Premier Oil Eyes 3D Seismic At Mexico’s Block 30

(Energy Analytics Institute, 15.Nov.2018) — Premier Oil plans to acquire 3D seismic across Block 30, which contains the high impact Wahoo prospect, and reprocess existing 3D seismic over Blocks 11 and 13 in the Burgos basin in 2019, the company announced in an official statement.

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Premier Oil To Spud Zama Appraisal Well in late-November 2018

McDermott Hosts Celebratory Event For Abkatun-A2 Sail Away

The PB-Abkatun-A2 platform is McDermott’s largest project in size and total value to date for PEMEX. Installation of Abkatun is scheduled for November 2018 in Mexico’s Bay of Campeche utilizing McDermott’s Amazon, DB50 and Intermac 650 vessels.

(McDermott, 15.Nov.2018) — McDermott International, Inc. announced the details at an event hosted at their world-class fabrication yard in Altamira, Tamaulipas, Mexico. The event celebrates the sail away and another project milestone of the PEMEX Exploración y Producción PB-Abkatun-A2 oil and gas production platform. Representatives from PEMEX, government officials, including Governor of Tamulipas, Francisco Garcia Cabeza de Vaca, McDermott and regional news outlets participated in the event.

The PB-Abkatun-A2 platform is McDermott’s largest project in size and total value to date for PEMEX. The $454 million engineering, procurement, construction and installation and commissioning (EPCIC) project was awarded to the company in June 2016. McDermott’s scope of the work spanned from the basic engineering design to tie-in and commissioning of the jacket, deck, four tripod jackets, and four bridges about 100 meters each. Two tripods were designed to be used as part of the flare system while the other two tripods support the two bridges to interconnect PB-Abkatun-A2 with the existing PEMEX production complex. The giant three-level topside is the largest ever fabricated at McDermott’s world-class fabrication yard in Altamira.

“Abkatun is an impressive and substantial project for PEMEX and Mexico,” said Richard Heo, Senior Vice President for North, Central and South America. “Since the beginning, Abkatun has been on an aggressive project schedule. But our One McDermott Way operating model, leveraging the vertical integration of our in-house engineering resources and our world-class fabrication facility in Altamira, enabled us to bring efficiency and transparency to the project. The result is we are safely delivering Abkatun – our largest project to date, in size and total value, for PEMEX.”

Governor Garcia Cabeza De Vaca spoke at the event and said, “Congratulations to McDermott for this important achievement. You are making history. And we want you to keep building, but mainly writing a new history in the area of hydrocarbons in Tamaulipas and in our country. This is the first one of many more platforms to be built in Altamira. And this has not been possible without the ability, dedication and mainly the talent of each and every one of you.”

Installation of Abkatun is scheduled for November 2018 in Mexico’s Bay of Campeche utilizing McDermott’s Amazon, DB50 and Intermac 650 vessels. Commissioning will follow the installation of the 16,534 U.S. ton (15,000 metric ton) platform in 124 feet (38 meters) of water, which will provide replacement and expansion capabilities to the existing Abkatun Pol Chuc facilities. Following commissioning, this high-capacity production platform is rated to produce 220,000 barrels of oil per day and 150 million of standard cubic feet of gas per day for PEMEX.

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McDermott Awarded Services Contract By Talos Energy

(McDermott, 15.Nov.2018) — McDermott International, Inc. announced a contract award for concept and engineering services for Talos Energy Inc. for the Zama field development project – the first offshore Mexico block awarded to a private operator. The contract award is for engineering services, including concept selection and follow-on pre-FEED.

McDermott will execute this contract award with io oil & gas consulting, a joint venture between McDermott and Baker Hughes, a GE company (BHGE). McDermott will manage all phases of the engineering services process and will workshare engineers and designers in Mexico City and will receive continuous support from io and input from the customer. Based on the final concept solution identified by io, McDermott will provide the follow-on pre-FEED services for the Zama development. Work on the concept selection has begun with expected completion in the third quarter 2019.

“The Zama discovery is a significant and historic project for Mexico, and our customer, Talos Energy,” said Richard Heo, Senior Vice President for North, Central and South America. “Early engagement during the conceptual and pre-FEED phases is a strategy that is proving beneficial to our customers. With high estimated oil production, designing an efficient concept solution, in combination with the integrated pre-FEED studies, allows us to help Talos maximize the value of this important greenfield project.”

