Mexico, April 27, 2017 -- Moody's de Mexico ("Moody's") affirmed Petroleos Mexicanos' ("PEMEX")
long term national scale and global scale ratings, and the ratings
based on PEMEX's guarantee, at Aa3.mx/Baa3.
Moody's also affirmed the short term national scale MX-1 rating
for PEMEX. These rating actions follow Moody's Investors Service
("MIS") rating action of affirming PEMEX's global foreign currency and
local currency ratings, as well as ratings based on PEMEX's guarantee,
at Baa3, and maintaining PEMEX'S baseline credit assessment (BCA),
which reflects its standalone credit strength, at b3 on April 27,
2017. The actions were prompted by MIS' view that the company's
external funding needs in 2017 and 2018 will be lower than anticipated
in early 2016 given higher oil prices, strict cost controls and
therefore better cash flow generation, despite high tax burden.
The outlook on the ratings is negative.
Ratings affirmed as follows:
..Issuer: Fideicomiso No. F/163 de Pemex
....Gtd Senior Unsecured Regular Bond,
Affirmed at Aa3.mx / Baa3
..Issuer: Petroleos Mexicanos
....Senior Unsecured Regular Bond/Certificados
bursatiles, Affirmed at Aa3.mx / Baa3 (PEMEX 12, PEMEX
13, PEMEX 15, PEMEX 16, PEMEX 09U, PEMEX 10U,
PEMEX 12U, PEMEX 14, PEMEX 11-3, PEMEX 11U,
PEMEX 13-2, PEMEX 14U, PEMEX 14-2, PEMEX
15U, PEMEX 10-2)
..Issuer: Petroleos Mexicanos
....Commercial Paper, affirmed at MX-1
....Commercial Paper, affirmed at P-3
Outlook Actions:
..Issuer: Fideicomiso No. F/163 de Pemex
....Outlook, Remains Negative
RATINGS RATIONALE
In the medium term, PEMEX operating cash flow will be higher and
external funding needs will be lower than what Moody's had anticipated
in early 2016 given better prospects for oil prices and the company's
focus on reducing operating expenses and capital investments. For
instance, higher oil prices and strict cost controls drove PEMEX's
USD 25.6 billion EBITDA in 2016, over four times what the
company had expected early in the year; in addition, PEMEX
reduced capex to USD 10 billion, from over USD 14 billion in 2015,
in order to protect liquidity and reduce external funding needs.
"In 2017-2018, we expect the company's external funding
needs to be not higher than USD 7 billion per year, an amount that
is considerably lower than what we had envisioned in early 2016",
said Nymia Almeida, Vice President-Sr. Credit Officer
at Moody's. However, despite lower liquidity risk,
PEMEX's credit metrics will remain weak in the next few years and
the company will continue dependent on debt capital markets to fund negative
free cash flow.
The medium term prospect of PEMEX increasing its return on investment
and finally acquiring technology to develop deep-water oil fields
has increased after it successfully auctioned, in December 2016,
the first deep-water farmout contract, won by BHP Billiton
Limited (A3 stable), for the development of the Trion field,
in the Mexican part of the Gulf of Mexico. Simultaneously,
PEMEX won, in a joint venture with Chevron Corporation (Aa2 stable)
and Inpex Corporation (A2 negative), the auction for one block in
the Perdido basin. As for its refining business, in early
2017 PEMEX signed its first joint venture with a private company,
Air Liquide S.A. (A3 stable), to operate the existing
hydrogen plant at the Tula refinery, which will guarantee the supply
of hydrogen for the next 20 years and help decrease non-scheduled
shutdowns, increasing gasoline and diesel production. During
the second half of 2017, PEMEX expects to close three additional
farmouts in 2017, Ayin-Batsil in shallow waters and Cardenas-Mora
and Ogarrio on-land. However, associations and joint
ventures will materialize only gradually and PEMEX's limited ability
to spend on capital assets in order to strengthen its balance sheet will
continue to affect the company's oil production performance in the
foreseeable future.
