Pemex was once the crown jewel of the Mexican energy sector, accounting for nearly half of the government’s total revenues. Now it has become synonymous with corruption and its oil fields are producing far less than they used to.

Can the new AMLO administration reverse Pemex’s fortunes?

Impact

Mexico’s Pemex shares something in common with several other state-owned giants throughout the oil exporting world: its production levels are in terminal decline.

At peak production in 2004, Pemex was outputting some 3.4 million barrels per day (bpd). By October 2018, the number had dropped to 1.8 million bpd.

Several factors are combining to drag down production levels. One is the fact that Pemex is indebted to the tune of $107 billion – a sum that makes even sovereign-level entities blanche (for example, Pakistan’s total external debt sat at around $88.9 billion at the end of 2017).

Unsurprisingly, the company’s short-term repayment obligations are daunting to say the least. Over the next three months alone some $5.3 billion will be needed to remain solvent. Another $15.5 billion will be needed through 2019.

Pemex’s debt load sets it apart from other oil majors throughout the world. The burden eclipses that of Petrobras, Shell, PetroChina, and BP, to name a few, and its high debt-to-earnings ratio means that payments will continue to be a struggle (debt-to-Ebitda of approx. 4).

All this contributed to Fitch’s recent decision to downgrade Pemex debt despite a capital injection and reform pledge from the new government. On top of dangerously high debt levels, the ratings agency cited a substantial tax burden, large unfunded pension liabilities, exposure to political risk, and capital expenditure deficiencies as reasons for its decision.