Page 7 - LatAmOil Week 12 2020
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LatAmOil COMMENTARY LatAmOil
But gas prices will remain low in the meantime over the next two years, according to Fitch, due to weak demand for LNG in China, high vol- umes of gas in European storage and commis- sioning of new LNG capacity, albeit at slower pace than in 2016-2019.
“Our ratings will be driven by issuers’ expected credit profiles in 2020-2023 (assuming their liquidity remains sufficient), rather than
when prices trough. This is in line with our “rat- ing-through-the-cycle” approach,” says Fitch. “We do not anticipate that this revision of oil and gas prices will trigger portfolio-wide neg- ative rating actions, but we will assess the credit impact case by case. High-yield issuers are more exposed, particularly those with high liquidity and refinancing risks, given tough capital and asset sale markets.”
MEXICO
Pemex to cut expenses, contracts
MEXICO’S national oil company (NOC) Pemex is reportedly planning to reduce its administra- tive expenses and contracts this year in order to help deal with the impact of falling crude oil prices.
According to Octavio Romero, the compa- ny’s CEO, Pemex will prioritise its most profita- ble projects going forward. Romero was quoted as saying by Reuters that “all necessary adjust- ments” would be made to ensure that the firm remains financially stable.
The firm will also “strengthen its austerity measures,”headded.Pemexaimstosavearound $217mn in contract costs and $27mn in admin- istrative costs this year, he explained.
The CEO acknowledged that Pemex had already begun its oil hedging programme for this year. He stressed, though, that the hedge could not “solve the financial problem” that had resulted from the global drop in oil prices.
US-based Fitch Ratings warned late last week that Pemex was increasingly vulnerable to oil markets, which have become more bear- ish as a result of the coronavirus (COVID-19) outbreak. As the pandemic spreads across the world, it is rapidly wiping out crude demand and sending markets tumbling. This collapse is sure to have consequences for the Mexican economy, since the NOC accounts for a large share of the
government’s budget revenues.
The ratings agency noted that Mexico’s crude
basket price had dropped below $20 per barrel. At this level, it said, Pemex’s upstream explora- tion and production operations “[do] not gen- erate enough cash flow to cover operational and financial costs.”
Fitch went on to describe Pemex as “most vulnerable” compared to its peers in Latin America. Under these conditions, the NOC will have difficulty withstanding the price dive if it does not secure more government support and earnhigherrevenuesfromitsrefiningbusiness.
Mexico’s government has drawn up plans to boost the oil and gas sector and is due to present a new national energy plan for the 2020-2024 period at the end of this month. The plan is likely to encompass 275 projects in the areas of power generation, storage, transportation and natural gas exploration and production. The list of states that stand to benefit the most from these pro- jects includes Veracruz, Oaxaca and Yucatan, all traditionally poor regions in Mexico’s southern and eastern regions.
Reuters reported recently that the govern- ment had been in talks on the new energy plan with several private international companies, including Royal Dutch Shell (UK/Netherlands), Engie (France) and Enel (Italy).
Sempra Energy postpones FID on Energía Costa Azul LNG
NEW York-listed Sempra Energy has delayed its final investment decision (FID) on the construc- tion of an LNG export facility in Baja California, Mexico, and may do the same for a separate pro- ject in Texas.
In a conference call on March 24, Sempra executives said that they would wait until the
second quarter of this year to proceed to the FID stage with Energía Costa Azul LNG. The company had stated previously that it would make this move in the first quarter of 2020, but it has changed its plans in light of the coronavirus (COVID-19) outbreak, which has pulled energy demand down around the world.
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