The academic tasked with fixing the world’s most indebted oil group

Hello and welcome back to Energy Source, coming to you from London.

Today, our Mexico correspondent Christine Murray looks at one of the world’s worst-performing oil companies, the state-owned giant Pemex. In the second quarter, Pemex was $14bn in the red as it sold less oil and lost money on foreign exchange.

In its Oil 2024 report, the International Energy Agency said Mexico had “floundered” since the Covid pandemic, when Pemex slashed investments. “Since then, the state-owned operator has dealt with a continued string of serious incidents with its offshore platforms” and now relies on just seven of its 240 oilfields for more than half its production.

Christine asks whether a new boss, named last week, can reverse the situation. — Malcolm

A turnaround plan for the world’s most indebted oil group

Taking the helm of Mexico’s 86-year-old state oil company Pemex would daunt even the most experienced of executives.

In the first half of this year, its refining business saw operating losses of about $33mn a day. Crude production has been declining for 20 years and is at record lows. Pemex owes nearly $120bn to its lenders and suppliers, equivalent to about 7 per cent of Mexico’s gross domestic product, making it the world’s most indebted oil company.

Last week, though, president-elect Claudia Sheinbaum picked Víctor Rodríguez for the job. Rodríguez, a life-long academic with a nationalist view of the sector, has never run a company. Can he fix the problems that have eluded multiple administrations?

“I know the brutal challenge that Víctor has to try to pass from academic life . . . to running the country’s most important company at the worst moment in its history,” said Francisco Barnés, former rector of Mexico’s National Autonomous University who held several public sector energy posts in prior administrations.

“When you go to a different role, you realise you’re missing a lot that you don’t know . . . or that you had an erroneous point of view.”

The stakes are high for Rodríguez, with the country’s public finances increasingly compromised by the need to support Pemex.

Leftist populist President Andrés Manuel López Obrador has spent billions of dollars pursuing national “self-sufficiency” in fuel. Policymaking has been centralised and the government has halted hydrocarbon auctions, frozen permits and pressured energy groups into selling their assets to the state.

Though Sheinbaum has said little about oil and gas, she has strongly backed the president’s policies that favour state groups Pemex and CFE. In his first speech, Rodríguez also praised the current government for its “rescue” of Pemex and said the media have exaggerated how bad the situation is.

Roxana Muñoz, a senior analyst at rating agency Moody’s, said the firm does not expect much to change at Pemex in 2025.

“[Sheinbaum] will continue the focus on energy sovereignty so probably refineries will continue to be a top priority instead of exploration and production,” Muñoz said. “That’s the first challenge because the downstream business has been producing losses.”

Stemming those losses is no easy feat, and Sheinbaum has said she will not close any of Pemex’s six ageing, highly inefficient plants. They would require huge amounts of investment to stop losing money, and a new refinery built during López Obrador’s presidency might only operate at 70-80 per cent capacity by 2027, according to Moody’s.

On the exploration side, Pemex’s proven reserves have risen slightly during the current administration. But they are unlikely to improve significantly without huge investments — money that the company doesn’t have. Muñoz said she was expecting Sheinbaum would oversee private sector farmouts of oilfields, but not a return to broader, open rounds of bidding.

A key question is how far the incoming administration — which has a strong preference for state companies and self sufficiency — will allow the private sector to be involved.

“Víctor has a strong ideological position, as Claudia does,” said Barnés. “[But] will they be flexible?”

López Obrador’s team has won more praise for its decision to support Pemex directly rather than pay a premium to issue its bonds. Investors expect that will continue, and were somewhat encouraged by Rodríguez’s comments on Pemex moving into renewables. Some funds eschew the company because of its place near the bottom of peer ESG rankings.

“The broad direction is not going to change massively, but . . . [will have] more of a lean towards green concerns,” said Graham Stock, emerging markets sovereign strategist at RBC BlueBay, a fund that holds Pemex bonds.

“I don’t think any individual can fix it. It needs to be a co-ordinated approach, it’ll take a long time.” (Christine Murray)

Power Points

Energy Source is written and edited by Jamie Smyth, Myles McCormick, Amanda Chu, Tom Wilson and Malcolm Moore, with support from the FT’s global team of reporters. Reach us at energy.source@ft.com and follow us on X at @FTEnergy. Catch up on past editions of the newsletter here.