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News Article

PEMEX Cancels Service Contracts, Delays Payments

By Peter Appleby | Tue, 06/23/2020 - 09:14

The administration’s plan to bolster PEMEX has taken another blow as the company is forced to suspend a chunk of exploration and production contracts, while delaying payment amortizations due this year and worth MX$70 billion (US$1.75 billion) to 2021, La Jornada reports.

The papers to which La Jornada had access appear to confirm the concerns over contract termination that other service providers had and which Mexico Business News reported on.

This round of cancellations impacts several vessels including the Virgo Process Ship, the Stim Star Mexico Stimulator Boat, the Grand Canyon Multiservice Ship, the Far Sentinel and Blue Giant ships and the Global Orion Multi-Service Ship.

PEMEX’s payment problems are nothing new and service providers to Mexico’s main oil player have for years had to wait patiently for the NOC to pay what was due. But this last round of contract suspensions and delays comes following the COVID-19 pandemic and subsequent crash that saw oil prices fall into negative territory as global demand plummeted.

PEMEX management and the Mexican government have continued to rebuff suggestions that PEMEX could suffer financially from the global health pandemic, with the government leaning on the famous Hacienda Hedge which will, having secured the sale of Mexico’s crude oil basket against a price of US$49 per barrel, net Mexico some US$6 billion, Bloomberg reports.

Despite this and financial support measures including a reduction in PEMEX’s tax burden of MX$65 billion (US$2.89 billion), April’s MX$40.5 billion (US$1.8 billion) budget reduction for exploration and production has forced PEP to trim contracts wherever possible. 

As reported by Mexico Business News earlier this month, talks of potential contract suspensions had surfaced with 15 oil platform contracts cancelled, as well as the rental of 60 vessels. There are particular worries for Perforadora Central, which wrote to PEMEX to explain that the cancellation of the Tonalá and Papaloapan platforms could do irreparable damage to the company. "Together, these two suspensions take from our company the daily income it requires to comply with its financial obligations to foreign banks and seriously complicates the group's operations,” said a letter quoted in El Financiero.

In an interview with Mexico Business News, Alfredo García, CEO of financial investment firm Sie7e Energy, said that “Sie7e Energy has seen that the long wait times for payments from PEMEX to service providers have not improved Mexico’s attractiveness. Service providers are often paying their operations from their own pockets and PEMEX payment times are getting longer.”

Photo by:   Berardo62
Peter Appleby Peter Appleby Journalist and Industry Analyst