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Mexico boosts fiscal aid to Pemex to weather crude price storm

Highlights

Measures worth $4.55 billion

Company to focus on low-cost production

Mexico City — Mexico's Pemex will receive additional fiscal benefits from the government as part of a series of measures to bolster its finances during the oil price rout, the state-owned oil and gas firm said late Monday.

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The series of measures totaling 113 billion pesos ($4.55 billion) include reduction of Pemex's 2020 investment budget by 40 billion pesos, and focus on low-cost production fields, according to a letter from the company's CEO and CFO to investors.

Pemex also said the government was granting it a 65 billion-peso tax benefit for the remainder of 2020 that will allow it to reduce its tax burden.

"Due to the increase in production from our new oil fields, where production costs are below $5/b we will be able to efficiently manage our production portfolio and prioritize lower cost production, in order to comply with the international commitments assumed by our country," Pemex said in the letter.

The move comes two weeks after the company's credit rating was downgraded to junk status, or below investment grade, for the second time by a rating agency. In the letter, Pemex said this downgrade was not attributed to operational or financial mismanagement, but to the crisis caused by the coronavirus pandemic.

In a press conference Tuesday morning, President Andrés Manuel López Obrador emphasized that Mexico's economic response to the crisis has been different than past responses because it does not follow the recommendations of foreign financial organizations, which, he said, have failed.

Mexico has remained firm in its plans to increase crude production even at current prices in order to increase fuel production and reduce imports.

The company imports roughly 70% of its daily gasoline consumption of 800,000 b/d, mostly from the US.

The country was recently allowed by member countries of OPEC+, a coalition of OPEC and other oil producers, to reduce output by only 6.3%, much less than the 20% agreed to by others.

In March, Pemex drilled an average 1.696 million b/d, less than 1% above the previous month's output, according to official figures.

The Mexican crude mix sold for $6.55/b on Monday in international markets, according to Pemex.