April 10, 2020 [Bloomberg – Published April 08, 2020] -Outside of Saudi Arabia and Russia, most oil producers are racing to deal with the historic oil price collapse by cutting back spending and in some cases production. But Mexico’s national oil company is acting like the crash never happened.
Petroleos Mexicanos aims to nearly double drilling to 423 wells this year and accelerate development of 15 recent discoveries, even though experts say many are unprofitable at current prices. It hasn’t announced changes to the production goal it set out in its five-year business plan of 1.87 million barrels a day, an 11% rise compared to last year, or investment in exploration and production of 270 billion pesos ($11.1 billion).
Meanwhile, the global oil and gas industry is expected to slash $100 billion in exploration and production spending in a 17% drop on year, according to consultancy Rystad Energy AS. Brazil’s Petroleo Brasileiro SA and Colombia’s Ecopetrol SA have both slashed capital spending, and Petrobras went as far as shutting in 200,000 barrels a day of unprofitable production in a country with little storage capacity.
“If that is the path you want to go down in this environment, you will most certainly burn cash,” said Ruaraidh Montgomery, research director from oil consultancy Welligence. “Petrobras is genuinely run as independent entity that is there to generate profits, but with Pemex, the government’s priority is production growth.”
While refineries across the globe are cutting runs amid slumping fuel consumption, Saudi Arabia and Russia are unleashing millions of barrels of excess crude in a battle over market share. Against this backdrop, global benchmark Brent crude posted its worst quarter in history.
Mexico is part of OPEC+ that is meeting Thursday to attempt to stabilize the oil market but the country has not offered to reduce production as part of the effort.
Pemex’s cavalier approach to the oil crisis matches President Andres Manuel Lopez Obrador’s handling of the global pandemic. He spent weeks downplaying the health risks of the coronavirus and was slow to deploy containment measures out of fear for the economy. And he has shown no signs of abandoning a turnaround strategy for the cash-strapped national oil company.
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