Moody’s sees production risk in Pemex’s capex cut

The proposed 32% cut to Mexico’s oil and gas giant Pemex’s capex next year represents a risk for its oil production, as the federal government’s priorities under its 2024 budget are centered on the state-owned company’s US$110bn debt.  

“I believe that the main risk is the decrease in oil production due to lack of maintenance and investments,” Moody’s VP senior analyst Roxana Muñoz (pictured) said during a press conference in Mexico City on Wednesday. 

“It seems to me that the investments have not had the expected impact because even in 2020 we saw that crude oil production decreased. Now we have an additional cut of 32%, including maintenance, production and exploration, so the expectation is that if [Pemex] does not invest in that business, the risk is that oil production will continue to fall.” 

As an example of how a lack of maintenance could result in less output, Muñoz cited a series of accidents earlier this year in Campeche bay, including the Nohoch platform fire in the Cantarell field, which cost Pemex 700,000b/d in crude oil, and a leak at the Ek-Balam field that took 18 days to get repaired, while 76b/d were lost. 

“There were accidents and production was affected – if the additional maintenance capex is reduced, there will be more events like these,” Muñoz said.

Under the 2024 federal budget proposal, President Andrés Manuel López Obrador's administration proposed 456bn pesos (nearly US$26bn) for Pemex, compared to the 678.4bn assigned this year. The amount does not include the 145bn-peso cash injection the federal government included in its budget proposal, which next year will include the benefit of cutting Pemex's profit sharing with the State to 35% from 40%.

In the proposal, the finance ministry (SHCP) estimates the average price of the Mexican oil mix at US$56.7/b, 15.4% less than the estimated price for 2023, while its production is expected to reach 1.983Mb/d (million barrels a day), 1.4% more than the 1.955Mb/d projected for this year. 

“This would be reflected in 744.4bn pesos in Pemex’s income,” Mexican think tank IMCO said in a report on September 12, adding that it will represent a decrease of 14.1% when compared to the previous year.  

National hydrocarbons commission CNH reported two weeks ago that Pemex’s E&P unit PEP had allocated U$13.4bn in executed investments to explore and drill for oil and gas around the Gulf of Mexico through June.

Most recently, the commission approved a US$10.4bn development plan for PEP and Australian E&P company Woodside Energy to drill 12 wells at the Trion field off Tamaulipas state, Mexico’s first ultra-deepwater contract.

Pemex’s outlook

In July, Moody's downgraded Pemex's outlook from stable to negative while affirming its 'B1' rating, saying the company would need ample external funding but that its access to credit would be limited by its poor ESG track record.

According to Muñoz, this outlook will continue in 2024 if nothing changes in the company’s strategy, especially with the upcoming change in administration in 2024. Mexico will elect a new president on June 2. 

“Our negative perspective today is the uncertainty of knowing what the next administration's strategy will be," Muñoz said. "If there were a trend change, that would mean there would be more investment.”  

According to Moody’s, Pemex needs a total of US$13.8bn in 2024 to solve its debt issues, the highest amount projected during the López Obrador administration.

Taking already into consideration the US$8.3bn assigned in the federal budget, the 2024 cut in the amount assigned to profit sharing to 35% from 40% and other announced forms of financial aid, the rating agency believes some US$4bn will still be needed to cover the balance.