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Mexico's oil patch unpaid bills add to Pemex woes

Bloomberg

Pemex faces mounting debt payments

- Delays reaching seven months are a hard hit for contractors
- Goods, services could be scarcer as Mexico seeks output boost

By Amy Stillman, Peter Millard, and Justin Villamil / Bloomberg

MEXICO CITY/RIO
Petroleumworld 11 26 2019

Companies that help keep Mexico's faltering oil wells operating are waiting months to get paid and the debts are building up, complicating efforts to revive an industry whose production has plunged by half since 2004.

Petroleos Mexicanos , facing pressure from the government to slow spending, has delayed some payments to contractors for as long as seven months. The result: goods and services are becoming scarcer and contractors are finding it tougher to secure financing of their own.

“Investors and credit ratings agencies don't have confidence in what Pemex is doing in the sector,” said Sergio Suarez Toriello, director of strategy at Marinsa de Mexico , which does contract work for Pemex. “So this is the biggest risk for suppliers: Getting access to resources and financing for working capital and investment.”

Mexican President Andres Manuel Lopez Obrador is pushing to end the year with a government-wide surplus, and that effort has slowed payments from Pemex , people familiar with the matter told Bloomberg. The president has previously pledged to rescue Pemex from its debilitating debt and long-term production declines. Pemex faces about $100 billion in debt, the most of any major oil producer.

Pemex owes Marinsa, which provides marine services for Mexico's offshore drilling platforms, 155 million pesos ($8 million), according to Suarez Toriello. The company has been waiting seven months for about 47 million pesos of that debt from logistics contracts, he said. The remaining amount has been in arrears for about three to four months.

Marinsa isn't alone. Another international service supplier with an established presence in Mexico is facing delays of more than three months on its payments, said a person familiar with the finances who asked not to be named because the information is private.

Neither Pemex nor the government's Finance Ministry responded to requests for comment.

Also see: Mexico pressures Pemex on spending to meet fiscal targets

Since the global oil price crash sparked Pemex to lay off workers and cut contracts in 2016, “Pemex's payment process has changed a lot,” Suarez Toriello said. “It's not good, or normal, but it's a dynamic we've been living with for the past two years.”

Lopez Obrador has made fiscal austerity a key pillar of his government and aims to run a surplus of 1% of gross domestic product before interest payments this year, the biggest in a decade. That budget discipline, plus interest rates that are among the world's highest, has kept the peso steady despite frictions with the U.S.

But it hasn't done much for the economy, which suffered a small recession in the first half of the year, or the country's oil trade.

“It's an absolute train wreck, and they can't get out of their own way to make a change that's going to improve upon it,” said Wilbur Matthews, founder of Vaquero Global Investment LP , which trades in Pemex bonds. “At some point, people are just going to realize that they are a terrible client.”

One side effect is growing difficulties in securing rigs, according to Suarez Toriello. Marinsa had to contract a jackup rig from China to drill the offshore Xikin oilfield.

Some jackups already in the Gulf “don't have the capacity or technical characteristics that Pemex requires” and there are fewer of them, said Marinsa's Suarez Toriello. At the same time, Singapore-based Oro Negro's jackups can't be leased because of an ongoing lawsuit between the oil service company and Pemex.

Meanwhile, contractors are facing a challenging new bidding system aimed at cutting costs further that's become more opaque. The new model accelerates the process and prioritizes national companies over foreign firms.

“There is a reconfiguration of the sector,” Suarez Toriello said. Instead of big international players such as Schlumberger Ltd. and Halliburton Co. leading drilling contracts as they've traditionally done, they now have to go through a Mexican contractor for some of the work they used to do directly for Pemex. Representatives for Schlumberger and Halliburton, meanwhile, declined to comment.

The improvised nature of the new contracting practices has created unease among global rig suppliers, who provide equipment to companies like Marinsa, said a rig broker who covers the Latin American market and asked not to be named to avoid retribution by Pemex, a major client.

As Pemex moves to squeeze its supply chain to compensate for falling oil production and weak prices, regional oil executives say they see similarities to what happened in Venezuela in 2002 and 2003 after a failed coup and oil strike against then-President Hugo Chavez. Caracas-based Petroleos de Venezuela SA , or PDVSA, pressured suppliers to accept lower prices at the cost of deferring needed investments, while simultaneously building up invoices.

The end result: Global oil service companies wound up writing off billions in Venezuelan losses a decade later.

— With assistance by David Wethe



Story by Amy Stillman, Peter Millard, and Justin Villamil from Bloomberg.

bloomberg.com / 11 25 2019

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