Mexico's Pemex Takes Out Its Own Oil Hedges

By Anthony Harrup Features Dow Jones Newswires

Mexican state oil company Petróleos Mexicanos said Tuesday it has taken out oil price hedges to protect its income this year from a possible decline in prices, tapping derivatives markets for the first time in more than a decade.

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Pemex, which has been in financial straits as a result of the drop in global oil prices and had to slash spending and investment, said the hedging is its first in 11 years and will protect its finances from oil price declines. The contracts complement those that the federal government uses to protect budget revenue, it added.

The program is for up to 409,000 barrels a day from May to December of this year, and covers a price $42 a barrel, which is the estimate used in this year's federal budget. If the price were to fall below $37 a barrel, the company would receive the maximum payout under the contracts, which cost $133.5 million.

Under changes in Mexican energy laws, Pemex faces competition from private oil companies for the first time in its 79-year history, and has also begun forming joint-ventures for exploration and production with private partners.

"This kind of hedging is common among the world's biggest oil companies, and with it Pemex is aligning its strategy with best international practices," the company said in a statement.

Pemex produced little over 2 million barrels a day of crude oil in the first two months of this year, of which it exported 1.15 million barrels a day at an average price of $45.27 per barrel. Mexican crude priced at $42.45 a barrel on Monday.

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The Mexican government has for years used put options to lock in oil prices and protect the federal budget from price declines. The finance ministry hedged oil for 2017 at $38 per barrel, spending $1.02 billion to cover 250 million barrels.

The oil hedging program paid out $2.65 billion in 2016 and a record $6.3 billion in 2015 -- years when oil prices fell sharply.

Write to Anthony Harrup at anthony.harrup@wsj.com

(END) Dow Jones Newswires

April 25, 2017 15:47 ET (19:47 GMT)