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Mexico to Stop Exporting Oil in 2023 in Self-Sufficiency Quest

Octavio Romero, CEO of PEMEX, speaks during an interview. (Alejandro Cegarra/Bloomberg)

Mexico plans to end crude oil exports in 2023 as part of a strategy by the nationalist government of Andres Manuel Lopez Obrador to reach self-sufficiency in the domestic fuels market.

Petroleos Mexicanos, the Mexican state-owned producer known as Pemex, will reduce crude oil exports to 435,000 barrels a day in 2022 before phasing out sales to clients abroad the following year, CEO Octavio Romero said during a press conference in Mexico City on Dec. 28.

The move is part of a drive by Lopez Obrador to expand Mexico’s domestic production of fuels instead of sending its oil abroad while it imports costly refined products, including gasoline and diesel. Mexico currently buys the bulk of the fuels it consumes from U.S. refineries.

If fulfilled, Pemex’s pledge will mark the withdrawal from the international oil market by one of its most prominent players of the past decades. At its peak in 2004, Pemex exported almost 1.9 million barrels a day to refineries from Japan to India, and was a participant in meetings by the Organization of Petroleum Exporting Countries as an observer.

Last month, the Mexican company sold abroad slightly more than 1 million daily barrels, according to Pemex data.

The export reduction will come as Pemex increases its domestic crude processing, which will reach 1.51 million barrels a day in 2022 and 2 million daily barrels in 2023, Romero said. The Mexican driller will plow all of its production into its six refineries, including a facility under construction in the southeastern state of Tabasco and another one being bought near Houston, Texas. This plant is considered part of Mexico’s refining system even if located across the U.S. border.

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Mexico’s Oil Crisis Deepens

November 27, 2018

Mexico’s Oil Crisis Deepens

Mexico’s state oil company Pemex said it produced an average 1.76 million bpd of crude in October, down 7 percent from October last year, Reuters reports, citing data released by the company. This is also one of the lowest monthly production rates since 1990 when records began.

The decline was attributed to the natural depletion of mature fields, highlighting the urgent need for new production in the country. The outgoing government of Enrique Pena Nieto launched a sweeping reform in Mexico’s energy sector, one of its aims being to open up the local oil wealth to foreign operators in order to stem this decline in production. The incoming government is currently reviewing oil contracts signed by the previous administration to make sure no corruption was involved in the deals.

Exports of crude also declined last month, and by a lot more than production. Pemex exported an average 1.03 million bpd, down by 25 percent from a year earlier. President-elect Andres Manuel Lopez Obrador earlier this year said Pemex should keep more crude for its refineries instead of exporting it to reduce Mexico’s dependency on imported fuels, but the country’s refining sector needs a lot of work to make this plan successful.

It was in October that Pemex’s refineries hit a record low utilization rate of 25.7 percent, according to an S&P Global Platts report, which also noted the causes of the drop included shortages of light crude and technical difficulties at some refineries. Pemex would need to upgrade its refineries to produce more gasoline to make local refining more profitable as currently its facilities produce a lot more fuel oil than would make economic sense.

Despite the problems, Obrador has ambitious plans, including an increase in crude oil production to 2.6 million bpd by the end of his six-year term in office and a lot more domestic refining.

Defiant Energy Policy of Mexico’s President-Elect Rattles Moody’s and Fitch

October 24, 2018

Defiant Energy Policy of Mexico’s President-Elect Rattles Moody’s and Fitch

But it’s going to be tough; he’ll need more than luck to pull it off.

Moody’s has rated the $2 billion of senior unsecured notes due 2029 that Mexico’s state-owned oil company Pemex is in the process of issuing one notch above junk. Pemex is offering to pay a coupon interest rate of 6.5%. In its report on Friday, Moody’s blamed the company’s “weak liquidity, a heavy tax burden and the resulting weak free cash flow, high financial leverage and low interest coverage; and challenges related to crude production and reserve replacement.”

Moody’s is also worried about the large amounts of debt coming due in 2020 and beyond. And Pemex will continue to be “dependent on debt capital markets to fund negative free cash flow,” it said.

Fitch Ratings downgraded the outlook for Pemex’s debt from stable to negative amid concerns about the incoming government’s proposed energy policies. It rates Pemex three notches above “junk” (BBB+), but only because the company is state-owned. Its standalone credit profile — if Pemex were not backstopped by the Mexican state — is junk, seven notches into junk (CCC).

