PEMEX, Mexico’s state-owned oil company, holds a significant, though declining, share of the Mexican energy market. In 2023, PEMEX reportedly held an 82% market share in the gasoline, diesel, and jet fuel market.
Pemex (Petróleos Mexicanos) produces the vast majority of the country’s oil and gas. While Pemex is responsible for 97% of domestic oil production and 98% of domestic gas production, private companies contribute a small percentage to the total. Specifically, Pemex produces 95% of Mexico’s oil.
Absolutely Stuck
State-owned oil company Pemex, have a significant amount of debt. At the time of writing, they are the world’s most indebted oil company, with over $100 billion in debt (mas o menos). This debt burden, along with declining production and other financial challenges, has created concerns about the company’s ability to meet its obligations and maintain operations. Pemex’s total assets were reported to be 109 billion U.S. dollars in 2024, a decrease of over 20 percent compared to the previous year. Almost all of their assets are compensated for just by their financial debt.
The Mexican association that groups major global oil services companies warned that it is going through an “unprecedented crisis” due to the lack of payments from the state-owned oil company Pemex
Not only do they have financial debt on the books of around 100B but they also hold obligations to suppliers and contractors of around $20 billion who have expressed their concerns. All despite the injection of billions of dollars from the government in the last few years to face the amortizations.
Huge Deal
The Mexican Association of Oil Services Companies (AMESPAC) overseeing oil services in Mexico stress that Pemex’s “cash flow is seriously compromised and in most cases it cannot guarantee operational continuity as of July of this year”. While they seem to have survived this month, they are simply bailing water out from the sinking boat at this point and the future situation is dire.
In their 4Q24 report, liquid hydrocarbon production, including partners, averaged 1,670 thousand barrels per day (Mbd). This represents a
decrease of 10.0% compared to the same period last year, due to the natural decline of offshore fields and longer completion times for highly complex wells.
…production costs rising sharply. In response, the Mexican government has been injecting funds to help manage the debt and reduce profit taxes to free up funds. However, Pemex continues to struggle with limited access to international financing due to its poor credit rating and increasing production costs
This isn’t exactly new for Mexico with problems with oil production…but it couldn’t come at a worse amount of timing
It’s scheduled to fall across the entire country at a time when the debt has never been this large.
Going Woke, Going Broke
At the same time, following production was allegedly compensated by progress on sustainability initiatives. One of the most outstanding achievements they claim was the reduction of carbon dioxide equivalent emissions by 8.2% to a total of 13.5 million tons. To me, this tells me that they’re ceasing to become an oil company–and they’re simply doing whatever dance and singing whatever song the Mexican government wants them to do for continued bailouts.
In the same vein, social investments of MXN 3,176 million in 2024, an increase of more than 18% over the previous year, through the implementation of programs to strengthen the so-called social and economic development of oil communities (overlooking that they’ll cease to become an oil company soon).
Latest News for Survival
Mexico [government] plans to sell $7,000-$10,000 million in debt to support state-owned oil company Pemex, aiming to increase the company’s resources. The debt offering will consist of dollar-denominated bonds with an August 2030 maturity. The government is implementing measures to support Pemex’s balance sheet management. Mexico has announced plans to issue $7 billion to $10 billion in debt to bolster the financial health of state-owned oil company Petróleos Mexicanos (Pemex).
More news is that PEMEX announced it plans to save around US$250 million through layoffs due to restructuring. According to the company, the projected savings from these measures amount to roughly MX$3.53 billion in 2025 and MX$1.27 billion in 2026. This is equivalent to 9.41% and 12.78%, respectively, of the budget allocated for permanent trusted staff positions under the Federal Expenditure Budget. The NOC estimates that these layoffs will represent about 1.4% of the permanent “trusted” positions.
In addition to this plan, they had announced that 2,900 jobs at PEMEX will be lost (of regular workers) across the country too due to their forced restructuring.
Pemex are also in talks with potential buyers in Asia, including China, and Europe, as it seeks alternative markets for its crude after U.S. President Donald Trump imposed tariffs on imports, a senior Mexican government official said. Trump has implemented 25% tariffs on goods from Mexico and Canada. While Canadian crude won an exception of a 10% levy, Mexican crude is to be taxed at 25%.
There is a push to liberate and promote private companies who explore and produce oil and gas deposits but many of them are not operationally ready, low on funds or also hold substantial debt. Nevertheless, they’ve been crucial in stabilizing the countries’ production for now
Narco
There have been many instances throughout the years of sophisticated cartels, mostly in Central Mexico stealing oil either knowingly or unknowingly by PEMEX executives and board of directors (who may or may not have been paid off by the cartels). In fact, one Cartel is almost exclusively operating based on oil profits from oil theft.
I can only assume this didn’t help the debt situation at all but there’s little reason to believe that various forms of theft and extortion from criminal organizations on oil will cease. In some sense, it’s become an expense that is baked into the books of this company.
Importance
Mexico’s economy is currently ranked as the 12th largest in the world, with the 10th largest population in the world. It is also the second-largest economy in Latin America. We’re talking about a population of over 120M people, lots of consumers and trade capacity.
Alternatives
Another On The Ball member suggested that this would be an excellent investment opportunity to allocate investment to the other small percentage producers in Mexico. However, those that are public in Mexico (Vista Energy and Carso) are troubled too. Vista’s operations are mostly focused on oil and gas in Argentina (in Neuquen) and they too hold a significant amount of debt far exceeding their cash holdings. Carso, the conglomerate company of famous investor Carlos Slim is not specifically an oil and gas production company.
The only others are private companies, and I think we’re a few million short before getting a sit down with them! An interesting idea for those who remains bullish on Mexico, energy and who can afford such an opportunity however.
Closing
This has been a long problem coming but it has really hit a peak in recent months where PEMEX’s ability to continue operations without more and more government support remains questionable. The main problem is that this is not just one company going bankrupt–we’re dealing with the company responsible for 90-95% of Mexico’s energy needs which is the 10th largest country by population, neighbour to the United States and OPEC + member. Knowing that energy IS an economy, there’s no clear energy solutions for Mexico if something were to happen to PEMEX, we should all be paying more attention to this danger. As I wrote (below), most of Mexican companies are holding a tremendous amount of debt–which hits significantly harder than you’d think because most of the companies listed are the *only* large-cap Mexican companies in the country, the rest are US companies.
We could be looking at a situation where the US is viewing Mexico as a place that is about to go bust and a nice bailout of their most vital industries would enable them to economically seize Mexico. Do you believe this is planned? Do you believe that the US government and pentagon is keeping their eye on PEMEX and other Mexican companies with the thought that this could be an opportunity for more power/economic might & control against China?
Let me know what you think
#StayOnTheBall
