The academic tasked with fixing the world’s most indebted oil group

Hello and welcome back to Energy Source, coming to you from London.

Today, our Mexico correspondent Christine Murray looks at one of the worst oil companies in the world, state giant Pemex. In the second quarter, Pemex was $14 billion in the red as it sold less oil and lost money on foreign exchange.

In its Oil 2024 report, the International Energy Agency said Mexico “escaped” the Covid pandemic when Pemex cut investment. “Since then, the state operator has faced a continuous string of serious incidents with its offshore platforms” and now relies on just seven of its 240 oil fields for more than half of its production.

Christine asks if a new boss, appointed last week, can turn things around. – Malcolm

A recovery plan for the world’s most indebted oil group

Taking the helm of Mexico’s 86-year-old state oil company, Pemex, would daunt even the most seasoned executives.

In the first half of this year, its refining business posted operating losses of about $33 million a day. Crude oil production has been declining for 20 years and is at record lows. Pemex owes nearly $120 billion to its creditors and suppliers, equivalent to about 7 percent of Mexico’s gross domestic product, making it the world’s most indebted oil company.

Last week, however, President-elect Claudia Sheinbaum chose Víctor Rodríguez. Rodríguez, a lifelong academic with a nationalistic view of the sector, has never run a company. Can it fix the problems that have eluded multiple administrations?

“I know the brutal challenge that Víctor has to try to overcome from academic life. . . to lead the country’s most important company at the worst moment in its history,” said Francisco Barnés, former rector of the National Autonomous University of Mexico, who held several posts in the public energy sector in previous administrations.

“When you go to another role, you realize that you’re missing a lot of things that you don’t know. . . or that you had the wrong point of view.”

The stakes are high for Rodríguez, with the country’s public finances increasingly compromised by the need to prop up Pemex.

Left-wing populist President Andrés Manuel López Obrador has spent billions of dollars pursuing national fuel “self-sufficiency.” Policymaking has been centralized and the government has halted hydrocarbon auctions, frozen permits and pressured energy groups to sell their assets to the state.

Although Sheinbaum has said little about oil and gas, she has strongly supported the president’s policies favoring state groups Pemex and CFE. In his first speech, Rodríguez also praised the current government for “rescuing” Pemex and said the media had exaggerated how bad the situation was.

Roxana Muñoz, senior analyst at Moody’s rating agency, said the firm does not expect much to change at Pemex in 2025.

“(Sheinbaum) will continue to focus on energy sovereignty, so probably refineries will continue to be a top priority instead of exploration and production,” Muñoz said. “This is the first challenge because the downstream business has been making losses.”

Containing those losses is no easy task, and Sheinbaum said he would not close any of Pemex’s six aging and highly inefficient plants. It would require huge amounts of investment to stop losing money, and a new refinery built during López Obrador’s presidency could only operate at 70-80% of capacity by 2027, according to Moody’s.

On the exploration side, Pemex’s proven reserves have increased slightly under the current administration. But they’re unlikely to improve significantly without huge investments — money the company doesn’t have. Muñoz said he expected Sheinbaum to oversee private-sector exploitation of oil fields, but not a return to larger rounds of open bidding.

A key question is to what extent the incoming administration – which has a strong preference for state-owned companies and self-sufficiency – will allow for private sector involvement.

“Víctor has a strong ideological position, as does Claudia,” Barnés said. “(But) will they be flexible?”

López Obrador’s team won more praise for its decision to support Pemex directly rather than pay a premium to issue its bonds. Investors expect this to continue and were somewhat encouraged by Rodríguez’s comments on Pemex’s shift into renewables. Some funds are avoiding the company because of its place at the bottom of peer ESG rankings.

“The general direction will not change massively, but . . . (will have) a greater inclination towards green concerns,” said Graham Stock, sovereign emerging markets strategist at RBC BlueBay, a fund that holds Pemex bonds.

“I don’t think any one person can fix that. It has to be a coordinated approach, it will take a long time.” (Christine Murray)

Power points

Energy Source is written and edited by Jamie Smyth, Myles McCormick, Amanda Chu, Tom Wilson and Malcolm Moore, with support from the FT’s global reporting team. It reaches us at [email protected] and follow us on X at @FTEnergy. Keep up to date with previous editions of the newsletter Here.