Petroleos Mexicanos’s profits fell in the second quarter as the company struggles with soaring debt amid fresh funds issued by the government to help it meet its obligations.
(Bloomberg) — Petroleos Mexicanos’s profits fell in the second quarter as the company struggles with soaring debt amid fresh funds issued by the government to help it meet its obligations.
Pemex’s net income fell to 25.44 billion pesos ($1.5 billion) in the second quarter vs 56.75 billion pesos the previous quarter, according to a statement Pemex on Friday. Its crude and condensate production rose slightly to 1.88 million barrels a day in the second quarter vs 1.85 million barrels a day previously.
Pemex’s bonds have soared after Bloomberg reported that the company received 70 billion pesos ($4.2 billion) from the Finance Ministry in a capital injection, according to three people with knowledge of the situation who asked not to be identified because the information isn’t public.
Read More: Mexico Finance Ministry Gave Pemex $4 Billion Injection
The Ministry asked Pemex to make spending cuts to capital expenses and operating expenses this year for an equivalent amount to the injection as a condition to receive the funds, marking the first time that the Finance Ministry required spending cuts as a condition to receive funds, one of the people said. In total, support under Lopez Obrador has amounted to nearly $49 billion in capitalizations, tax breaks and other assistance.
On Wednesday, Chief Executive Officer Octavio Romero Oropeza said that the government would issue new debt and carry out refinancing on the company’s behalf. President Andres Manuel Lopez Obrador echoed the comments in his morning press conference the following day, noting that Pemex’s and Mexico’s debt shouldn’t be separate.
Read More: Pemex Chief Says Mexico to Refinance Its Debt to Avoid High Cost
Yet there is lingering uncertainty over whether the capital injection will move the needle on Pemex’s worsening financial situation. Pemex’s debt is the highest of any major oil company, its oil production has declined for the better part of two decades, and its refineries operations lose money the harder the plants are run, due to a lack of technology and upkeep.
Its operational woes are becoming increasingly evident following a deadly gas platform explosion in the Cantarell field complex this month, an oil leak nearby the site of the blast several days earlier, and a spate of fires this year at half of its refineries.
Fitch Ratings Inc. cut the company deeper into junk territory on July 14, while Moody’s Investors Service Inc. put Pemex on a negative outlook for a potential downgrade last week, citing increased credit risks.
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