Mexico throws financial lifeline to Pemex

OREANDA-NEWS. April 15, 2016. The Mexican government has thrown a financial lifeline to troubled state-run oil company Pemex with a cash injection of 73.5bn pesos (\\$4.2bn) and a 50bn peso tax cut.

The cash injection will provide the company which sorely needed liquidity while the tax adjustments lay the groundwork for a healthier balance sheet going forward.

Pemex executives have grumbled that the company?s fiscal regime, overhauled in 2014 as part of an energy reform before global oil prices collapsed, has not been adapted to the current price scenario.

Under the tax modifications, the company can now make greater cost deductions for exploration and production in onshore and shallow-water areas, the finance ministry said.

The new deduction cap for shallow water is set at a minimum of \\$6.10/bl of oil equivalent (boe/d) and a minimum of \\$8.30 boe/d for onshore areas.

In the current regime that was established under the energy reform that ended Pemex's long-held industry monopoly, the deduction cap is a percentage of the production value.

Between February 2015 and February 2016, Mexico's export crude basket fell just over 48pc to \\$24.48/bl, pummeling the company?s finances.

The government?s rescue package for Pemex took shape as part of an agreement with the company to pay overdue debts to contractors and providers.

The firm said yesterday that, upon board approval, the cash injection will be used in two ways.

First, to reduce and normalize payments to providers and contractors for 2016, with a goal of maintaining "liabilities appropriate to the firm's level of operations."

Then, in combination with a \\$15bn peso credit line granted by local financial institutions, to settle all outstanding payments to providers and contractors for fiscal year 2015.

Juan Pablo Casta??n, president of Mexico's coordinating business council (CCE), said last week that Pemex?s arrears with contractors and suppliers amount to 120bn pesos.

Earlier this year, Pemex separately announced a 100bn peso cut to its 2016 budget, which new chief executive Jos? Gonz?lez Anaya is currently working to implement.