The Zama field is located in Block 7 of the Sureste Basin offshore Mexico in the Gulf of Mexico and has a water depth of approximately 540 feet (165 meters). The field was discovered in July 2017, and Zama-1 was the first exploration well drilled offshore Mexico by a private sector operator. Talos estimates the field has 400-800 million recoverable barrels of oil equivalent (MBOE), with an estimated peak production of approximately 150 MBOE/day. Appraisal activities are planned for late 2018 with two additional wells and first oil is expected by 2022.

The Zama field development project has shared participating interest among Talos Energy (35%), Sierra Oil and Gas (40%) and Premier Oil (25%).

The contract award will be reflected in McDermott’s fourth quarter 2018 backlog.

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Background: Premier Oil’s Entry Into Mexico

Premier Oil To Spud Zama Appraisal Well in late-November 2018

(Premier Oil, 15.Nov.2018) — In September, the Mexican authorities approved the Zama pre-unitisation agreement between Pemex and the Block 7 partners as well as the Block 7 Zama appraisal programme.
The first Zama appraisal well is on track to spud at the end of November and will be drilled to the north of the Zama discovery well to confirm the oil water contact.

The well will be deepened to test the Marte prospect and also side tracked, with the side track being flow tested. The second appraisal well will evaluate the southern part of the Zama oil field and will complete the Block 7 appraisal programme during Q3 2019. It is anticipated that Pemex will spud the Asab-1 well in Q1 2019 to test the extension of the Zama structure onto their block.

“We look forward to the appraisal of our world class Zama discovery, starting later this month, and the commencement of construction activities for our high value Tolmount gas project in December,” said Premier Oil Chief Executive Tony Durrant.

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Bright Star of Mexico’s Energy Reform Bowing Out Of Spotlight

(NGI, Ronald Buchanan, 15.Nov.2018) — One of main energizers of Mexico’s nascent energy reform, Juan Carlos Zepeda, has resigned as president of the upstream regulator, the Comisión Nacional de Hidrocarburos (CNH), with only five months to go before the end of his second five-year term.

As the head of the independent, although not totally autonomous regulator, Zepeda has been considered a bright star as the head of an institution that has provided transparency in what were the first upstream auctions in Mexico for more than a century.

Yet with a new Mexican administration waiting in the wings for a Dec. 1 inauguration of President-elect Andrés Manuel López Obrador, the resignation has come at a critical juncture, said George Baker, who is president of Mexico Energy Intelligence.

Baker emphasized that the incoming administration is full of critics and former opponents of the energy reform, even though López Obrador has promised to keep things status quo — for now.

“Everything is so fragile at the moment,” Baker said. “Because of that, the timing of the resignation doesn’t seem to make sense, particularly because Zepeda is a very loyal public servant in the best of the Mexican tradition.”

However, consultant Luis Miguel Labardini, a partner in Mexico City-based Marcos y Associates, told NGI’s Mexico GPI, that he has a different view.

“It is evident,” he said, “that Zepeda is one of the main characters in the reform, and that the new administration has a different view of the oil and gas sector, that does not necessarily match the philosophy of the reform as it was originally conceived.

“Therefore, the new administration will place someone who is more in tone with their views on what the sector should do from now on.”

That, in a nutshell, is what Zepeda himself has said. Recent columns in Mexico newspapers claim that incoming Energy Secretary Rocío Nahle had ordered Zepeda to resign. Columnists also have claimed that Guillermo Garcia Alcocer, president downstream regulator, the Comision Reguladora de Energia (CRE), was also told to resign. As of Thursday, he remained at his post.

In any case, Zepeda said in a radio interview that he was under no pressure to step down.

Like many other Mexican officials as the change in government looms, he said he is planning to move into the private sector and work for a capital fund that specializes in energy and infrastructure, “though nothing that has anything to do with what the CNH is responsible for.”

Zepeda also added that Nahle, rather than order him to resign, had invited him to be a part-time external adviser to the ministry. Like Labardini, he conceded that there will be a “new look” to the reform under the future administration.

Zepeda may, in fact, not be the last regulator to step down. “There’s going to be a hemorrhage of competent technocrats because their salaries are going to be at least 40% lower,” The Baker Institute for Public Policy’s Tony Payan said Tuesday at the US-Mexico Natural Gas Forum in San Antonio, TX, shortly before rumors of Zepeda’s impending departure began circulating on Twitter.

“And many people are already retiring, by the way,” Payan, who directs the institute’s Mexico Center, said. “I know quite a few people” at Petroleos Mexicanos (Pemex) “who are already retiring before Nov. 30, so that they can retire at the current salary.”

In many ways, Zepeda has been one of the most prominent figures to emerge from the energy reform.

The reform’s architect, current President Enrique Pena Nieto, has seen the energy reform lose its sparkle in recent years under a swamp of media accusations of corruption and rampant crime, which were reflected in July’s overwhelming victory in July by his sworn political enemy, López Obrador.

