How Much Longer Can Pemex Hang On?

It lost $18 billion in Q4 on declining revenues and production, has $102 billion in debt, and now its world is changing.

By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.

During its heyday in the 1980s, Mexico’s state-owned oil empire, Petroleos de Mexico (Pemex), was the third largest oil producer in the world. That was before the rot of chronic mismanagement, unfettered corruption, and declining oil reserves began to set in. The company, now in its 80th year, excels in only two areas: accumulating massive losses — both in money and stolen oil — and clocking up new record levels of debt.

For the fourth quarter of 2017 the company posted a zinging loss of 352.3 billion pesos ($18 billion), blaming a weaker peso exchange rate, new reporting rules and higher financing costs. The loss compares to a profit of 72.6 billion pesos in the year-ago period. While the group’s sales increased by some 30% over the duration of 2017, largely due to higher oil prices, costs ballooned by 115%.

“Pemex has been roiled by external factors such as the oil crisis of 2015, but it has also been hit by the fact that there have been constant changes in the general management,” says energy analyst Arturo Carranza. The group has had three different management teams in just five years. According to the new boss, Carlos Treviño, installed at the end of 2017, the company’s financial condition is stabilising and the debt situation is now being handled much better.

Whatever Pemex’s new top management might say, the group’s vital signs are still extremely weak. Between 2016 and 2017, its production of crude oil slid 9.5%, from 2.15 million barrels per day to 1.95 million, its lowest level since 1980. Its average daily level of natural gas extraction also fell 12.5% to 5.06 billion cubic feet per day.

“Production has been affected by the natural decline of certain fields and a lower quality of crude oil, as well as the company’s limited ability to invest efficiently given thin funding and lack of technological expertise in deepwaters, where future growth is located,” Moody’s recently noted.

But it’s Pemex’s burgeoning debt load that is of greatest concern. In the last five years alone Pemex’s total debt has increased by $38 billion, from €64 billion in December 2012 to $102 billion in December 2017. That’s almost the equivalent of 10% of Mexico’s GDP. And it doesn’t include the company’s pension liabilities, which are estimated to be worth an additional 9% of GDP.

In early February Pemex moved to shore up its finances with a $4 billion bond placement. It also got access to more liquidity via long-term revolving credit facilities for $8 billion. But Moody’s warns of potential clouds on the horizon for the shrinking oil giant:

However, Pemex’s liquidity position is still weak: $8 billion in cash and equivalents, as of September 2017, negatively compares to $4 billion in debt coming due in 2018 and $8 billion in 2019. Management’s goal is to hold at least $4.5 billion in cash at all times.

Moody’s report was released before Pemex reported that it had suffered an $18 billion net income loss in the fourth-quarter of 2017. The big problem Pemex has is that the more debt it adds to its balance sheet, the higher its annual interest expense will grow. In 2017 alone, its total interest expense was $5.9 billion.

To make matters worse, this is all happening as Pemex’s output continues to slump, many of Mexico’s most valuable oil fields are being farmed out to foreign oil majors and competitive pressures are rising sharply in Mexico’s gas station sector, which until recently was the sole preserve of Mexico’s state-owned oil monopoly. In 2016 Pemex’s filling station business generated roughly 730 billion pesos ($36 billion) of revenues. That was before new entrants, including some of the world’s biggest oil majors, were invited into the sector early last year. Since then Pemex’s market share has shrunk by 21%.

There are many reasons why Pemex is in such dire straits, including shockingly bad management, lack of vision, severe budget cuts, shrinking oil reserves, sinking oil prices, lack of investment resulting in poor or obsolete infrastructure, negligence, systemic oil theft from criminal gangs (helped by Pemex employees), and the huge tax burdens the government imposed on it in the years preceding Mexico’s oil reforms, while lavishing foreign companies with massive fiscal incentives to invest in Mexican oil fields. Plus the rampant corruption that infects many levels of the organization.

