Pemex steadies bottom line, hones upstream focus

OREANDA-NEWS. July 29, 2016. Mexico's state-owned Pemex stabilized its financial losses in the second quarter, although oil production continued to decline and crude processing shrank on unplanned refinery outages.

The company is starting to reap the fruit of tax relief approved in April, narrowing its second quarter loss to Ps83.5bn (\\$4.4bn) compared with Ps84.6bn a year earlier.

The tax measure allows Pemex to choose the more advantageous of either a 12pc on its oil income or the \\$6.5/bl deduction that was in place before a 2014 energy reform. After oil prices collapsed in 2014, the latter has proved to be the better choice.

Pemex, unlike other Mexican companies, is unable to deduct all of its operating costs from its tax bill, but the fiscal adjustment resulted in a tax and duties obligation of 68bn pesos for the quarter, 38pc less than in the same quarter of 2015.

The adjustment, applied retroactively to the start of 2016, generated an accumulated benefit for the first half of the year of around Ps23bn, Pemex chief financial official Juan Pablo Newman said in a conference call today.

The company's oil exports fetched an average of \\$36.69/bl in the second quarter, compared with \\$52.92/bl a year earlier.

Second quarter crude production fell by 2.2pc to 2.18mn b/d, mainly reflecting a 6pc decline in heavy crude output from the ageing Cantarell complex in the Gulf of Mexico.

Pemex reported a sharp decrease in the number of operating drilling rigs to just 23 units in the second quarter, from 78 a year ago, reflecting the impact of lower oil prices. The number of operating wells dropped by 4.8pc in the period, totaling 8,931.

Natural gas production sank by 8.4pc in the three-month period to 4.95bn ft3/d, driven mainly by natural decline at the Cantarell, Burgos and Veracruz business units.

Pemex reported extra-light discoveries at the shallow-water Teca-1 well and deepwater Nobilis-1 oil well, located in the Perdido Fold Belt. The latter holds the potential to produce almost 17,000 b/d of liquids, Pemex said, without indicating when production could begin or whether it would be a future farm-out candidate.

A first farm-out contract for another Perdido deepwater project, Trion, will be tendered on 5 December and could start light crude production of 120,000 b/d in 2023, Pemex exploration director Gustavo Hernandez said. "This is the first of many farm-outs we are planning to execute. . .with other fields to be announced shortly" he said.

Downstream, Pemex reported a 3.5pc decline in crude processing to 1.02bn b/d, largely because of a cut in heavy crude runs at the Minatitlan and Madero refineries that experienced unscheduled shutdowns.

This was partially offset by a 7.7pc year-over-year increase in light crude processing to 624mn b/d, reflecting fewer unplanned outages at the Salamanca and Salina Cruz refineries.

Production of refined products reached 1.15mn b/d in the quarter, down 5.3pc from the same quarter last year.

Gasoline imports climbed by 17.8pc to 458,600 b/d in the second quarter compared to a year ago. Pemex expects demand to drop off over the summer as refineries recover, followed by a rebound in product imports later this year, during the high demand months of November and December.