Fallout from Mexican president’s Pemex ‘rescue’ set to greet successor

By Ana Isabel Martinez

MEXICO CITY (Reuters) – Mexico’s outgoing president has taken steps to promote a smooth hand-off for national oil company Pemex, three sources told Reuters, but the latest moves will likely postpone a day of reckoning for the world’s most heavily-indebted oil company.

Last week, President Andres Manuel Lopez Obrador rolled out fresh support for Pemex, part of his longstanding goal to make Mexico self-sufficient in the production of motor fuels, unveiling a new tax break worth about $6.4 billion.

The boost follows a whopping $90 billion in government support doled out to Pemex since Lopez Obrador took office in late 2018, spanning tax cuts and capital injections, most of it to service a crushing debt load of some $106 billion.

The company’s distressed finances may fall to former Mexico City Mayor Claudia Sheinbaum, Lopez Obrador’s anointed successor and current front-runner in polls ahead of June’s election.

Mexico’s next president takes office in October.

A Sheinbaum presidency would look to cut Pemex’s dependence on government funds, one source close to her team told Reuters, using tax cuts to free up company spending elsewhere.

Sheinbaum has also committed to pursing Lopez Obrador’s oft-repeated but vague goal of “energy sovereignty.”

A source close to Pemex, meanwhile, said the latest round of support will be used to cover $17.2 billion in debts to service providers, such as Halliburton (NYSE:) and Baker Hughes.

“All this is part of a strategy of orderly transition aimed at a soft landing for the next administration,” said a high-ranking Pemex source, who spoke on condition of anonymity.

Priorities that already enjoy Lopez Obrador’s “seal of approval,” however, could constrain his successor, the source added.

The popular president declared victory on his Pemex policy earlier this week.

“I believe that we’ve already rescued Pemex,” said Lopez Obrador, touting a reduction in its financial debt compared to six years ago.

Those liabilities fell nearly 7%, from 1.99 trillion pesos in 2018 to 1.86 trillion, as of last September.

‘FISCAL FAILURE’

According to calculations from the Mexican Institute for Competitiveness (IMCO) based on Pemex data, the company has to make $53 billion in regular debt payments between October and September 2027. Debt payments this year alone reach almost $11 billion.

Pemex also faces debt maturities of some $35 billion, mostly tied to its bonds, between 2025 and 2030.

“Despite everything given to it, 2024 and 2025 debt pressures are very strong,” said IMCO economist Jesus Carrillo.

“Pemex has been (Lopez Obrador’s) fiscal failure… a rescue that never came,” he added.

Neither Pemex, the president’s office nor the finance ministry responded to requests for comment for this story.

Some sources acknowledged that measures of success have been scaled back but said that some progress has been made.

“The idea is to leave Pemex better than we found it,” said one company source, admitting that “many problems have not been solved.”

The source close to Sheinbaum’s team pointed to the gradual slashing of the company’s profit-sharing DUC tax, one of the most important for state coffers, from a 65% to 30%.

The source added that the tax cuts seek to ensure that Pemex can keep more of its own revenue, and stop being a “burden” on state finances.

Still, the oil company’s crude output – overwhelmingly its main source of income – has continued to slide during Lopez Obrador’s term, from 1.8 million barrels per day (bpd) to 1.6 million bpd, despite his pledge to grow it.

And while that decline has been partially offset by booming condensate output, the president’s top priority of refining more oil at home has fallen short of his initial goal.

Domestic refining is up to about 791,000 bpd, but still far from his goal of processing at least 1 million bpd.

“There is awareness within Pemex that the goals won’t be met this year,” said one company source.

“But in an election year, promises abound.”