PEMEX today reported a 2Q20 net loss of MX$44.3 billion (US$1.93 billion) after COVID-19 restrictions dragged down retail sales and oil prices remained low after their plunge into negative in mid-April.
Though the company's losses were heavy they were reduced by 16 percent in comparison to the US$2.4 billion loss it experienced in the same quarter last year, reports El Economista, and a vast reduction on the record-breaking US$23 billion loss in 1Q20.
According to the 2Q20 report, fuel sales reached some US$7.9 billion, representing a year-on-year fall of 51.8 percent. Meanwhile, thanks to the pesos’ drastic depreciation against the dollar in February and March as world economies were rocked by the virus’ first appearance, the company’s debt total – already the heaviest debt burden of any national oil company – has climbed from US$104.79 billion to US$107.2 billion.
Alongside a decrease in sales was the falling level of production which was cut by a minimum of 100Mb/d from May to June as Mexico joined the OPEC+ effort to curb production by 9.7MMb/d globally and stabilize oil prices. This production cut is expected to continue by up to 40Mb/d into 2021, though PEMEX recently reversed a decade-long decline in its oil reserves.
The 2Q20 report reinforces with clarity that PEMEX is in trouble. The company, central to the López Obrador administration’s economic plan, is to be the “lever” by which the president rebuilds the Mexican economy. The oil-friendly and populist government has bet big on oil’s future and will spend a minimum of US$8 billion building a new refinery in Dos Bocas while the country’s other refineries remain operating well below their intended capacity.
But PEMEX still has a battle on its hands. Even before the pandemic, it was the most indebted national oil company on the planet. Now, the price of the Mexican crude oil basket is barely two-thirds of what it was pre-COVID-19 and it remains on shaky ground amid wide-spread uncertainty on global storage capacity, the globe’s short-term energy needs and the potential for further outbreaks. These international concerns, combined with the national reduction in mobility, have inhibited the company’s ability to generate revenue.
Yet, the López Obrador administration marches on with PEMEX, hopeful for a turnaround that other experts – including major credit agencies – appear to view as unlikely. The company’s cash problems have seeped into national industry’s supply chain, stifling the country’s service companies in oil hub regions, as they are forced to self-finance to counter the extended payment times PEMEX offers. In a recent MBN interview, Alfredo García, of energy-focused foreign investment firm Sie7e Energy, said that “service providers are often paying their own operations from their own pockets and PEMEX payment times are getting longer. Therefore, some companies are falling behind on the payments they have to make.”
The government’s backing of PEMEX has proven a source of both hope and harm. On one hand, the close relationship has been seen as an obstacle to genuine fiscal independence by credit agencies that have signaled out PEMEX’s reliance on the government as a cause for concern. Meanwhile, stock market investors have continued to bet on the NOC, viewing it as low risk precisely because of its sovereign backing.
But the Mexican economy has been battered by COVID-19 and a double-digit recession is now on the cards, say analysts. The country’s national debt has grown substantially in the past four months and has experienced the fifth-highest rise among emerging economies.
Though the administration will support PEMEX further, it will find the going gets tougher in the country’s “new reality.”