PEMEX in the Second Quarter of 2022

During the second quarter of 2022, PEMEX reported a net profit of MX$131.378 billion; in contrast to the MX$14.364 billion in net profit registered in the same quarter of 2021. The fundamental explanation for this contrast lies, from the outset, in the fact that the average price of the Mexican Export Mix (MME) during the reported quarter was US$105.34 per barrel: 63.6 percent higher than that registered in the first quarter of 2021. Compared to the second quarter of 2021, the increase in prices was reflected in an increase of 88.6 percent in total sales, up from MX$347,436 to MX$655,248 million.

The foreign exchange gain for the reported quarter (MX$19.,648 billion) was due to an appreciation of the Mexican peso against the US dollar, when the exchange rate changed from MX$19.9942 per dollar as of March 31, 2022, to an exchange rate of MX$19.9847 per dollar as of June 30, 2022, which reduces financial costs measured in pesos. In the second quarter of 2021, the foreign exchange profit was MX$80.2 billion.

Regarding the accounting balance, PEMEX obtained a positive operating yield of MX$257.390 billion in the reported quarter, compared to the also positive result of MX$52.298 billion, corresponding to the second quarter of 2021. This result was achieved despite the fact that the cost of sales, which is constituted in a large percentage by the importation of fuels for resale (whose prices increased), increased by 93.7 percent from MX$245.386 billion in the second quarter of 2021, to MX$473.350 billion in the reported quarter, a slightly higher percentage increase than that of sales revenues (88.6 percent). Therefore, the higher operating yield is also explained by a reversal of the impairment of fixed assets for MX$47.787 billion and by the recognition of the IEPS tax credit for a value of MX$64.500 billion.

EBITDA (earnings before interest, taxes, depreciation and amortization) for the second quarter of 2022 was MX$261.600 billion. This amount represents an increase of 111 percent compared to the same quarter of 2021 (MX$124 billion).

In the reported quarter, PEMEX delivered to the federal government a total of MX$98.549 billion in taxes and rights, already discounting the tax benefits accrued. This amount means an increase of 20 percent compared to what was reported to the treasury in the same quarter of 2021 (MX$82.128 billion). The increase in PEMEX's tax contribution is another consequence of the strong recovery in the price of the Mexican Export Mix. Despite the reduction of the rate of the Shared Utility Right (DUC), which went from 54 percent in 2021 to 40 percent by 2022, t of the DUC in this quarter totaled MX$111.751 billion, 50.3 percent higher than the MX$74.335 billion paid in the same quarter of 2021.

PEMEX's positive quarterly result is based on an economic component (the strong increase in the price of the Mexican Export Mix); a fiscal element (the decrease in the Shared Utility Right) and a virtual factor (the appreciation of the peso against the dollar). Although the report does not record any additional budget support to the patrimonial contribution made by the government ( MX$45.437 billion) for the payment of amortizations of its debt, during the last quarter, they paid significantly to obtain a positive net result, both an accounting variable (the reversal of the impairment of fixed assets totaling MX$47.787 billion) and a circumstantial one (the recognition of the IEPS tax credit for a value of MX$64.500 billion), derived from the policy of subsidies on automotive fuels.

On the other hand, the refining margin per processed barrel was positive for the ninth consecutive quarter, going from US$2.17 to US$14.51 in the reported quarter. However, the possibility of consolidating this fundamental indicator of economic performance continues to be limited by fuel oil production.

Indeed, in the second quarter of this year, the production of oil products rose to 805,000 barrels per day. In the same period, the average production of gasoline (257,000 barrels per day) was greater than that of fuel oil (233,000 barrels per day). However, for the month of June, according to the Petroleum Statistics published by PEMEX, the average production of gasoline fell to 205,000 barrels per day, while that of fuel oil grew to 211,200 barrels per day. These variations in the production of gasoline and fuel oil reflect the difficulties in meeting the objective of optimizing the operation of the National Refining System and reaching stated goals in terms of the use of installed capacity, which were set for each refinery on Dec. 28, 2021.

In this context, the government's objective that gasoline prices do not increase in real terms, despite a persistent scenario of high oil prices, could become unaffordable due to oil surpluses. As the government has reiterated, the excess income derived from a price of crude much higher than that estimated to prepare the Expenditure Budget of the Federation is used to finance the subsidies granted to the consumption of automotive fuels, beyond the questionable nature of the partial privatization of oil income, which belongs to all Mexicans because it is generated from a resource owned by the nation, in favor of a privileged group. The truth is that the numbers show that as of June, the subsidies for automotive fuels exceeded the amount of the surplus tax revenue from oil received by the federal government.

Indeed, considering the production values and prices of crude oil used to prepare the 2022 economic package (1.826 million barrels per day and US$55.1 per barrel) compared to those observed for PEMEX from January to June (1.776 million barrels per day, including the production of its partners and US$97.81 per barrel), at an average exchange rate of MX$20 per dollar, we calculate that the so-called oil surpluses reached a little more than MX$141 billion. In contrast, according to the information provided by the Ministry of Finance and Public Credit, the amount of subsidies for automotive fuels in the period from January to June of this year was almost MX$152.9 billion. If this trend continues, by the end of the year, subsidies would have been granted for an amount very similar to the most recent estimate of the cost of the Olmeca Refinery.

In short, in the second quarter of 2022, PEMEX generally obtained good economic and operating results, which need to be consolidated from a long-term institutional perspective and with coherence as a whole of public policies related to the oil sector.