Pemex’s Profit to Rise on Landmark Energy Law, Messmacher Says

Aug 13, 2014 1:00 am ET

Aug. 13 (Bloomberg) -- Petroleos Mexicanos’s profit will increase by 90 billion pesos ($6.85 billion) within five years as a result of tax cuts in Mexico’s landmark energy law ratified this week, Deputy Finance Minister Miguel Messmacher said.

Pemex will see its tax rate fall to 65 percent from 71.5 percent over that period, he said. Mexico will also raise Pemex’s deduction cap from $6.50 per barrel to about $12 per barrel based on current prices.

A lighter tax burden for Pemex along with Mexico’s first private-sector oil competition since 1938 will enable the nation to reverse a nine-year slide in crude output, Messmacher said yesterday. The government will announce today which fields Pemex will retain for production, clearing the way for private contracts next year.

“It will allow us to address this challenge we have, which is declining production,” Messmacher said in a telephone interview from Mexico City. “During five years we’re going to be seeing that what Pemex pays to the federal government in taxes will gradually go down. Some of that will be seen in next year’s budget.”

The Finance Ministry, which gets about a third of its revenue from oil, will send lawmakers its 2015 tax and spending proposal next month. Private drillers may begin operating wells in Mexico’s mature fields “relatively quickly,” allowing the nation to start benefiting from taxes generated by their production as stipulated in landmark energy legislation, Messmacher said.

‘Good Combination’

The laws implemented this week by President Enrique Pena Nieto also allow the government to assume part of 1.1 trillion pesos in Pemex pension liabilities and another 300 billion pesos from state-owned utility Comision Federal de Electricidad.

The Finance Ministry will take on liabilities equivalent to the amount by which the companies and their workers agree to lower the liabilities, Messmacher said.

Oil contracts to be offered to private-sector producers should include a mix of fields that can generate increased production quickly as well as longer-term projects, he said.

“We should have a good combination of some fields where there can be short-term production, others with medium-term production and others with long-term production,” Messmacher said.

--With assistance from Eric Martin in Mexico City.