Pena Nieto is due to hand over power in December, but he has effectively abdicated, in a way that is without precedent in Mexico. In all but name, López Obrador to many has been the nation’s president since his election.

Current Energy Secretary Pedro Joaquin Coldwell is a worthy veteran of Mexico’s political scene, but Zepeda rapidly stole the reform show with his innovation and verve. As others sought excuses for the disappointing results in 2015 of the first upstream auctions for the best part of a century in Mexico, he got down to business.

What he explained then was that Mexico had to ask the companies what they wanted from the auctions, not the other way around. Where the approach had been “take it or leave it,” the companies were invited to make clear their preferences for auctions. The result has been more than 100 contracts that are valued, by official calculations, at $180 billion total.

Unlike many public servants who have worked on the reform, Zepeda has appeared to never regard the reform’s terms and conditions as though engraved on a tombstone. In triumphant tones, several officials and their acolytes proclaimed that the energy reform was irreversible, a word that they often pronounced with considerable emphasis.

What is happening now in Mexico, with the reform under fire from several sides in a polarized nation, gives the lie to those claims, said Baker.

Pemex, 100% state-controlled like Saudi Aramco and Venezuela’s PDVSA, Baker pointed out. Others such as Colombia’s Ecopetrol, Norway’s Equinor ASA, have mixed capital, in which the public can buy and sell shares. “That is a democratic system. It breaches no return to a state monopoly unless the state itself becomes a monopoly,” said Baker.

Even before the reform was enacted, many analysts urged a “big bang” public offering of Pemex to herald it. None was ever attempted, and the most recent indications are that one would now take about five years to organize.

Nobody else within the government appeared to give more than a hint in order to break the impasse. Nobody, that is, except Zepeda, who has proposed within several forums to preserve the virginity of Pemex as a state enterprise while, as in China, private investment is drawn in to it by a state capital fund that operates in international markets.

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Officials At Mexico’s Central Bank, Oil Regulator Resign

(Financial Times, Jude Webber, 14.Nov.2018) — A deputy governor of the Bank of Mexico and head of the country’s oil regulator have both stepped down early from their posts, a fortnight before Andrés Mañuel López Obrador is sworn in as president.

Roberto del Cueto Legaspi, the oldest member of Banxico’s five-strong board, will step down from November 30 for health reasons, the central bank said. His term had run until December 2022.

He will still be in his post for Thursday’s rate decision — when a 25 basis points rise to 8 per cent is widely expected — and for the next quarterly inflation report on November 25.

Mr López Obrador, a leftist nationalist who takes office on December 1, has already named Jonathan Heath, an independent economist, to replace Manuel Ramos Francia, another board member, whose term ends on December 31.

It was not immediately clear who would be named to replace Mr del Cueto Legaspi but the bank’s statutes allow it to function with four board members.

Also tendering his resignation was Juan Carlos Zepeda, president of the National Hydrocarbons Commission (CNH).

He said in a statement he was leaving his post as of December. His departure — after two terms — had been widely expected although his term had been due to end in May.

The incoming government has been critical of Mexico’s energy reform, which ended the eight decades-old monopoly of state oil company Pemex.

Mr Zepeda, widely praised for running a series of transparent oil auctions, said he left the sector with 74 oil companies from 20 countries operating, including 36 new Mexican firms, and said 23 wells were due to be drilled in 2019, a 65 per cent increase in offshore oil exploration compared with the 2010-13 period, before the oil price crash.

Mr Zepeda said he would join a fund focused on infrastructure and energy next year. He could not immediately be reached for comment on reports that his departure came after pressure from incoming Energy Secretary Rocío Nahle, but he said in the statement he would remain an external adviser to the ministry, at Ms Nahle’s request.

Already weak in the wake of Mr López Obrador’s decision to scrap a partially built new airport and confusion over a bill tabled by his Morena party to axe “usurious” bank fees, the peso currency fell sharply on the surprise Banxico resignation, and growing expectations that the USMCA free-trade deal may not have an easy ride in the new US Congress.

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Mexico Should Fix Pemex Finances Before New Refining Investments: IMF

(Reuters, 8.Nov.2018) — The International Monetary Fund (IMF) on Thursday called for an improvement in Mexican state oil company Pemex’s financial position before it invests in building new refineries.

Mexico’s incoming leftist government has vowed to build what could be the country’s largest oil refinery, with construction set to begin as soon as next year. It says investment could be financed by Pemex.

“A strengthening of Pemex’s financial situation was a prerequisite to contemplating new investments in refining,” the IMF said in a statement.

