Page 4 - LatAmOil Week 08 2020

LatAmOil COMMENTARY LatAmOil
Mexico wants to keep the details of its annual oil hedge out of sight (Stock photo)
Mexico keeps mum on oil hedge
The country’s Finance Ministry has reiterated its determination to keep details of the annual hedging programme under wraps
WHAT:
Finance Minister Arturo Herrera has stressed the need for a “discreet and disciplined” approach.
WHY:
Government officials hope that secrecy will help maximise revenues while minimising costs.
WHAT NEXT:
The loss of transparency may harm Mexico’s reputation among investors.
IN the past, detailed information on the Mexi- can Finance Ministry’s oil hedging programme – the annual process of working with Wall Street banks and international oil companies (IOCs) in a bid to ringfence revenues from crude produc- tion – has been readily available.
The ministry has typically disclosed key data on the hedge, including the actual cost of the deal, the strike price of put options, its lock-in price, the exact volume of oil hedged and the extent to which it would use the cash reserves of the Oil Revenues Stabilisation Fund (known by its Spanish acronym FEIP) to insure each barrel of crude. It has also made detailed reports to the state auditing agency, revealing informa- tion such as the dates when it started and then stopped buying put options, the names of the banks involved in the deal and the share each participating bank had in the hedge.
Over the last year, though, Mexico’s govern- ment has revealed little more than that the total value of the latest annual hedge deal has come to
about $1bn – a relatively low figure, given that in some years the amount of money involved went as high as $20bn. Now it looks set to continue taking a secretive approach to its annual crude oil hedging programme in 2021.
Closed-mouth approach
Bloomberg said earlier this year that the govern- ment was taking this closed-mouth approach to protect its own financial interests. After view- ing official documents related to the matter, it reported in mid-January that the Finance Min- istry had designated certain information about the hedging programme as a state secret.
The ministry outlined its plans in a letter sent
to the state auditing agency in February 2019, saying it intended to keep key data on the oil
hedge secret for a period of five years, the news agency said. The letter justified this stance by asserting that a less transparent process would
help guard against price rises and discourage speculation. 
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