Troubled Pemex Announces a Big Boost

With perfect timing as the new government embarks on restructuring Mexico’s oil industry.

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

Mexico’s embattled oil giant Pemex has almost tripled its estimate of the potential reserves offered by Ixachi, a recently discovered onshore oil field in Veracruz. The field, located to the south of the major port city of Veracruz, was discovered in November last year, when its 3P reserves (proved, probable and possible) were estimated at 366 million boe (barrels of oil equivalent).

At the time of the discovery the company asserted that the field could hold far more reserves. On Tuesday it revised the figure to over 1 billion boe after drilling two new wells. The new estimated total value of the field is $40 billion. If the estimate proves to be accurate, Ixachi would represent one of the largest discoveries worldwide made this decade — and according to Antonio Escalera, Pemex’s director of reserves, “the most important discovery in Mexico in the last 25 years.”

The deposit has the added strategic advantage of being close to established infrastructure such as wells and a pipeline system, so it can enter production quickly. Preliminary estimates suggest that at full production, scheduled to begin in 2022, the field will provide a daily supply of around 80,000 barrels of condensate, an ultra-light form of crude oil, and more than 700 million cubic feet of natural gas.

But let’s keep this in perspective. Few large oil fields have been discovered globally in the past decade. Between 2011 and 2017, offshore exploration activity dropped every year, hitting its lowest level since the 1940s last year. To put the scale of the Ixachi discovery into context, Mexico’s biggest current oil field, the Ku-Maloob-Zaap complex (known as KMZ), produces around 800,000 barrels per day — around 10 times Ixachi’s newly revised output.

Nonetheless, that improved output, which Pemex claims “will help satisfy the hydrocarbons demand Mexico needs for its short- to mid-term development,” could not have come at a better time for Mexico’s shrunken oil giant.

Production at the largely state-owned company has been in decline for over a decade. That, together with the parlous state of Pemex’s refining business, has locked Mexico into dependence on U.S. imports of gasoline and natural gas. In October Pemex’s crude output fell to 1.76 million barrels per day (bpd), down more than 7% compared with the same month last year. It was the lowest monthly output reported this year and one of the lowest since 1990, when publicly accessible records began.

The new discovery also comes amidst growing concerns about the sustainability of Pemex’s towering debt pile, which at last count clocked in at $106 billion — €42 billion more than in 2012. In October Moody’s rated Pemex’s latest issuance of senior unsecured notes as one notch above junk, blaming the company’s “weak liquidity, a heavy tax burden and the resulting weak free cash flow, high financial leverage and low interest coverage; and challenges related to crude production and reserve replacement.”

In the same month Fitch Ratings downgraded the outlook for Pemex’s debt from stable to negative amid concerns about the incoming government’s proposed energy policies. It rates Pemex three notches above “junk” (BBB+) because the company is state-owned. Its standalone credit profile — if Pemex were not backstopped by the Mexican state — is seven notches into junk (CCC).

Moody’s and Fitch’s sobering reports were meant as a warning shot against the ambitious energy plans Mexico’s president elect, Andres Manuel Lopez Obrador (AMLO for short), has vowed to put into action. A key component of those plans is the proposed construction of a new $8 billion oil refinery in his home state of Tabasco and the rehabilitation of the six refineries already in operation in Mexico, all aimed at making Mexico more energy self sufficient and less dependent on U.S imports.

The announcement of the latest discoveries at Ixachi could further embolden AMLO in his mission to rebuild Mexico’s oil industry, revitalize Pemex, and develop a more nationalistic approach to energy policy. The president elect, who takes office on Dec. 1, has pledged to increase oil production to 2.6 million bpd by the end of his administration in 2024.

It’s a hugely ambitious goal but according to Pemex’s current CEO, Carlos Trevino, one that is “achievable” — as long as “it is accompanied with a sound budget.” AMLO has repeatedly insisted that his government will not spend a single peso more than it raises and will also ensure that “investments in companies, shares and the financial markets as a whole” are secure.

Given that Mexico’s benchmark index plunged to its lowest level in four years on Monday, investors seem largely unconvinced. The deadline for the new government’s budget is December 15. As the chief economist of HSBC Mexico, Alexis Milo Caraza, notes, it will be the most “eagerly anticipated budget in recent history” and investors will be poring over it with a fine-tooth comb to try to gauge the financial implications for both Pemex and the State government. By Don Quijones.

Mexico is #1 silver producer in the world, #2 gold producer in Latin America, and a major copper producer. Read…  Mining Sector in Mexico Next Target of “AMLO Effect,” Shares Plunge

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  14 comments for “Troubled Pemex Announces a Big Boost

  1. Chris Robin says:

    This not an oil field, it is a gas condensate field. The yield is 114 barrels of condensate per MMCF. Pemex is doing wordsmithing to put their best foot forward by converting the hydrocarbons to an oil equivalent.

