Pemex debt should be a red flag to potential partners when Mexico looks to increase oil production

Over a month has passed since Pemex's head made an appeal for partners to assist Mexico's state oil company in boosting production. But national and international companies are still not responding.

Victor Rodriguez, at a Mexican energy conference in Mexico City on October 23, told the assembled executives: "We are open." "Bring us your proposals."

Pemex has a mountain of debts, ranging from Italian producers such as Eni, to U.S. service companies SLB and Baker Hughes, which, combined with rigid contract terms, have dampened interest among potential partners.

Four industry insiders said that foreign oil companies are more worried about Pemex not paying them on time. This puts Pemex’s production goal of 1.7m barrels per day at risk.

One of the sources, a senior executive from an international oil company based in Mexico, said: "There is always doubt as to whether Pemex will be able to honor its commitments because paying suppliers remains a problem."

Pemex's production has plummeted over the last two decades. The company's ambitious goal is crucial not only to the company, but also for Mexico which depends on the tax revenue generated by the state-owned company.

It is an important test for President Claudia Sheinbaum to show her vision of Mexico's energy industry. Her Morena Party effectively reversed the 2013 reforms that President Enrique Pena Nieto implemented to open Mexico's Energy Industry to foreign investors.

Pemex reported that it owes 28 billion dollars to hundreds of suppliers in September. Eni, SLB, and Baker Hughes appeared as unpaid creditors on a separate report from the company in March. Other companies, including Carlos Slim's GrupoCarso, and Mexico's second-largest private oil producer Hokchi have said that Pemex is owed money.

SLB, Weatherford Halliburton Baker Hughes, Eni, nor Eni have responded to our request for comments. Hokchi Energy and Grupo Mexico declined to comment. Pemex said it had no update on dates for contract awards and declined to answer questions about its debt with suppliers.

In a presentation made to the Mexican Congress in October, Rodriguez stated that Pemex has paid out over $16.3 billion in total since Sheinbaum assumed office in October of 2024. Potential partners are still not convinced that the state company's ways have changed.

Pemex has yet to pay off the full amount owed.

Pemex wants to convince investors to sign 21 new contracts, nine of which are in shallow water, several others on land, and three more in deepwater.

The company is hoping that all of these projects will add up to 450,000 barrels per day of crude oil, or about a quarter the forecast production by 2033. Pemex would need to hold at least 40% of any contract.

Now that production is dwindling, there are serious questions about whether Pemex will be able to attract the necessary investment while maintaining the level of control sought by the Morena Party.

Unattractive Partnership Terms

Pemex's most recent 10-year strategy plan stipulated that joint venture contracts are a key tool to strengthen production. The plan predicted that Kayab-Pit-Utsil would dominate the shallow waters of Gulf of Mexico, while Nobilis-Maximino & Exploratus will dominate the deep waters.

Angel Cid is the director of the exploration and production division. He said that in late October, 40 companies expressed interest in bidding on the mixed contracts. However, he did not provide any details.

A high-ranking source in the government said that certain legal requirements would make it difficult for some projects to find partners, like Pemex's requirement of a minimum stake of 40%.

Four executives who attended an October event with Rodriguez stated that Pemex's inability to pay its suppliers was a major warning sign, raising the risk profile of many potential partners.

In an interview, Rafael Espino of the association for oil service companies Amespac said that "when supply contracts aren't honored, Pemex production is compromised." Espino stated that despite some progress made this year, there is still no clarity about how the debts from previous years will be handled.

Three different industry sources stated that companies are closely watching the developments and hoping Pemex will make concessions to the contract model in order to attract private firms.

One of the sources stated, "It remains to be seen" what will happen. (Reporting and editing by Stefanie Gregorio and David Gregorio; Ana Isabel Martinez, Adriana Barrera and Adriana Martinez)

(source: Reuters)