Pemex recorded a loss of 87.85 billion pesos (US $4.6 billion) in the third quarter but the beleaguered state oil company also reported that it has cut its debt for the first time in more than a decade.
Chief financial officer Alberto Velázquez said in a call with investors that the company’s third-quarter loss can be mainly attributed to two external factors: lower prices for Mexican crude and a stronger US dollar.
Prices for Mexican export crude were down 16.7% between July and September compared to the same period last year, falling to an average of US $55.10 per barrel from $66.20.
Velázquez said the dollar bought on average 4% more pesos in the third quarter of this year compared to the same period of 2018.
More than 35 billion pesos in foreign exchange-related losses were absorbed by Pemex between July and September, the company said in a report sent to the Mexican Stock Exchange on Monday.
In contrast, a positive exchange rate helped Pemex record an unusual profit of 26.8 billion pesos in the same quarter of 2018.
Other factors that contributed to the near 88-billion-peso loss were a decline in export volumes and reduced sales in Mexico’s retail fuel market.
Foreign sales fell just under 22% and domestic revenue declined by almost 20%. Pemex formerly had a monopoly in retail fuel sales but the previous government’s energy reform opened up the sector to private gas stations.
All told, Pemex’s revenues fell more than 88.6 billion pesos to 350.5 billion pesos in the third quarter, a 20.2% decline compared to the same period last year.
The state oil company also said in its report that its debt has fallen by 6.1% this year to US $99.6 billion.
Pemex had debt of $106 billion at the end of last year and has faced pressure from credit rating agencies to make its financial position more sustainable.
Fitch downgraded the company’s credit rating to junk status in June, and if Moody’s or Standard & Poor’s were to do the same, there would be a massive sell-off of Pemex bonds.
Velázquez said that market operations in September that refinanced US $20 billion in liabilities were crucial in achieving debt reduction this year.
“For the first time in over a decade, the company’s net debt was reduced,” he told investors.
“That operation has lowered Pemex’s refinancing risks in international markets and strengthened the company’s short and medium-term finances.”
However, the third quarter loss is indicative of the company’s ongoing challenges. Energy sector analysts have criticized the government’s plan to revive Pemex, whose oil output has been in decline for more than 10 years.
Many have spoken out against President López Obrador’s decision to put an end to joint ventures between Pemex and private companies, known as farm-outs.
Presidential chief of staff Alfonso Romo said in September that the government will cede the business of exploration and oil production in deepwater reserves to the private sector, seemingly confirming a report published in the Financial Times in late August that said that President López Obrador was poised to reopen private exploration in deepwater oil reserves in the Gulf of Mexico.
But later the same month the news agency Reuters reported that it wanted to seize control of a lucrative private company oil project in the Gulf of Mexico. López Obrador rejected the report, stating that the government doesn’t “commit arbitrary acts.”
Whether the government will allow farm-outs to recommence remains unclear.