MEXICO CITY (Reuters) - Moody’s Investors Service said on Friday it expects Mexican state oil company Petroleos Mexicanos to increase crude production by 1% in 2020, replacing about 50% of its proved reserves, and said the company demonstrated “good progress” last year.
Pemex [PEMX.UL], as it is known, has been on the brink of a downgrade to speculative grade, or junk, since June when Fitch Ratings changed its credit rating and the company sank deeper into the red.
Ratings agencies and investors have cited falling production as their main concerns. In 2019, crude production averaged 1.68 million barrels per day, less than half of what Pemex pumped in 2004 and down by about 7% compared with levels a year earlier.
Pemex’s investment budget for 2020 is $16.7 billion, with nearly all of it going to exploration and production. Pemex’s management told investors on Thursday that it calculated a restitution rate of proven reserves greater than 100%.
“In the past, the company has invested much less than planned, and such a high amount of capital expenditure would require much higher crude and fuel prices supporting cash generational or external funding,” Moody’s said.
Moody’s said it was waiting for the reserves certification report due in April to measure the reserves replacement rate.
All three major ratings agencies have the struggling company on a negative outlook. A second downgrade could trigger billions of dollars of forced selling by investors whose mandates say they must hold bonds of investment-grade quality.
President Andres Manuel Lopez Obrador threw the company several lifelines last year, providing billions of dollars worth of support in the form of capital injections, tax breaks and debt refinancing.
Also weighing on Pemex’s credit profile is $105.2 billion of financial debt it held at the end of last year, a decrease of just 0.6% from a year earlier.
“A stabilization of oil production would inject confidence in the company’s prospects, as would the announcement of any new oil field discovery,” said Kim Catechis, head of investment strategy at asset manager Martin Currie.
“If the company continues to demonstrate a willingness to trim its debt and the government doesn’t deviate from its plan,” Catechis said, “the markets may well take the view that the government simply will not allow the company to be downgraded.”
Reporting by Ana Isabel Martinez and Stefanie Eschenbacher in Mexico City; Editing by Leslie Adler and Matthew Lewis