Fitch has also warned earlier that if Pemex’s credit rating drops, so, too, will Mexico’s sovereign debt rating. Even a small deterioration in credit risk could exact a heavy toll on both the company and the country.

The outlook revision to negative from stable “reflects the increased uncertainty about Pemex’s future business strategy coupled with the company’s deteriorating standalone credit profile,” Fitch said in its report.

Fitch’s downward revision was cited by analysts as one possible factor in the fall of the peso last week to its lowest level in over a month. CI Banco analyst James Salazar said that Fitch’s Pemex assessment is a reminder that the company’s “finances should continue to be handled with great caution so as not to cause additional imbalances that will increase its debt.”

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Uncertainty Grips Troubled Pemex, World’s Most Indebted Oil Company

August 8, 2018

Uncertainty Grips Troubled Pemex, World’s Most Indebted Oil Company

“Even a small deterioration” in its perceived credit risk could take a big financial toll on Mexico.

Mexico’s President-elect, Andrés Manuel Lopez Obrador (AMLO), does not enter office until December 1, but he’s already making big waves, particularly in the oil and gas industry. On the campaign trail, he pledged to reverse aspects of his predecessor Enrique Peña Nieto’s sweeping oil privatization reforms, suspend new oil auctions, and review contracts issued to private energy firms for signs of corruption, which, given the players involved, shouldn’t be hard to find.

All oil and gas auctions have been put on hold in the country until AMLO assumes the office of the presidency. The contracts signed to date alone represent a projected investment of around $200 billion dollars, according tothe Mexican daily El Excelsior. As such, cancelling multi-billion dollar oil and gas contracts will hardly endear AMLO to the oil majors and global investors that have poured funds into Mexico’s newly liberalized energy sector.

This potential 180-degree U-turn in energy policy not only pits Mexican lawmakers against big oil and big money interests; it also puts the world’s most indebted oil company, according to Moody’s, at a very dangerous crossroad.

In a press conference this week AMLO upped the ante by threatening to ban fracking on Mexican soil. As Associated Press reports, when asked about the potential risks of fracking, AMLO said, “We will no longer use that method to extract petroleum.”

AMLO’s riposte is unlikely to please the oil and gas companies that had their sights set on drilling in the Burgos Basin, a region in Mexico’s northern frontier that has a huge potential shale formation similar to the Texas Eagle Ford fields.

…click on the above link to read the rest of the article…

MEXICO’S OIL INDUSTRY CONTINUES TO DISINTEGRATE: PEMEX Suffers $18 Billion Loss

March 2, 2018

MEXICO’S OIL INDUSTRY CONTINUES TO DISINTEGRATE: PEMEX Suffers $18 Billion Loss

The situation in Mexico’s oil industry continues to rapidly disintegrate as falling oil production and rising costs resulted in an $18 billion fourth-quarter loss for the state-run oil company, PEMEX. Part of the reason for the huge financial loss at PEMEX was the fall in the value of the Mexican Peso. While PEMEX’s costs are in Pesos, it sells crude oil and purchases petroleum products in Dollars. Because the Mexican Peso declined 8% versus the Dollar, it put a huge strain on the company’s year-end financials.

Regardless, Mexico’s oil production continues to fall due to the natural decline from resource depletion. However, as Mexico’s oil production falls, its net oil exports have dropped significantly as well. Thus, falling net oil imports translates to less revenue for PEMEX. According to BP’s 2017 Statistical Review, Mexico’s net oil exports hit a low of 587,000 barrels per day (bd) in 2016, down from 1,867,000 bd in 2004:

While Mexico’s oil production declined from a peak in 2004, its domestic consumption has remained basically flat. Which means, Mexico’s net oil exports have fallen by more than two-thirds in just 12 years. Unfortunately, it looks like Mexico’s oil production will be down another 10% in 2017.

The next chart from Mazamascience.com shows Mexico’s net oil exports since 1960:

Mexico’s total oil production is shown in the grey area, while consumption is displayed by the black line. The green area reveals the country’s net oil exports. As we can see, Mexico’s net oil exports peaked in 2004 at 1.86 million barrels per day (mbd) and are now likely below 0.5 mbd. Falling net oil exports are a death-knell to the Mexican government because it receives a lot of its revenue from PEMEX.

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Touted Energy “Reform” Goes Awry in Mexico

February 1, 2018

Touted Energy “Reform” Goes Awry in Mexico

Dream of cheaper energy in an open market turns into nightmare.