The Baa3 ratings for PEMEX are based on the company's b3 baseline credit
assessment (BCA), which indicates Moody's view of its standalone
credit strength. The BCA considers the company's large proved hydrocarbon
reserves, which in 2015 amounted to 9,632 million boe,
equivalent to 8.1 years of life, as per PEMEX; oil production
averaging 2,154 mbd for 2016; a dominant role and integrated
operations in the energy industry in Mexico; and its position as
a major crude oil exporter to the US. However, the company's
standalone credit assessment and its ratings are negatively affected by
a heavy tax burden and the resulting weak free cash flow, high financial
leverage and low interest coverage. PEMEX's ratings also consider
challenges related to production, which will continue to decline
in the next 3 years at least, according to the company's most
conservative scenario, due to the natural decline of certain fields
and a lower quality of crude oil as well as the company's limited ability
to invest efficiently given thin funding and lack of technological expertise
in deep waters, where future growth is located.
PEMEX's ratings consider Moody's joint-default analysis,
which includes the rating agency's assumptions that there is i) a very
high likelihood of extraordinary support from the government of Mexico
(A3 negative) to avoid default, and ii) a very high default correlation
between PEMEX and the government. The Baa3 rating incorporates
six notches of uplift from PEMEX's b3 BCA. Moody's view on the
likelihood of support considers the prominent role of PEMEX in the Mexican
economy, its 100% government ownership, and both verbal
statements and factual evidence during 2016 of support of the government
for the company for over USD 4 billion. Moody's believes that it
is important to the government to facilitate PEMEX's continued access
to the capital markets given the company's role in generating hard foreign
currency through oil exports and in paying large annual amounts in duties,
royalties and taxes which in aggregate currently represent about 12%
of the government's annual budget.
PEMEX has strengthened its liquidity position and now has committed long-term
revolving credit facilities for a total of USD 6 billion, in US
dollars and in Mexican pesos. In addition, the company just
announced entering into a hedging program on 409 mbpd, equivalent
to 20% of production, which will reduce earnings downside
risk. However, the company's liquidity position is
still weak: close to USD 7.9 billion in cash and equivalents,
as of December 2016, negatively compares to USD 7.2 billion
in debt coming due in 2017 (although USD 1 billion of which is related
to a committed revolving facility that matures in 2019), and USD
6.2 billion in 2018. Management's goal is to hold at least
USD 4.5 billion in cash at all times.
The negative outlook on PEMEX's Baa3 ratings reflects Moody's expectation
that the company's credit profile could deteriorate more substantially
than the weakening incorporated into its b3 BCA, if managerial and
operating discipline is lost along the way. However, Moody's
could revise the outlook to stable if PEMEX reverts the current trend
of continued increase in leverage and shows signs that it can improve
its operating and financial profile sustainably in the medium term.
Increasing liquidity concerns, further material increase in financial
leverage or significant deterioration in production could result in a
downgrade of PEMEX's BCA and debt ratings. In addition, because
PEMEX's ratings benefit from implicit support from the government of Mexico,
a downgrade of the government's rating or a change in Moody's assumptions
about government support could lead to a downgrade of PEMEX's ratings.
An upgrade of PEMEX's ratings is unlikely over the near term as is indicated
by the negative outlook. For an upgrade to be considered,
the company would need to significantly improve its liquidity position
and operating profile, reduce debt, and increase cash generation.
Simultaneously, Moody's would have to at least maintain its current
expectations for sovereign support. Improving operating metrics
and a lower tax burden that supports higher levels of internal funding
for capital spending and prospects for a solid trend of increases in production
and reserves could benefit the company's baseline credit assessment.
Founded in 1938, PEMEX is Mexico's productive state-owned
oil company. Its monopoly status will change with the continued
implementation of the 2013 energy law, although, in the foreseeable
future, the company will remain the dominant energy player in the
country, with fully integrated operations in oil and gas exploration
and production, refining, distribution and retail marketing,
and petrochemicals. PEMEX is also a leading crude oil exporter,
with approximately 50% of its crude exported to various countries,
mainly the US. In 2016, PEMEX posted about USD 58 billion
in revenues and over USD 107 billion in assets. As of the same
date, PEMEX produced 2,154 mbd of crude oil and had total
proved reserves as of December 2015 of 9.632 MMboe equivalent to
8.1 years of reserve life.
The principal methodology used in these ratings was Global Integrated
Oil & Gas Industry published in October 2016. Other methodologies
used include the Government-Related Issuers methodology published
in October 2014. Please see the Rating Methodologies page on www.moodys.com.mx
for a copy of these methodologies.
