Early in the morning of 29 February 2016, José Antonio González Anaya, PEMEX’s Director General voiced a message to investors in the Mexican oil and gas industry, delineating PEMEX’s new Adjustment Program. He began by placing this seemingly drastic measure into a global context of low oil prices, highlighting the fact that every single company in the oil and gas industry was going through the same problems and changes. Nonetheless, Anaya did not hide the fact that the NOC also faced its own challenges, characterized by a declining production over the past few years, as well as increasing production costs, which he linked to both internal and geological factors, as PEMEX is beginning to produce oil from more complex fields.
The main issue facing PEMEX’s new Director General is that the Mexican NOC has a current deficit of US$8.23 billion, and the plans established so far to address this issue rely on an oil price of US$50 per barrel and a production level of 2.23 million b/d. “The Mexican mix is much closer to US$25 than US$50,” Anaya points out, “and PEMEX needs to adjust its expenses to this new reality.” He highlights the fact that the NOC is facing a liquidity problem, not a solvency one, a noteworthy fact that he frequently hammers home throughout his presentation. The plan, which Anaya argues will “strengthen PEMEX, not weaken it”, will adapt the company to the new oil price environment and allow it to take on its role as a productive enterprise of the State, as mandated by the Energy Reform. It is divided into three main lines of action:
1 – Generate efficiency and reduce costs in order to increase productivity.
2 – Diversify and reconsider investment in a way that compromises future production as little as possible.
3 – Adjust operations and investment expenses to the drop in oil prices from US$50 to US$25 per barrel. This means elimination of any production and facilities that are not profitable at the current price of oil.
Anaya goes on to highlight the fact that these austerity efforts will not be led only by one of PEMEX’s organizations, but by the entire organization. The table below shows how each PEMEX division will comply with the three-dimensional plan.
Some of the savings on PEMEX’s corporate side will be achieved by a reduction and compacting of its different departments. Anaya mentioned that Human Resources, for instance, would be integrated into the Administration department, and Research and Technical Developments would be integrated into PEMEX E&P, saving US$716 million. “This shows that when it comes to expense reductions, we are starting at the top,” he says. Anaya also plans on using the financial tools provided by the Energy Reform to meet the NOC’s budgetary objectives.
Overall, the Mexican NOC is expected to cut US$5.52 billion, which the new Director General expects to translate into production cuts of 100,000 b/d. This would leave the company with daily production figures of 2.13 million barrels, “a figure truly worthy of praise given the current oil prices,” he claims.
The ensuing Q&A session offered Anaya the opportunity to highlight the fact that the Adjustment Program did not include additional income. The latter, received through monetization and the disincorporation of assets, would be used to improve PEMEX’s debt and financing profile, only if it is due to an increase in the price of oil. This would then allow the NOC to undertake a larger breadth of projects, as more of these would become profitable.
If you liked this article, we thought you might enjoy reading the article from our sister company Mexico Energy and Sustainability Review about the country’s impressive green opportunities.