Given its oversized dependence on public funds, Pemex’s future is more tightly interlinked with Mexico’s government than it has been for a long time. That government could change in July as fears rise that the hotly tipped presidential favorite, populist Andres Lopez Orbrador, could finally win the prize he’s coveted for well over a decade. He has already promised to reverse some aspects of Peña Nieto’s energy reforms and cancel any oil deals that show signs of corruption. That is likely to put his government on collision course with some very important oil majors and global investors.

Pemex’s debt is currently rated Baa3 by Moody’s, just one notch above speculative grade. The group’s outlook is also negative, reflecting the rating agency’s “expectation” that the company’s credit profile could deteriorate further “if managerial and operating discipline is lost along the way.” It’s a veiled warning that should the company or government’s management take a turn for the worse (in the eyes of Moody’s), Pemex’s debt could very quickly lose its investment grade status. And that would make its debt problem even more unmanageable. By Don Quijones.

With impeccable timing. Read…  As Banks Embrace Biometric Tracking of Customers, Cybertheft Explodes in Mexico

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  33 comments for “How Much Longer Can Pemex Hang On?

  1. KeepItReal says:

    Root cause, obviously, is that it’s state-owned.

      • KeepItReal says:

        It’s still state control (i.e., socialism), regardless if the Chinese are a little better at it than Mexicans or Brazilians.

        • JRR says:

          A Mexican friend of mine, who is a high-powered business consultant, was brought in by Pemex as part of a big team to diagnose their problems and chart a path to the future. Pemex management was smart enough to know they had big problems, but weren’t smart enough to know how to fix it. My friend said his team had some good ideas, but all would require painful organizational changes to implement. He said that with his knowledge of Mexican culture and business, he guessed that the probability that they would actually implement the plan was approximately zero. He was right.

    • Petunia says:

      Root cause: a culture of corruption. Look at the rest of Latin America for the proof.

      • Rates says:

        +1. That’s what I was getting to. It’s not about state control, etc.

      • Rates says:

        A quote from All the Pretty Horses

        “In the Spaniard’s heart is a great yearning for freedom, but only his own. A great love of truth and honor in all its forms, but not in its substance. And a deep conviction that nothing can be proven except that it be made to bleed.”

        That there explains Spain, Mexico, all the LatAm countries. No need to write more articles.

        • Wolf Richter says:


          I just adore those huge mega-generalizations extrapolated from a novel (fiction!) published a quarter century ago about some kids in Texas decades earlier to 700 million actual individuals living today in Latin America. I mean, this is just air-tight.

        • Rates says:

          They are not huge mega generalizations. Has any of these countries done anything special other than relying on other people or getting into crisis repeatedly? Supplying huge amount of cocaine to the US does not count.

          The sad thing is some stereotypes are true.

        • Wolf Richter says:


          They’re true to you because you want them to be true.

        • Gandalf says:

          I would note that throughout the Spanish colonies, the dominant colonization style was to co-opt the Indian tribes, interbreed with them, and turn them into faithful and subservient Catholics.

          Instead of exterminating the native Indian tribes via genocide, as happened in the U.S., the Spanish transformed them into the mestizo peoples, and also fixed into place a rigid hierarchical caudillo culture.

          The end result was designed to keep the caudillos, the bosses, in power, and the servants in their place. And to keep the money flowing to the Catholic Church.

          Not a society to encourage free thinkers, non-conformists, or entrepeneurs.

          A fabulous book that describes the early stages of this transformation in the Spanish colonies is “1493”, by Charles Mann.

        • Cal says:

          reply to Gandalf
          Apr 13, 2018 at 3:33 am

          Not in Argentina, they just killed or exiled the Indians. That’s why it’s the most European country in South America.

          “¡Che!, No me hinches la’ pelota’!

          (“Don’t bust my balls” in slang)

        • Gandalf says:


          Yes, I was almost going to add a disclaimer about Argentina, which did suppress the native Indian populations to a greater extent than the other Spanish colonies.

