PEMEX Makes $5.5B Budget Adjustment for 2016
The global decline in oil prices has prompted Petroleos Mexicanos (PEMEX) to make a $5,531,678,000 (MXN $100 billion) adjustment to its budget so it can meet its 2016 Financial Balance goal.
PEMEX’s board of directors approved the program Feb. 26, which PEMEX CEO Jose Antonio Gonzalez Anaya said was needed to help PEMEX with its short-term liquidity issues and anticipated decline in income due to lower oil prices.
The state energy firm’s budget includes a $5,531,678,000 (MXN $100 billion) adjustment to ensure the company can meet its financial balance goal of $8,242,200,220 (MXN $149 billion), which comprises revenues of $22,016,078,440 (MXN 398 billion), a total expenditure ceiling of $26,441,420,840 (MXN 478 billion) and financial costs of $3,816,857,820 (MXN 69 billion).
Mexico’s Congress had initially approved PEMEX’s budget based on an oil price of $50/barrel and a production platform of 2,247,000 barrels per day. But PEMEX now faces substantially lower income as oil prices are expected to trade at average $25/barrel for the remainder of 2016, Anaya said during a Feb. 29 conference call. In addition to lower oil prices, PEMEX also has faced declining production in recent years and rising production costs as it has moved into new areas of exploration and production.
Anaya has asked the entire PEMEX organization to contribute to the adjustment program, which is intended to help PEMEX take advantage of the new instruments and figures provided by the energy reform in order to attract third party investment. This plan includes PEMEX maintaining its 2016 production goal and stabilizing medium and long-term production, meeting its labor and financial obligations, and maintaining the safety and reliability of its facilities.
The proposed adjustment will reposition PEMEX to embrace its new role as a state-owned productive company under the energy reform framework, Anaya said. As part of this plan, the company will defer or reconsider $3,591,834,904 (MXN 64.9 billion) in projects that impact future production. This adjustment includes a $1,521,963,942 (MXN 27.5 billion) adjustment for exploration and production projects that either are not impactful on the near-term outlook or where PEMEX could enter a partnership or joint venture for exploration and development. It also includes a $1,959,439,447 (MXN $35.4 billion) adjustment for industrial transformation.
PEMEX expects to realize a $1,599,666,241 (MXN 28.9 billion) adjustment by increasing productivity of operations and promoting more efficient use of resources. This includes a $725,108,226 (MXN $13.1 billion) adjustment for the typical austerity measures taken by oil and gas companies in downturns, such as cuts to general expenditures, travel expenses and telecommunications, Anaya said. It also includes a $725,046,461 (MXN $13.1 billion) adjustment in exploration and production and $99,624,704 (MXN $1.8 billion) adjustment in logistics.
The company also expects to realize a $343,137,221 (MXN 6.2 billion) adjustment from refocusing its capital and operating expenditures towards projects that yield profitable returns under a $25/barrel oil price versus $50/barrel.
Additionally, PEMEX will eliminate two corporate director positions as part of the adjustment program. The director of human resources position will be absorbed by the director of administration, and the director of oil-related research position will be absorbed by PEMEX Exploration and Production, Anaya said. The duties of the latter role had previously been under PEMEX’s exploration and production division until a year and a half ago.
Anaya, who was recently appointed CEO of PEMEX, told attendees at the IHS CERAWeek Conference last week that the company was looking for more than just financial investment from its partners, but partners who could help PEMEX learn to operate more efficiently.
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