OPINION: Latin American oil giants Pemex and Petrobras have both included a squeeze on contractors among their responses to the collapse in demand for oil, but in very different circumstances.

Brazil's Petrobras has impressed analysts with its response to the Covid-19 headwinds, balancing its budgetary discipline with aggressive counter-cyclical contracting on projects and a “tough but fair” approach to cutting operating costs.

Not so for Mexico, where President Andres Manuel Lopez Obrador has imposed his expansionary strategic vision on Pemex to the point that, at $105 billion, the state-run giant is now the world' most indebted company.

Pemex suffered a record $23 billion loss in the first quarter and was forced to cut lavish spending plans that included an expansion in refining capacity.

It has sought board approval to cut capital expenditure by 40.5 billion pesos ($1.8 billion) this year and reduce operational expenditure by about 5 billion pesos.

Earlier this week, national newspaper Reforma reported that Pemex budget cuts had resulted in the cancellation of 45 contracts with offshore service providers.

Such cuts make sense in the current climate but Pemex chief executive Octavio Romero Oropeza — a former mayor of Mexico City — looks highly unlikely to deliver on promises to increase the company's production by 1 million barrels per day.

The Mexican government would do well to rethink its longer-term strategy for energy, and give Pemex management the independence to pursue a sound business model.

(This is an Upstream opinion article.)