#In its last semiannual review of the state production company, #Petróleos #Mexicanos (#Pemex), the rating agency #Moody’s warns that the oil company continues with negative flows in an environment of weak oil prices.
“PEMEX’s #Baseline #Credit #Assessment (BCA) of ‘caa2’ reflects the company’s high vulnerability to downward commodity prices given its excessive debt burden and weak liquidity. The company’s credit and cash flow generation metrics will remain weak for the foreseeable future as the company grapples with low oil prices, ongoing debt maturities, and underinvestment in exploration and production (E&P) in favor of an expansion of its refining business, which has generated losses for several years, “said analysts #Peter #Speer and #Marianna #Waltz in a note to investors.
#If 2020 was a difficult year due to energy prices, #Moody’s sees another complex year, albeit with less volatility.
#For the following year they forecast that the price will be between 40 dollars per barrel for WTI and 45 dollars for a barrel of #Brent.
“This implies almost flat prices for crude compared to the 2020 average, but with less volatility and a bit more production with the reduced voluntary cuts.
These factors, combined with the full-year benefits from the 2020 cost cuts, result in our forecast operating cash flow in 2021 being closer to breakeven. #Overall, we forecast $ 9 billion of negative free cash flow in 2021, ”they abounded.
#However, they highlight that the credit profile of the oil company also considers high government support that will be effective if necessary, as well as a very close correlation of the company’s rating and the country.
The rating agency recalled that in 2019, the government provided #Pemex with around 10 billion dollars of support, made up of 6.3 billion dollars in capital contributions, 1.5 billion dollars in tax cuts and 2.1 billion dollars in early amortization of promissory notes. #While in #April of this year, the federal government announced a royalty cut of 65 billion pesos (around 3 billion dollars) for the productive company towards the rest of 2020.
“This announcement implies a reduction in the royalty rate to around 40% in 2020, which, if maintained in 2021 and beyond, would strengthen the company’s ability to increase capital investment as oil prices recover. The government also contributed 46 billion pesos (about 2.3 billion dollars) to #Pemex to help finance the construction of the new #Dos #Bocas refinery, and approved 45 billion pesos in 2021, “the analysts said.
#Financing with debt
#Moody’s also notes that the coronavirus-induced collapse in oil prices and the destruction of demand for refined products has caused a sharp drop in revenues for the #Mexican oil company.
“The company’s oil production also declined in coordination with other world oil producers, including the OPEC + countries and the #United #States, further hurting revenues,” the rating agency warns.
#And although the productive company has worked to reduce costs and will benefit from the tax reduction, they consider that it will not have a great impact on their free cash flow that they forecast was negative this year and increased to 10 billion dollars.
“#This negative free cash flow has been financed with debt, mainly through loans from its revolving lines of credit and other financing transactions, which has increased debt in 2020,” the report states.
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##Pemex #risks #persist ##Moodys