Economics: Pemex’s ever slippery slope
Pemex’s third quarter results confirmed some of our worst fears as the national oil company’s operational and financial health continues to deteriorate despite efforts by the Mexican government and Pemex management to stem the decline. Clearly the administration’s strategy is not up to the task any more than the company’s Business Plan.
Setbacks were registered across the board as Pemex’s crude and gas output declined 6.7% yoy. Production in mature fields continues to fall and if there are any new ones, they apparently have not been activated. Unfortunately, Pemex grows increasingly dependent on imported petroleum products including gasoline and natural gas even as a slowing economy has translated into falling domestic demand for such fuels. Pemex’s sales are also being squeezed as private companies increasingly compete with the former monopoly in everything from fuel imports and their sales and distribution.
Unfortunately, the report sheds no light on whether or not there might be some upstream relief in the pipeline as Pemex does not include exploration and production data or even the outlook for its reserve-replacement rate. And while other authorities have revealed the discovery of new deposits, there is no words as to just how extensive they might be, and considering that half of them would have to be subjected to fracking, some top government officials continue to express their opposition to such non conventional technologies.
The government is budgeting much less of a capex budget than what the company desperately needs and even then, continues to spend significantly less than what it budgets. Nor is the political goal of providing greater support to Pemex evident in the amount being allotted for operating expense. Meanwhile, the non operating costs is increasingly burdened by pension liabilities, and money owed to vendors continues to rise.
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