MEXICO CITY (Reuters) - Mexican state-owned oil company Pemex will consider repeating a recently instituted hedging program in future years, as it looks to firm up its balance sheet and avoid the need for surprise budget cuts, a top executive said late on Tuesday.
Petroleos Mexicanos [PEMX.UL], as the company is officially known, reported on Tuesday that it has hedged its output through December, the first time it has done so in 11 years, as an insurance policy against volatile oil prices.
The oil hedging program, which will run from May to December and guarantees a price of $42 per barrel for up to 409,000 barrels per day, will cost the company $133.5 million.
“It’s important to give the market certainty that faced with drops in oil prices Petroleos Mexicanos won’t have to cut its budget,” Chief Financial Officer Juan Pablo Newman told Reuters in an interview.
Last year, Pemex implemented about 100 billion pesos ($5.8 billion) in spending cuts, following cuts of some 62 billion pesos in 2015 due to falling crude prices.
The new Pemex hedge is separate from a much larger oil price hedge undertaken by the finance ministry.
Asked if Pemex would look to implement another hedging program after the current one expires in December, Newman said that company had found a mechanism that “could be adjusted to market conditions to continue with this effort.”
Long used as a cash cow by Mexico’s government, Pemex now contributes less than a fifth of federal revenue, down from more than a third a few years ago.
The government is implementing an energy industry revamp finalized in 2014. It ended the decades-long production monopoly enjoyed by Pemex, which has led to the first-ever competitive oil auctions and joint venture partnerships.
“This hedging program and safeguarding these different productive projects ... that gives certainty that we are going to continue with these projects not only this year but in coming years too,” said Newman.
Reporting by Adriana Barrera and Anthony Esposito; Editing by Richard Pullin