(Fitch, 24.Aug.2021) — Pemex‘s reported fires at its Ku-Maloob-Zaap (KMZ) production fields may slow the company’s production growth rates, as this field is the company’s largest production complex, according to Fitch Ratings.
Fitch’s current rating case assumes that the company’s production levels will stabilize going forward due to increased investments in exploration and production, as well as a manageable decline in production from mature fields. An acceleration of the company’s production decline rate in mature fields will make it difficult to achieve its production targets and add more pressure to its already negative FCF, which Fitch expects to average approximately negative USD12 billion per year over the next three years.
On Aug. 23, 2021 Pemex reported a fire in one of its oil production platforms serving the KMZ fields, which caused the company to suspend a portion of its production. The company estimates the incident affected 125 wells producing 421 thousand bbld. During the first half of 2021, Pemex’s crude oil production averaged 1,726 thousand bbl/d and it projected to end the year at 1,802 thousand bbl/d. This incident will make it very difficult for the company to reach this goal given the large amount of production that is currently offline.
This safety incident follows another fire that occurred on July 2, 2021 at a processing platform serving Pemex’s Ku field, which is the smallest production field of the KMZ complex. The July 2 fired was caused by a rupture in an underwater gas pipeline, which the company was able to control relatively quickly without a material impact on production.
Although the company has successfully increased production at new fields over the past two year, a more rapid decline in production from KMZ’s mature field would be more challenging to offset. Since January 2019, Pemex has reported an increase in crude production from new fields of 216.8 thousand bbl/d. This has more than offset the ongoing decline from KMZ, which has seen output fall by approximately 140 thousand bbl/d during the same period. In June of 2021, KMZ crude oil production amounted close to 40% or 723 thousand bbl/d of Pemex’s production.
Fitch currently rates Pemex’s Foreign and Local Currency Issuer Default Ratings (IDRs) ‘BB-‘/Stable, three notches below Mexico’s sovereign IDRs of ‘BBB-‘/Stable. Pemex’s ratings reflect the company’s moderate linkage to Mexico’s credit quality coupled with its weak Standalone Credit Profile (SCP), which Fitch believes is commensurate with a ‘ccc-‘ SCP. The SCP reflects the company’s elevated and raising leverage levels, limited financial flexibility, high tax burden, and high investment needs to maintain production and replenish reserves.
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