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Mexican Government Lends Hand to Pemex

The Mexican government said Wednesday it would provide a liquidity boost to national oil company Petroleos Mexicanos (Pemex) with a 73.5 billion peso (US$4.2 billion) infusion, according to news reports.

The company is to receive a capital infusion of 26.5 billion pesos and a credit facility worth an additional 47 billion pesos in order to pay down pension costs. Pemex must cut its liabilities by 73.5 billion pesos, the government said, as reported by Reuters.

In a recent credit ratings downgrade announcement, Moody's Investors Service said Pemex credit metrics were expected to worsen as oil prices remain low, production continues to drop, taxes remain high, and the company cuts capital spending to meet its budgetary targets (see Daily GPIApril 1).

At the time, Moody's said its view on the likelihood of government support for Pemex "considers the prominent role of Pemex in the Mexican economy, its 100% government ownership, and recent verbal statements of government support for the company.

"Moody's believes that it is important to the government to facilitate continued access to the capital markets by Pemex given the company's role in generating hard foreign currency through oil exports and in paying large annual amounts in duties and royalties, which currently represent about 12% of the government's annual budget."

During a February conference call to discuss fourth quarter results, Rodolfo Campos, Pemex managing director of finance and treasury, said the company's "performance overall echoes a significant hit that the oil and gas industry is facing worldwide, nevertheless, this was partially offset by the historic agreement reached to update the company's pension system," according to an English transcript of the conference call. Last November, the union representing Pemex workers agreed to pension plan concessions that reduced benefit eligibility and passed some liabilities to the Mexican government.

Campos said Pemex would continue to focus on the advantages offered by the country's energy reforms. "In addition to this, we will also continue to diversify our sources of funding and promptly take advantage of the new available opportunities."

During the fourth quarter, Pemex crude oil production averaged just under 2.28 million b/d, a 3.5% decline from the year-ago quarter, according to the company's quarterly report. Natural gas production declined from the year-ago quarter by 6.8% to just under 5.37 Bcf/d.

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