Mexico’s state oil and gas monopoly Petroleos Mexicanos (Pemex) on Monday revised downward its estimates of proven natural gas and crude oil reserves. It also revised its unaudited financial statements for 2000 and 2001, following a review by the U.S. Securities and Exchange Commission (SEC).

Pemex reported that total proven developed and undeveloped reserves of natural gas fell 6% in 2000 to 17.4 Tcf, and in 2001 fell another 6.4% to 16.3 Tcf. Total proven crude oil and condensates fell in 2000 about 20.2 billion boe. The reserves fell another 7% in 2001 to 18.8 billion boe. The downward revisions were found in the Chicontepec area in northern Mexico from undeveloped proven reserves to probable reserves for the year 2000, resulting in a decrease in its total proven reserves to approximately 23 billion boe 32 billion boe.

Pemex said the reported reserves are “those estimated quantities of crude oil, natural gas and natural gas liquids, which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions, i.e., prices and costs at the date of estimation.”

Following Pemex update, Moody’s Investors Service confirmed the “Baa1” global local currency rating and the “Baa1” long-term foreign currency bond rating of Pemex, and gave it a “stable” outlook. The long-term bond rating of Pemex Project Funding Master Trust, whose debt is guaranteed by Pemex, was also confirmed as stable.

“The rating actions were prompted by Pemex’s announcement that it intends to reduce its estimates of Mexico’s proven reserves of crude oil and condensates at the end of 2000 in order to conform to U.S. SEC standards for calculating proven reserves,” said analysts. “In addition, the company plans to establish a reserve to recognize future reclamation and abandonment costs. The confirmation and stable outlook reflect Moody’s view that the reduction in Pemex’s proven developed and undeveloped reserves, although large, is related primarily to budgetary constraints, which have already been factored into the company’s ratings.”

Moody’s said Pemex’s proven reserves “remain substantial, and the reduction in its proven undeveloped reserves, as well as the recognition of future reclamation and abandonment costs, are not expected to affect its cash flow. The stable rating outlook assumes Pemex will not incur any further material reserve write-downs.” Pemex’s reclassification does not include any expected production from the reclassified reserves in its estimates of discounted future net cash flows in its financial statements filed with the SEC, said Moody’s.

The “national budgetary constraints imposed on Pemex,” said Moody’s, “limit its ability to determine with a high degree of certainty the timing of its investments in the Chicontepec area. The SEC’s definition of proven reserves requires that there be certainty that hydrocarbon reserves will be developed in the short-term assuming existing technology and economic conditions.”

Analysts also noted that Pemex’s under-investment in its reserves in the past several years because of fiscal constraints was already reflected in its ratings. To account for future reclamation and abandonment costs (mainly related to plugging of wells), Pemex intends to establish a cumulative reserve of $1.4 billion as of Dec.31, 2001, equal to approximately 10.4% of its restated consolidated equity at that date. However, the reserve creation won’t impact Pemex’s cash flow, said Moody’s, “as the company has continued to expense reclamation and abandonment costs as they are incurred.” Moody’s noted that Pemex’s independent auditors have not yet approved the establishment of the reclamation and abandonment reserves, and said the final amount of the reserves remains subject to change.

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