PEMEX Balances Stability, Risk: Moody’s

Credit rating agency Moody’s published a report on the global energy industry that addresses previous criticisms of PEMEX but also compares it favorably to other NOCs around the world.

The main point of Moody’s positive comparison comes from the fact that Mexico will not be experiencing a national election in 2022, which means that the NOC can be considered a relatively reliable asset shielded from the political risk and instability inherent to electoral processes in the region. Presidential elections will take place in Brazil and Colombia throughout 2022, which increases market uncertainty for all oil and gas companies working in those countries due to the uncertain future of their NOCs as defined by potential presidential policy. 

“Brazil is currently weighing the possibility of privatizing Petrobras, its dominating NOC, a decision that will be almost completely dependent on who wins October’s elections,” reads the report. “In Colombia, one of the country’s currently frontrunning candidates in the presidential race, Gustavo Petro, has said that he will reduce the government’s investment in exploration and production, a measure that would force the state-controlled NOC Ecopetrol to adjust its commercial strategy.”

Moody also notes that oil and gas companies are headed into a complicated panorama in a globally general sense; PEMEX’s case is not particularly dire in this sense. Long term prosperity in terms of oil demand is not too clear, according to the report, so all long-term investments in the sector should be considered with appropriate caution and skepticism. “NOCs around the world will be struggling with their role as guarantors of their respective nation’s energy security, especially as the political pressure for them to pay more taxes while lowering deficits that make creditors nervous increases.” The report goes on to argue that commercial strategies of NOCs are now completely tied to the environmental agendas of regulators and governments, which increases political risk factors in Latin America. 

However, the report highlights that the Mexican government’s latest statements regarding its plan to make PEMEX fully self-sufficient and only produce oil for the domestic market by 2024 are quite worrying given the company’s already tricky balance sheet. In Moody’s view, these plans will greatly limit the NOC’s capacity to increase its revenue, which will in turn greatly limit the degree to which it can invest in addressing its environmental and financial issues.