Mexico’s state-owned oil company, Pemex, is set to implement a substantial reduction in its upstream budget for the fourth quarter, according to internal documents. The company plans to cut expenditures by 20%, amounting to Mxn 26.78 billion ($1.38 billion). This decision is anticipated to affect short-term crude production levels significantly.
The budget cut comes as a directive from Nestor Martinez, Pemex’s new upstream head, who has instructed the company to scale back on major well repairs and seismic data contracts. Pemex, which reported a production level of 1.73 million barrels per day (bpd) of crude and condensates in August, may experience a reduction of approximately 5,800 bpd as a direct consequence of these spending cuts. However, the impact on production could worsen if essential well repairs are postponed, potentially leading to a complete halt in production from certain wells.
This budget reduction reflects the ongoing financial challenges faced by Pemex, which has been struggling with delayed payments to vendors. As of early October, the company reportedly owed Ps 99 billion to suppliers, exacerbating its operational difficulties. Furthermore, Pemex’s rising debt remains a significant burden on Mexico’s economy.
In the political arena, Mexico’s government is reaffirming its commitment to policies that prioritize state-owned enterprises such as Pemex and the Federal Electricity Commission (CFE). Recent constitutional amendments aim to grant CFE preferential treatment in electricity dispatch, effectively sidelining private-sector producers. These developments align with President Claudia Sheinbaum’s efforts to bolster the roles of state energy firms, even as Pemex grapples with substantial debt and underinvestment issues.
The combination of budget cuts and shifting policies raises concerns about Pemex’s production growth trajectory, even as the government maintains support for the company in collaborating with private firms to enhance Mexico’s oil and gas resources.
In a recent legislative move, Mexico’s new parliament approved a bill that grants the President greater control over both Pemex and CFE, proposing a reclassification of these entities from “state productive companies” to “public companies.” This change underscores the government’s ongoing strategy to strengthen state control over vital energy sectors.
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