Pemex held total financial debt of $106 billion as of Sept. 30, with nearly 86 percent of the debt denominated in currencies other than the Mexican peso, mainly in U.S. dollars, according to the firm’s quarterly results report.

On Oct. 31, credit agency Fitch revised Mexico’s rating outlook to negative, citing “growing risks for contingent liabilities” for Mexico from Pemex.

“Proposals that Pemex invest in new refining capacity to substitute for gasoline imports would entail higher borrowing and larger contingent liabilities to the government,” Fitch said at the time.

Fitch revised its outlook two days after President-elect Andres Manuel Lopez Obrador, who takes office on Dec. 1, said he would cancel a partly built new Mexico City airport in which billions of dollars have already been invested, pummeling the peso currency.

The IMF also called for “a continuation of the energy sector reform and private participation in the oil and gas sector to bring in necessary investment and boost production and growth.”

Lopez Obrador opposed a constitutional change pushed through by Mexican President Enrique Pena Nieto that opened production and exploration in the energy sector to private capital.

Mexico has already awarded more than 100 oil exploration and production contracts to private companies, which Lopez Obrador has said he would respect as long as a review does not find evidence of corruption.

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Pemex Promotes Actions To Reduce Risks Caused By Fuel Theft

(Pemex, 8.Nov.2018) — Pemex and the Government of the state of Puebla have agreed to promote civil defense actions to mitigate the risks that arise from fuel theft in this state.

Pemex CEO, Carlos Treviño, and the Governor of the state of Puebla Tony Gali, agreed to refine the plans set in place to prevent any incidents that may be caused by LP gas leaks or fuel leaks from criminal activity attacking Pemex infrastructure.

The Governor-elect of the state of Puebla, Marta Erika Alonso, the Secretary of Internal Affairs for the state of Puebla Diódoro Carrasco, and the General Director of Civil Defense for the Secretariat of Internal Affairs Luis Felipe Puente attended the meeting, which was held at Pemex Executive Tower in Mexico City.

Carlos Treviño stated that the state-owned productive company will reinforce all of its prevention measures to continue collaborating with the three branches of government in its fight against this crime, and will do everything in its power to promote effective and timely civil defense strategies.

Those present agreed on the importance of creating a joint civil defense plan, with the sole purpose of safeguarding the integrity of the civilian population that might be affected by an accident caused by fuel and hydrocarbon theft, especially in the state of Puebla.

On September 12, an illegal tap placed on one of the pipes going through the neighborhood of Villa Frontera, a densely populated area north of the capital of Puebla, caused an LP gas leak that could have turned into a tragedy due to the sheer amount of LP gas released deliberately into the atmosphere.

Pemex CEO, Governor Gali, and Governor-elect Alonso – who will take office on December 14 – all underscored the importance of scheduled meetings to keep all civil defense measures updated because the most important thing is to safeguard the lives of Puebla’s inhabitants.

The company, which is the patrimony of all Mexicans, once again appeals to the general public to report all criminal activities that damage its infrastructure, as this threatens the safety and integrity of any nearby communities. To file a report, call the toll-free number 01-800 228 96 60 or email vigilante@pemex.com where you can anonymously report any activities related to fuel theft, illegal fuel storage and sale of stolen fuel.

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Fitch’s Mexico Outlook Downgrade Based On Energy Policy Uncertainty

(NGI, Andrew Baker, 6.Nov.2018) — Fitch Ratings late last month revised its outlook for Mexico, citing, among other things, potential energy policies to be implemented by incoming President-Elect Andrés Manuel López Obrador.

Fitch credit analysts retained their investment grade BBB+ rating on Mexico’s sovereign debt, but lowered their long-term, foreign currency issuer default rating (IDR) outlook to negative from stable.

Fitch cited uncertainty over the future of energy policy for Petroleos Mexicanos (Pemex) by under the incoming administration, as well as cancellation of a $13 billion airport as factors that drove the decision.

“Proposals for large capital investments by state-owned oil company Pemex, whose balance sheet and standalone creditworthiness have been under pressure (resulting in Fitch revising the outlook on the company’s rating to Negative), add to the growing risk related to contingent liabilities for the sovereign,” analysts said.

López Obrador, who takes office Dec. 1, has pledged multibillion-dollar investments to upgrade existing oil refineries and to build another one, in order to ensure energy security.

Critics have argued that Pemex, the most indebted oil company in the world, is in no condition to take on a project of this magnitude and that it should instead focus on reversing a 15-year oil and gas output slide through partnerships with the private sector.

