Pemex Ekes Out Tiny Profit as Oil Production Decline Resumes

(Bloomberg) -- Mexico’s state oil giant posted a slight profit in the first quarter as production slipped, with government support helping to prop up the debt-saddled company.

Petroleos Mexicanos posted a profit of 4.7 billion pesos ($274 million), compared with 56.7 billion pesos a year ago, the company reported Friday. Crude and condensate output slid to 1.82 million barrels a day, compared with 1.853 million in the same quarter last year.

Pemex stands as one of the greatest challenges Mexico’s next president will inherit. Slashing its debt burden — the most of any oil company globally — is key to boosting output, since money that could be spent fixing aging infrastructure is instead being used to cover interest payments. Production has withered to less than half of what it was two decades ago. 

The company’s debt burden stood at around $101.5 billion as of March 31, according to a company filing. Pemex’s $4 billion in outstanding bonds due 2027 edged up 0.3 cents to about 94 cents on the dollar, as of 2:13 pm in New York.

The administration of the outgoing President Andres Manuel Lopez Obrador, or AMLO, has promised to cover the majority of this year’s payments, which currently stand at around $6.3 billion. Pemex has relied on tax breaks and cash injections from the government, which has lavished as much as 1.37 trillion pesos, or around $80 billion, to support Pemex during AMLO’s tenure.

Pemex expects the government’s financial support for the company to continue as it works to reduce its debt load, Chief Executive Officer Octavio Romero said on an earnings call Friday.

Officials also said the company’s flagship Dos Bocas refinery is set to begin producing diesel fuel in May, and that the company’s domestic refining capacity was “stable” at around 1 million barrels per day. 

The company declined to comment on the government’s expropriation of a hydrogen plant operated by Air Liquide at Pemex’ Tula refinery in Hidalgo state.

Leading candidate Claudia Sheinbaum, AMLO’s chosen successor from the popular Morena party, is widely expected to continue on a path of state support for the company, although she has presented a plan for Pemex to shift its attention to cleaner technologies, including spending as much as $13.6 billion on new renewable projects while also building more gas-burning power plants.

“To quote the Talking Heads, Pemex is ‘the same that it ever was,” said Roger Horn, senior emerging-market strategist at Mariva Capital Markets. “Whoever wins the election in June is likely to continue with more of the same of providing just enough support to keep the ship going.”

Sheinbaum, a former Mexico City mayor, has also said she expects the company to refinance its bonds ahead of upcoming maturities in 2025, and that she expected the outgoing administration to leave a long-term plan to reverse the company’s financial decline.

Still, refinancing Pemex’s debt could prove challenging. The company’s debt load is so large that has hindered its market access, and refinancing the bonds could prove costly as global rates remain high. 

Earlier this year, Moody’s Investors Service downgraded the company further into junk territory and maintained its negative outlook, saying the ratings cut reflected its assumption of a probable shift in the government’s willingness to support the full service of Pemex’s debt in the next few years.

Runner-up opposition candidate Xochitl Galvez, who trails Sheinbaum by nearly 30 percentage points in recent polls, has said Pemex should pursue a model like Brazil’s Petrobras: selling assets to pay down debt.

(Updates with detail from earnings call, bond prices, and analyst quote from the third paragraph. An earlier version corrected the unit conversion)

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