Four years ago, Mexico’s government passed a sweeping energy reform aimed at opening up Mexico’s long-protected oil and gas sectors to global competition and expertise for the first time in over 70 years. The reforms would lead to lower energy prices for domestic consumers as well as thrust Mexico into a more prominent position in the global hydrocarbons market, the government confidently predicted.

Instead, the opposite has happened: prices of gas, diesel and natural gas have soared while Mexico’s heavily indebted state-owned energy giant, Petróleos Mexicanos, or Pemex, got tangled up in the oil bust, lost $9 billion in 2016, received a bail-out, and after making money in Q1 and Q2 of 2017, lost another $5.5 billion in Q3 2017. In other words, it has been tough on Pemex.

Production at Pemex dropped 9.5% in 2017 to 1.94 million barrels per day, its lowest level since 1980. At the same time 71.6% of the gasoline used by Mexicans last year was imported. It’s a humbling statistic for a country that not so long ago boasted the world’s second biggest oil field by production, the Canterfell.

On average, 570,600 barrels per day were bought from abroad in 2017, 60% more than in 2013. Much of it came from the US. As for Diesel, 237,500 of the 317,600 barrels sold each day came from another country — an import rate of 75% — while an average of 67% of the 2,623 million cubic feet of natural gas sold per day was imported from abroad.

Mexico’s growing reliance on energy imports could make it even more difficult for the Bank of Mexico (or Banxico for short) to bring down inflation, which reached an annual rate of 6.8% in December, almost four percentage points above Banxico’s target rate.

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Debt Spiral Grips Both, Pemex and Mexico

April 6, 2016

Debt Spiral Grips Both, Pemex and Mexico

It was just a matter of time before Pemex, Mexico’s chronically indebted state-owned oil giant, began dragging down the national economy it had almost single handedly sustained for over 75 years.

The company has been bleeding losses for 13 straight quarters. As of December 31, it had $114.3 billion in assets and $180.6 billion in liabilities, a good chunk of it denominated in dollars, leaving a gaping hole of $66.3 billion (negative equity), after having been strip-mined over the decades by its owner, the government. And given these losses and the equity hole, new credit is becoming harder to come by.

Now it seems that Mexico’s worst nightmare is beginning to come true, thanks in no small part to Moody’s Investors Service. The credit rating agency last week downgraded Pemex’s credit rating from Baa1 to Baa3. In November Pemex had a perfectly respectable credit rating of Aa3; now, just six months later, it’s perilously perched just one notch above junk.

“Moody’s believes that Pemex’s credit metrics will worsen as oil prices remain low, production continues to drop, taxes remain high, and the company must adjust down capital spending to meet its budgetary targets,” the report said.

That was for Pemex. Now Moody’s also changed the outlook for Mexico’s sovereign rating from stable to negative.

This, coupled with the mounting risk of a credit downgrade, heaps further pressure on a government already struggling to shore up its balance sheet. Hardly helping matters is the fact that oil prices, a key source of government revenues, continue to languish at low levels, while the prospect of a massive bailout of Pemex looms ever larger. As if that were not enough, Mexico’s manufacturing industry is beginning to feel a very sharp pinch from weakening U.S. consumer demand.

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Big-Oil Bailout Begins as Debt Spirals Down

March 17, 2016

Big-Oil Bailout Begins as Debt Spirals Down

Mexico’s proud sugar daddy becomes giant financial sinkhole.

Pemex, Mexico’s state-owned oil giant, cannot seem to get a break these days. It notched up 13 straight quarters of rising losses. It now owes over $80 billion to international investors and banks. It needs to raise $23 billion this year to stay afloat. The cost of servicing that gargantuan debt mountain continues to rise. So it tries desperately to rein in its spending, without tackling — or even discussing — its endemic culture of corruption.

In recent days, Pemex received a 15 billion peso ($840 million) lifeline from three of Mexico’s homegrown development banks, Banobras, Bancomext and Nafinsa, to help the firm pay back some of its smallest providers, consisting mainly of domestic SMEs.

The loan was part of an arrangement cobbled together between the banks and the Mexican government. By today’s standards the amount involved is pretty meager, but the operation was about more than just raising funds: it was meant to restore confidence among both investors and suppliers in the firm’s ability to repay its debts.

“This sends a sign of stability and confidence to the sector, which has been very nervous” payments would not be made, explained Erik Legorreta, President of the Mexican Oil Industry Association, which represents around 3,000 service providers. “Members of the industry now have the confidence and certainty that the payments will be honored.”