          Nevertheless, proportionally, there is still a far, far higher percentage of Amerindians in the overall Argentinian population than you find in the United States (apart from Americans of Mexican and Central American origin). Genetic surveys show an overall average 31% Amerindian DNA content in the population of Argentina. A demographic survey in 2001 showed 600,329 self-identified people of Amerindian ancestry in a population of 40 million – the true numbers, as shown by the genetic surveys, must be far higher, as discrimination causes most people with Amerindian ancestry to “pass for white” in Argentina and not claim Indian ancestry.

      • Wolf Richter says:


        Look at the US Congress for proof.

        But we have codified corruption and made 90% of all forms of corruption legal. Only a moron with cash in the fridge would be able to violate those rules.

        • Petunia says:

          I don’t disagree with the premise that the US has also become a cesspool of corruption. I should have done a better job of explaining why I think that Latin America is especially corrupt.

          Latin America has no foundational institutions that protect the rule of law and the people don’t have any expectation of protection under the law. This is where corruption flourishes.

          If you listen to how Latinos, outside of the US, talk about appropriate remedies, they always talk about fairness not law. “No es justo (It is not just)” is the way they think about any situation. The idea of fairness is a very loose way to deal with any situation. What’s fair is what’s fair to you at the moment. This behavior has become a cultural norm and one that has been exported to the Latino communities in the US.

        • Gandalf says:


          Let me make a logical link for you to my comments about the Spanish caudillo culture, which seems to have permeated all of their colonies, and which, together with the imposition of the Catholic religion on the native Indians, was especially well suited for allowing the Spanish conquistadors to co-opt the native Indian cultures into becoming a subservient, obedient people (God will smite you if you disobey).

          In such a “boss” and servant culture, it’s all about personal loyalty to the boss, not about rule of law. It’s all about who you know, what permissions you can get to do what you want, and what you can get away with, not about what’s written on a legal document.

          China historically had/has a similar problem with a culture built on over 2,000 years worth of powerful central government control and a Confucian religion/philosophy emphasizing obedience to authority.

          The biggest difference between China and the Latin American countries is that the Latin American countries have had constant political strife and crime and continuous runs of bad and corrupt leaders.

          To be quite blunt, U.S. interference in Latin American politics for over a century has contributed to that constant run of bad/corrupt leaders, dating back to the Spanish American War Google and read up on “banana wars” – we, the United States, were the instigators of what came to be derisively called “banana republics”. We helped put into power bad/corrupt governments in Latin America.

          China, too suffered through what it now calls “A Century of Humiliation” (by military invaders, especially the British, then later the Japanese) which resulted in a series of weak and corrupt governments.

          Historically, whenever China’s powerful central government has managed to get a forward thinking leader it’s been able to marshal its considerable resources to accomplish great things. But the natural tendency of powerful central governments that don’t have a regular and smooth mechanism for succession is to devolve into rigid orthodoxy and corruption, and so China’s history has always been one of a constant series of a rise and fall of dynasties. China is currently on what I am sure will come to be known as the Communist Party dynasty.

      • fajensen says:

        Well, Latin America has it’s problems. But, “we” have quite the similar problems: Elites who disconnected from any consequence of their stupidity and/or malfeasance destroys everything they touch and “society” gets to pay for the ways of these fine folks (not via jail, that doesn’t apply to these exalted characters).

        One could look at Sweden – Stockholm’s “Nya Karolinska Sjukhuset” – Public Private Partnership with Skanska, PwC, “Boston Consulting Group” and some PE outfit Innisfree (Full plate of warning lights already there). Budgeted to 16 Billion SEK, latest estimate 61 Billion SEK!

        Husband & Wife team hiring BCG, with wife doing the procurement, husband the evaluation. This is, apparently, allowed here!

        Or maybe one could take the Nobel Committee for Literature –

        The whole institution is sunk over the Swedish desire to keep a clean face and never deal with the actual problem, only the perception of it. Again we have a husband & wife tag-team, the harasser being married to a board member and getting grants from the committee for his culture centre.

