On February 27th, Petróleos Mexicanos (Pemex) presented its preliminary results as of December 31st, 2019. According to the Annexes of the Report, in 2019 Pemex’s total production dropped 4.4%, from 2,516 to 2,405 Mboed. According to Pemex, the strategy of developing 20 priority fields, of which only two (Chocol and Ixachi) are producing, should have allowed for the increase of production by 100 Mbd by the end of 2019. Instead it has remained stable during the last 3 quarters of 2019 due to the production from the Ku-Maloob-Zaap and Xanab fields.
However, even though Pemex’s Natural Gas production – without partners – decreased in 2019 the flared amount rose 68.7 % after a drop of 17.6 points in 2018. In addition to the negative economic impact that has for the NOC, Mexico’s international commitments to reduce emissions may also be breached.
The measures implemented by the current administration to position Pemex as the lever of national development and energy security have not been enough.
Regarding drilling activity, the report indicates that it increased by almost 40% from 162 wells in 2018 to 224 in 2019. Of these 201 were development, and 23 exploratory. The latter represented an increase of drilling rigs by 60% with respect to to the previous year. It is also worth noting that exploration expenditures also increased by almost 468% with respect to 2018.
On this basis, Pemex Exploration and Production (PEP´s) ability to generate profit was affected since its profitability decreased drastically. For example, each peso sold by PEP represents 5 cents of profit while Pemex loses 47 cents for each peso earned.
As for Pemex’s oil revenue contributions to the public finances, they were reduced 3% from 2018. All these results may influence Pemex’s credit and Sovereign rating.
In summary, Pemex along with the State need to redesign their strategy including long term goals that contribute to economic stability and public finances. Therefore, it is desirable that the following aspects be reviewed:
- Pemex’s Business Plan: with the purpose of strengthening its financial position and reducing the risk to the federal budget; and
- The mechanisms that the current legal framework regulates such as the joint ventures. These could allow PEP to obtain financial resources without costs for the Public Treasury while increasing its execution and investment abilities, and in the long term reserves and production.
Rosalía Hernández, Consultant at Muvoil Consulting firstname.lastname@example.org
Muvoil Consulting is a group of specialists in the O&G sector: legal, fiscal, social and environmental. Our multidisciplinary approach allows us to design strategic solutions that can unravel the most complex regulatory and transactional challenge that a petroleum project can face. Do not hesitate to contact us for further details.