the trusts, said one of the people. Pemex’s press office in Mexico City declined to comment for this story, but said additional details may be announced on the company’s earnings call on Monday.

Otillar, the partner at Akin Gump Strauss Hauer & Feld, said Pemex’s 30,000 kilometers (18,500 miles) of pipelines are among the most attractive opportunities.

In September, the Mexican government announced rule changes to allow for the introduction of the MLP structure, which has become increasingly popular in the U.S., in part because of its tax advantages. Jose-Oriol Bosch, CEO of Mexico’s stock market operator, says he hopes that Pemex or other energy companies will use the new Fibra E instruments to raise cash as soon as this year even as the bourse continues to negotiate with the government to finalize tax rules.

“They have very good assets that they can put in a this structure,” Bosch said in an interview this month. “You can say that because the energy price is down there is less interest. But, on the other hand, there is much more interest to raise money.”

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