  2. Mike says:

    Funny how this discovery becomes public just a day after one of the biggest stock market dips in the last two decades….

  3. HMG says:

    As we are talking about oil and South America why not allow a mention of the G20 summit in Argentina. Shouldn’t we all be so proud of Theresa May standing up to MBS. Will she be responsible if the Saudi’s discover that some of the Saudi Turkish Embassy gang acted without their superiors authority and the best way of resolving the matter would be to execute a few of them ?
    I am not certain to what extend this May effect the oil price and it’s consequences for Pemex but I’m sure there must be an indirect link.

    • Atu says:

      Like TM stands up to EU ? It’s all for the best possible deal or no deal, except when it’s no deal that becomes the old deal or a new deal, which is not possible unless that is how it goes, which it won’t but might, even if it doesn’t.

      The question though is OPEC and Saudi and US and Iran , so you might want to be figuring where MBS stands compared to his possible replacement with regard (that is if it is not really all US policy) , and what a new Saudi policy might look like, if you get past figuring out what the current one is and why, which is no easy task.

      I don’t think TM has anything to add though, she is public rep. not decision maker.

  4. Javert Chip says:

    $40 Billion is a lot of cash. Wonder how much will be stolen.

    • Bookdoc says:

      As much as is humanly possible.

      • MooMoo says:

        Absolutely. Mexico is a complete basket-case. The currency has been decimated while the stock market languishes.

        Now they’ve got their very own ‘invasion’ of Hondurans et al.

        Good luck… you’re gonna need it.

    • MC01 says:

      Pemex runs a number of chemical plants in the State of Veracruz which are the stuff of legend: besides being comically outdated by any standard, they are staffed by 3-5 times as many people as needed, all people Pemex cannot fire for pretty obvious reasons.
      Just keeping those plants in operations is a serious financial drain because most spares need to be custom-made, meaning the potential for financial hijinks increases at every step of the way.

      Those newly found found US$40 billion won’t last long unless Pemex is taken apart and methodically fixed: downright theft is not so much a problem as personnel costs and overinvoicing. Pemex invariably overpays for everything, from pipeline pumps to soap in the office lavatories, and it’s well known for being an “over-employer”: of course this larger than needed staff doesn’t translate into particularly high efficiency, nor speedy repairs to the pipelines damaged by fuel thieves.
      Political hires are political hires everywhere.

    • Unamused says:

      ->$40 Billion is a lot of cash. Wonder how much will be stolen.

      I think you mean ‘was’. Everything Pemex will ever make has already been spent long ago, plus quite a bit extra, just to make sure.

      Every other big oil company is fabulously wealthy. It’s taken years of dedicated mismanagement to get Pemex $100 bn in the red. If AMLO manages to turn it around it will be a miracle on the order of the loaves and fishes and will PO a lot of rich parasites.

      • Atu says:


        PemexiCoin, encrypt the plunder so capitalist can’t.

        (As seen on TV in another country)

  5. Anthony Aluknavich says:

    Building a new refinery? Why not just rehab the six that you have that are held together with bailing wire and duck tape? If PEMEX can rehab those, they won’t need the Gulf refineries to process their crude and send back refined products.

  6. Mike Earussi says:

    Strictly a BS and feel good announcement. What good are more reserves when the ones they have now are at the mercy of corrupt incompetent management and theft. In reality all they have announced is how much more oil they have available to steal.

  7. Herbert Gray says:


    Point taken. Of course posturing comments for voters rather than standing up for basic principles is a necessity if one’s political career is a top priority. Thank goodness there are a few UK politicians who are likely to call a spade a spade even if they lose their places in Parliament as a result.

    Trump’s success in bringing down the oil price by $20 could be due to his skilful manipulation of the horrendous JK murder and in no way a vindication of MBS’s actions. As with the old leader of Libya and OBL, it took the USA over a decade for the real persons responsible for Lockerbie and the Twin Towers to bit the dust, but bite the dust he did. Let’s face the facts, US Presidents, if not up to the job when elected, rapidly get to understand the job. The tradition of the outgoing Presidents’ ultra confidential discussions with the next President Elect, ‘passes the batten’ in very unique way, even if it’s Dem to Rep or the other way around. Maybe the MBS issue is work in progress for the White House and it will not necessarily be today’s incumbent who finally gets to pull the trigger. Maybe GHWB really deserves his State funeral.

  8. Fernando Arzola says:

    I been ridiculed in this site for saying that what Mexico needs is a dictator. Well here you have it,

    Not a dictator on paper, BUT pretty much the same in practical terms…let’s see what happens…

Comments are closed.