López Obrador has set a goal of boosting oil output to 2.5 million b/d in 2024 from 1.8 million b/d currently, but he has objected to bid rounds that award operating stakes in upstream acreage to international oil companies.

The president-elect said recently that he will suspend upstream bid rounds until they begin to “show results.” The next tenders are scheduled for February.

Investors were further spooked by a bill introduced in the lower congressional house by a member of López Obrador’s party to bring independent energy regulators Comisión Nacional de Hidrocarburos (CNH) and Comisión Reguladora de Energía (CRE) under the control of the executive branch. The move, some analysts said, would give an unfair advantage to Pemex and scare away private capital from Mexico’s newly liberalized energy sector.

The most cataclysmic measure taken by the president-elect so far, however, was late last month, when he affirmed plans to cancel the construction already underway of Mexico City’s international airport, in which $100 million to date has been invested.

“The decision to cancel the construction of a new airport for Mexico City sends a negative signal to investors,” Fitch analysts said.

Canceling the project has stoked fears that a similar fate could await the 107 oil and gas contracts awarded through bid rounds since the 2013 energy reform.

López Obrador has argued that the key to restoring oil and gas output is to give Pemex a bigger budget and more autonomy. Proponents of the reform, meanwhile, have countered that Pemex should take advantage of bid rounds and public-private joint-ventures to share risk and technological know-how with the private sector, particularly in areas such as unconventional and deepwater exploration and production (E&P), in which Pemex lacks experience.

Although Pemex swung to a profit of 27 billion pesos ($133 million) in the third quarter from a year-ago loss of 102 billion pesos, production continued to slide.

Local think tank Pulso Energético highlighted in a recent note that Pemex net debt stands at $14/bbl of proven reserves, up from $9.20 in 2015.

“Oil production, dominated by state-owned Pemex continued to decline in 2018, bucking expectations that it would stabilize,” Fitch analysts said. The transition team for López Obrador “has been reviewing contracts signed with private oil companies and has sent mixed signals on the energy reform, which allows private oil companies a bigger role in the industry in return for higher investment and production.”

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Talos Updates On Pre-Unitization Agreement With Pemex

(Talos Energy Inc., 5.Nov.2018) — Talos Energy Inc. and its partners in Block 7 offshore Mexico signed a Pre-Unitization Agreement (PUA) with Pemex that enables information sharing related to the Zama discovery and its potential extension into Pemex’s neighboring block.

The agreement also establishes a clear path for the signing of a Unit Agreement and Unit Operating Agreement in the event a shared reservoir is confirmed, with a defined process based on international practices to determine the resulting participation of each party in the potential overall development.

The PUA was previously approved by the Ministry of Energy (SENER) in Mexico.

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Talos Energy, Pan American Ink Deal To Cross-Assign Interests In Mexico

(Talos Energy Inc., 5.Nov.2018) — Talos Energy Inc. entered into a transaction with, Hokchi Energy, S.A. de C.V., a subsidiary of Pan American Energy, to cross-assign its Participating Interest (PI) in Block 2 and Pan American’s PI in Block 31, both in the Sureste Basin offshore Mexico.

Under the agreed conditions for the swap, Talos will assign a 25% PI in Block 2 to Pan American in exchange for a 25% PI in Block 31, which is immediately to the south of Block 2.

On October 30th, CNH approved the PI transfer of Block 2 to Pan American. Approval of the transfer of the Block 31 PI to Talos and the transfer of operatorship of Block 2 to Pan American are expected in the coming weeks. Once that occurs and the transaction is closed, Pan American will be the operator of both blocks and Talos will own a 25% PI on Block 2 and a 25% PI on Block 31. The goal of this transaction is to better aggregate each party’s inventory into one potential development program to increase scale in terms of total resources and total combined production. The contract areas are located in water depths between 100 and 150 feet (25 and 35 meters).

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Talos Energy Announces Approval Of Zama Appraisal Plan In Mexico

(Talos Energy Inc., 5.Nov.2018) — The National Hydrocarbons Commission (CNH), the Mexican oil & gas regulator, has approved the appraisal plan for the Zama discovery.

The approval by the CNH was a key approval required to commence the appraisal of the Zama discovery. CNH has also approved the consortium drilling permits, which are required to commence drilling operations. Talos estimates it will spud the first appraisal well, Zama-2, in late November of 2018 and that the appraisal program will be completed by mid-2019.

The appraisal plan includes three new reservoir penetrations. The first well in the program, Zama-2, will be deepened by approximately 500 meters to test an exploration prospect called Marte. The estimated cost to deepen the Zama-2 wellbore for the Marte test is approximately $10 million gross, with Talos’s share expected to be approximately $3.5 million. Talos expects its net share of the costs to be approximately $75.0 million to $80.0 million for the entire appraisal campaign.

