Mexico’s Pemex to rent service corporations for oil rebound, trade uncertain

MEXICO CITY (Reuters) – Mexican nationwide oil firm Pemex will supply a brand new set of oilfield service contracts to corporations, the finance minister mentioned on Tuesday, because it embarks on the problem of ramping up manufacturing by 17% to satisfy 2020 funds targets.

FILE PHOTO: Mexico's Finance Minister Arturo Herrera offers a speech on the Congress constructing in Mexico Metropolis, Mexico September 8, 2019. REUTERS/Luis Cortes/File Photograph

Pemex will open bidding between the tip of this 12 months and early subsequent 12 months for 15 so-called built-in exploration and extraction contracts (CSIEE), the identical mannequin of service contracts the agency is utilizing to develop one other 20 precedence tasks largely clustered within the southern Gulf of Mexico.

Finance Minister Arturo Herrera touted the contracts as public-private partnerships in an interview with broadcaster Televisa.

However the contracts, which don’t supply fairness stakes in Pemex tasks or a share of manufacturing or income, had been greeted with skepticism from trade specialists.

“This seems to be to me like a step backwards,” mentioned Pablo Medina, a Mexico Metropolis-based oil analyst with Welligence. He famous that the contracts pay a set payment per barrel produced below a base state of affairs that may rise if extra oil is produced.

“The competitors for capital in Latin America is intense and lots of international locations are providing extra engaging phrases than earlier than,” he mentioned.

Mexico’s earlier authorities lured a variety of worldwide oil majors by providing dozens of contracts sharing each dangers and rewards, one thing the service contracts don’t do.

President Andres Manuel Lopez Obrador’s 2020 funds blueprint, unveiled on Sunday, forecasts Mexican manufacturing, nearly all from Pemex, of 1.95 million barrels per day of oil, up 17% from present ranges. That concentrate on follows 14 straight years of slumping output due to a combination of ageing fields and a scarcity of funding.

The federal government says it has already stemmed the decline and is now assured manufacturing will shortly rebound due to a technique of investing in easier-to-reach shallow water and onshore fields fairly than the longer-term deepwater tasks.

“What makes us really feel optimistic relating to manufacturing?” Herrera requested. “Pemex’s change in technique whereby it’s investing extra in shallow waters and on land the place it’s simpler to extract,” he mentioned, referring to tax breaks and a federal authorities money injection outlined within the funds.


The funds requires a $26.Eight billion Pemex funds total, up about 9% in contrast with this 12 months. Herrera pressured a further $4.Four billion in assist for the agency, together with tax breaks and a capital injection of $2.35 billion.

Nonetheless, credit standing company Moody’s analyst Ariane Ortiz-Bollin mentioned in an announcement earlier this week that the funds proposal underestimates the quantity of funding that Pemex might require going ahead.

The nine-month-old Lopez Obrador administration has canceled auctions to select joint ventures companions for Pemex that may give non-public firms a larger stake in tasks, in addition to separate oil auctions that allowed oil majors to function exploration and manufacturing tasks on their very own.

Each had been seen as a manner to assist reverse the slide in Pemex’s manufacturing by attracting vital exterior funding from non-public companions.

FILE PHOTO: An indication of state-owned firm Petroleos Mexicanos (PEMEX) is seen at a gasoline station in Monterrey, Mexico June 17, 2019. REUTERS/Daniel Becerri

A marketing strategy printed by Pemex earlier this 12 months says the service contracts might prolong as much as 20 years, paying a payment set in U.S. {dollars} that may range primarily based on the complexity of the undertaking and primarily based on manufacturing achieved. In all circumstances, Pemex wouldn’t cede management of the operatorship of the tasks.

The world’s most indebted oil firm, Pemex is liable to a second downgrade of its bonds to so-called junk standing after Fitch did so in June, which might set off compelled promoting of bonds price billions of {dollars}.

Herrera mentioned the federal government will “defend the credit standing” of Pemex, assuring the agency has cash to take a position and managing its debt profile so it’s “extra sufficient.”

Reporting by Anthony Esposito and Sharay Angulo; Further reporting by Adriana Barrera and David Alire Garcia; Enhancing by Bernadette Baum and Lisa Shumaker

Author: Maxwell C.

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