        We have a few persons steadily employed at my job who are costing the project millions via their incompetence, yet, the whistleblowers are the only ones to “leave for personal reasons” because Swedish Management Does Not Make Mistakes.

        I still work there, because I want to experience an official inquest and there could be a really good exit-deal within range, when my “personal reasons” comes up. And work sucks the same all over!

    • Lune says:

      The only difference between state-owned Pemex and so-called privately owned Exxon is that Exxon socializes all of its costs and privatizes its profit. That’s the only difference. Does Exxon pay for the American aircraft carriers that patrol the Persian Gulf and the south china sea to ensure the flow of oil through there? Does Exxon pay colleges to educate the geologists and engineers that it needs? Does Exxon pay for the roads and other infrastructure that the US Govt builds to make their sweetheart land leases even more of an economic bonanza?

      Heck, even the Strategic Petroleum Reserve is a subsidy: instead of simply selling and buying the crude oil in the open market, the government allows oil companies to “borrow” and “pay back” the oil. Conveniently, borrowing occurs when there are shortages, i.e. prices are high, and the oil is replenished when supplies are plentiful, i.e. prices are low. Is there any reason why the government who provides this stabilizing service shouldn’t be the one profiting from that little trade?

      It’s pretty easy to turn a profit if someone else is responsible for most of your costs.

      P.S. The vast majority of the world’s proven oil reserves are managed by state-owned companies, such as Saudi Aramco and Russia’s multiple oil companies. And yet a gallon of gasoline, after all the extraction, transport, refining, etc. costs less than a gallon of milk obtained from a cow 50 miles away. If they were really doing such a bad job of things, we’d be paying a lot more for oil than we are right now.

      • Gandalf says:


        I believe the higher cost of milk vs. gasoline has more to do with the fact that a single milk cow has to be fed 100 pounds of feed a day to produce, at maximum, 6-7 gallons of milk a day. Somebody also has to shovel that manure away also.

        A single oil well can produce from a few hundred barrels a day to several thousand barrels a day of crude oil. 1 barrel = 42 gallons.

        Government subsidies have nothing to do with the bulk of that difference in price

  2. Lee says:

    “….5.06 million cubic feet per day.”

    Should be 5.06 BILLION cubic feet per day.

  3. Arnold Ziffel says:

    By some estimates it takes a country with an IQ average of 95 or greater to run a modern society. Mexico’s average IQ is 88. Venezuela clocks in at 84. El Salvador at 80. Is it any wonder the Latin countries are always 3rd world. IQ maybe a country’s most valuable asset, ie Japan

    • Justme says:

      That data and that website seems incredibly fake.

    • Wolf Richter says:

      Then US average gotta be 65, given current conditions.

    • Gandalf says:

      Can you say, sampling bias? Garbage in, garbage out?

      In 2017, 27% of China’s 1.3 billion people were still living in rural areas engaged in relatively primitive style agricultural work.

      The last time 27% of Americans were working in agriculture was in 1920. We’re down to 2% today thanks to massive industrial farming technology.

      I seriously doubt that Richard Lynn went out into the rural areas of China and gave IQ tests to the poorly educated farmers there. Seriously doubt that rural 27% of Chinese have an average IQ of 105

    • TyGR says:

      Thanks for posting that Arnold, not many people are willing to broach the IQ matter as it’s considered taboo.

      • Gandalf says:


        We’re not even at the taboo stage yet with that book. I think the underlying data of that book is sheer garbage.

        IQ is well known to be a combination of inherent genetics and evironment, and scores get boosted with intensive training and education. There is not any debate about that. Somebody who only finished first grade is not going to score as well as somebody who got a Ph.D. Somebody born with Trisomy 21 (Down Syndrome) is never going to test out with a 150 IQ no matter how much education they get.

        A great many studies have proven that it is difficult to impossible to make an IQ test that is culture neutral, i.e., that is not favorably biased towards people from a certain cultural background vs. a different cultural background.