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Pemex Likely To Launch McDermott Offshore Platform In April

(Reuters, Marianna Parraga, Ana Isabel Martinez, 1.Nov.2018) — Mexico’s state-run Pemex is expected to start operating in April the largest offshore oil platform built in the country in a decade, which was constructed by McDermott International, an executive of the engineering firm said on Thursday.

Pemex is trying to reverse a 14-year crude output decline by boosting its offshore operations, especially in shallow waters along the southern Gulf of Mexico. Pemex has long been focused on the area, which is expected to see more activity from private producers that have won development rights there since 2015.

The new platform will replace a similar one that was damaged by a large fire in 2016 that killed three workers.

“McDermott is 100-percent vertically integrated. We were in charge of engineering here in Mexico, purchases, construction, transportation and installation. We will deliver the platform ready for operation,” Alfredo Carvallo, director of McDermott’s Mexico unit, told Reuters in a interview.

The Abkatun-A2 platform required an investment of $454 million, 180 Mexican engineers, 2,600 direct workers and over two years to be completed, Carvallo added.

The facility can handle up to 220,000 barrels per day (bpd) of crude output and 352 million cubic feet per day of natural gas. It is expected to serve Pemex’s most prolific shallow-water oilfields, including Ku-Maloob-Zaap, located in the Campeche Bay.

The 15,000-tonne platform, built near the port of Altamira in northeastern Tamaulipas state, is the first one fully assembled in Mexico. Transportation to its final location is expected to be completed in November, followed by installation and testing in the following months.

McDermott has built 10 platforms in the last decade for Pemex and is working on two additional infrastructure projects for the state-run firm. The company has been using its Altamira hub to build platforms for oil companies across the Americas, including Trinidad & Tobago in the Caribbean.

McDermott earlier this week said it was awarded a contract by Brazil’s state-run Petrobras to design and build a pipeline associated with a gas export system in the Santos basin’s pre-salt area.

McDermott also announced it plans to divest its global storage tank business and pipeline construction in the United States, which had combined revenues of about $1.5 billion last year.

Pemex’s crude output slightly increased to 1.825 million bpd in September, but its accumulated annual average of 1.863 million bpd is 4 percent below last year’s production, the company said on Thursday.

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Mexico Spends $1.2 Billion To Lock In Crude Rally For 2019

(Bloomberg, Eric Martin, 30.Oct.2018) — Mexico spent about 23.5 billion pesos ($1.2 billion) through the third quarter from its budget stabilization fund, which historically has been used almost exclusively to hedge forward oil prices, according to a quarterly report.

The hedges, often known as Wall Street’s largest oil trade, are kept private to prevent hedge funds and trading houses from front-running the Mexican government’s orders. The document doesn’t detail how much crude was hedged. The government may be close to finished with purchasing the hedges to cover next year’s exports, assuming costs remained about the same as last year, when it spent 24.1 billion pesos.

The report suggests that most of the hedging so far for 2019 was done from April through June; a previous report showed Mexico spent 13.8 billion pesos for the same purpose during the first half of the year, meaning that it spent 9.6 billion pesos on puts in the third quarter. While that may have allowed Mexico to lock in prices as the nation’s oil mix rallied 22 percent in the second quarter, the government might have been better off waiting, given that prices climbed another 13 percent to an almost four-year high of $77.73 a barrel earlier this month.

The government can typically hedge at a lower cost when oil prices are higher, given that higher prices can make the banks it works with feel more comfortable that the market will continue to rise and the nation will be less likely to collect on the puts, which act like a kind of insurance against a drop in prices. Mexico has received handsome payouts from the program, earning a record $6.4 billion in 2015 after the Organization of Petroleum Exporting Countries embarked on a war for market share that sent prices tumbling. The country made $5 billion in 2009, after the global financial crisis, and another $2.7 billion in 2016.

Bloomberg News reported in May that Mexico had been asking counter-parties for quotes to hedge crude exports.

The team of incoming President Andres Manuel Lopez Obrador has said the oil hedging program by the Finance Ministry and the state-owned oil company known as Pemex, will continue during his administration.

— With assistance by Carlos M Rodriguez

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Weatherford Reports Higher Activity Levels In Argentina and Mexico

(Energy Analytics Institute, Ian Silverman, 29.Oct.2018) — Weatherford International plc reported Western Hemisphere 3Q:18 revenues of $762 million were down $7 million, or 1%, sequentially, and down $5 million, or 1%, year-over-year, the company reported in an official statement.

