Page 5 - LatAmOil Week 43 2021

LatAmOil COMMENTARY LatAmOil

Bloomberg has reported that the value of the NOC’s profit-sharing obligations – namely, the
company’s overseas notes shot up to the high- portion of its earnings that must be handed over
est levels recorded within the last month after to the government – from 54% to 40%.
Romero’s declaration, and some market observ-
ers said earlier this week that the government Prolonged financial risks
had given the NOC a boost by offering public In short, Mexico’s government has already taken
and explicit guarantees for the coverage of its on some of Pemex’s obligations, and now that it
debts. is prepared to take on even more, it will receive
According to Luis Maizel, a portfolio man- even less money from the NOC in the form of
ager at San Diego-based LM Capital Group, the profit-sharing tax (known locally as DUC).
told Bloomberg that Romero’s words under- Mexico City’s hope appears to be that the
score Mexico City’s commitment to Pemex. The company will be able to use the funds that might
company’s head has “just sent the message that otherwise be reserved for amortisation pay-
if Pemex can’t pay, Hacienda [the Finance Min- ments and profit-sharing for investment pro-
istry] will,” he said. “He basically went from an grammes. This approach might pay off in the
implicit guarantee to a more explicit one.” long run if the investments in question focus on
Pemex’s upstream operations – that is, on explo-
Long-term financial burden ration projects that serve to bolster reserves and Pemex is the
This explicit guarantee is likely to prove burden- on production initiatives that help optimise out- most indebted
some for the Mexican government, as Pemex’s put as some of the country’s largest fields mature.
finances are not in the most optimal state. It is not clear, though, that Lopez Obrador NOC in the world,
On the one hand, the company is carrying is heading in that direction. Instead, there is a
$115bn in debt. This makes it the most indebted strong chance that the president will give prior- carrying a debt
NOC in the world, and it has few prospects of ity to his own pet projects, such as the massive
repaying this huge sum any time soon. Its pro- Dos Bocas oil refinery now under construction portfolio of
duction levels have been trending downward in Tabasco State – despite the fact that Pemex’s $115bn
for more than 15 years, and its finances have not other refineries are operating at less than half of
benefitted from recent increases in world crude their current design capacity (and despite the
oil prices. fact that the projected cost of this project has
Indeed, Pemex reported October 28 that it now climbed above $12bn, up from the original
had incurred the equivalent of $3.78bn in losses figure of $8bn.
during the third quarter of 2021, down from its If so, Mexico City may have to wait a very
profit of about $68.6mn in the second quarter. long time to determine whether its strategy has
The loss occurred despite the fact that the com- worked. In the meantime, though, it will be tying
pany saw its revenues jump to $18.84bn in the its own fortunes even more tightly to Pemex
third quarter, up by 60.9% on the second-quar- than they already are.
ter figure. Romero, for his part, told legislators on Octo-
On the other hand, Mexico City has already ber 27 that Mexico’s finances could not be sep-
taken steps to shoulder some of Pemex’s finan- arated from those of Pemex. “At the end of the
cial load. It has already agreed to cover Pemex’s day, it’s [the] debt of the country,” Bloomberg
amortisation payments in 2021, and Romero quoted him as saying. “You can divide the debt
said in March that this move would put the gov- of the Finance Ministry and of Pemex, but in the
ernment on the hook for $6.4bn this year. It has final balance for the nation, the two are added
also offered fiscal incentives such as cutting the together.” ™

(File Photo)

Week 43 28•October•2021 www. NEWSBASE .com P5