        Do you speak a second language? What if you had to take an IQ test in that second language? Do you think you will score as well as an IQ test in your first, best language?

        South Africa has ELEVEN official languages. Could that have affected the testing with culture bias?

        With 43 countries in the list, and each of the countries speaking multiple dialects and languages, I absolutely do not believe that they could have possibly come close to eliminating culture bias.

        And then of course there is sampling bias. How exactly do you accurately sample a country with 1.3 billion people?

        Answer: you can’t. Almost certainly they did not go out and test the rural Chinese, and just stayed in the cities, where there will be an inherently higher proportion of people with higher education levels and “native intelligence”.

        If the average person in China really had an IQ of 105, why are 27% of Chinese still stuck in menial farming jobs in rural areas, like the U.S. was back in 1920?

        • biffula says:

          The fallacy is that you’re equating a low iq with having a menial job. Not always the case.

      • Gandalf says:

        wikipedia has articles on the books “IQ and the Wealth of Nations” and “IQ and Global Inequality”. Suffice to say that the authors cobbed together the results of IQ testing done by others, with zero controls for culture bias, and flat out guesstimated (i.e., made up) numbers for other countries for which they had ZERO data. They fudged and massaged the numbers they had to fit their overall narrative.

        In other words, otal worthless P.O.C.

      • Wolf Richter says:


        Funny, I thought you would have figured out by now that Arnold Ziffel’s comment on IQs ranks very high on the list of “Worst Nonsense ever posted on WOLF STREET.”

        Just because there’s a link doesn’t make it true.

        Arnold Ziffel’s comment on IQ should be taken as a joke that went awry.

    • Nick Kelly says:

      Read it. First question: how did this two- man team finance research into IQ tests in over one hundred countries, with much MORE than that many languages. (India and Africa have hundreds of languages.)

      Second question: were the tests measuring that elusive concept IQ, or as with so many of their ilk, measuring mainly verbal skills including vocabulary?

      Here is an example of the latter I ran across on- line under ‘Promoted Links’ It said ‘You need an IQ of 130 to pass this history test’

      This is so patently absurd it’s amazing it appears even in these idiotic Promoted Links.

      Obviously, you could have an IQ of 200 and not know the US had a Civil War, if you hadn’t been so informed.
      Are you supposed to use your brilliance to somehow deduce the past?

      But there is one good thing about this nonsensical ‘measure’ of IQ, it shows how either learned knowledge or a learned skill can be interpreted as IQ, but IQ is defined as innate and NOT learned.

      The ‘IQ test’ that actually measures learned verbal skill is a much more common example, in use everywhere in this society.

      PS: the linked piece has this disclaimer: ‘this information is controversial and should be treated with caution.’


  4. Poopypants says:

    “Production has been affected by the natural decline of certain fields…”

    Sounds like Peak Oil has hit Pemex with a motherf$&king steel pipe.

    Oh, yes I know, there is no such thing as Peak Oil and for you Abiotic people out there, I’m sure the earth is preparing to refill Cantarell any day now.

    Like I’ve always said: It’s not Peak Oil you have to worry about, it’s Peak Cannabalism.

  5. Petedivine says:

    Pemex is the black swan no one saw coming. Mexico is by far the largest global silver producer. Mexico is the United States largest agricultural trade partner. Both of those sectors require large quantities of energy for production. I did some research on Fresnillo which is a large silver mining company in Mexico. In their 2017 preliminary report they stated their electrical cost increased by 28.9% and their petroleum costs increased by 22.2% year over year. I assume those percentage increases can be extrapolated throughout both the Mexican agriculture and mining sectors. In my opinion Fresnillo is a well run company. The decline of Pemex will have far reaching consequences, the most dramatic of which will be on food prices. I predict we will see national food prices increasing for several reasons. Mexico’s increasing agricultural production costs, the longer winter in Canada and the Northern U.S., and from debt driven currency debasement.

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