Daily Management Review

Fitch downgrades Mexican Pemex rating to BB with negative outlook


Fitch Ratings downgraded the credit rating of Pemex, a Mexican oil corporation, from BB + to BB, explaining this by a deterioration in its credit profile amid a recession in the global oil and gas industry.

Matthew Rutledge via flickr
Matthew Rutledge via flickr
“Fitch Ratings downgraded the long-term issuer default ratings of Petroleos Mexicanos (Pemex) from BB + to BB, the national long-term ratings from AA to A. “The outlook on all ratings is negative. The downgrade refers to the outstanding securities amounting to about $ 80 billion. Fitch also downgraded Pemex's national short-term rating from F1 + to F1,” the agency commented.

BB levels (companies vulnerable to economic changes) and below are considered non-investment and indicate an unsatisfactory financial situation.

The agency emphasized that at a current price of crude oil in Mexico below $ 20 per barrel, the PEMEX producing business cannot generate sufficient cash flow to cover operating and financial costs (half-cycle costs), which are more than $ 25 per barrel, and the company will need an emergency state support in the near future.

In March, Pemex CEO Octavio Romero Oropeza said that by the end of 2019, the average cost of oil production in the company rose to $ 14.2 per barrel, although at some fields it was $ 4.8.

Fitch analysts also questioned the ability of the Mexican government to support the company in light of the upcoming financial difficulties, although they still assess the state’s management and control of Pemex as “very strong”.

The agency expects Pemex’s production and proven hydrocarbon reserves to continue to decline in the medium term, as it will be difficult for Pemex to increase capital investments in accordance with its business plan or even keep them at their current level to replenish 100% of its reserves.

source: reuters.com