PEMEX’s Outlook: Moody’s

Moody’s Investors Services sheds light on the outlook for PEMEX and its role in Mexico’s energy landscape. The firm underscores that as long as PEMEX receives federal financial support, its credit rating will continue to be supported by the government. However, at a time where Mexico’s spending budget faces scrutiny, PEMEX appears as a liability for already strained public collection and compromised public finances.

The biggest risk, regarding Mexico’s energy strategies, identified by Lourdes Melgar, Research Affiliate, MIT Center for Collective Intelligence, is not recognizing the urgency of the energy transition and tackling climate change. “It is an enormous political and social challenge and it is also a financial issue,” said Melgar.

According to Adrián Garza, Vice President and Sr. Credit Officer, Moody's Investors Service, the country also needs to make great investments in infrastructure to face rising energy demand. Out of 192 transmission projects included in the 2015-2022 PRODESEN, only 9 have come to completion. However, CFE announced recently that it is investing US$750 million to expand the National Transmission Network (RNT) in the northwest, north and western regions of the country.

Roxana Muñoz, Vice President and Senior Analyst, Moody’s Investors Service, explains that federal backup mitigates the risk that PEMEX represents, but it will need large amounts of capital in the upcoming years. She also highlighted the continuous tax break PEMEX receives through the reduction of the Right to Shared Profit (DUC). Furthermore, Muñoz also mentioned that PEMEX’s CAPEX investment has continued to decrease, which poses a risk due to declining production and capital resources the company receives and needs.

According to Moody’s, PEMEX investments have not had a meaningful impact compared to the needs of the company and mentioned that its refining business continues to be unprofitable. The NOC also faces risks related to its ESG goals. Flaring is an issue that could hinder access to more financing, which the company has sought out to mitigate its debt.

With the upcoming elections, the NOC faces greater uncertainty. In a scenario where PEMEX continues with the path it is currently on, further decline in production is a great risk as that is its most profitable business. However, this budget has a 32% decrease for next year, which includes production, maintenance and exploration, which could further strain production. In relation to oil prices, Muñoz emphasized that higher oil prices do not necessarily equate to improved finances, as they influence both income and costs.