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Pemex Budget Reductions Put Oil Production at Risk

by Krystal

Mexico’s state-owned oil company, Pemex, is facing a significant budget cut for its upstream operations in the fourth quarter. Internal documents reveal that the company plans to reduce spending by 20%, amounting to Mxn 26.78 billion (about $1.38 billion). This decision is expected to negatively affect short-term crude production. The cuts come after Nestor Martinez, the new head of upstream operations at Pemex, instructed the company to limit major well repairs and contracts for seismic data.

In August, Pemex produced 1.73 million barrels per day (bpd) of crude and condensates. Due to these budget cuts, production could decrease by approximately 5,800 bpd. If essential well repairs are delayed, this reduction could worsen, potentially stopping production from certain wells.

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The budget reduction reflects Pemex’s ongoing financial struggles, which include delayed payments to suppliers. As of early October, Pemex owed Ps99 billion to vendors, complicating its operations further. Additionally, the company is grappling with rising debt, which continues to burden Mexico’s economy.

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At the same time, the Mexican government is reinforcing policies that favor state-owned companies like Pemex and the electricity firm CFE. Recent constitutional amendments aim to give CFE priority in electricity dispatch, sidelining private-sector producers. These changes align with President Claudia Sheinbaum’s goal to strengthen state energy companies, even as Pemex faces significant debt and underinvestment.

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The combination of budget cuts and policy changes may hinder Pemex’s production growth, despite the government’s support for collaboration with private firms in developing Mexico’s oil and gas resources.

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Just last week, Mexico’s new parliament passed a bill granting the President more authority over Pemex and CFE. This bill proposes reclassifying the two companies as “public companies” rather than “state productive companies.”

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