Page 5 - LatAmOil Week 36 2019

LatAmOil COMMENTARY LatAmOil
 Overly optimistic
For another, the Mexican government has drawn up a budget for 2020 that imposes unre- alistic expectations on the oil and gas sector.
On September 9, the presidential admin- istration sent a dra budget to legislators that relies on the assumption that Pemex will be able to push oil production levels up to 1.951mn barrels per day in 2020. is is about 17% above the average gure of 1.671mn bpd that the NOC posted for July 2019, the last month for which con rmed data were available as of press time.
is goal seems overly ambitious, given that Pemex is not planning to launch any huge new elds next year. ( e last time Mexico achieved an increase of this scale was in 1982, when it brought the Cantarell site on stream.) It is also at odds with recent trends, since the company has spent most of the last 15 years seeing its yields decline.
Nevertheless, Mexican o cials have argued that the proposed budget is realistic. On Sep- tember 9, Finance Minister Arturo Herrera said that Pemex had already arrested the slide in pro- duction. He also said the government was ready to provide the funding that the company needed to bring output up to 2mn bpd, the level posted just two years ago.
“[That] trend has been stopped,” he told reporters at a press briefing. “Resources are being increased, and we’re adding funding of
MXN86bn [in 2020].”
Hedging risk
Industry observers have been less sanguine. For example, Ociel Hernandez, an economist at BBVA, has described the government’s strategy as risky.
“If Pemex missed the target, the government would have to adjust the scal plan for the year,” Hernandez told Bloomberg earlier this week. “Depending on the average oil price, Pemex rev- enues would fall, and thus risks of downgrades would persist.”
True, Mexico has taken steps to guard against oil price uctuations. Reuters reported last week that the government had made its rst move towards executing its annual hedging pro- gramme, which involves spending about $1bn on put options in order to guarantee its revenues from crude production. It also noted separately that the dra budget submitted to legislators called on both the state and Pemex to carry out the oil hedge again next year.
But the hedge may not be enough to pro- tect Mexico from all risks. While oil markets can be volatile, the country does not have to worry about commodity price shi s alone. It also needs to nd a way to guard itself against the damage that might occur if Pemex fails to shoulder the heavy burden that the president has placed upon it. ™
The Mexican “
government made its rst move towards executing the annual
oil hedging programme last week
VENEZUELA
CNPC subsidiary reportedly suspends work on Sinovensa expansion project
VENEZUELA’S plans for expanding the pro- duction capacity of Sinovensa, a joint venture between the national oil company (NOC) PdVSA and China National Petroleum Corp. (CNPC), may be suffering a setback. China Huanqiu Contracting and Engineering (HQC), a CNPC a liate that is one of Sinovensa’s con- tractors, has reportedly halted operations at the JV’s Jose crude blending facility in the Orinoco region.
The Chinese company notified Sinovensa of its decision to suspend work as of September 3 in a letter last week, according to documents viewed by Bloomberg and other sources.
In the letter, HQC said it had taken this step because it had not been paid for its work on the expansion project. It explained that it had accu- mulated more than $52mn worth of unpaid invoices since late 2018 and cited clauses in its contract that allow it to halt operations without notice if the JV fails to settle two invoices in a row.
As of press time, none of the parties involved had confirmed reports of the suspension. PdVSA, CNPC and Sinovensa all declined to
comment when contacted by reporters. Venezuelan President Nicolas Maduro said in early August that PdVSA and CNPC had begun work on a project designed to raise the Jose crude upgrade plant’s production capacity
from 110,000 barrels per day to 165,000 bpd. He did not say how quickly the JV might achieve this 50% increase, but he did comment that his government was grateful that CNPC and Beijing were willing to broaden ties with PdVSA. “ anks always to China, for all this e ort and all of this co-operation,” he said dur- ing a televised appearance with Chinese govern-
ment o cials.
On the same day, PdVSA issued a statement
clarifying Maduro’s remarks, explaining that Sinovensa intended to implement the expan- sion project in two stages. e rst stage will bring the Jose plant’s production capacity up to 165,000 bpd, it noted, while the second stage will raise capacity further to 330,000 bpd.
PdVSA’s subsidiary Venezuelan Petroleum Corp. (CVP) set up the Sinovensa JV with CNPC in 2001 with funding from China Devel- opment Bank (CDB).
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