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Mexico to give a $5.2 billion stimulus package to Pemex

Highlights

Lopez Obrador previously said resources will go to Pemex's new refinery

Pemex has to pay over $50 billion in debt over next six years

Calgary — The Mexican government will give a $5.2 billion stimulus package to state-owned oil company Pemex, President Andres Manuel Lopez Obrador said Friday.

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"Pemex has the whole backing from the Finance Secretariat and the Mexican government," Lopez Obrador said in a webcast press conference.

In recent years, Pemex borrowed to finance operations until becoming the world's most indebted oil operator with $104 billion in net debt, half of which is due through Lopez Obrador's presidential term, which ends in 2024.

Despite this debt leverage, Pemex's production fell to 1.71 million b/d in December from a peak production of 3.4 million b/d in 2004.

The fiscal stimulus package announced Wednesday is a collection of previously announced plans in recent weeks by Lopez Obrador's administration.

This includes a projected revenue increase of $1.6 billion as a result of stopping fuel theft, a $1.3 billion capital injection and $600 million/year tax deductions for E&P expenses.

The new element announced on Friday is the advance payment of $1.8 billion from the federal government for pension and labor liabilities.

This payment is based on an agreement reached by the previous administration of President Enrique Pena Nieto with Pemex and its labor union.

It cannot be proved that this plan will help the company to improve its cash flow and increase oil production. Fitch Ratings decreased Pemex's debt one level above junk at the end of last month.

Lopez Obrador has previously said that the $2.9 billion from the capital injection and savings from fighting fuel theft will be used to build the $8 billion, 340,000 b/d refinery in Dos Bocas.

Carlos Urzua, Mexico's finance secretary, said that the federal government would do all additional capital infusions Pemex requires to strengthen its financial position.

Starting this year, Pemex isn't going to finance new debt and focus on conventional oil projects, Pemex's general director, Octavio Romero Oropeza, said during the press conference.

"Pemex for years spent large resources in Chiocontepec [tight oil play] and deepwater projects with nothing to show," he added.

Now, the company will focus on shallow water and conventional onshore projects, where development can be accelerated with low production costs, Oropeza said.

Pemex is implementing its plan to develop 16 offshore and four onshore discoveries, which have 1.9 billion boe of 2P reserves.

The Mexican government has said these fields will start producing 73,000 b/d by year end, and ramp up to 340,000 b/d and 1.2 Bcf/d of gas by 2021.

Pemex has the goal of producing 2.48 million b/d of oil and 6.5 Bcf/d of natural gas by 2024, the last year of Lopez Obrador's presidential term.

-- Daniel Rodriguez, daniel.rodriguez@spglobal.com

-- Edited by Annie Siebert, newsdesk@spglobal.com