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Page added on November 23, 2016
Mexico To Reap $2.9 Billion In Profits From Oil Price Hedges In 2016
The Mexican government can expect a $2.9 billion profit from the oil price hedges it set up in 2016 – marking the second consecutive year the North American country has significantly profited off of the strategy, according to the International Monetary Fund (IMF).
Last year, the country earned a record $6.4 billion from contracts brokered with large banks, including JPMorgan Chase, Goldman Sachs, and Citigroup.
The 2016 agreement, which began coverage on December 1st of last year, guaranteed Mexico profits equivalent to a $49 Brent barrel.
The $2.9 billion figure, which the IMF provided in response to questions emailed to them by Bloomberg, has yet to be confirmed by the Mexican Energy Ministry. The hedge will be completed at the end of this month, at which point the government will either validate or discredit the figure.
For over a decade, Mexico’s government has paid for a hedge every year as part of one of the world’s biggest sovereign oil derivatives trade. The profits from the strategy help Mexico City pad budgets, especially as new austerity measures make citizens increasingly restless.
“The Mexican government has done a good job at buying these put options because they have helped to smooth the transition of public finances towards lower oil prices, but it’s just breathing room,” Carlos Capistran, a Bank of America economist, told Bloomberg earlier this year. “This buys the government time to think about the best way to go about expenditure cuts.”
State-run oil giant Pemex, which finances roughly 20 percent of the federal budget, reported record low production earlier this year – meaning that the government may be leaning towards stronger budgetary restraint as the markets sustain low oil prices due to the supply glut.
By Zainab Calcuttawala for Oilprice.com
15 Comments on "Mexico To Reap $2.9 Billion In Profits From Oil Price Hedges In 2016"
Go Speed Racer on Wed, 23rd Nov 2016 8:08 pm
Allright, I run the trading brokerage. 3% of that $2.9 Billion is mine. Send it over right now.
makati1 on Wed, 23rd Nov 2016 11:27 pm
If this is correct…
http://www.artberman.com/permian-giant-oil-field-would-lose-500-billion-at-todays-prices/
What is all the fuss about?
“According to the USGS’ input data, it would take 196,253 wells to produce the 20 billion barrels if it exists. At $7 million per well, that would cost almost $1.4 trillion in drilling and completion costs alone.
It would cost more than $1.4 trillion to generate $900 billion in revenue resulting in a net loss of $500 billion at $45 oil prices excluding all operating expenses, taxes and royalties–and no discounting.”
The ‘NEW” oil discovery is just more Texas bullshit. Go for it Suckers!
Go Speed Racer on Thu, 24th Nov 2016 3:57 am
Good stuff Makita, well, maybe if oil was $90 a barrel they can make some money. Of course its still undiscovered, whoops!
Trump will make America great again. Now that
he is President, by pointing a shotgun at the ground, Jed Clampett style, the oil will flow out.
Simon on Thu, 24th Nov 2016 9:11 am
Why didn’t Venezuela hedge ?
rockman on Thu, 24th Nov 2016 9:11 am
Mak – “The ‘NEW” oil discovery is just more Texas bullshit.” Not Texas BS…USGS BS. LOL.
Texas state govt has its own evaluation group, the BEG…Bureau of Economic Geology. As you’ll see the folks who understand Texas petroleum geology far better then any other research group have a rather different view of the Wolfcamp potential then the USGS. BTW if you read all the way down you’ll see that almost 6,000 wells have been completed over the last 20 years in the “newly discovered field”. Data that the BEG has used to evaluate the trend potential:
“Established in 1909, the Bureau of Economic Geology in the Jackson School of Geosciences is the oldest and second-largest organized research unit at The University of Texas at Austin. In addition to functioning as the State Geological Survey of Texas, the Bureau conducts research focusing on the intersection of energy, the environment, and the economy, where significant advances are being made tackling tough problems globally. The Bureau partners with federal, state, and local agencies, academic institutions, industry, nonprofit organizations, and foundations to conduct high-quality research and disseminate the results to the scientific and engineering communities as well as to the broad public.
