The divergent fortunes of the two largest Latin American oil companies. The situation at Petrobras was dire in 2015. It was being used by the Brazilian government as an ATM effectively and its debt had grown to $128 billion, the largest of any oil company in the world. But a competent private sector person was put in charge and he began a cost cutting campaign that included selling off assets and opening up the oil sector to foreign companies. At the end of 2018, Petrobras’s debt had fallen 55% to $69.4 billion. Their second quarter results were the best on record with a net profit of $4.92 billion. That was more than double the expectation. This was helped by asset sales of $12.764 billion, including a gas pipeline sold to a French company (Eagle SA)for $8.722 billion. Petrobras’s net debt to EBITA fell to 2.69. The goal is to bring that number down to 1.5 by 2020. Meanwhile the government is readying an auction in November that will sell off drilling rights off the coast of Brazil that could hold upwards of 15 billion barrels of reserves, more than the oil reserves of Norway. Petrobras’s own oil production this year is expected to be 2.7 mbd, in line with 2018. They lowered their initial number of 2.8 mb/d to reflect reality.
Further north, Pemex, the state oil company of Mexico, just released oil production prospects that don’t appear even close to reality. Their current production is 1.9 mb/d, down from its record of 3.4 mb/d in 2004. Its biggest oil field, Cantarell has seen its best days, but the government is hopeful that they will be able to open 20-40 new fields each year and push production back to 3.2 mb/d by 2026. Most think, that even if they can open 20 new smaller fields, it will barely be able to compensate the loss from the older fields. The company does not want to bring in outside expertise to develop fracking and deep water reserves even though they are lacking capital and the debt of Pemex is now up to $104 billion, making them now the world’s most indebted oil company. The country is spending $8 billion to build a new refinery in the swamp of the home state of Manuel Obrador. They are hoping to double refining capacity by 2022, though it is doubtful they will have the crude production to run the refineries at capacity. The US’s EIA recently released data that showed the US is now exporting crude oil to Mexico. The Mexican President called it fake news. The worrying thing in all this, is that the Mexican government wants to depend more on Pemex and government companies to boost jobs and economic growth, instead of helping the private sector. Anyone who has studied Petrobras’s past knows that is a dangerous path