Tuesday 1 March 2016

Mexican state-run oil company Pemex has said it would put billions of dollars worth of projects on hold, citing a financial squeeze caused by the prolonged rout in global oil prices, which it expects will intensify in the near term.

Slumping oil prices have battered Pemex, which will soon face increased competition at home due to a major energy sector opening aimed at trying to reverse a decade-long slide in crude output. The company expects no quick relief.

Chief Executive Officer Jose Antonio Gonzalez Anaya said he saw the Mexican crude export mix averaging around $25 per barrel in 2016. The mix traded around $27 per barrel on Monday.

"This is a big adjustment for Pemex," he told reporters at company headquarters. "It's going to be a difficult process."

Of 100 billion pesos worth of cuts Pemex has agreed to make, it aimed to save nearly 29 billion pesos ($1.6 billion) via efficiencies and close to 65 billion pesos through deferred investments, Gonzalez told a conference call.

Some 46.8 billion pesos worth of projects would be suspended because they are not profitable at $25 per barrel, he said.

The delays involved 10 billion pesos worth of investment Pemex had lined up for deep water projects, Gonzalez said, adding that the company's problem was liquidity, not solvency.

Due to the budget cuts, Pemex's crude oil production is likely to fall by about 100,000 barrels per day (bpd), he added. In January it stood at 2.259 million bpd.

He declined to detail any potential cuts to the company's 145,000-strong labor force, or specify which exploration and production projects were expected to be delayed.

Crude output at Pemex has declined for 11 straight years. The company had a record $10.2 billion loss in the third quarter of 2015, and on Monday it posted a $9.8 billion fourth-quarter loss.

U.S. government approval in October to allow Mexico to import up to 75,000 bpd of light crude has yet to deliver any oil, Gonzalez added. The company has touted the agreement as a way to improve margins at several domestic refineries.

Pemex debt is set to exceed $100 billion this year, and its credit rating was downgraded one notch by ratings agency Moody's in late November to its third-lowest investment grade.

($1 = 18.1120 Mexican pesos)

Source: Reuters (Additional reporting by Simon Gardner and Adriana Barrera; Editing by Dave Graham, W Simon and David Gregorio)