State support for Pemex failing to lift oil production or improve its finances, analysts say

Multibillion dollar support from the Mexican government for national oil company Pemex is failing to help it increase production or turn a profit, while imposing an increasing burden on the country's public finances, according to analysts.

In results released on Friday, Pemex reported a loss of 256bn pesos (US$13.7bn) for the second quarter. 

The company's debt of US$99.4bn was equivalent to 5.3% of Mexico's estimated GDP for this year, said competitiveness think tank IMCO. 

Pemex has received US$7.7bn of fresh capital from the State so far this year. Since 2019, it has benefited from capital injections and tax cuts worth nearly US$70bn, IMCO estimated, with no appreciable improvement in profitability.

"Over the course of the last 13 years (2011-24) there has been a continuous deterioration of the shareholder equity of Pemex as a result mainly of the recurring losses reported by the company," IMCO said.

The cash-strapped company is struggling to increase production. Output from mature fields is declining rapidly and production from newer discoveries is not making up the shortfall.

Pemex's output of liquid hydrocarbons fell to 1.784Mb/d in Q2 from 1.820Mb/d in the first quarter. Compared with 2Q23, production was down 6.2%.

At BBVA Research, analyst Arnulfo Rodríguez wrote that the decline in production from 1Q24 was nearly entirely the result of a drop of 35,100b/d from the company's mature fields.

"The second quarter of 2024 marks the fourth consecutive quarterly decrease," Rodriguez wrote.

The fall in Pemex's production resulted in a 16.1% drop in revenue from crude exports compared with 2Q23.

"To increase oil production this year and in coming years, a much greater contribution will be required from the new fields as the natural decline of the mature fields is continuing," according to Rodriguez.