Compared to the second quarter of 2018, revenues in Canada improved seasonally as the rig count increased following the spring breakup, but were offset by lower results in the United States and negative foreign exchange impacts in Latin America.

Year-over-year revenue increases from integrated service projects in Latin America were offset by lower activity levels in Canada as crude differentials expanded, which reduced demand for Completions and Production services and products.

Third quarter segment operating income of $78 million was up $28 million sequentially and up $75 million year-over-year. The sequential increase benefited from lower expenses and improved operating efficiencies mainly associated with the transformation. The year-over-year improvements were driven by a combination of higher activity levels in Argentina and Mexico and the positive impacts from our transformation efforts, which overcame lower operating results in Canada and foreign exchange effects in Latin America, the company said.

Operational highlights in Latin America during the quarter include:

— In Mexico, Weatherford replaced an incumbent’s system with the Magnus RSS, which ran onshore alongside the RipTide® drilling reamer to drill and enlarge a directional well with a 42° profile.

— Weatherford displaced an incumbent in Brazil by signing a new tubular running contract with Petrobras. The contract awards Weatherford work on 14 deepwater rigs, which represents significant market share.

— Working in collaboration with a customer, Weatherford devised an integrated solution that included logging, pressure pumping services, and the FracAdvisor® workflow to execute the first documented multistage frac job in the Jurassic Superior Pimienta Shale in Mexico. The large-scale solution complied with new government regulations and overcame significant logistical issues to fracture 17 stages in less time than allotted.

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Venezuela, Mexico Divert Crude To U.S. As Canadian Barrels Get Stuck

(Reuters, Marianna Parraga, Collin Eaton, 26.Oct.2018) — Cash-strapped state-run oil companies in Mexico and Venezuela have begun diverting crude historically processed for domestic use and sending it to U.S. refiners now facing transportation constraints to secure similar grades from Canada, data shows.

The situation reflects an unusual set of events, including urgent needs by Venezuela and Mexico for cash for debt payments and investment, and demand for heavy crude in the United States due to less availability of Canadian oil, said traders and analysts.

The United States imported 1.675 million barrels per day (bpd) of Latin American crude in August, the highest level since May 2017, according to Refinitiv Eikon data.

That gain occurred even though the preferred Latin American grade, Mexican Maya, fetches an about $50 a barrel premium to Western Canadian Select (WCS), because of transportation costs. Moving a barrel of Maya via tanker to the U.S. Gulf Coast costs about $1.50, compared to $35 for WCS via pipeline and rail.

“Those who are arriving late to the (Canadian oil) party will have to pay more for a Latin American heavy crude or Iraqi Basrah Heavy,” said a trader who regularly buys Canadian and Latin American grades.

CASH NEEDS RISE

Latin America’s recent export drive has come mostly from Mexico, Brazil and Venezuela, despite a long-standing regional oil output drop. In the last decade, suppliers with the exception of Brazil have reduced crude shipments overall, especially to the United States.

In the case of Venezuela, state-run PDVSA “needs cash both for paying holders of the 2020 bond this month and for paying (an arbitration award to) ConocoPhillips,” said Robert Campbell, oil products research chief at consultancy Energy Aspects, referring to two huge bills due in coming days.

Petroleos Mexicanos is raising cash mainly for refinancing its heavy corporate debt. Selling more of its coveted Maya crude could help refurbish refineries working at historically low rates.

Pemex and PDVSA did not respond to requests for comments.

Before the shale boom, many U.S. Gulf Coast refiners configured their plants to run Latin American and Middle Eastern crudes, with Venezuela and Mexico as top suppliers. As those shipments dwindled, refiners turned to shale and Canadian oil.

But pipeline constraints in Canada are shifting imports again, at least in the short term.

U.S. refiners want more Canadian crude “because it’s cheap,” one trader said, but “unless someone builds a new pipeline,” it will be difficult boost imports further.

U.S. imports of Canadian crude by pipeline rose to 3.6 million bpd in the week ending Oct. 12, hitting 98 percent of capacity. Crude-by-rail shipments also are up, to a record 284,000 bpd in the week ended Oct. 12 from 85,000 bpd in October 2017, according to data provider Genscape.

“These pipelines are absolutely full,” said Dylan White, an oil markets analyst at Genscape. “There’s no room for growth.”

IMBALANCES

The strategy of boosting crude exports while importing more fuel could backfire for Latin sellers. Pemex would have to boost fuel purchases if its refineries do not restart in coming months after outages and unplanned maintenance work, and PDVSA has few options to stop imports from growing.

