OREANDA-NEWS. Mexico's state-owned Pemex has lowered its production target and suspended upstream and downstream projects in response to persistently weak oil prices and a steep government-imposed reduction to its 2016 budget.

The company decreased its production target to 2.13mn b/d for this year. In 2015, Pemex produced 2.267mn b/d, falling short of its 2.29mn b/d goal.

The 100bn peso ($5.5bn) budget reduction, which accounts for 22pc of the firm's initial budget, comes less than two years after the advent of a comprehensive energy reform that ended Pemex's long-held monopoly over the oil industry, encouraging the arrival of private-sector investment.

According to the leaner spending plan laid out yesterday by Pemex?s recently appointed chief executive Jose Antonio Gonzales Anaya, nearly half of the budget cut, or 46.8bn pesos, will be absorbed upstream by Pemex Exploration and Production (PEP), losing 14pc of its original 333bn peso budget.

Pemex Industrial Transformation (TRI) will lose 36.2bn pesos, 5.9pc of its original allocation of 615bn pesos.

This is the second year in a row in which Pemex has been forced to cut its expenditures. Last year, a 62bn peso budget reduction led the firm to suspend the upgrades of its five domestic refineries as well as new exploration projects.

But in this year?s round of spending reductions, sustained low oil prices are forcing Pemex to follow the lead of other oil companies and scale back upstream development as well.

With 6.2bn pesos cut from its production allocation, Pemex will focus on fields that remain profitable at Mexico's current average crude export price of around $25/bl. More costly production will be suspended until oil prices recover.

Pemex is cutting its exploration budget by more than 27bn pesos, of which about a third will impact deepwater exploration areas where Pemex will seek new partners to bring costs down. With less capital to spend, the company ?s role in an upcoming auction for deepwater blocks is likely to be smaller than expected.

The smaller 2016 outlay for Pemex?s downstream division will be steered toward selected refinery upgrades that had been postponed last year.

Gonzalez said the company is working with the finance ministry to resolve its outstanding debts totaling 146bn pesos to contractors and providers. Contractors have reported unpaid bills dating back to 2014.

Gonzalez dismissed the notion of a "target" for downsizing the company?s 140,000-strong workforce, but did not rule out additional layoffs to the 16,000 announced earlier this year.

In a conference call yesterday, Mexico's deputy finance secretary Miguel Messmacher said the government will follow through with promises to support Pemex through the tough patch, so long as the company meets its austerity goals.

"We consider this adjustment program extremely positive. We will work in the coming weeks with Pemex on the support plan that the federal government has for Pemex," Messmacher said.