Mexico signed a decree granting Pemex additional fiscal relief to boost oil output from mature fields, which are currently unprofitable under existing terms, the country's finance secretary said Monday.
Pemex will be able to extract up to an additional 400,000 b/d from these areas as a result of this new decree, Carlos Urzua said at a webcast event, in which the state-owned company closed a finance deal with a group of lenders.
The agreement with J.P. Morgan, HSBC, and Mizuho Securities will extend an existing $5.5 billion credit line to Pemex for an additional two years, and refinance $2.5 billion in debt. Under the deal, Pemex will pay an interest rate of 4.85%, much lower than the company's current international financing rates, the CEO of J.P. Morgan Mexico, Felipe Garcia Moreno, said at the event.
The tax relief will be enforced via the migration of certain mature fields from legacy assignment titles into production sharing contracts introduced by Mexico's 2014 energy reform, Urzua said.
Urzua did not say what areas will be migrated. However, he said these are mature fields, which are marginally operating as they are not profitable due to Pemex's current production sharing duties under legacy assignment titles, which cap capital deductions to 12.5% compared with 60% under E&P contracts.
"This will give Pemex a huge relief, allowing to restart some areas that weren't profitable under the old regime," he said.
This new decree will allow Pemex to credit $1.5 billion in 2019 alone, allowing it to boost its upstream investment, the company said in a statement Monday.
'MILKED THIS LITTLE COW'
Pemex's cash flow before taxes is reasonable compared with international peers, Urzua said. According to financial reports, Pemex had pre-tax income of $15.3 billion in 2018.
However, the company's production sharing duties with the federal government were $22.9 billion, resulting in a net loss of $7.5 billion for 2018.
"What is the problem? The problem is that for too long we have milked this little cow to avoid rising any other taxes or fighting fiscal evasion," Urzua said.
Pemex had a fiscal balance of $686 million in April, compared with a net loss of $3.2 billion in January, which it incurred as a result of tax payments, the CEO of Pemex, Octavio Romero Oropeza, said at the event.
Romero said that Pemex's debt is manageable, even though at $106 billion it is the largest for any oil company in the world. Pemex's debt in 2014 was $43 billion.
To offset Mexico's revenue loss from the fiscal relief, Mexico's government has grown tax collection rates by 5%, and expects to raise an additional $5.2 billion in 2019, said Mexican President Andres Manuel Lopez Obrador at the event .
According to the Organization of Economic Cooperation and Development (OECD), Mexico's tax collection as a share of its GDP is 17.4%, nearly half the rate of Brazil or Argentina.
