Leading Wall Street Banks Help Pemex to Pay Outstanding Bills to SLB

Legendary Wall Street firms Citigroup Inc. and Deutsche Bank AG have provided financing to Mexico's state oil company, Pemex, to help pay outstanding bills to the world's biggest oilfield services provider, Schlumberger Limited (NYSE:SLB). In effect, SLB has effectively guaranteed against a Pemex default on the loan by issuing more than $1 billion of credit-default swaps to the two banks. U.S.-based SLB disclosed the swaps in US federal filings--$550 million in July and $560 million in January--but did not disclose the names of the banks.

Pemex is so overwhelmed by debt amidst persistent lower-than-projected crude oil production that the company can only post a profit through government support via tax incentives and capital injections. Indeed, Pemex has been able to post a profit in only three of the past 14 years--2012, 2022, and 2023. More worryingly, the company's refining division posted consecutive losses between 2010 and 2023 despite high utilization rates and a favorable policy environment in more recent years. The company's spate of poor results can largely be chalked up to declining crude oil production, high levels of debt, and oil price swings. Mexico's policymakers have yet to formulate a solution to optimize Pemex's existing segments, including its refineries. Operative inefficiencies have permeated every corner of Pemex's segments for so long that the company is simply unable to capitalize on opportunities such as high oil prices when they arise.

Pemex's deteriorating financial condition is evident in the substantial increase in the value of its overall liabilities from $121.9 billion in 2010 to $233.4 in 2023. To put that in perspective, if Pemex were a country, its liabilities would stand as the seventh-largest economy in Latin America. Pemex has also amassed staggering financial debt and now stands as the world's most indebted oil company: the company's total financial debt surged from $53.7 billion in 2010 to $105 billion in 2018, where it has remained stuck for years.

By Alex Kimani for Oilprice.com

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