Mexico's Pemex delays investments as losses deepen

Laurent Thomet
Pemex' coffers have been emptied by the collapse of global oil prices (AFP Photo/Omar Torres)

Mexico City (AFP) - Mexico's struggling state-run energy firm Pemex unveiled plans Monday to postpone $3.6 billion in investments to cut costs as its annual losses nearly doubled and crude production dipped further.

Pemex director general Jose Antonio Gonzalez Anaya released the details of the $5.5 billion in savings that President Enrique Pena Nieto's administration ordered to keep the former monopoly away from financial calamity.

"Pemex is facing short-term financial difficulties, but it is clearly a very solvent and an amply solvent company," Gonzalez Anaya told investors in a conference call.

"This adjustment program is because if we don't do it, we would face solvency issues and liquidity issues, but we don't think Pemex is facing a solvency issue," he added, noting that exploration and refinery investments will be affected.

The company has been hurt by a big drop in global crude prices and dwindling production, which has fallen steadily from a peak of 3.4 million barrels per day in 2004.

Pemex published dismal annual results showing 521.6 billion pesos ($30.3 billion) in losses in 2015 compared to 265.5 billion pesos the previous year, though Pemex blamed much of it on higher taxes.

Crude production, meanwhile, fell 6.7 percent to 2.27 million barrels per day in 2015, compared to 2.43 million barrels per day the year before.

Gonzalez Anaya said production is expected to fall even further this year, to 2.13 million barrels per day.

Pemex has also discovered in recent years thousands of illegal taps made by criminal organizations to steal fuel from its pipelines, costing the company $2 billion per year.

- Preserving jobs -

Gonzalez Anaya noted that the company's budget had been based on oil prices at $50 per barrel that have now fallen to $25, but he said the cuts aim to avoid a further drop in production.

In addition to delaying investments, the company is making $1.9 billion in cuts to improve efficiencies, including the elimination of two corporate positions.

He said Pemex decided to defer projects that will not have a short-term impact and which the company could still accomplish through joint ventures with private firms under an energy reform that allows such partnerships.

The total savings in the areas of production and exploration, including the delayed investments and other cuts, amount to $2.6 billion.

The Pemex chief said that, for example, the company had investments of $552 million in deep-water projects that would go online in 10 years but it "doesn't make much sense" for the company to do them alone.

Pemex will also have to find "alternative ways" to pay for the modernization of its refineries through cost reductions and postponed investments totalling $2 billion.

But Gonzalez Anaya did not indicate that Pemex would reduce its huge workforce of 145,000 people.

"First we want to preserve the security of the personnel," said Gonzalez Anaya, a former deputy finance minister and head of the social security agency who was appointed by Pena Nieto earlier this month to lead Pemex out of financial trouble.

The firm had cut 11.5 percent from its budget last year and slashed 11,000 jobs by not filling posts vacated by retirees in order to cope with falling crude prices.

The energy reform, which was enacted in 2014, opened the sector to foreign investors for the first time since 1938.

While it has brought competition, the government also hopes that it will allow Pemex to enter partnerships that can help the company reduce costs.

"We want to use all the financial and legal instruments that the energy reform provides Pemex, all the flexibility it provides Pemex to maintain our production levels in the medium term, and we are going to pay all our financial and labor obligations," the Pemex chief said.