Mexico Shifts Focus to Fracking to Boost Pemex Oil and Gas Output

Mexico is pivoting towards fracking to boost Pemex oil and gas production. The government is reversing its earlier ban on fracking and will allow Pemex to explore and develop unconventional oil and gas reserves. The move aims to increase oil and gas production, which has been declining for several years. The fracking initiative is expected to boost Pemex's production capacity and help the country meet its energy needs.

Mexico's state-owned oil company, Petroleos Mexicanos (Pemex), is embarking on a significant shift in its strategy to bolster oil and gas production. The government has reversed its previous ban on fracking, allowing Pemex to explore and develop unconventional oil and gas reserves. This move is aimed at increasing production, which has been declining for several years [1].

The shift towards fracking is part of a broader 10-year strategic plan unveiled by Pemex and energy ministry officials in July 2025. The plan aims to shore up the heavily indebted company's production and finances. Key goals include increasing Mexico's natural gas production to 5 Bcf/d in 2028 from the 2024 average of 3.67 Bcf/d, an accelerated timeline compared to the previously targeted 2030 [1].

The Mexican government has also revealed a sweeping plan to reduce Pemex's debt and boost investment. By 2027, Pemex aims to achieve financial self-sufficiency, helped by a series of measures to bring down debt and stabilize production. A government-backed vehicle is set to raise $13 billion for Pemex projects in 2025 alone [2]. This year, Pemex has a debt of around $99 billion, aiming to reduce it to $77.3 billion by 2030 [2].

The strategic plan includes mixed contracts to boost production by 450,000 bpd and reduce crude oil exports by 2035. Pemex plans to reduce crude oil exports to 393,100 bpd in 2035, from 487,900 bpd in 2026. The target for local crude oil processing is 1.3 million barrels per day, which would help wean the country off gasoline and diesel imports [2].

Pemex is also seeking the private sector's help to develop onshore unconventional natural gas and oil resources. This is a stark departure from the previous government's policy. The company aims to increase oil production to 1.8 million barrels per day and natural gas output to 5 billion cubic feet per day by 2030 [4].

The government has also secured $13 billion via innovative P-Caps issued through a Luxembourg SPV to avoid direct sovereign liabilities. This structure allows Pemex to access liquidity by borrowing U.S. Treasury securities, enabling debt servicing and funding production expansion targets [4].

The P-Caps structure is a first-of-its-kind transaction involving a sovereign issuer. It sidesteps traditional debt accumulation, mitigating political and fiscal risks while ensuring Pemex gains access to critical funds. The structure includes a fallback mechanism, creating a de facto credit enhancement [4].

The strategic plan and the P-Caps offering signal a commitment to fiscal discipline. Pemex plans to reduce tenured employee positions and reallocate savings to exploration and production. The simplified tax regime and budget allocations also demonstrate a focus on long-term stability [4].

Investors face a cautious bull case, with Pemex's revival hinging on production execution, debt metrics, and sustainable government support. The complexity of the P-Caps mechanism introduces uncertainties, but the structure also presents unique risk-reward profiles [4].

In conclusion, Mexico's pivot towards fracking and the broader strategic plan for Pemex represent a significant shift in the country's energy policy. The move aims to boost production, reduce debt, and achieve financial self-sufficiency. Investors should monitor key metrics and assess the sustainability of the government's support as Pemex executes its strategic goals.

References:
[1] https://www.naturalgasintel.com/news/in-dramatic-shift-mexicos-pemex-courting-private-sector-to-advance-unconventional-natural-gas-projects/
[2] https://www.reuters.com/world/americas/mexico-reveals-sweeping-plan-bring-down-pemex-debt-boost-investment-lift-2025-08-05/
[4] https://naturalgasintel.com/news/in-dramatic-shift-mexicos-pemex-courting-private-sector-to-advance-unconventional-natural-gas-projects/