PBR Petroleo Brasileiro ADR

By Laurence Iliff 

MEXICO CITY--With oil prices sinking to levels not seen in more than a decade, Mexican national oil company Petróleos Mexicanos said Tuesday that its production costs are among the lowest in the world, averaging under $10 per barrel among currently producing fields and less than $7 a barrel for its cheapest fields.

Furthermore, Pemex said its production costs are actually falling because of the recent devaluation of the peso, since oil is sold in dollars and service contracts and other costs are paid in pesos. "This cost level means that Pemex production activities continue to be profitable even with the recent fall in hydrocarbon prices," the company said in a statement.

U.S. oil prices were about $30 a barrel on Tuesday, while Pemex said that the average price for its basket of mostly heavy export oils was $21.50 a barrel.

Pemex said that its production costs were lower than counterparts like Exxon Mobil, Chevron, BP and Brazil's Petrobras, citing company reports filed with the U.S. Securities and Exchange Commission.

Pemex said that media reports putting its cost-per-barrel at $23 had included a series of future costs in that calculation, such as exploration, drilling, new infrastructure and production in new fields. Those costs are likely to be reduced in the current price climate, the company said, since service providers must lower their prices to Pemex to keep their contracts.

Mexico's two-year-old oil reform, opening up the sector to private and foreign companies for the first time in eight decades, also allows Pemex to open new lines of business across the value chain that will benefit the bottom line, the company said.

Pemex reported an after-tax loss of $9.5 billion in the third-quarter of last year and is shaving billions of dollars from its yearly budgets on orders from the federal government. The company's oil production has also fallen every year since 2004 with no recovery in sight, and it needs to borrow billions of dollar a year in order to pay its tax bill and make needed investments.

A key reason that legislators approved the controversial 2013 constitutional amendment allowing foreign participation in the oil sector was because of Pemex's inability to develop more complicated oil fields in deep waters offshore and in nonconventional resources. The government needs oil production to stay relatively high in order to meet its budget needs.

Write to Laurence Iliff at laurence.iliff@wsj.com

(END) Dow Jones Newswires

January 12, 2016 20:08 ET (01:08 GMT)

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