Adam Williams / Bloomberg
A $5.7 billion earnings bump that retroactively turned Pemex’s $1.8 billion fourth-quarter loss into a profit almost didn’t occur at all.
The reversal of fortune was quietly introduced to the public when the Pemex CFO surprised listeners on a May 3 conference call by identifying the company’s first-quarter profit as the second in a row.
A Petroleos Mexicanos regulatory filing offered just a hint as to what happened. For 10 months, Pemex failed to recognize the import of a government ruling designed to boost the value of its reserves, the filing shows. The Mexican oil producer only took advantage of the new rule after outside auditor Castillo Miranda & Compania S.C. reviewed its final 2016 status.
The rebooking, coming months after the earnings were initially reported, was needed because of “a failure of our internal controls to include a mechanism to ensure that the period allowed by the authorities is properly applied,” the company wrote in the filing. Pemex concluded that "a material weakness existed in our internal control over financial reporting."
"It’s a pretty big oversight to just look past that rule change,” Tim Samples, a law professor and Mexican-energy analyst at the University of Georgia in Athens, said in a telephone interview. “It’s not a great look for your management and your accounting".