Pemex Financial hole keeps getting deeper. I had posted the following in a post on “info on Pemex Financial situation on November 5.
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.
Here is some interesting news articles about Pemex situation.
Pemex is having trouble paying its suppliers. A lot off the payments are currently running 5 to 6 months in arrears. While I thought Pemex would be having trouble by possibly this quarter, or at the latest, next quarter, it appears they have been having trouble for at least more than two quarters already, as they have already stretched suppliers out by 5 to 6 months and will have to stretch them further.
https://www.worldoil.com/news/2019/11/26/months-of-unpaid-bills-in-mexico-s-oil-patch-add-to-pemex-woes
So what is the Mexican finance minister and government doing to help out now? They are not only doing nothing but making the situation worse for Pemex and the suppliers. It is asking Pemex for more money so it can balance the Government books and not run a deficit. AMLO wants the government books balanced at year end. So the Mexican finance Minister is pressuring Pemex to further delay payments to suppliers so it can send money to the government for the government to meets its budget and avoid a Sovereign downgrade in its credit rating.
https://www.bloomberg.com/news/articles/2019-11-24/mexico-pressures-pemex-on-spending-to-meet-fiscal-targets
So how can Pemex stretch out payments further when the stabilized production myth just got exploded?
Production levels dropped by 50,000 barrels per day in October. Production now being at 1,616,000 BOPD, which means production did not stabilize, it is still dropping rapidly. While the article says production will be back up by 32,500 bopd in December, I think that is extremely doubtful. See article:
https://panampost.com/mamela-fiallo/2019/11/28/oil-production-at-40-year-low-in-amlos-mexico/
Pemex, according to its Business Plan wants to rely on the CSIEE Model. (I have not found any big companies that have signed on to this type of contract since this model was announced a year ago and restated in the Pemex business plan.) “Pemex, as operator, can contract integral services from third party service providers for the exploration and production of hydrocarbons, such as drilling and preparation of the fields for the production stage, integration of artificial systems, and construction of production and transportation infrastructure. All such services would be carried out under the authorization and supervision of Pemex.The Business Plan also provides that each CSIEE will be designed to have a duration of 15 to 20 year terms. The third party service providers will carry out the activities set forth in each CSIEE and provide 100% of the capital expenses (CAPEX) and operating expenses (OPEX).” Once the third party service provider has done its work, it then gets paid by Pemex.
See article: https://www.lexology.com/library/detail.aspx?g=421862ef-c478-4e1f-b86e-a461e9bba879
Pemex dropped $4.5 Billion last quarter. Payables are already stretched 5 to 6 months and Pemex is asking to stretch them further. The companies that are not getting paid are now running into financing problems and trouble getting supplier credits. When this runs dry, there will be further production cuts and drops.
So what company is going to want to commit to doing business under the CSIEE model when they take all the risk and then wait for Pemex to pay them sometime.
How long can Pemex and AMLO keep up the charade of making Pemex great again, and pretending all is improving.
The bigger the hole for Pemex and the Government, the sooner they will turn back to private investment.