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Pemex & Its Subsidiary Companies Presents Its Business Plan 2019-2023

Source: www.gulfoilandgas.com 7/16/2019, Location: South America

In the presence of the president of Mexico, Andres Manuel Lopez Obrador, the chief executive officer of Petr?leos Mexicanos, Octavio Romero Oropeza, presented Pemex’s Business Plan for the years 2019-2023. It was unanimously approved by the Board of Directors and lays the foundations for the modernization of the company, making it more competitive and guaranteeing its long-term financial viability. This consolidates Pemex as an engine of national development and guarantor of energy sovereignty.

During the morning conference at the National Palace, the president of Mexico, Andrés Manuel L?pez Obrador, supported the plan and stated that it is a rescue of the country's energy industry, after the resounding failure of the Energy Reform. He reiterated the support of the Government of Mexico for Petr?leos Mexicanos, stating a gradual reduction of its fiscal burden, in such a way that it alleviates the necessary resources to invest in new projects in order to increase oil production.

The head of Pemex emphasized that the plan establishes the measures to face the main structural problems facing the company: the high tax burden, its debt and low investment, all of which are difficulties that trapped the company in a vicious circle.

Mr. Romero Oropeza said that the strategy and measures adopted through the Business Plan, the company will achieve a balanced budget in 2021 and is expected to increase production to levels of 2 million 697 thousand barrels a day in the last year of the present administration.

In the document, he expressed that “Pemex makes clear its openness to business schemes with the private sector, under strict observance of the company’s interests, and with fair and transparent agreements, leaving behind the practices in which Pemex participated at a disadvantage”.

This Business Plan, said the CEO of Pemex, demonstrates a different management model based on innovation, efficiency and, above all, without corruption, is possible.

He assured that, with the support of the Government of Mexico, Pemex will have relief in its tax burden, which will allow it to free resources to trigger investment projects in oil production. It should be noted that, as a first measure, for 2019, the fiscal benefit in the payment of oil production rights was extended through the publication of a decree that resulted in a benefit of around 30 billion pesos for this year.

Mr. Romero Oropeza explained that the objective for the Government is to support Pemex for the first three years of the administration, in what will be a transition stage to recover oil production, so that, in the second half of the administration, Pemex will support the Federal Government in financing the development and economic growth of our country.

He indicated that, in order to solve the problem of the high tax burden, the Federal Government plans to present a proposal to reform the Hydrocarbons Revenue Law in order to reduce the rate of the shared utility tax, through a gradual reduction scheme of 7% for 2020 and 4% by 2021. It should be noted that the current rate is 65%, meaning that the rate will reach 54% by 2021.

He maintained that by 2021, the capital contributions of the Federal Government will be reduced to only 38 billion pesos.

Diag??nosis

While reviewing the company’s recent performance, the CEO of Pemex, recalled that in the last 14 years there was a considerable drop in oil production, as a result of decrease in investment. He highlighted that in the last five years, the average reduction in production was almost 600 thousand barrels daily.

He went on to mention that, like the case of upstream activities, investment in refineries as well registered significant decreases in recent years. This lack of investment even affected the availability of funds for maintenance, causing the fall of the processing levels of the National Refining System, bringing refined production to historical lows.

At the same time, Mr. Romero Oropeza said, Pemex's debt increased considerably, only from 2013 to 2016, Pemex's debt doubled, from just over one trillion to more than two trillion pesos, causing the company to record financial deficits for the last ten years.

He clarified that Pemex is a company that generates value. If the profitability of the company is measured in terms of EBITDA (income before interest, taxes, depreciation and amortization), comparing against other international oil companies, Pemex is above the industry average.

The CEO also mentioned that it is contemplated that public investment will be complemented by private investment, through long-term service contracts for oil production (CSIEEs). This will allow Pemex to have resources to invest in oil production and in the recovery of refinery capacity.

Invest?ment

To increase the production of oil and gas, one of the fundamental cornerstones of the Business Plan is to accelerate the development of newly discovered reservoirs, as well as increasing the development activity in fields currently in operation, with new wells and with major repairs, confirmed the CEO of Pemex.

At the same time, he said that the plan foresees a gradual recovery of refining capacity based on larger amounts of investment destined for the rehabilitation of the six refineries and the development of the new Dos Bocas refinery.

Mr. Romero Oropeza said that the goal is for Pemex to have resources to invest, which will allow the company at the beginning of next year, to increase its production levels throughout its value chain, generating the resources necessary to improve its financial balance.

Starting from the year in which the budget is balanced, Pemex will begin to generate surpluses that can be used for the gradual payment of its debt and for the financing of high-impact programs and projects that will detonate growth, as well as economic and social development for the country.

The head of the State’s Productive Company said that the results of the financial model illustrate that on the horizon for 2021-2030, the Federal Government would increase its ability to collect taxes on oil resources. This projection shows the positive effects of the financial relief received during the transition period of the first half of this administration.

Pemex’s Business Plan for 2019-2023 was approved unanimously during the ordinary session 945 of the Board of Directors of Petr?leos Mexicanos. The Board is composed of the Secretary of Finance and Public Credit, the Secretary of Energy, the Secretary of the Economy, the Secretary of the Environment and Natural Resources, the Federal Electricity Commission, as well as independent directors. Likewise, within the framework of the same session, in the terms stipulated by the Law of Petr?leos Mexicanos, the company's budget was submitted and approved for the year 2020. The budget will be sent to the Secretary of Finance in order for it to be considered in the Federation Expenditures Budget Project for the next fiscal year.

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