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As soon as the crisis hit the Mexican oil market, a reaction was
expected from Pemex, the country's main operator. As companies
around the world were cutting investments, revising portfolios,
postponing contracts, the national company took a different
approach and stick to the plan to recover the Mexican oil
production curve maintaining its original investment program.
But it didn't take too long to the company realize that some
extra measures would have to be taken. At the height of the crisis,
in April, with a record debt of $105 billion dollars, falling sales
and the Mexican barrel reaching negative values for a moment, Pemex
announced a cut in investments for 2020 equivalent to 15% of the
original value. A number that, despite being important for the
company´s financial situation in the short-term, can hugely impact
the local supply chain, historically dependent on contracts with
the oil company.
The offshore services market was the first to be hit by the
company's budget readjustment. Today, the Mexican offshore rig
fleet, entirely made up of jackups, has 36 units under contract
from private managers, the highest number since 2015. At a time
when contract negotiations appeared to be recovering, the crisis
has set in and the outlook is now foggy. Although there is no
official announcement, Pemex seems to have plans for the suspension
of more than a half of its offshore rig contracts. The movement
would save some money and guarantee some liquidity to face the lack
of oil demand and the new level of oil prices.
Figure 1: Mexican Rigs
Among the companies most affected by possible suspensions are
Perforadora Mexico, Perforadora Central and Seamex-an affiliate of
Seadrill. National suppliers tend to suffer a lot from the
suspension of their contracts since they are historically dependent
on Pemex, and there is no expectation that IOCs would settle new
agreements with local companies.
Pemex's current contract suspension plan considers halt periods,
mainly in the second half of 2020 and 2021, which could directly
affect the drilling in Cantarell and Ku-Maloob-Zaap assets. In
principle, drilling in the priority fields will not be affected
since activities are already behind schedule, and interfere on
suppliers' contracts could add some more delays.
At the same time these suspension measures heavily hit the local
supply chain, IHS Markit studies show that Pemex can save almost
$650 million, which is equivalent to about 40% of the investment
cut announced in April. This would not be an unprecedented move in
the company's history. In the past, Pemex has suspended other
contracts, both for rigs and supply vessels, and reactivated them
later.
The offshore rig market seems to be only the first one to be
directly affected by Pemex's cost saving measures. Contracts
suspension is also expected to impact well services and the
offshore support vessels market. On the other hand, the strategy is
used as a way out for Pemex, which as of 2019 was the most indebted
oil and gas company in the world. After a combined result of $25
billion dollars loss in the first semester of 2020, the company
realized that some prompt measures need to be taken.
Renata Machado is a senior research analyst for the Cost
and Technology team at IHS Markit. Marcos Lepore is a research analyst for the Cost
and Technology team at IHS Markit.
