Petróleos Mexicanos (Pemex) will apply a reduction of 40 thousand 500 million pesos in its investment budget for this year due to the financial impact of the COVID-19 pandemic, according to a document that the oil company sent to investors.
“The company decided to evaluate and prioritize those investments that are highly profitable,” reads the document signed by Octavio Romero Oropeza, CEO of the company and Alberto Velázquez García, corporate director of finance. The oil company did not detail which projects would be interrupted with this drop in its capital expenditures.
This cut is part of a series of financial measures equivalent to 113 thousand 40 million pesos to mitigate the effects that the international drop in oil prices and the effects of the coronavirus will have on their finances.
The plan includes the government’s fiscal support by reducing the shared profit rate – the tax that Pemex pays for each barrel extracted and produced – for 65 billion pesos, which was advanced weeks ago by President López Obrador and whose Decree was published on April 21 in the Official Gazette of the Federation.
In 2020, Pemex will see a seven percentage point reduction in the shared profit rate (DUC), which represents almost 80 percent of the company’s tax burden.
In addition, there are 7,540 million pesos that Pemex estimates to come from the oil hedges contracted by the federal government at the end of last year, and which are applied in case the Mexican export mix was quoted in less than 49 dollars per barrel, as has happened in recent weeks.
“We want to send the clear message that the company will continue with its strategy of operational and financial improvement,” said Pemex in the document.
Until now, Pemex was one of the few international oil companies that had not announced a cut to its capex (investment budget).
The finances of the oil company will be affected by a lower demand for fuel and oil derived from the paralysis of some economic activities, as well as lower income due to the constant drop in the price of the national export mix, which closed this Monday at 6.55 dollars per barrel.
In addition to that scenario, this month Pemex lost the investment grade, after Fitch cut its rating from ‘BB’ to ‘BB-‘ and was the second rating agency to place the firm in the speculative category.
The first, Moody’s, also sank the oil company’s rating in April, lowering it by two notches, from ‘Baa3’ to ‘Ba2’.
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