Not everyone agrees. Last week the U.S. credit rating agency Moody’s flagged concerns that the loan will significantly increase the three banks’ combined exposure to Pemex’s debt, calculated to grow from 44% to 62%. “The three lenders now have high concentration risks with their 20 biggest creditors,” cautioned Moody’s, which already downgraded Pemex’s debt in November to Baa1, with a negative outlook. In its report last week, the agency piled on the pressure by warning that there’s “a high likelihood” that it will downgrade Pemex’s rating another notch in the coming weeks.

…click on the above link to read the rest of the article…

Prelude to a Bailout

March 3, 2016

Prelude to a Bailout

But is Pemex too big to save for Mexico?

Mexico’s biggest company, state-owned oil giant Pemex, notched up 13 consecutive quarters of rising losses and now faces the toughest test of its 78-year existence: staying alive.

Pemex just published its annual results for 2015. Even with expectations already at the bottom of the barrel, so to speak, Pemex somehow managed to both shock and disappoint in equal measure with the sheer scale of its total annual loss: 522 billion pesos ($30 billion), almost double its loss in 2014.

Operating costs increased 19% to $81 billion, sales plunged by $25 billion, and daily oil production fell by 6.7%. The company also ended 2015 owing suppliers $8.2 billion.

Its total debt is expected to surpass $100 billion this year. Luckily, Pemex’s new director José Antonio González Anaya was on hand to calm investor nerves by reiterating that Pemex is not insolvent — it just has liquidity issues. The Financial Times begs to differ, arguing that if Pemex were privately owned, it would already be bankrupt.

The government’s decision last week to slash the company’s operating budget for 2016 by $5.6 billion is unlikely to help matters. According to González Anaya, most of the cuts will be felt in the firm’s loss-leading refining operations (35%) as well as its exploration and production activities (46%), its biggest source of profits. Assets will be sold off left, right, and center. Investments will be curtailed. And strategic partnerships will be sought. In other words, as the company’s debt grows, its output will continue to shrink.

Pemex’s autopsy has already begun. According to the FT, one of Pemex’s biggest problems is the size of its workforce, which is seven times as large as Norway’s state-owned Statoil and over a third larger than the world’s biggest oil majors, Shell, BP and Exxon Mobil. Certainly the firm’s 153,085 employees, together with the huge pension liabilities they entail, last estimated at over $90 billion, represent an unwieldy drain on resources.

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Oil Suddenly Gets Ugly in Mexico

September 10, 2015

Oil Suddenly Gets Ugly in Mexico

Mexico’s energy revolution could prove to be a bitter pill for the vast rump of the Mexican population, who stand to lose out on billions of dollars of annual state funds provided by the newly privatized but financially crippled oil company Pemex.

But where there are losers, there are inevitably winners. In this case the biggest beneficiaries will be some of the world’s largest oil and gas majors — particularly those in the U.S. — and well-connected local politicians. Chief among them is former Mexican President Vicente Fox Quesada, whose private equity firm Energy and Infrastructure Mexico (EIM) has just signed a joint venture with Aubrey McClendon, former CEO of natural gas giant Chesapeake Energy and current CEO of American Energy Partners (AEP).

A Well-Oiled Revolving Door

The partnership’s main purpose, according to Sin Embargo, is to exploit the vast exploration and development opportunities opened up by Mexico’s newly privatized and liberalized energy sector.

“This is a significant vote of confidence in the Energy Reform program championed by current Mexican President Enrique Pena Nieto, and in the myriad possibilities offered by Mexico’s unconventional resources,” hailed a joint press release. Those resources include Mexico’s side of the Eagle Ford Shale basin.

EIM Capital’s own website admits, with seemingly not even a hint of shame, that the company was “founded in anticipation of Mexico’s historic Constitutional (Energy) Reform of 2013,” a reform for which Fox himself helped pave the way during his six-year presidential mandate (2000-2006), as recently confirmed by a 2005 State Department diplomatic cable about Fox’s first visit to Alberta recently leaked by Wikileaks:

“[T]he Mexican Trade Consul in Calgary…[said] there continues to be much interest in investing in Mexico’s energy sector… The Trade Consul said it is ‘painful‘ to let Mexico’s resources sit in the ground.”

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The “Peña Nieto Bottom”

September 4, 2015

The “Peña Nieto Bottom”

When Enrique Peña Nieto’s government pushed a historic energy reform bill through the Mexican congress in 2013, it was hoped that it would serve not only to privatize but also modernize Mexico’s state-owned Pemex and allow it to compete with giants like Exxon. However, the one thing the government seemingly hadn’t counted on was the collapse in global oil prices.

