From Don Quijones at wolfstreet.com:
On the bright side, it’s not bankrupt – according to the new CEO
For the last 77 years, Mexico’s state oil company, Pemex, has almost single-handedly funded the economic development of the world’s 15th largest economy. But now the national treasure is drowning in debt. In 2016, over $11 billion of the company’s corporate bonds will mature and need to be refinanced. In total, the company will need to raise about $23 billion in 2016, in a market that has grown wary of over-indebted, over-leveraged oil giants. If it succeeds, its debts will reach $100 billion.
“At the current prices, the quality of Pemex’s credit will deteriorate significantly in 2016 if it does not make drastic cutbacks,” warned Moody’s, which maintained the company’s outlook as negative.
Given that in the first nine months of 2015, the company lost 352 billion pesos ($19.4 billion), and that for this year’s budget, it had assumed an average Brent crude price of $50, the company will have a daunting enough challenge just making it to the end of the year intact. But Brent is now at $33 a barrel, and Mayan crude is about $10 less.
On the bright side, it’s not bankrupt – according to its new director (and former World Bank official), José Antonio González Anaya. “Pemex faces liquidity problems, but it does not have a solvency problem,” he said. But to remain viable it must “make adjustments.”
Those adjustments will include laying off thousands, if not tens of thousands, of workers. According to El Financiero columnist Enrique Quintana, Pemex will also need to divest its biggest loss-leading operations, including its refineries (the company imports 48% of the petroleum products it sells in Mexico), and petrochemical and gas divisions. Meanwhile, it should focus its attention on production and exploration, its two most lucrative areas of operation, which provided combined profits of $11 billion during the first nine months of 2015.
By all indications, Pemex’s new management and the government are in full agreement. In other words, the world’s second largest publicly owned company is about to be broken up into pieces and privatized, a word that Mexico’s public representatives still dare not use in public. Throughout the negotiation phase of Mexico’s oil reforms, signed in 2014, the Peña Nieto government refused to use the “P” word, recalls Laura Carlsen, director of the Americas Program for the Center for International Policy in Mexico City.
Mexican government officials reject the term “privatization” for the proposed scheme. When oil and gas is in the ground (and has no monetary value), they say, it belongs to the Mexican people; when it is extracted and worth millions, then it belongs to transnational corporations. They also note that Pemex, the state energy company, is not being sold outright, although they admit that many of its assets could be sold in the future.
Which is what is happening now. After decades of mismanagement, malinvestment and corruption, Pemex is about to be fractured into pieces, to be sold to foreign investors, possibly at rock bottom prices at the worst possible time.
To continue reading: Desperate Oil Giant Pem ex Makes a Deal with KKR
