Mexico Energy Monitor

Mexico Energy Monitor

October 11, 2023

 Pemex supports may expand, says president, as analyst debate grows

  • Mexican President Andrés Manuel López Obrador (AMLO) on Tuesday, October 10, hinted at the possibility of lowering the DUC, or central tax support mechanism to federal revenue on hydrocarbons collected by state-owned oil and gas company Pemex, beyond that of the cut from 40% to 35% proposed by the finance ministry last month for the 2024 budget. López Obrador in the morning press conference said, “We want to lower it even more, with the idea of strengthening this public company.”
  • The budget, which is set to be voted on in the coming weeks, has also raised concerns over how new supports and outlays to complete priority projects will expand the federal deficit next year to its highest level since AMLO took office to 5.4% of GDP, over the 3.9% ratio outlaid in 2023.
  • But the latest moves underscore a critical metric of AMLO’s efforts to reduce the burden on Pemex and allow it to be more profitable, since his taking office in December 2018, has been to lower the DUC.
  • The reduction outlined in the finance ministry’s proposed 2024 budget follows the cut in the DUC from 54% to 45% cemented in 2022, which itself came down from 58% in the 2020 budget. The rate was at 65% in 2019 and 66% in the budget when AMLO came to power. Reducing the tax burden on Pemex, with a mind to restore the company into the social development driver it has been in the past – was one factor of many winning over voters under AMLO’s landslide victory in 2018.
  • But for the 2024 election, even with some of the latest polls suggesting the Morena candidate has a 20-point lead, there may yet be a source of debate over state support of the company and investment in new development or completing existing projects, even if all the main parties support state ownership and control of Pemex.
  • Also, the International Monetary Fund (IMF), in its most recent October 4 staff concluding statement on Mexico, issued support but questioned Pemex, stating “clear recording of support to Pemex in the 2024 budget – both tax expenditures and direct transfers” as a “positive step forward” in establishing a higher standard for transparency and facilitating the need for a more open public discussion on the use of public resources in support of the national oil company, including the divergence of tax payer contributions to the state-owned entity over other budgetary priorities.
  • The IMF added, however, “Continued budgetary support for Pemex should be conditioned on credible plans to improve Pemex’s commercial viability risks,” and that “the next administration will face stark choices to adhere to the targeted medium-term fiscal path.”
  • In late September, Moody’s VP and senior analyst Roxana Muñoz at a Mexico City event hosted by the ratings agency told attendees the principal risk facing Pemex and its financial standing moving forward was “the decrease in oil production due to lack of maintenance and investments,” based on audio provided to Miranda Intelligence.
  • During a separate event, the Mexico Oil & Gas Summit, held last week in Mexico City, José Pablo Rinkenbach, ESG and asset director and LatAm energy and infrastructure consultancy AINDA, said Pemex “has over 50% of its portfolio in mature fields and has no exploratory possibilities with significant prospects.”
  • Questions over focusing support to Pemex on covering debts and not providing needed investment seem to be building. At last month’s Moody’s event, Muñoz said Pemex, in fact, will need US$4 billion atop the US$8.2 billion proposed in direct transfers to the company just to maintain the same volume of oil reserves by replacing depleted reserves.
  • After operating cash flow, capex (which is set to decline 32% next year), financial costs, and debt maturities, said Muñoz, Pemex will need a total US$13.8bn in liquidity next year, said the analyst, as confirmed by audio Moody’s provided to Miranda Intelligence.
  • Another comment, emerging on the sidelines of last week’s Oil & Gas Summit, is by Lourdes Melgar, research affiliate at the MIT Center for Collective Intelligence telling news and data platform BNamericas, “the challenge is to stop thinking about Pemex from a sovereignty point of view and really think about what we can do so that the company can function” amid sustainability and ESG trends.
  • Facing his last year in office, AMLO may be cementing his efforts to restore Pemex and state-owned power company CFE as predominant forces in Mexico’s energy sector – winding back 2014-2015 structural reforms under the previous Enrique Peña Nieto administration to open the oil and gas and the electric power markets to the private sector. AMLO has, for example, provided multiple supports to the national oil company, not just lowering the tax rate, but also paying off debt obligations, and making a re-focus towards Pemex, cancelling in 2019 future private oil rounds to farm out development.
  • But Pemex’s outstanding debt, estimated at around US$110.5 billion remains center stage for ratings agencies, with Fitch Ratings downgrading the firm credit ratings and Moody’s shifting to a downward outlook on the company in announcements last July.
  • The idea of even stronger state support to Pemex comes amid a surging debate over the company’s considerable debt obligations, now estimated to be around US$110 billion. The figure is not far different from when the president took office in December 2018, as lawmakers debate the administrations proposed 2024 budget. That budget entails a direct federal capital injection of 150 billion pesos (US$8.37 billion), one of the strongest moves of direct support to Pemex yet under the López Obrador administration.

Pemex CEO lowers output forecast to 1.88Mb/d

  • On October 9, Pemex CEO Octavio Romero Oropeza, in testimony to Congress, also lowered crude oil production targets for the NOC to 1.887Mb/d (million barrels per day).
  • This volume is lower by 714,000 b/d on average, or 27.4%, compared to the amount hoped for at the beginning of the López Obrador administration, which had forecast 2.6Mb/d.
  • According to company figures, as of August it had reached a total production of 1.879Mb/d, combing its own production and that of partners with crude and condensates, although its sole crude actually stood at 1.508Mb/d.
  • During the presentation, Romero also denied reports that Mexico had made oil donations to Cuba.

CFE refinancing for US$877mn, Bartlett set for congressional testimony

  • Mexico’s state-owned power company The Federal Electricity Commission (CFE) announced earlier this month the successful refinancing of debt US$877.5 million via the repurchase of four bonds issued, the vast majority 4.875% coupon notes due in 2024 and 4.750% notes due in 2027.
  • The transaction, the company reported, allowed it to improve the maturity profile of its debt, reduce the risk of refinancing, generate financial savings and reduce the balance of debt in foreign currency, among other benefits.
  • The agreement, detailed by the CFE, also allows the average life of the debt to be extended, in line with the company’s productive assets, strengthening the state firm’s 2023-2027 Investment Program. This allows the firm to increase, modernize, rehabilitate and maintain productive assets and electrical infrastructure that will potentially meet the growing demand for electrical energy derived from nearshoring.
  • CFE´s CEO Manuel Bartlett is set to provide testimony to Mexico’s lower house on October 26. One of many energy officials appearing before congress amid budget deliberations, with Pemex’s Romero Oropeza opening the lineup October 9 and energy minister Roció Nahle on the calendar to speak to the finance panel (AFP). Nahle has suggested, however, that she will step down soon to begin her run for governorship of Veracruz state.



German development agency GIZ has released a study outlining the significant market potential in Mexico for green hydrogen, or hydrogen produced via renewable-energy-powered electrolysis is significant on a global scale. With concerted efforts, even before 2030, GIZ asserted, Pemex and CFE could lay the foundations for the development of a large-scale green hydrogen sector in Mexico with over 11GW of potential electrolysis by 2050 and a green H2 market of US$1.2 billion per year, contributing to its energy sovereignty with a fully locally produced and carbon-free supply.

GIZ conducted the study under the German-Mexican Energy Partnership in place since 2016 – a bilateral agreement for cooperation with power markets; integrating variable renewable energy sources (vRES); enhancing energy efficiency in the industry; increasing information and transparency in the fossil fuel sector; and supporting the German-Mexican energy cooperation in the international arena.