Mexico To Cut Pemex’s Profit-Sharing Duty To 54%

(Platts, Daniel Rodriguez, 21.Jun.2019) — The Mexican government will cut Pemex’s profit-sharing duty, known as DUC, to 54% by 2021 from the current 65%, the company’s financial director, Alberto Velazquez, said Thursday.

“Results from this plan might be huge, spectacular,” Velazquez said at a presentation at the Mexican Petroleum Congress. This is besides the $1.5 billion stimulus package President Andres Manuel Lopez Obrador already announced for Pemex this year.

This will increase Pemex’s investment budget by $4.8 billion/year after 2021, representing 65% of Pemex’s current funding requirements for operational purposes, Velazquez said.

Next year, Mexico’s federal government will reform Pemex’s hydrocarbon production sharing payments, which represents 80% of its fiscal burden, he added.

The government will cut the payment sharing production rate by 7 percentage points in 2020 and by 4 percentage points in 2021, he added.

INCREASING PRODUCTION

As a result of these plans, Pemex will become a large revenue generator for the Mexican government by 2024 following an increase in oil production.

“These measures will provide us enough resources to be able to increase production,” Ulises Hernandez, Pemex’s director of joint ventures and hydrocarbon reserves, said Thursday.

Lopez Obrador has the goal of producing 2.4 million b/d of crude oil by 2024, up from 1.69 million b/d in April. Currently, the company is producing about half the volume of oil compared with its peak production level reached in 2003.

Following these initiatives, the company will reach the same investment levels from five years ago, Velazquez said.

Pemex has cut its vicious cycle of depending on debt to finance its operations and new projects, Velazquez said. The company expects to close June with positive financial numbers, making it its third straight month with profits.

“We think the investment required [to increase output] is high but not as high as Fitch has said, which is up to $20 billion,” Velazquez said. This year, the company has an upstream budget of $11.1 billion. The government is considering to increase this level to $14.2 billion for 2019, he added.

MOVING AWAY FROM DEEPWATER

During the last 10 years, Pemex allocated 47% of its investment in deepwater projects, and these projects are capital intensive and time consuming, Velazquez said.

Pemex, under the current administration, will not invest in deep water, but in shallow water and onshore, where the company has ample experience, Velazquez said.

The company is also going to explore targets near its existing infrastructure to reduce development costs and expedite production, Hernandez said.

Pemex has an impressive infrastructure and facilities base to produce 3.3 million b/d, but it is currently producing half of that volume, Velazquez said.

Pemex canceled its farmout program because it does not want to dilute its reserves further by sharing them with a partner. “This is something we can not afford to do,” Hernandez said.

Instead, the company is looking for a new mechanism like incentivized integrated exploration and production service contracts, known as CSIEE, he added.

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