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Pemex bonds rally after production rose to 1.69 mbd in third quarter

Susana Gonzalez/Bloomberg
Pemex First Output Increase in Six Quarters

By Amy Stillman / Bloomberg

Petroleumworld 10 29 2019

Bonds of Petroleos Mexicanos rose after the producer reported the first output increase in six quarters as it taps easier-to-reach onshore and shallow water fields.

Oil production averaged 1.69 million barrels a day in the third quarter, a slight increase from a revised 1.67 million the previous quarter, the Mexican state-owned company said Monday. The company's debt fell to 1.96 trillion pesos ($102 billion), from 2 trillion at the end of the previous quarter.

Pemex bonds led Mexican corporate credit gains after the earnings report. The yield on its 5.35% securities maturing in 2028 fell about 10 basis points to 5.6%.

“I would like to highlight some of the actions that have allowed us to increase crude oil production. We drilled and developed wells in the productive area of shallow waters, we immediately tackled operational problems,” said Francisco Flamenco, acting general director of Pemex Exploration and Production, speaking on a call with investors. “Finally, we managed to obtain early production from new onshore fields.”

The world's most indebted major oil company is at the center of Mexico President Andres Manuel Lopez Obrador's battle to show investors that his government is fiscally responsible. Pemex is struggling to reverse 14 years of production declines and reduce leverage while balancing the need to finance the nation's budget, which relies on the company for nearly a fifth of its revenue.

While onshore and shallow-water fields helped the company boost production, Lopez Obrador has frozen competitive oil auctions and farm-out tenders that enabled Pemex to share the cost of developing oil fields with partners. Investors fear the producer lacks the resources and technology to develop Mexico's lucrative deep-water and unconventional oil fields on its own.

Pemex bonds have rallied as the imminent risk of a fresh downgrade was mitigated with the help of a $20.1 billion refinancing in September, including a $5 billion cash injection from the government, debt swaps and new bond issues. Previously, Fitch Ratings Inc. had cut its rating to junk back in June.

Government policies have aimed at making Pemex self-sufficient in gasoline production, with the building of a new $8 billion refinery in Lopez Obrador's home state of Tabasco. Today, Mexico imports the majority of its gasoline needs.

Exports in the quarter were 1.05 million barrels a day, 129,000 barrels a day lower than a year earlier, Pemex said.

— With assistance by Justin Villamil

Story by Amy Stillman from Bloomberg. / 10 28 2019


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