The period of time covered in the financial information used to determine
Petroleos Mexicanos, Fideicomiso No. F/163 de Pemex's ratings
is between 01/01/2016 and 31/12/2016 (source: Petróleos Mexicanos).
Moody's National Scale Credit Ratings (NSRs) are intended as relative
measures of creditworthiness among debt issues and issuers within a country,
enabling market participants to better differentiate relative risks.
NSRs differ from Moody's global scale credit ratings in that they are
not globally comparable with the full universe of Moody's rated entities,
but only with NSRs for other rated debt issues and issuers within the
same country. NSRs are designated by a ".nn"
country modifier signifying the relevant country, as in ".za"
for South Africa. For further information on Moody's approach to
national scale credit ratings, please refer to Moody's Credit rating
Methodology published in May 2016 entitled "Mapping National Scale Ratings
from Global Scale Ratings". While NSRs have no inherent absolute
meaning in terms of default risk or expected loss, a historical
probability of default consistent with a given NSR can be inferred from
the GSR to which it maps back at that particular point in time.
For information on the historical default rates associated with different
global scale rating categories over different investment horizons,
please see https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1060333.
REGULATORY DISCLOSURES
Information sources used to prepare the rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, and confidential and proprietary Moody's
information.
The ratings have been disclosed to the rated entities prior to public
dissemination.
A general listing of the sources of information used in the rating process,
and the structure and voting process for the rating committees responsible
for the assignment and monitoring of ratings can be found in the Disclosure
tab in www.moodys.com.mx.
The date of the last Credit Rating Action for Petroleos Mexicanos was
09/04/2017.
The date of the last Credit Rating Action for Fideicomiso No. F/163
de Pemex was 15/07/2016.
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating. For provisional
ratings, this announcement provides certain regulatory disclosures
in relation to the provisional rating assigned, and in relation
to a definitive rating that may be assigned subsequent to the final issuance
of the debt, in each case where the transaction structure and terms
have not changed prior to the assignment of the definitive rating in a
manner that would have affected the rating. For further information
please see the ratings tab on the issuer/entity page for the respective
issuer on www.moodys.com.mx.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
This Rating is subject to upgrade or downgrade based on future changes
in the financial condition of the Issuer/Security, and said modifications
will be made without Moody's de México S.A. de C.V
accepting any liability as a result.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's considers the quality of information available on the rated entity,
obligation or credit satisfactory for the purposes of issuing a rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a rating is of sufficient quality and from sources Moody's
considers to be reliable including, when appropriate, independent
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and cannot in every instance independently verify or validate information
received in the rating process.
Please see Moody's Rating Symbols and Definitions on www.moodys.com.mx
for further information on the meaning of each rating category and the
definition of default and recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com.mx
for the last rating action and the rating history. The date on
which some ratings were first released goes back to a time before Moody's
ratings were fully digitized and accurate data may not be available.
Consequently, Moody's provides a date that it believes is the most
reliable and accurate based on the information that is available to it.
Please see our website www.moodys.com.mx for further
information.
Please see www.moodys.com.mx for any updates on changes
to the lead rating analyst and to the Moody's legal entity that has issued
the rating.
The ratings issued by Moody's de Mexico are opinions regarding the credit
quality of securities and/or their issuers and not a recommendation to
invest in any such security and/or issuer.
Please see the ratings tab on the issuer/entity page on www.moodys.com.mx
for additional regulatory disclosures for each credit rating.
Nymia C. Almeida
VP - Senior Credit Officer
Corporate Finance Group
Moody's de Mexico S.A. de C.V
Ave. Paseo de las Palmas
No. 405 - 502
Col. Lomas de Chapultepec
Mexico, DF 11000
Mexico
JOURNALISTS: 1 888 779 5833
Client Service: 1 212 553 1653
Marianna Waltz, CFA
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 800 891 2518
Client Service: 1 212 553 1653
Releasing Office:
Moody's de Mexico S.A. de C.V
Ave. Paseo de las Palmas
No. 405 - 502
Col. Lomas de Chapultepec
Mexico, DF 11000
Mexico
JOURNALISTS: 1 888 779 5833
Client Service: 1 212 553 1653
