Pemex plan to reverse oil drop fails to impress

Bloomberg

Mexico’s Petroleos Mexicanos announced plans to reverse a decade and half of declining crude production as early as next year and balance its budget by 2021. The peso and the company’s bonds weakened on skepticism that the strategy to achieve those goals will be effective.
Under the presidency of Andres Manuel Lopez Obrador, Pemex will invest 1.95 trillion pesos ($102 billion) by 2024, the state-owned oil producer said in an e-mailed document ahead of the release of its full business plan. Of that amount, 269 billion pesos between 2020 and 2022 will come from tax breaks and government allocations. Another 108 billion pesos through 2023 is expected to come from so-called integrated exploration and extraction contracts, a new type of service contract for drilling, Pemex said.
Pemex is the biggest borrower of any oil company, with $106.5 billion of debt. Many fear that a government decision to freeze oil auctions and Pemex joint-ventures that enabled it to develop oil fields with partners will stunt output growth. While Pemex aims to boost production in shallow-water and onshore fields, critics point out that the deep-waters areas have the greatest potential for big discoveries. And the focus on building a seventh refinery could divert attention from its main job: drilling.
“Pemex is trying to be too many things at the same time under the new government policy, and its portfolio is very inefficient,” said Pablo Medina, vice president of Welligence Energy Analytics. The only way for Pemex to dig itself out of the hole they are in is to sell non-core assets and restart joint-ventures, said Medina. “They need to take advantage of what the energy reform allows, leverage capital and stop trying to do it all by themselves,” he said.