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Oil giant’s debt: How slippery is Mexico’s Pemex for investors?

By Daniel Tyson


Updated

Line of vehicles waiting to gas up at Pemex.
PEMEX still struggling under heavy debt providing hurdles for investors/Shutterstock

If Mexico does not continue to bail out its debt-ridden state oil behemoth Pemex the impact will have a negative impact on US energy companies’ bottom line, two industry insiders have told Capital.com.

“The US oil industry always viewed partnering with Petroleos Mexicanos, better known as Pemex, as an investment with risk, but now the industry is viewing it with more hesitation,” said one industry executive, who spoke on condition of anonymity.

In recent days, Mexico’s Finance Minister said the country would not cover Pemex’s debt payment, as it has for several decades. This year, Pemex, the most indebted oil producer in the world, owes about $2.5bn in principal and another $2.5bn in interest, LaDonna Gonzales, an independent oil analyst in Mexico City told Capital.com. Gonzales estimates another $5bn is due to bondholders later this year.

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“For years, the government has paid whatever Pemex was short,” Gonzales said. “Pemex never has never been held to fiscal responsibility.”

Pemex officials expected the Finance Ministry to provide additional amortization payments to cover the debts for the next two years, in-country media reported. In January, the government gave the company a $3.5bn cash infusion.

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Self-sufficient

Data provided by Gonzales to Capital.com shows the Mexico City-based giant is trying to increase oil production and exports while global prices are higher by upping its refining output. Mexico’s current president set goals to make the country self-sufficient, as it was when the government nationalized oil production in March 1938.

However, years of corruption, nepotism and cronyism has created a company burdened with hundreds of billions of dollars in debt and a reputation for unreliability.

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Within the domestic oil community, Pemex has little credibility, said two executives. The state-run oil company lacks expertise, solid financing and reliability.

“You must bring all three to the table when working on a joint operating agreement,” before a US oil company will take an offer seriously, said one executive.

Both executives gave a number of examples where deals between PEMEX and US companies ended in disagreements and disasters. The executives mentioned the Deer Park fiasco between Pemex and Royal Dutch Shell (SHEL), where Pemex management fumbled technology issues costing the companies billions of extra dollars.

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“When you have a government bailing you out fucking up is fine, but when you answer to investors it’s a different story,” one executive said.

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Last summer, Pemex was slated to pony up $2bn over five years to develop the Zama offshore field with Talos Energy. What the company forgot to tell its partner was it did not have an extra $2bn in its coffers.

Then Pemex fought for operational control of Zama from Talos Energy. After much wrangling, Pemex’s top leaders and Mexico’s energy minister Rocio Nahle essentially told Talos that Mexico will take over operations, as otherwise it would be a threat to Mexico’s oil independence. Additionally, Talos was told Pemex had the technical and operational knowledge to run the 700-million-barrel site.

Nearly a year after the Talos/Pemex situation the Zama field is experiencing trouble, said the executives, with productivity, workforce and technical issues.

“Talos should consider itself lucky,” said one of the executives of the situation.

The executives said US oil companies see the issues with Pemex operations, but believe their managment can overcome the problems. However, they said, with the Mexican government resisting bailing Pemex out that might change. 

"For some US oil companies this is now a different ball game," he said, explaining companies now see Pemex and projects in Mexico as a bigger risk than before. 

Pemex declined to comment on this story. Mexico's Finance Ministry also declined to comment.

 

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