S&P downgrades Pemex stand-alone credit profile

Monday, September 3, 2018

Ratings agency Standard & Poor's downgraded Mexican Pemex's stand-alone credit profile from 'bb' to 'bb-' on the basis of falling production numbers while maintaining its global scale 'BBB+' foreign currency and 'A-' local currency credit ratings due to its backing by the Mexican state.

The drop of the stand-alone credit profile reflects Standard & Poor's assumption from summer 2017 that Pemex would be able to revert production decline through joint ventures and farmouts, which to date have not materialized.

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In recent comments the president of Mexico hydrocarbons commission CNH, Juan Carlos Zepeda, has shed doubt on whether farmouts could bring Pemex' production in line with expectations.

The Standard & Poor's press release also cites technical setbacks and a 17.5% reserve replacement rate as reasons for the lowered standalone credit profile.

Mexico's next bidding round for farmouts will be held in February 2019. Meanwhile, members of the incoming López Obrador government's transition team have broached the idea of greater autonomy for Pemex, particularly when choosing farmout partners, which up to now has been restricted to selection by auction.

The incoming administration has also said it will invest 75bn pesos (US$3.9bn) in Pemex' exploration and production activities to strengthen the national oil company.