Background on Pemex and Its Recent Struggles
Petróleos Mexicanos (Pemex), Mexico’s state-owned petroleum company, has faced significant challenges in oil investment over the past few years. In response to a global price crisis in preceding years, Pemex was compelled to drastically cut its capital expenditure (capex) budget for exploration and production, with reductions exceeding 40% in both 2015 and 2017.
The 2015-2017 Crisis
During the 2015-2017 period, Pemex’s capex for exploration and production plummeted due to the global price crisis. This led to substantial cuts, with each year seeing more than 40% reductions compared to the previous budget. The oil-producing states suffered as a result, and critics accused the government of weakening Pemex.
2025 Outlook: A Collapsing Scenario
The current situation mirrors that of 2017, but with a critical difference: the 2025 collapse originates from within Pemex. In 2024, over 97% of capital contributions from the government were used to cover debt service obligations, failing to substantially improve Pemex’s financial position.
Pemex’s total debt, including accrued interest, increased by 10.3% to 1.978 trillion pesos (approximately 97.6 billion USD) compared to the previous year, according to its most recent 20-F filing with the U.S. Securities and Exchange Commission (SEC).
Production and Financial Indicators
Pemex’s production guidance for 2025 suggests a decrease in crude oil output compared to 2024, while natural gas production is expected to rebound slightly from 2024 levels but remain lower than 2023. Despite Pemex’s predictions, activity indicators continue to decline.
- In 2024, Pemex completed fewer than two-thirds of the wells drilled in 2023, which was not a strong year for drilling either.
- The number of productive wells at the end of 2024 was 15% lower than in 2023.
The Limiting Factor: Lack of Financial Resources and Productive Capacity
Pemex still holds 526 square kilometers of undeveloped “acreage” and has yet to develop nearly 40% of its proven reserves within already explored and delimited areas. The company lacks financial resources and productive capacity, not a shortage of valuable assets.
Pemex’s Call for Assistance
Recognizing its need for help, Pemex is considering the use of comprehensive exploration and production service contracts (CSIEEs) that offer contractors incentives based on incremental production and operational risks. These contracts could potentially involve exploratory activities under this mechanism.
However, the viability and scalability of CSIEEs remain uncertain. Key questions include how Pemex can effectively mitigate its own financial, political, and operational risks through partnership opportunities. Additionally, with many high-quality operators potentially hesitant due to Pemex’s need for substantial assistance, as recently confirmed by Carlos Slim, the effectiveness of CSIEEs remains in question.
Key Questions and Answers
- Q: Why is Pemex struggling with oil investment? A: Pemex has faced significant challenges due to global price crises, leading to drastic cuts in capital expenditure for exploration and production.
- Q: What is the current situation in 2025? A: Pemex’s capex for 2025 is projected to be less than 95,000 million pesos, a 41.7% decrease from 2024, with 48.4% reduction in exploration and 39.6% in development.
- Q: How does Pemex’s financial situation look? A: Despite using most capital contributions to cover debt service obligations, Pemex’s total debt increased by 10.3% in 2024, with unsustainable short-term debt to suppliers.
- Q: What are Pemex’s production projections for 2025? A: Pemex expects lower crude oil production in 2025 compared to 2024, while natural gas production is projected to slightly increase but remain below 2023 levels.
- Q: What are the limiting factors for Pemex? A: Pemex lacks financial resources and productive capacity, despite having valuable undeveloped assets.
- Q: What solutions is Pemex considering? A: Pemex is exploring comprehensive exploration and production service contracts (CSIEEs) to attract private sector participation.
- Q: Are CSIEEs a viable solution? A: The viability and scalability of CSIEEs remain uncertain, with questions about Pemex’s ability to mitigate risks and attract high-quality operators.
