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Mexico’s once mighty Pemex oil firm faces bleak future

TO GO WITH AFP STORY by Laurent Thomet (FILE) View of the structures used to process oil at Mexican state-owned petroleum company PEMEX refinery in Tula, Hidalgo State, Mexico, on March 8, 2011. Far from its golden age, Petroleos Mexicanos (PEMEX) faces bleak future.  AFP PHOTO / OMAR TORRES / AFP / OMAR TORRES

AFP

Mexico’s state-run firm Pemex is bracing for massive budget cuts as it battles to avoid a bleakfuture mired in tumbling oil prices, falling production and rampant fuel thefts. President Enrique Pena Nieto has implemented an energy reform that ended the company’s seven-decade monopoly of the energy industry but also sought to inject new life into Pemex through partnerships with private firms.
But the company’s coffers have been emptied by the collapse of global oil prices, its
inability to raise production and the widespread theft of pipeline fuel by drug cartels. “Pemex is obviously in a critical situation financially,” David Shields, director of the industry magazine Energia a Debate, said.
“To survive and not cause problems in national finances, Pemex must make cuts in its staff and all of its spending,” Shields said, adding that the company should also suspend several exploration projects.
To turn things around, Pena Nieto named a newPemex chief executive this month, Jose Antonio Gonzalez Anaya, the former head of the social security agency who is credited with cutting that institution’s deficit. The government also ordered $5.5 billion in savings, which Gonzalez Anaya will present to the company’s board for its approval.
The figures will give an idea of the gravity of the former monopoly’s problems. In the third quarter of 2015, it reported losses of $10.2 billion, nearly three times worse than the same period in 2014. Pemex had done its budget based on prices of $50 per barrel, but they have since fallen by half, forcing the company to reduce spending.
Production, meanwhile, has fallen steadily from a peak of 3.4 million barrels per day in 2004 to 2.2 million barrels per day late last year. Pemex has also discovered thousands of illegal taps in its pipelines in recent years that cost the company $2 billion per year.

OUTSIDE HELP
The energy reform, which was enacted in 2014, opened the sector to foreign investors for the first time since 1938. While it has brought competition, the government also hopes that it will allow Pemex to enter partnerships that can help the company reduce costs.
Gonzalez Anaya attended an energy industry conference in Houston, Texas, this week where he met with the heads of several global companies and “saw a great interest in the private sector to invest inMexico and team up with Petroleos Mexicanos (Pemex),” the company said in a statement.
He insisted at the conference that Pemex has long-term vilability thanks to a large inventory and low production costs. “We face great challenges and, at the same time, great opportunities have emerged,” Gonzalez Anaya wrote this week in the financial daily El Financiero.

PEMEX NEEDS ‘OXYGEN’
But all eyes are on whether Pemex, which employs 145,000 people, will reduce its workforce. When asked by the Televisa network after his appointment if he would cut jobs, Gonzalez Anaya said: “I come with an open mind to do what is necessary.” The firm already cut 11.5 percent from its budget last year and slashed 11,000 jobs by not filling posts vacated by retirees. Alejandro Villagomez, an energy expert, said the company is saddled by huge debt and a massive staff pension. “It has to take care of the labor problem,” Villagomez said.

epa05169141 A handout picture provided by Pemex on 18 February 2016 shows workers of the Mexican state-run oil company in an unidentified location. Director of Pemex Jose Antonio Gonzalez confirmed the company will reduce personnel after the announcement by the Mexican government of a cut by 5,3 billion dollars in the firm.  EPA/PEMEX / HANDOUT EDITORIAL USE ONLY

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