Mexico and PEMEX Under Stress After Oil Plunge

The price war that knocked down oil performance yesterday, dragging the Mexican export mix bellow US$25 per barrel, will put additional pressure on PEMEX’s finances, which can have bigger implications for the Mexican economy, according to analysts. Mexico's credit rating (BBB+, with a negative outlook) is now at risk, according to Joydeep Mukherji, who is responsible for Mexico's sovereign rating at S&P Global.

“Mexico could be hurt due to recent events, because of its significant oil sector and of course its connection to the US economy,” Mukherji said, according to a Notimex dispatch. He explained that low oil prices, poor growth of Mexico's GDP and the US economy's slowdown can have a major impact on the country’s outlook.

After the main oil producers Saudi Arabia and Russia failed to reach an agreement on a production cut, a price war between the two nations escalated. Last Monday recorded one of the sharpest oil-price drops in history, leading the Mexican export mix to a drop of over 31 percent to US$24.43 per barrel. While COVID-19 has created uncertainty for the global economy, this scenario is much more complicated for PEMEX and its current debt, which is the highest of any oil company at US$105.22 billion at the end of 2019. After the NOC reported a US$18.3 billion net loss in 2019, now a decline in crude oil prices can have a major impact in public finances and the peso’s position against foreign currencies.

President López Obrador is optimistic and forecasts a mild impact for Mexico given the healthy public finances in his administration. Today, the president praised how the Mexican currency has endured the global financial impact and said a stabilization fund totaling US$184 billion dollars is available to provide an additional shield to the national economy.

Zama Under the Spotlight

Energy companies trying to strike a deal with PEMEX to share Zama field lamented the NOC’s slow response, which indicates a move to take total control of the project, a case that can become a test for President López Obrador foreign investments goals and his agenda, the Financial Times has reported.

“I don't understand who benefits from a delay. It is not us, nor the arrival of first oil, nor the workers nor the Treasury. We cannot find out who else benefits, except PEMEX,” said Talos CEO Tim Duncan.

A consortium led by US’ Talos Energy and including UK’s Premier Oil and Germany´s Wintershall DEA discovered the Zama 700MMboe field in 2017. Those companies await a decision from the Mexican government on how to share responsibility for the oil field that reaches into one of PEMEX’s blocks.