Financial Highlights of 2013Mon, 09/01/2014 - 14:42
Through 2013, PEMEX continued to play a paramount role in amassing Mexico’s government take. Over the past five years, 33.1% of the federal income was provided by PEMEX, making it a central player in Mexico’s economic, political, and social spectrum. This continues to support the notion that the oil is the property of all Mexicans, but the Energy Reform that was approved in December 2013 will take away some of the burden that PEMEX has to carry in funding the Federal Government’s budget. While oil revenue is expected to continue contributing around a third of the government budget, this revenue will be coming from more than one player.
PEMEX’s 2013 results seem to mark a step back from the accomplishments of 2012. Total sales reached US$122.98 billion, a 2.35% decrease from 2012, while the cost of sales only decreased by 2.22%. The decrease in the cost of sales decreased was partially offset by a 12.6% increase in operating expenses and a 30.1% increase in the net cost of employee benefits during the period. Gross income for 2013 was US$60.74 billion, a 2.48% decrease over the previous year. This coupled with a rise in general expenses, including the Special Tax on Products and Services (IEPS), resulted in a 19.6% drop in operating income, which reached US$55.67 billion. At the same time, PEMEX’s investments totaled a record high of US$26.1 billion divided in the following way: 86.27% for PEMEX E&P, including 9.65% solely for exploration activities, 9.02% for PEMEX Refining, 2.10% for PEMEX Petrochemicals, and 1.62% for PEMEX Gas and Basic Petrochemicals.
The drop in total sales resulted primarily from an 11% decrease in crude oil exports. This was down to two reasons: a 3.26% drop in the average price of the Mexican crude oil basket from US$101.86 in 2012 to US$98.54 per barrel in 2013, and a 29.4% decrease in domestic sales of fuel oil due to a drop in demand that resulted in an 11.7% reduction in sales volume and a 10.9% decline in fuel oil prices. Domestic sales grew by 5% overall due to increases in average gasoline and diesel prices. In comparison, domestic sales of natural gas increased by 38.3% due to a price hike while domestic sales of petroleum products’ sales and domestic petrochemical sales decreased by 9.5% and 4.3% respectively. Total export sales decreased by 11%, primarily due to a lower volume of crude oil exports. Crude oil and condensate export sales accounted for 79.7% of total export sales in 2013 as compared to 80% in 2012.
Distribution and transportation expenses increased by 13.9%, while administrative expenses increased by 9.7%. Last year also saw a 35% decrease in terms of foreign direct investment (FDI) against last year, mainly due to the capital outflows on the expectation of a lower global liquidity. This led the peso to depreciate 0.5% against the US dollar, as compared to a 7% appreciation during 2012. This resulted in an exchange loss of US$302 million in 2013, as compared to 2012’s profit of US$3.4billion.
After announcing a net profit of US$200 million last year, PEMEX turned a net loss once again in 2013, which amounted to US$12.93 billion. Despite EBITDA decreasing by 13.95%, from US$88.2 billion in 2012 to US$75.9 billion in 2013, the amount paid in taxes and duties dropped only 4.17%. The drop in sales and other revenue left PEMEX facing tax liabilities higher than its income; the total amount of taxes paid by PEMEX in 2013 representing a staggering 118.83% of its operating income. During 2012, the amount that the NOC paid in taxes amounted to 54.8% of its revenue, and 99.7% of its operating income, allowing the company to keep just US$0.03 of each US$1 earned. This once again shows the heavy constraints that the current fiscal regime shackles PEMEX with. Budgetary autonomy and a revision of the overall fiscal regime, as well as the inclusion of other players to diversify the tax base, are expected to gradually reduce the NOC’s tax burden, giving it more financial freedom to reinvest profits in its own evolution.
PEMEX’s debt increased considerably from MX$786.86 billion in 2012 to MX$841.24 billion (US$64.33 billion), a 6.91% increase, while its debt to revenue ratio increased to 52.31%, which means that the company’s ability to pay off its incurred debt diminished. However, the financial cost of the company saw a decrease in 40.6%, due to a diminution of MX$18.9 billion (US$1.4 billion) in interest. PEMEX also issued a substantial amount of debt in securities, stock exchange certificates, and notes. 79% of PEMEX’s debt has been issued in US dollars, while 20.4% is in Mexican pesos and the rest is in Euros, with the average payment date for PEMEX’s debt standing at 6.3 years.
PEMEX’s financial results for 2013 cannot be seen as a fair sample of what it is yet to come for the oil industry in Mexico. The implementation of the Energy Reform will bring significant change to the industry as a whole and to PEMEX as its dominant player over the coming years. It is expected that the country’s total production will experience a slight drop during the transition and implementation periods, before delivering a production increase in the medium-term. An increase in Mexico’s tax base is expected to enable PEMEX to invest more heavily on training, capacity building and technological development. In turn, the market entry of new operators is destined to bring more knowledge and technology to the country, allowing production to gradually increase, while allowing PEMEX to share the operational and financial risks of the most challenging projects to deliver better results. The NOC will continue to focus on upstream activities, as the dedicated 86.27% of its budget shows, which in combination with the additional production from new operators is destined to bring the long awaited production increase in the coming years.
PEMEX still has not managed to reverse the downward trend in production, with 2013 marking the ninth year in a row in which the company has reported a production decrease, albeit a small one. However, since it reached its maximum production level in 2003, PEMEX’s output has dropped by 860.8 million b/d, representing a 25.44% production reduction. The NOC has managed to practically stabilize production since 2010, bringing the drop to less than 1% annually and to 0.2% in 2012. Nevertheless, during 2013, PEMEX’s production dropped by 1.02% in nominal terms. The hopes of finally seeing a production increase during 2013 were heavily influenced by the expectations surrounding the Energy Reform and the prospects of liberalization for the oil industry.