Mexico sees crude production below 2mn b/d in 2017

OREANDA-NEWS. September 12, 2016. Mexico expects its crude production to fall below a 2mn b/d threshold in 2017, the lowest annual average in more than a quarter century.

The forecast of 1.928mn b/d, 10.1pc below the 2.123mn b/d expected for this year, is a pillar of Mexico's 2017 federal budget, presented yesterday by newly appointed finance secretary Jose Antonio Meade.

Next year?s crude exports are seen reaching just 775,000 b/d, compared with a January-July 2016 average of 1.136mn b/d and full-year 2015 average of 1.172mn b/d.

"This production platform is the one that Pemex and the finance secretary agreed on (…) but it doesn't include the possible impact of Pemex's new business plan," said Meade, adding that the current production forecast could be adjusted once the plan is completed.

The budget features a price assumption of \\$42/bl, secured by a large hedge program completed by the finance ministry last month.

The expected decline in production and exports, and lower prices compared with 2014, has sparked a fresh wave of spending cuts.

For the third consecutive year, Mexico's financially struggling state-run oil company Pemex appears to be the main target of next year's spending reductions, with 100bn pesos less in its budget. The company reported a second quarter 2016 loss of 83.5bn pesos, broadly similar to the financial result in the same quarter of 2015.

Pemex?s crude production has been declining steadily since hitting a peak of 3.4mn b/d in 2004.

The government hopes a 2014 energy reform that broke Pemex?s monopoly will reverse this trend.

A staggered upstream auction that began in December 2014 ushered in still-modest private-sector production. In June, companies other than Pemex produced 1,871 b/d of crude, according to the latest available data from the Mexican Petroleum Fund.

Echoing a long-sought government objective, Meade said Mexico is diversifying revenue streams to rely less heavily on oil, in response to falling global oil prices.

In 2012, oil-related income made up nearly 40pc of all budget revenue, while in 2015 the share was down to a little under 20pc, he said.

Mexico is expecting its GDP to grow by 2-3pc next year.

Meade was named this week to replace Luis Videgaray, a protagonist of Mexico?s package of economic, political and social reforms.