State-owned oil giant Petroleos Mexicanos (Pemex) needs $20 billion annually in private investment in addition to the funds being provided by the government to increase production, BBVA Mexico chief economist Carlos Serrano said Wednesday.
"It needs around $20 billion annually and the only way to get it is by attracting private capital because there is no budgetary room in Mexico for the government to provide these resources," Serrano said during the presentation of the third-quarter Situacion Mexico report.
The BBVA Mexico chief economist said the Petroleos Mexicanos Business Plan, which was prepared by President Andres Manuel Lopez Obrador's administration, was timely, "but it does not provide sufficient funds to reverse the decline in petroleum production."
As a result, "it would make sense to renew the farmout agreements," which are financial risk-sharing partnerships between the public and private sectors that allow a company to stabilize its production, Serrano said.
The economist said infusions of private capital would especially help in "financing exploration for crude in deep waters," an area in which "Pemex has no experience."
The BBVA Mexico chief economist said the federal government lacked the resources to execute Pemex's plans and would likely use the funds for infrastructure projects and poverty reduction programs if it did have them.
Serrano said that while reducing the taxes paid by Pemex was a good move, it was likely that Moody's would cut the oil company's credit rating to below investment grade, a move already made by another credit rating agency, Fitch.
Pemex is carrying total debt of more than $104 billion and has another $64 billion in pension obligations, accounting for 20 percent of Mexico's debt.
Lopez Obrador, who took office on Dec. 1, 2018, has vowed to fix Pemex's problems and make Mexico energy self-sufficient.
On July 16, the administration presented the Petroleos Mexicanos Business Plan, which included an 11 percent tax cut for the company and a capital infusion to bolster the balance sheet.
The business plan also calls for building a new refinery, but analysts contend that Pemex needs to expand exploration in deepwater areas to boost oil production, which has fallen to 1.64 million barrels per day (bpd). EFE