Mexico will defer oil exploration projects to slash spending

MEXICO CITY – The state-run oil company, Petroleos Mexicanos, said Monday it will slash spending 22 per cent and cut unprofitable production about 100,000 barrels a day as it struggles with liquidity problems and past-due payments to suppliers.

The company, known as Pemex, said it will cut $5.5 billion from its 2016 budget, delay deep-water exploration and decrease production of super-heavy crude because of low world oil prices.

Delaying production and exploration projects will account for about two-thirds of the $5.5 billion spending cut.

Pemex still faces a serious issue: It owes suppliers almost $7 billion, a debt the company acknowledges is a problem.

“Pemex is facing liquidity problems, but not one of solvency,” said company general director Jose Antonio Gonzalez, who estimated daily production will fall about 4.5 per cent from the current level of 2.23 million barrels a day to about 2.13 million by the end of the year.

He said Mexico’s crude oil mix is selling for about half as much — $25 a barrel — as the $50 estimate included in last year’s 2016 budget plan.

Gonzalez refused to say how many jobs might be cut. He said some of the delayed projects could be revived if partners were found who could lower production or exploration costs.

It was the latest in a series of blows for Pemex, which is widely viewed as over-staffed, inefficient and deeply indebted.

Mexico’s government depends on Pemex for about one-third of its revenue. In a report Monday, Pemex said that after taxes and government fees, it lost $432 billion in 2015.

The company said crude production fell 6.7 per cent in 2015 as older fields ran out. Revenue dropped 28.3 per cent, mainly as a result of falling prices. Oil export revenue fell 35.4 per cent. Accidents increased 25 per cent from the previous year. Pemex also took a $154 billion exchange-rate loss as the peso plummeted against the dollar.

Pemex carries about $76 billion in debt.

As of late 2015, ratings companies said Pemex’s pension liabilities amounted to about $90 billion, though the company recently signed an agreement that could lessen that burden by raising some retirement ages and starting individual retirement accounts for new hires.