Government May Take Over Debt as PEMEX Struggles in Q3

PEMEX CEO Octavio Romero told Mexican legislators that the NOC received orders from President López Obrador to no longer issue bonds. Consequently, the government would take over amortization payments on this debt, although the Ministry of Finance has not yet commented on the issue and Romero did not provide further details.

“This is a huge support that will be given to this great company, because it will prevent it from going further into debt,” Romero told the Chamber of Deputies, later adding that PEMEX’s debt is “the debt of the country.” If his statement accurately reflects the government’s intention, PEMEX would indeed receive substantial backing: the NOC is the world’s most indebted oil producer and has outstanding obligations valued at US$113 billion. Production has been dropping steadily since a peak in the 2000’s and high levels of spending have done little to improve the company’s position. López Obrador’s support for the NOC would not exactly materialize out of nowhere because the president has been vocal about its desire to “rescue” PEMEX. The government’s promise to help the company was already implied through various measures to alleviate its debt, which included the Ministry of Finance reducing PEMEX’s 2022 profit sharing duty from 54 percent to 40 percent, but Romero’s comments suggest a more direct policy approach.

John Padilla, Managing Director of consultancy firm IPD Latin America, told Bloomberg that taking on debt would not necessarily remedy PEMEX’s internal troubles: “This does not fix the fundamental issue,” he said. Bloomberg News reported that PEMEX’s bonds due in 2050 jumped up by 1.3 cents after the executive’s comments, reaching a one-month high of 95 cents on the US dollar.

On Oct. 28, the NOC reported a 3Q21 net loss of MX$62.8 billion (US$3 billion) because of higher tax payments and foreign exchange losses. In the same quarter last year, PEMEX posted a MX$1.4 billion (US$68.7 million) net profit. It also reported a net profit of MX$14.4 billion (US$706.66 million) in 2Q21.

PEMEX did see its production increase in 3Q21 because it added newly producing wells to its portfolio, which contributed 280Mb/d. This compensated for two notable incidents at its offshore oil fields: a gas leak from a marine pipeline and a fire at the Ku-Maloob-Zaap complex. Production was up 4.2 percent compared to 3Q20, reaching 1.752MMb/d. In 2Q21, PEMEX reached 1.735Mb/d. Crude processing increased by 15 percent during the quarter, reaching 695Mb/d.