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Friday, 16 January 2015

Pemex Negotiates Lower Rates to Rig Suppliers as Oil Tumbles

Petroleos Mexicanos is seeking to renegotiate existing rig contracts as part of the state-owned oil company’s efforts to cut costs amid tumbling oil prices. 

The company began discussions earlier this year with some contractors to lower rig rates and other services, Chief Financial Officer Mario Beauregard said in a telephone interview today. Pemex may offer extended agreements or other incentives to make up for the lower rates, Beauregard said. It’s also working on other budget cuts to offset lower revenue, as required by law, he said.

“There’s a very high correlation between rates and the price of oil,” Beauregard said. “We have to adjust in a coordinated way to the new circumstances.”

More than 10,000 people working at Mexican oil service companies are being laid off since last week as Pemex cut outsourcing contracts in the face of the global slump in crude prices. The U.S. benchmark crude price has reached a 5 1/2-year low this month. Output has climbed to the highest on record amid forecasts for weak demand.

Drilling rig contractors with the most exposure in offshore in Mexico are Perforadora Mexico, which currently has five drilling contracts; Paragon Offshore with seven and Diamond Offshore, with five rigs, according to Andrew Cosgrove, energy analyst for Bloomberg Intelligence.

“Certainly, lower oil prices throughout the world are going to put the pricing power in the hands of E&P companies,” Cosgrove said.

While the outlooks on Mexico were split among oil service companies in October 2014, Schlumberger said today there was “decreased work scope due to budget constraints and weather.”

Beauregard said the discussions are being handled on a case-by-case basis and declined to provide specifics on the size of the changes Pemex is seeking.

The $950 million of 2020 bonds from Offshore Drilling, a unit of Mexico City-based Grupo R, have lost more than 25 cents in 2015, tumbling to a record-low 60.2 cents on the dollar, according to data compiled by Bloomberg.

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