Pemex Debt is Red Flag for Potential Partners as Mexico Seeks to Boost Oil Output

It has been over a month since the head of Pemex made a plea for partners to help Mexico’s ailing state oil company on projects needed to boost dwindling production, but national and international companies have not yet bitten.

“We’re open,” Victor Rodriguez told the assembled executives on October 23, at an energy event in Mexico City. “Bring us your proposals.”

Pemex’s mountain of debts with companies from producers like Italy’s Eni to U.S. service giants SLB and Baker Hughes have, along with inflexible contract terms, dampened appetite among potential partners.

Foreign oil companies have grown more wary that Pemex will not pay them on time, four industry insiders told Reuters. That is putting at risk Pemex’s production target of 1.7 million barrels per day.

“There’s always the doubt about whether Pemex can honor its commitments, given that paying suppliers remains an issue,” said one of the sources who is a senior executive at an international oil company in Mexico.

Pemex production has cratered over the past two decades. Its lofty goal is vital not only for the company but for Mexico, which relies on tax revenue from the state company.

The bid to attract partners is a big test of President Claudia Sheinbaum’s vision for Mexico’s energy sector. Her Morena party effectively reversed 2013 reforms under President Enrique Peña Nieto that opened – to great market fanfare – Mexico’s energy industry to foreign investors.

Pemex, the world’s most indebted oil company, reported in September that it owes $28 billion to hundreds of suppliers. Eni, SLB and Baker Hughes were listed as unpaid creditors in a separate company report in March. Others, such as billionaire Carlos Slim’s Grupo Carso and Mexico’s second largest private oil producer Hokchi, have also said Pemex owes them money.

Neither SLB, Weatherford, Halliburton, Baker Hughes nor Eni responded to a request for comment. Hokchi Energy, Grupo México, and Grupo Carso declined to comment. Pemex responded that it did not have an update on the dates for awarding contracts and did not respond to questions about the status of its debt to suppliers.

Rodriguez said in the October presentation to Mexico’s Congress that Pemex had paid over $16.3 billion since Sheinbaum took office in October 2024. Still, potential partners are not convinced the state company has changed its ways.

It remained unclear how much Pemex still owes after recent payments.

Pemex is trying to persuade investors to join 21 new joint contracts: nine in shallow waters, several onshore, and three in deepwater.

The company hopes all those projects could add up to 450,000 bpd of crude, or a quarter of forecast output by 2033. Any contract would require Pemex to have at least a 40% stake.

But now with production dwindling there are major questions as to whether Pemex can attract the investment it needs while keeping the level of control desired by the leftist nationalistic Morena party.

UNATTRACTIVE PARTNERSHIP TERMS

In its most recent 10-year strategic plan, Pemex stipulated that joint-venture contracts were a fundamental tool for strengthening production. It predicted that Kayab-Pit-Utsil in the shallow waters of the Gulf of Mexico and Nobilis-Maximino and Exploratus in deep waters would be the largest contributors.

Angel Cid, director of the company’s exploration and production arm, said in late October that 40 companies had shown interest in participating in bidding for the mixed contracts, but gave no details.

Several projects would likely fail to secure partners due to certain legal conditions, a high-ranking government source said, such as Pemex insisting on a minimum 40% stake.

Four executives who attended the October event with Rodriguez said Pemex’s struggles to pay suppliers was a major red flag raising the risk profile for many prospective partners.

“When supply contracts are not honored, Pemex’s production is compromised,” Rafael Espino, director of the oil services companies association Amespac, said in an interview. Despite some progress this year, Espino said there was no clarity on how debt from previous years would be handled.

Three separate industry sources said companies were watching developments closely, hoping Pemex might make some concessions in the contract model to attract private companies.

“I think it remains to be seen what will happen,” one of the sources said.

(Reporting by Ana Isabel Martínez and Adriana Barrera; editing by Stefanie Eschenbacher and David Gregorio)