Info on Pemex Financial Situation.
Pemex did pay down $5.0 Billion in debt. The money came from the Government. The Gov’t gave Pemex the U.S. $5.0 Billion. With this input of money from the Government, Pemex was able to restructure and shift short term debt to long term bonds. See the three news articles:
https://www.prnewswire.com/news-releases/announcement-of-capital-contribution-to-pemex-300916006.html
https://www.reuters.com/article/pemex-debt/pemex-financial-debt-falls-to-102-bln-mexican-finance-minister-idUSL2N26O1O9
https://www.reuters.com/article/us-mexico-pemex/pemex-debt-operations-refinance-liabilities-of-20-1-billion-ministry-idUSKBN1WQ1XC
This restructuring will help Pemex to survive for a few more months as it shifts debt repayment out a few years. Pemex shifted U.S.$7.5 billion of short term debt to long term debt and then swapped out about U.S.$ 14.0 billion of long term debt that was expiring for more long term debt. These changes do nothing to assist the fact that Pemex is bleeding billions of dollars each quarter and this quarterly loss is, of course, new short term debt that has to be covered. Pemex may have enough short term credit facilities to cover its losses this year, but it will be tight and they will have nothing for next year. The question is how long can Pemex keep adding to its debt and how long can the Government keep helping out. There are huge financial and time resources going into keeping Pemex operational.
In the past three quarters, since January 1 of this year Pemex has lost $U.S. 9.14 billion dollars. This is all new debt.
How much is U.S.$9.14 billion if you consider it as oil production?
$U.S. 9.14 billion / U.S.$55 per barrel of oil. This is equivalent to 166,181,818 barrels of oil. How many days of production is this amount? Divide this amount by the daily production of oil. ( 166,181,818 /1,661,000 BOPD = 100.049 days of production.
So over the past 9 months, Pemex has spent 100 days worth of oil production above its actual production figures. In other words, Pemex is spending at the rate of production of 1.37 times its actual production or it is spending at the rate as if it was producing 1.37 x 1,661,000 BOPD or at the rate of 2,275,570 BOPD. Incidentally, the rate at which Pemex is currently spending which is based on the basis of a daily oil production of 2,275,570 BOPD is virtually the level that Pemex announced it would reach in year 5 of its latest 5 year business plan. The Pemex 5 year plan states that when all new fields are producing, Pemex will reach the goal of 2.37 million BOPD. ( So how does Pemex expect to continue to do that level of over spending? If Pemex is able to find lenders then Pemex will be about another U.S. $50 billion in debt by the end of another 5 years.) On top of this, AMLO is having Pemex build a refinery for U. S. $8.0 Billion which will in reality cost U. S. $12.0 billion when financing charges are built into the number.
One more consideration is that the Mexican budget for this year is based on the income from oil with oil production being estimated for next year at 1,950 BOPD. So the Mexican budget will need to borrow to finance the government expenditures and won’t have money left over to help Pemex. The shortfall in revenue from oil production will be about U.S.$ 4.0 Billion for their 2020 Government budget.
Pemex is way over spending right now, and yet it has contracted the development of 20 new oilfields where it is requiring, at least for the offshore fields, that all of the drilling companies will be paid 20 cents on the dollar for the drilling and development costs on an ongoing basis and will have to carry the other 80 per cent until the wells are all developed and in full production. What this means is that by the time the new wells come into production Pemex will owe Billions of dollars more that has to be repaid before it can reap the full benefits of the new production.
Also, this development of new fields is going real slow as only two of the required jackup rigs are on site and one is drilling. Three others have been contracted and are in the process of being delivered. Another 11 rigs have to be found. These contracts are all for a minimum of two years of drilling so these fields will not be in full production for at least another 2 and likely 3 or 4 years.
So how long can Pemex keep spending at this rate? Not very long as it does not have the credit facilities. It had a short term credit line of about U.S.$5.0 Billion from the earlier refinancing, it possibly now has another U.S.$7.5 billion with the latest restructuring and it can stretch its payable out to 90 or 120 days before suppliers and drilling companies stop supplying or drilling. My guess is that Pemex will run out of short term financing by the end of Quarter 1 in 2020, if not Q4 in 2019.
All of this financial reality comes after Pemex has obtained huge financial inputs from the Government, had debt refinanced twice this year and has been given large tax concessions and has used just about every creative accounting method known up to this point in time. Pemex has $U.S $ 70 billion in off book debt, in additions to its on book debt of U.S.$ 102 billion.
Pemex loss numbers for the past ten years or so. There is one year in the past ten that it made even a slight profit of U.S.$ 200 million in 2012. See
https://www.statista.com/statistics/539530/net-income-of-pemex/
The losses over the ten years total on the order of the U.S.$ 102 billion which Pemex currently owes in long term debt.
Pemex lost over U.S. $9.0 billion last year.
Why is this relevant to ROE? The bigger the financial hole of Pemex the more it will need private companies like ROE to bail it out.
Pemex, AMLO and the Government now know, and have a bit of an understanding of how big the financial hole is and how fast it is growing and they are struggling to come up with an energy policy that will allow Pemex and the Government to survive. The former finance Minister knew and he quit out of frustration at the continued planned spending on mega projects with no hope of even covering the day to day finances of Pemex and the Government. AMLO and his team are now realizing how slow and expensive the process is to turn the oil industry around.
The latest growth numbers for Mexico who it is heading into a recession with a loss in GDP last quarter.
The picture is bleak for Pemex and Mexico without outside help in the oil industry.