Mexico’s Pemex will look to repeat new hedging program

4/26/2017 Reuters

Pemex LogoMexican state-owned oil company Pemex will consider repeating a recently instituted hedging program in future years, as it looks to firm up its balance sheet and avoid the need for surprise budget cuts, a top executive said late on Tuesday.

Petroleos Mexicanos [PEMX.UL], as the company is officially known, reported on Tuesday that it has hedged its output through December, the first time it has done so in 11 years, as an insurance policy against volatile oil prices.

The oil hedging program, which will run from May to December and guarantees a price of $42 per barrel for up to 409,000 barrels per day, will cost the company $133.5 million.

“It’s important to give the market certainty that faced with drops in oil prices Petroleos Mexicanos won’t have to cut its budget,” Chief Financial Officer Juan Pablo Newman told Reuters in an interview.

Last year, Pemex implemented about 100 billion pesos ($5.8 billion) in spending cuts, following cuts of some 62 billion pesos in 2015 due to falling crude prices.

The new Pemex hedge is separate from a much larger oil price hedge undertaken by the finance ministry.

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