February 25, 2019 / 6:13 PM / 3 months ago

Moody's pans Mexican rescue package for Pemex, more help needed

MEXICO CITY, Feb 25 (Reuters) - A government rescue package for Mexican national oil company Pemex fell far short of market expectations and the ailing firm will likely need further government support by next year, according to a report by credit ratings agency Moody's.

Earlier this month, the government announced a capital injection of $3.9 billion and tax cuts in a bid to strengthen Pemex's finances and ward off any further credit downgrades.

New York-based Moody's criticized the plan as mostly repackaged spending that had already been announced, with only around $200 million in new tax reductions, according to a report from the agency issued late last Friday.

Moody's and fellow credit ratings agency Fitch both rate Pemex debt just one notch above junk status.

"If market sentiment does not improve, Pemex will require additional sovereign support in 2020 and beyond, further eroding government finances," Moody's said in the report.

The agency added that the government rescue package was "credit negative" for the Mexican government's credit profile, in large part due to a total of $750 million in tax revenue that will not be collected as a result of lower Pemex taxes.

Pemex oil production has declined each year since 2004, falling by nearly half to average about 1.8 million barrels per day last year, which has weighed heavily on both the company and government finances.

Output in January hit a record low at just 1.62 million bpd.

Last week, Mexico's new president, Andres Manuel Lopez Obrador, said he would not allow Pemex to sign additional joint-venture partnerships with private or foreign oil companies until three existing deals begin to produce crude.

Authorized by the previous government as part of a sweeping energy reform, the joint ventures allow Pemex to attract outside investment to help develop existing assets, and two of them - covering the onshore Cardenas-Mora and Ogarrio fields - already produce relatively small amounts of oil and gas.

Lopez Obrador, a leftist resource nationalist who has pledged to strengthen Pemex without incurring new debt, has to date outlined plans to boost production via a new round of service contracts.

Reporting by David Alire Garcia in Mexico City Editing by Matthew Lewis

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