PEMEX has spent $133.5 million on an oil hedging program in a bid to protect its balance sheet against possible falls in the price of crude oil, the company said in a press release on Tuesday. It marks the first time Mexico’s national oil company has invested in its own hedging program in over a decade.
“For the first time in 11 years, Pemex has its own hedging program, which will favor the fulfillment of its operational and investment commitments and provide greater certainty to its income considering a possible drop in oil prices,” the company said in a statement.
The oil hedging program, which cost $133.5 million, guarantees a price of US$42 per barrel for up to 409,000 barrels per day from May to December 2017. If the price of the Mexican mix stays above the lower range of $37 set out in the program, PEMEX will receive the maximum protection contracted. Mexican crude finished Tuesday at $42.62 per barrel.
“This type of coverage is common among the world’s major oil companies, and Pemex continues to align its strategy with international best practices,” the press release said.
PEMEX’s new oil hedging program is dwarfed by Mexico’s Finance Ministry’s equivalent scheme, which it has carried out yearly since 2005. With an average expense of $1 billion a year, the Finance Ministry netted $2.65 billion from its program in 2016.
While the Finance Ministry’s hedging program “ensures the oil revenues of the federal government, Pemex’s hedging program protects the company’s balance sheet,” the company said, suggesting the two programs will run side-by-side as separate ventures.
As well as protecting the NOC’s finances, the press release said the move to develop its own hedging fund fits with the 2017-2020 business plan it released in December 2016, which focused on profitability and financial discipline.