Mexico will support Pemex by injecting US$3.6 billion into the debt-laden state-held oil firm, including by refinancing debt and cutting taxes, Mexican officials said on Friday.
The Mexican government, however, will not take on new debt for Pemex, Reuters quoted officials as saying at a regular press conference.
The Mexican state oil firm has a total of US$106 billion in financial debt.
If Pemex needs more capital injection, the government will provide it, according to Finance Minister Carlos Urzua.
Mexico’s left-wing President Andrés Manuel López Obrador—in office since December 1—wants a greater role for Pemex in reversing the downward trend in Mexican oil production.
Pemex’s crude oil production continues to decline—according to Pemex figures, its crude oil production averaged 1.813 million bpd in 2018. To compare, Pemex’s crude oil production averaged 2.522 million bpd in 2013, falling to 1.948 million bpd in 2017.
López Obrador and Pemex have grand plans for reversing the decline, with the government coming to the rescue of Pemex, as the oil firm itself said in December. A new strategic plan aims to guarantee “the country’s energy security and sovereignty” and targets to raise crude oil production to 2.48 million bpd by the end of this administration’s term in office—the end of 2024.
Last month, Fitch Ratings downgraded Pemex’s ratings to just above investment grade, raising concerns that additional downgrades by Fitch or another rating agency would significantly lift the oil firm’s financing costs while it struggles with a heavy debt load.
Fitch Ratings’ downgrade reflected the continued deterioration of Pemex’s standalone credit profile, as a result of persisting negative free cash flow and material under-investment in the company’s upstream business.
“The ratings are constrained by PEMEX’s substantial tax burden, high leverage, significant unfunded pension liabilities, large capital investment requirements, negative equity and exposure to political interference risk,” Fitch said in January, but noted that it expects that the company will receive necessary support from the government to ensure adequate liquidity and debt service payments.