Page 7 - LatAmOil Week 30 2021

LatAmOil MEXICO LatAmOil

CNH has said it expects to see independent difficulty doing so.
operators raise total oil output to 280,000 bpd Yields have been trending downwards since
by 2024 and to more than 400,000 bpd by 2028. 2004, and the Mexican government has said
This will give privately owned companies a it no longer expects yields to return to 2mn
larger share of Mexican production. bpd within the foreseeable future. It recently
For the time being, though, state-owned informed OPEC that it expected yields to aver-
Pemex still accounts for the vast majority age 1.753mn bpd up to the end of 2022.
of Mexican oil production, which averaged S&P Global Platts Analytics has offered a
1.74mn bpd in 2020. Mexico’s government has slightly more optimistic figure. Last week, it said
said it wants to push the country’s total output it expected Mexico to produce 1.83mn bpd of
up to 1.92mn bpd by 2023, but it may have crude in 2022. ™

Moody’s cuts Pemex rating to

Ba3, citing concerns about risk

MOODY’S Investors Service said on July 27 that production growth and (iii) generate free cash
it was downgrading Mexico’s national oil com- flow [FCF] for debt reduction. Because Pemex’s
pany (NOC) Pemex, owing to concerns about ratings are highly dependent on the support
the risks facing the state-owned firm. from the government of Mexico, a change in
In a press release, Moody’s stated that it was assumptions about government support and its
downgrading Pemex’s corporate family rating, timeliness could lead to a downgrade of Pemex’s
as well as the senior unsecured ratings for the ratings.”
NOC’s existing notes and the ratings based on a Moody’s expressed concern about Pemex’s
guarantee from Pemex, from Ba2 to Ba3. Addi- precarious financial situation and criticised the
tionally, it said it was lowering Pemex’s baseline business strategy the company has adopted at
credit assessment (BCA), a metric that reflects the behest of Mexican President Andres Manuel
the company’s stand-alone credit strength, from Lopez Obrador. “These rating actions were
caa2 to caa3. based on Pemex’s high liquidity risk and increas-
The ratings agency indicated that the NOC ing business risk, as the company faces high debt
was at risk of further downgrades. “The outlook maturities while it expands its refining capacity
on Pemex’s ratings remains negative, primarily and production,” it said. “Moody’s believes that
given the negative outlook on the Mexico gov- such strategy will generate higher refining oper-
ernment’s Baa1 rating,” it said. ating losses in the short and medium term.”
It continued: “A downgrade of Mexico’s Baa1 The downgrade pushes Pemex’s securities
rating would likely result in a downgrade of further into “junk” territory, Reuters noted on
Pemex’s rating. For Moody’s to consider an affir- July 27. It pointed out that the NOC was hav-
mation of Pemex’s Ba3 rating following a sov- ing trouble paying off its debt portfolio, which
ereign downgrade, the company’s BCA would amounts to more than $100bn in debt, because
have to substantially improve. Factors that could of a long-term decline in crude oil output, a
drive a higher BCA would be the ability of the heavy tax burden and high payroll expenses. In
company to (i) strengthen its liquidity position, turn, the company’s problems are sure to affect
(ii) internally fund enough capital investment the Mexican government’s fortunes, as Pemex is
to fully replace reserves and deliver modest a major source of budget revenues. ™

Pemex’s production has been trending downward since 2004 (Photo: PRI)

Week 30 29•July•2021 www. NEWSBASE .com P7