Mexico may cut Pemex tax liability in bid to boost oil production

MEXICO CITY (Bloomberg) --Mexico could slash Pemex’s taxes further as the world’s most indebted oil company scrambles to reverse long-term oil production declines.

“With Pemex, for example, we are constantly or periodically lowering taxes so they have more funds,” said President Andres Manuel Lopez Obrador during his daily press conference on Monday. “And we can lower them more.”

In September, the government cut Pemex’s profit-sharing duty to 40% for 2022 from 54% in 2021. Last week, Pemex announced that it will receive a $3.5 billion capital injection from the government as part of a transaction to pay down obligations and also embark on a series of bond buybacks and new issuance to reduce the cost of servicing its borrowings.

The beleaguered state oil company has $113 billion in debt, the most of any major oil producer, and has seen output decline for over a decade. Pemex replaced its chief financial officer this month amid concerns he wasn’t able to win investors’ confidence. It could also end up spending nearly twice as much as originally projected to take over Royal Dutch Shell Plc’s Deer Park refinery in Texas.

Since coming into power in late 2018, Lopez Obrador has made it his mission to roll back the energy reforms of his predecessor and reinstate Pemex’s near monopoly in the oil sector. AMLO’s energy policies have been criticized by investors for allocating more resources to the company’s unprofitable refining business and reducing crude exports in order to send oil to its refineries instead. International credit ratings companies such as Fitch Ratings and Moody’s Corp. have downgraded Pemex’s bonds to junk in recent years, in part because they say it has no clear strategy to reverse production declines.

“We’re no longer following neoliberal policies, which treated Pemex as if it were any other company,” said Lopez Obrador on Monday. “Now Pemex is a protected company, supported and backed by the government.”