Page 11 - LatAmOil Week 19 2020

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Pemex more exposed than Mexican government to market turmoil
PEMEX has unveiled details of its hedging pro- gramme for 2020, and its revelations indicate that the national oil company (NOC) is more vulnerable to market fluctuations than its parent entity, the Mexican government.
In its annual report, which was released on May 5, Pemex stated that its hedge had a floor of $44 per barrel. The company “contracted cover- age instruments that protect against declines in reference prices in the range of $49 per barrel to $44 per barrel,” it explained.
This fixed lower limit leaves the NOC exposed when crude markets drop below the floor, as they have done in recent months, Argus Media noted.
The company based its budget for 2020 on the assumption that the Mexican export basket prices would average $49 per barrel this year, but it has little chance of reaching this target. Aver- age basket prices came to $40.90 per barrel in the first quarter, and Pemex does not expect them to go higher than $32 for the rest of the year. As a result, the company may suffer substantial losses on all of its projected oil production of 1.75mn barrels per day (bpd) in 2020.
Pemex’s hedging deal will also be limited in its impact, as it will cover a relatively small amount of the NOC’s production. According to the annual report, it will apply to 242,000 bpd of oil, equivalent to about 14% of Mexico’s projected output during the 12-month period between December 2019 and December 2020. This is 24% below the volume specified in the 2019 hedge and 45% less than the previous year’s hedge.
ARUBA
Storage tanks at Aruba refinery reportedly drawing strong interest
By contrast, the Mexican government secured more favourable terms for its annual Hacienda Hedge. This hedging programme locks in a significant share of Pemex’s projected output at a rate of $49 per barrel – enough to pro- tect around 77% of oil revenues and sufficient to cover budget spending, according to officials. The government reportedly spent $1.37bn on the hedge, and this appears to have been a for- tunate move, given that Mexican export basket prices recently bottomed out below zero, closing at $2.37 per barrel on April 20.
Pemex, by contrast, stands to rack up addi- tional deficits of MXN30bn ($1.25bn) this year, and not just because of the limit on the protec- tion offered by its hedge. The company’s finances are also under pressure because the coronavirus pandemic has cut into fuel demand and because Mexico has pledged to reduce crude production levels by 100,000 bpd in May and June, in line with the terms of the new OPEC+ deal.™
Pemex is vulnerable to oil price swings (Photo: Pemex)
ARUBA’S offer to lease unused storage capacity at Refineria di Aruba (RdA), an oil-process- ing plant in San Nicolas, is reportedly drawing strong interest.
An Aruban government official told Argus Media last week that more than 40 compa- nies had already responded to Oranjestad’s announcement of plans to make the refinery’s
tanks available to third parties. He did not name any of the potential customers, but he did say that RdA would wrap up the bidding process no later than May 15. The company will choose a winner in late May or early June, he added.
The top bidder will gain the right to lease some of the San Nicolas refinery’s storage facilities.
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