Talented people are the Bureau of Economic Geology’s formula for success. Our staff of over 250 includes scientists, engineers, economists, and graduate students, representing 27 countries, often working in integrated, multi-disciplinary research teams. The Bureau’s facilities and state-of-the-art equipment are world class, and include more than fifteen individual laboratories hosting researchers investigating everything from nanoparticles to shale porosity and permeability. The Bureau also maintains three major well core research and storage facilities, in Houston, Austin, and Midland–together believed to be the largest archive of subsurface rock material in the world, as well as an extensive wireline log library.”
So what does the BEG think of the Wolfcamp shales? Can’t find that number broken out but for the entire Spraberry trend, including all the conventional reservoirs: 10 billion bbls. Over the last 14 years the BEG calculates a total of 120 million bbl from the Wolfcamp…less then 9 million bbls per year. From the BEG publication:
“Known as the Spraberry Trend, productive areas extend across 18 counties and contain more than 10 Bbbl of oil. The Wolfcamp (Permian) underlies the Dean and then deeper zones in the Pennsylvanian. This expanded productive interval is called the Wolfberry Play. Multiple fracture stimulation stages open up these low permeability formations. More than 5,800 Wolfberry oil wells have been completed since the late 1990s. Initial production averages 30 to 125 BOPD, and ultimate per-well recovery is estimated at 100 to 140 MBOE. The BEG team is collaborating with several Wolfberry operators to achieve a better understanding of this complex hydrocarbon system.”
shortonoil on Thu, 24th Nov 2016 9:16 am
“Mexico To Reap $2.9 Billion In Profits From Oil Price Hedges In 2016” which of course means someone else lost $2.9 billion?
That is now called a successful business plan?
We should be out of our petroleum quagmire in no time at all with logic like that working for us!
rockman on Thu, 24th Nov 2016 9:37 am
“Mexico To Reap $2.9 Billion In Profits”. A “profit” based on what they paid for the hedge. But compare that $2.9 billion in hedge income to the $30+ billion in reduced 2016 income as a result of lower oil prices. IOW a NET “loss” of $27+ billion.
Doesn’t sound like a reason to party like it’s 2013. LOL.
rockman on Thu, 24th Nov 2016 12:15 pm
Mac – I did find a chart that gives some expectation of the Wolfcamp by the BEG. Of the BEG’s 10 billion bbls in the region looks like they estimate 5% to 10% at most of the 10 billion bbls in the Wolfcamp. So about 500 million to 1 billion bbls compared to the USGS 20 billion bbls.
Take you pick. BTW I’ve never seen anyone in the oil patch accept a BEG number over one from the USGS. But I do know more then a few that often consider BEG to be a tad too optimistic. LOL.
rockman on Thu, 24th Nov 2016 12:20 pm
Mak – Got that ass backwards: never seen a USGS number accepted over one from the BEG.
Sissyfuss on Thu, 24th Nov 2016 5:26 pm
Hedges,QE,derivative trading,credit default swaps. In a Bizzaro economic world like this we’ll need a Bizzaro president. Oops!
makati1 on Thu, 24th Nov 2016 6:34 pm
eock, I take ALL stats as massaged bullshit today. I just like to see what reaction I get from a U$ source. It is all unimportant in the long run, but fun to watch.
rockman on Thu, 24th Nov 2016 7:22 pm
Mak – You know what statistical analysis revealed: 68% of all stats are incorrect.
makati1 on Thu, 24th Nov 2016 8:43 pm
Only 68%? Who did the analysis? lol The only stat I believe is my birthday, because I was there and trust my mother to not lie about it. All else is under suspicion.
rockman on Fri, 25th Nov 2016 9:42 pm
Mak – “…and trust my mother to not lie about it.” You mean that nice lady who claimed to be your mother? LOL.
makati1 on Fri, 25th Nov 2016 9:55 pm
Rockman, nice! She would laugh if I told her, but she passed away six months ago at at age 89. No regrets. She lived a long life and told me on many occasions that she was ready to go. We knew it was coming, and only modern medical methods kept her alive for so long. Pacemaker for about eight years and several kinds of meds. Not something likely to be available for much longer to any of us.
She remembered the Great Depression and told me about being a small child living then. Not something I would like to live through now, but I think one is coming. We shall see.