Mexico’s oil and gas extraction grows 4.2%

The extraction of oil and gas from Mexico grew 4.2% in the first quarter of 2020, at an annual rate, the Inegi reported.

The Mexican government has been evaluating measures to address the future development of the Mexican oil and gas sector, including the financial and operational challenges facing Petróleos Mexicanos (Pemex).

In March alone, Mexico’s oil and gas extraction increased 1.3%, year-on-year.

On February 15, 2019, the Ministry of Finance and Public Credit announced a Strengthening Program for Petróleos Mexicanos that includes various measures to improve Pemex’s financial position with the aim of repositioning it as a strategic asset in Mexico and inducing structural changes in the company.

This program consists of a capital injection of 25,000 million pesos, a reduction of Pemex’s tax burden of approximately 15,000 million pesos per year, for an anticipated cumulative reduction of 90,000 million pesos at the end of 2024, a prepayment of 35,000 million pesos under government obligations related to Pemex pension liabilities and approximately 32,000 million pesos in estimated benefits for less fuel theft as a result of government measures.

On May 13, 2019, the President issued a decree to reduce Pemex’s tax burden and strengthen its finances during 2019. This reduction in the tax burden is intended to allow Pemex to increase investment in exploration and production, as well as improve its fiscal balance.

Oil and gas

Pemex has a substantial amount of debt, which it has incurred mainly to finance the capital expenses necessary to carry out its capital investment projects.

Due to its heavy tax burden, its cash flow from operations in recent years has not been sufficient to finance its capital and other expenses and, consequently, its debt has increased significantly and its working capital has decreased.

Relatively low oil prices since 2014 and the rapid decline in early 2020, as well as declining production, have also had a negative impact on their ability to generate positive cash flows, which, along with their heavy tax burden and increased competition from the private sector has further strained its ability to finance its capital expenditures and other cash flow expenses from operations.

By his art, the Mexican production of oil and gas derivatives fell 4.1% in March and 2.4% in the first quarter, at annual rates.