New Mexico — Mexico will reduce the tax burden of heavily indebted Pemex by some $7 billion over the next two years and inject government capital to build a new refinery and raise output from onshore and shallow water fields, the company reiterated on Tuesday.
Presenting the outline of a business plan watched closely by investors, Pemex Chief Executive Octavio Romero said an onerous profit-sharing tax that hands much of the company’s income to the federal government made the company financially unsound.
He reiterated that the tax will be reduced 11 percentage points to 54% by 2021. The company has previously said that reduction would save the company $7.1 billion in 2020 and 2021.
With few new details, the outline of the plan failed to excite markets, and Mexico’s peso weakened slightly against the dollar during the presentation.
Pemex is the world’s most indebted company, and its credit was downgraded to junk by Fitch this year. Moody’s and S&P have the company, Mexico’s biggest, on negative outwatch.
High on ratings agencies’ list of concerns is the government’s plan to build a new $8 billion refinery at Dos Bocas. Former Finance Minister Carlos Urzua cited his opposition to the refinery after he resigned last week, saying experts believed it would cost far more.
A more detailed, 200-page version of the plan would be unveiled later on Tuesday, Romero said.
Focusing on easy to access on shore and shallow water fields, Romero vowed to raise Pemex production within three years, and to reach 2.7 million barrels per day (bpd) of oil by the end of the government of President Andres Manuel Lopez Obrador in 2024, from a current 1.8 million barrels a day.
Sticking to the government’s position since it took office in December, Romero said it made more sense to invest in these fields to rapidly increase output, rather than the deepwater area of the Gulf of Mexico which the last government wanted to tap.