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Pemex, Mexico’s state oil company, has spent $133.5m on a hedging programme, the first in its history, to protect its balance sheet from falling crude prices.

Since 2005, Mexico’s finance ministry has conducted an annual hedging programme. It is the market’s largest such oil trade and usually shrouded in secrecy. Pemex’s programme was not expected to change that.

“The two things have nothing to do with one another,” a spokeswoman said, indicating that the ministry hedge would go ahead as usual. A Pemex spokesman concurred that the two operations “are complementary”.

“The finance ministry’s hedge is to protect direct government income and this hedge is directly to protect our income in order to meet the financial balance goal,” he said.

The size of the two operations is also wildly different. The government has spent an average of about $1bn a year on its oil hedge for the past decade, and last year netted $2.65bn from the programme.

The Pemex hedge covers a maximum of 409,000 barrels per day for the May to December period at a price of $42 per barrel – that being the target price established in the budget for 2017.

“The hedge provides protection for Pemex if the average monthly price of the Mexican mix is between $42 and $37 per barrel. This is the range which corresponds to the most likely scenarios of downward prices. If the price is above the $37 limit, Pemex will receive the maximum amount of protection contracted. The investment was $133.5m,” the company said. The price of the Mexican export mix was $42.45 yesterday.

“As such, for the first time in 11 years, Pemex has its own hedging programme, which will favour its ability to meet operating and investment commitments and will give more certainty over its income in the face of the possible fall in hydrocarbons prices,” the statement added.

Pemex said such operations were common among oil majors worldwide and was another plank in its drive for financial discipline contained in its 2017-21 business plan, in which it has fixed its focus on profitability and financial stability.

The federal government’s 2016 hedging scheme consisted of a put option on 212m barrels of oil at $49 per barrel. To cover the $1 per barrel difference between the option price and the budgeted oil price, it set aside 3.477bn pesos in its Budget Income Stabilisation Fund.

The 2017 programme covers 250m barrels and hedged the oil price at $42 per barrel via a put option at $38 per barrel and the $4 per barrel balance covered by 18.62bn pesos set aside in the same budget fund.

Pemex reports first-quarter results on May 3.

Copyright The Financial Times Limited 2017. All rights reserved.
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