The boss of Mexico’s Pemex hit back at rating agencies and investors who increasingly see the state oil company as a threat to public finances as it faces hefty supplier bills and interest payments on its near $106bn debt mountain.
Pemex, once a major cash cow for Mexico’s government, now has the highest level of debt of any oil company due to years of under-investment, corruption and lack of reforms. Crude oil production has fallen sharply in the past two decades with monthly output dropping to a four-decade low in February. Its debt pile is increasingly dragging on the government budget, and Moody’s downgraded its debt further into junk territory earlier this year.
Nevertheless, Pemex chief executive Octavio Romero this week shrugged off economists’ warnings that government support for the oil group will be increasingly costly without major reforms. “[Pemex] lives off its cash flow . . . it contributes [to the government].”
The common refrains that the company is a “bottomless barrel” or “bankrupt” were made in bad faith or ignorance, he said, adding: “It’s a great company that was left to us on the verge of collapse.”
Leftist President Andrés Manuel López Obrador, who took office in 2018, named longtime political ally Romero to head up the national oil company, giving it $92bn in support via tax breaks and cash injections.
In 2022, the company turned a net profit of around $6bn for the first time in a decade thanks to higher oil prices and a reduced tax burden. Romero, a career politician, said that under him Pemex had curbed the rise in debt levels and aimed to cut borrowings to $95bn this year.
“Pemex’s debt is the country’s debt . . . it’s the same,” Romero said.
In June, when Mexicans go to the polls to pick a successor to López Obrador, whose term comes to an end, they are likely to choose his protégé Claudia Sheinbaum.
Her challenge will be luring investment from a sector wary of the current government while keeping her left-wing Morena party happy.
Mexico’s previous government opened the oil sector to significant private investment for the first time in 80 years, a move vehemently opposed by nationalist López Obrador, who is from a major oil producing state. He vowed to “rescue” the company and halted oilfield tenders.
Merlin Cochran, director of Mexican Association of Hydrocarbon Companies, said billions of dollars had gone to other countries once Mexico’s tenders were stopped. He added that some 500 blocks of fields were not yet being exploited.
Romero complained that the vast majority of the private firms that had won contracts did not invest any money, instead monetising or reselling the deals they had won.
However, he said that Pemex would “keep working with private companies,” adding it would soon announce a private partner for a major deepwater gasfield in the Gulf of Mexico called Lakach.
Romero sees the country’s reliance on clean energy still 40-50 years away and said that oil production would continue to support the country’s growth.
But investors and analysts say more much needs to be done via cutting its tax burden and costs to put the company on a sound financial footing.
The company’s pool of investors for the bonds has dwindled, and much of the group’s longer dated paper remains firmly in distressed territory, below a widely recognised threshold of 70 cents on the dollar.
“Pemex will require ongoing government support for the foreseeable future,” said Andrew De Luca, emerging markets credit analyst at Pemex bondholder T Rowe Price.
Moody’s in February cast doubt on how long the government’s support would continue. Forecasting a “negative free cash flow over the forthcoming three years”, it warned that there would be a “likely shift in the [government’s] willingness to support the company’s full service of its debt in the next few years in light of Pemex’s expanding cash needs”.
Additional reporting by Harriet Clarfelt in New York
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