At the time, Brent oil prices were sitting pretty at around $110 per barrel. It was assumed those prices were there to stay; instead, they have plummeted to $50 per barrel.

Peña Nieto Bottom

Despite the government’s constant denials, the pain is beginning to show. The first auction of off shore oil leases, in July, was an unmitigated disaster, with only two of 14 exploration blocks awarded, both going to the same Mexican-led trio of energy firms.

Oil is no longer a seller’s market. The financial arithmetic facing a potential investor has been turned on its head by the recent collapse of oil prices. As a result, many projects that were a slam- dunk just a year ago have become distinctly dicey propositions. At the same time fierce, competition among oil producing nations continues to drive prices southward.

As Bloomberg reports, Brazil and Mexico are preparing to compete for investments from some of the same oil majors when they hold auctions only a week apart at a time that the price rout is prompting spending cuts:

“In times of low oil prices, all companies need low costs and promising returns,” John Forman, a consultant and former director at Brazil’s oil regulator, said in an interview in Rio de Janeiro. “Brazil and Mexico will compete for resources and low-cost projects will be key.”

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Mexico’s Pemex Plagued By Deadly Offshore Explosions and Major Pipeline Spills

May 27, 2015

Mexico’s Pemex Plagued By Deadly Offshore Explosions and Major Pipeline Spills

It’s been a disastrous year for Pemex, the state-owned Mexican oil company at the center of the nation’s landmark energy reforms.

In just over a month, Petroleos Mexicanos (Pemex) starred in three tragic incidents, two fatal.

First was a deadly explosion aboard a Pemex offshore oil processing platform, which killed at least four, injured 16, and—despite the company’s comments to the contrary—looks to have spilled a miles-long plume of oil into the Gulf of Mexico. A mere 15 days later, a spill from a Pemex pipeline in the state of Tabasco fouled three rivers and temporarily left half a million people without access to drinking water. Fast forward three weeks, and another accident on an offshore rig killed two workers.

These incidents, argues Gustavo Ampugnani, lead energy and climate campaigner for Greenpeace Mexico, foreshadow worsening oil- and gas-related disasters as the country’s massive energy reforms open Mexico’s vast fossil fuel reserves up to international companies that are even less regulated and scrutinized than State-owned Pemex.

Explosion in the Gulf

On April 1st, an explosion rocked the company’s Abkatun-A Permanente platform, engulfing the rig in flames. The massive fireball and subsequent blaze sent hundreds of Pemex contractors into the sea. Nearly two months later, we know that four workers were killed, at least 16 were injured, and three are still missing, now presumed dead. Survivors described a terrifying scene, as crew members “jumped into the sea out of desperation and panic.”

Roger Arias Sanchez, an employee of Pemex contractor Cotemar, told the Associated Press that, “there was nothing you could do but run.”

With the 5-year anniversary of the massive Deepwater Horizon oil spill in the Gulf just behind us, Pemex and the Mexican government quickly clamped down communications about the disaster in the oil-rich Campeche Sound shallow water offshore region, offering optimistic, blue sky commentary about the severity of the incident, and the extent of any potential

…click on the above link to read the rest of the article…

Crude harvest: selling Mexico’s oil – Special series – Al Jazeera English

December 27, 2014

Crude harvest: selling Mexico’s oil – Special series – Al Jazeera English.

Against the backdrop of Mexico’s ever-widening gap between rich and poor, growing violence, and stalled economy, President Enrique Pena Nieto has passed a series of economic reforms.

Under these reforms, Mexico’s oil, which was expropriated from foreign interests 75 years ago, is now for sale to private, international companies.

The reforms are the most divisive the country has seen in a century. Thousands are protesting against them, saying the new regulations could bring the nation to a tipping point as organised crime and violence would spiral out of control.

When it comes to big business and drilling for oil, Mexico’s farmers are the most vulnerable.

Twenty years ago, the North American Free Trade Agreement (NAFTA), which opened Mexico up to trade with the US and Canada, led to the collapse of agriculture, and paved the way to the privatization of oil.

The operations of Mexico’s state-owned oil company, Pemex, have never been entirely transparent, and communities have been crippled by oil disasters. For instance, in October 2013, the state of Tabasco experienced its worst oil disaster when a drill site exploded and burned for 55 days, contaminating the surrounding land and water. Villagers closest to the site say they are suffering from health problems and have lost their livestock. They say Pemex has never accepted responsibility for the accident, nor has it offered any compensation.

…click on the above link to read the rest of the article…

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