Higher oil prices secured Mexico's Pemex a quarterly profit as debt swelled

The logo of Mexican state oil company Pemex is pictured at a gas station in Ciudad Juarez
The logo of Mexican state oil company Petroleos Mexicanos (Pemex) is pictured at a gas station in Ciudad Juarez, Mexico February 27, 2020. REUTERS/Jose Luis Gonzalez/File Photo

MEXICO CITY, July 28 (Reuters) - Mexico's state oil company Petroleos Mexicanos (Pemex) on Wednesday reported net profit of $722.5 million for the second quarter, swinging from a loss in the same period last year thanks to higher crude prices and production.

The company said the 14.4-billion-pesos profit was driven by higher income from international sales, which doubled from a year earlier due to higher crude prices and a slight rise in oil volumes exported.

Pemex's financial debt rose from the first quarter of the year, reaching $115.1 billion at the end of the April-to-June period due to the use of short-term financing.

But Pemex said it will not resort to the bond markets this year for refinancing as it plans to receive capital injections from the government through the fourth quarter, which should lead to a net debt reduction, a long-standing but so far unfulfilled goal.

Pemex also finished the period with $175 million and 4.5 billion pesos in available credit lines.

"With the trend of the results we are achieving and especially with the support of the federal government, there is no risk to meet our financial commitments," Pemex Chief Financial Officer Alberto Velasquez said in a call with analysts to discuss the quarterly earnings.

On Tuesday, Moody's downgraded Pemex debt one notch, sending it deeper into junk territory mainly due to the poor performance of refining operations. Pemex chief executive Octavio Romero said he disagreed with the move.

The oil-producing firm, whose refineries processed 5.4% more crude in the second quarter for an average of 666,000 bpd, plans to keep boosting processing to 831,000 bpd next month, and 1 million bpd in 2022.

Mexico President Andres Manuel Lopez Obrador has mandated more domestic refining for the company so a portion of expensive fuel imports can be replaced, but Pemex still struggles to make profits from the refining business, with most refineries showing very small margins.

In the second quarter, the extra volume of crude Pemex processed did not result in higher fuel output for the domestic market. The average fuel produced was 659,000 bpd, slightly below the volume of the same period of 2020.

The firm's total income in the second quarter was 347.44 billion pesos ($17.42 billion), up from 181.7 billion pesos in the year-earlier period. The average price of Mexico's exportable oil mix more than doubled to $63.81 per barrel from $24.40 per barrel in the second quarter last year.

The second-quarter net profit came after Pemex reported a loss in the same period last year of 44.33 billion pesos, or $1.9 billion at the exchange rate of the time. The company also had a loss, of $1.8 billion, in the first quarter this year mainly due to higher costs for imports.

Pemex's production of crude and condensate rose to 1.736 million bpd, a 3.8% increase from the second quarter a year earlier.

($1 = 19.9470 pesos at end-June)

Reporting by Adriana Barrera, Daina Beth Solomon and Marianna Parraga; editing by Cassandra Garrison, Daniel Flynn, David Gregorio and Nick Macfie

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