Hacienda Hedge Delivers Windfall; PEMEX a “Net Loss”By Peter Appleby | Thu, 12/03/2020 - 16:51
Mexico’s premier ratings agency this week published a report warning of PEMEX’s growing debt following poor 3Q20 figures. Meanwhile, oil prices fell after OPEC+ failed to come to a preliminary agreement ahead of Tuesday’s meeting. Private and public interaction could grow this year. Finally, Mexico’s Hacienda Hedge proves a sound financial investment once again.
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HR Ratings, Mexico’s major ratings agency, said that PEMEX’s 3Q20 results that it is a “net loss” for Mexico and that its poor results are due to a drop in sales volume, as well as its sales prices. PEMEX’s debt now stands at US$110.3 billion following a 32 percent decrease in sales, a reduction of 41 percent in domestic sales and an 18.6 percent decrease in exports.
HR Ratings’ report came after Banxico refused to use a portion of its international reserves to pay off the oil debt. According to Banxico, PEMEX bonds are not considered sufficiently secure to be considered for investment.
According to HR Ratings, PEMEX’s dire debt situation is linked to the federal government’s fiscal policy, the macroeconomic situation and a weakened position in the Mexican market.
Oil prices including WTI, Brent and the Mexican crude basket fell on Tuesday after OPEC+ delayed a meeting to finalize the next stage of production output targets after key members failed to reach preliminary agreements. Saudi Arabia and UAE, two of the major players in OPEC, could not come to an agreement on Tuesday and instead postponed the meeting until Thursday.
Markets responded with uncertainty and prices fell. WTI, fell 0.9 percent, 44 cents, to US$47.44 per barrel and Brent fell 1.5 percent, 68 cents, to US$44.66 per barrel at 18:02GMT, while Mexico’s crude mix dropped from US$45.34 per barrel on Monday to US$44.55 per barrel at the end of Tuesday’s business.
Mexico will reportedly receive approximately US$2.5 billion in payouts this year from its famous Hacienda Hedge, as the country’s protection against the year’s low prices pays off.
The highly-secretive hedge was thought to have given protection on Mexico exports by guaranteeing a price of US$49 per barrel. In April, when prices plunged into negative territory, President Andrés Manuel López Obrador had suggested that the country could receive up to US$6 billion from the hedge if low prices remained.
The multi-billion dollar payout will be welcomed by the federal government, which has invested heavily in reviving the national oil company and considers the petroleum industry a “lever” for national economic growth.
More talks between the public and private sectors of Mexico’s oil industry are taking place following the presentation of US$5 billion energy contracts in October. The multi-billion investments included four projects that would be handled by PEMEX. This is in addition to the newly announced 39 private-public projects that are intended to kickstart the economy following the blows dealt by COVID-19.
Carlos Salazar, head of CCE, said President Andrés Manuel López Obrador understood the need for the private sector to support government plans though gave no clear indication of the role private companies will play.