Stagnating Output Hands Pemex its Biggest Loss in Two Years

Petroleos Mexicanos reported its biggest quarterly loss in two years as production growth stalled.

Despite an accelerated drilling program at a group of onshore and shallow-water fields, crude and condensate production was 1.69 million barrels a day, little changed from the previous quarter. Revenue slumped in the fourth quarter, boosting Pemex’s net loss to 169.8 billion pesos ($8.8 billion), the biggest drop since the the same period in 2017.

Earlier this month, Pemex’s bonds hovered near a record high on the expectation that production will continue to stabilize and that Pemex will be supported by the government. Pemex has already met almost half of its financing needs for this year after selling $5 billion in bonds in January.

The Mexican driller, which is the world’s biggest borrower, was hit last year by a Fitch Ratings downgrade in June to junk. A similar move by either Moody’s Investors Service or S&P Global Ratings could lead to Pemex’s removal from investment-grade indexes around the world and a subsequent forced sell-off.

Mexico President Andres Manuel Lopez Obrador, also known as AMLO, has placed Pemex at the heart of his ambitions to upend three decades of neoliberal policies and limit the country’s dependence on foreign energy markets. The leftist leader’s plans for Pemex include the construction of a seventh refinery in his home state of Tabasco for about $8 billion.

Pemex is struggling to be profitable while balancing the need to finance the nation’s budget, which relies on it for nearly a fifth of its revenue. While onshore and shallow-water fields helped the company boost production, Lopez Obrador has frozen competitive oil auctions and farm-out tenders that enabled Pemex to share the cost of developing oil fields with partners.

Investors fear Pemex lacks the resources and technology to develop Mexico’s more complex deep-water and unconventional oil fields on its own. The Mexican-state oil company has stopped deep-water exploration, with the exception of the giant Trion field in the Gulf of Mexico where BHP Group is the operator. The joint venture between BHP and Pemex is the most advanced deep-water project in Mexico and first oil is expected in late 2024.


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