Latin America has increased U.S. fuel purchases by 7 percent to 2.87 million bpd so far in 2018, lifted by purchases by Mexico, Venezuela, Chile and Peru, according to the U.S. Energy Information Administration.

“Mexico has chosen to import more gasoline. It makes a lot of sense, but it could go out of control,” Campbell said, referring to relatively cheap gasoline prices compared to Latin American heavy crudes.

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Burns & McDonnell Says Eduardo Andrade Joins Firm As Mexico Ops Director

(Burns & McDonnell, 25.Sep.2018) — Eduardo Andrade, a longtime executive in the Mexico energy industry, has joined Burns & McDonnell as its general director in Mexico for Burns & McDonnell Services S.A. de C.V. In that role, he will oversee the company’s pursuit of power generation and electrical transmission projects as Mexico moves quickly to upgrade its energy infrastructure. Over the past 30 years, Andrade has served in a variety of executive roles for large companies in Mexico with significant operations in the energy sector.

“Mexico is quickly becoming a first-world economy thanks to investments in the power and energy sectors and Eduardo has been a key influencer in that process due to his professional and civic roles over the past several years,” says Mike Brown, President of Burns & McDonnell International. “We’re thrilled to have him on our team and ready to get to work helping Mexico achieve its potential on the global stage.”

“I have spent my entire career advocating for investments and improvements to Mexico’s power and energy sectors because I believe strongly this is the best way forward to improve the lives of my fellow countrymen,” says Andrade. “This opportunity to lead Burns & McDonnell, the number one power firm in America, to bring their skills and expertise to my home country of Mexico is a dream come true.”

Prior to joining Burns & McDonnell Andrade was Executive President for Mexico for Sacyr, where he was responsible for a number of business initiatives related to recently enacted constitutional reforms in Mexico. Sacyr is a multi-national corporation with engineering and construction projects in 29 countries across five continents. In addition, Andrade has held executive positions with Iberdrola, a Spanish energy company with global operations, and Techint, the world’s second largest steel producer with additional businesses in construction and oil and gas production.

Andrade is a founder of the Mexico Energy Association and the Energy Chapter with the Canadian Mexico partnership. He is a past president of the World Energy Council, Mexico Chapter, and currently serves on the Mexico Energy Regulatory Commission’s External Advisory Board for electricity. He holds a civil engineering degree, with concentration in project management, from Universidad de Mexico and a graduate degree in corporate finance from ITESM (Instituto Tecnológico de Estudios Superiores de Monterrey).

In 2016, Burns & McDonnell established an office in Mexico City to pursue engineering/procure/construct (EPC) project opportunities in the power and energy sectors.

Earlier this year, the company was certified by the Centro Nacional de Control De Energía (CENACE), enabling the company to gain access to critical data on grid performance and other system performance measures as a means to offer engineering consulting services to clients and the system operator. The certification has enabled Burns & McDonnell to develop master plans on a number of improvements that are necessary to improve system reliability and resilience. Formed in 2013 in the wake of a reform of Mexico’s energy industry, CENACE is Mexico’s independent system operator for the country’s electrical grid.

Burns & McDonnell has had a presence in Mexico for more than 100 years, beginning in 1908 when company founders Clinton Burns and Robert McDonnell won a bid to develop a hydroelectric project for El Tigre Mining. Over the following decades, the company has engineered and built a number of projects, including a massive new wastewater treatment facility in Monterrey that was the largest treatment facility in Mexico when completed in 1997.

Mexico implemented far-reaching reforms of its power and energy industries in 2014 after decades of monopoly control by state-run enterprises PEMEX and Comisión Federal de Electricidad (CFE). Both sectors are now open to private investment by both U.S. and international businesses. Solar, wind and gas-fired generating facilities are being added to the Mexico grid while other projects are being planned to upgrade its power transmission and distribution system.

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Private Investment To Drive Mexico’s Oil Production Growth

(Chron.com, Rye Druzin, 24.Oct.2018) — Mexico’s national oil company is expected to only produce 1.9 million barrels a day by 2031.

Mexico’s oil production could rebound to 3.5 million barrels a day, boosted by a wave of recent private investment in the country’s vast oil and gas reserves.

Private oil production, which in 2018 is expected to be just 37,000 barrels a day, could balloon to 1.4 million barrels a day by 2031, according to data from a professor from the Universidad Autonoma de Coahuila in Mexico, presented at an Eagle Ford Shale event Wednesday in Laredo.

Mexico liberalized its oil and gas industry in 2013 after decades of a monopoly for the national oil company, Petroleos Mexicanos or Pemex. The market reforms allows private companies to come in and develop oil and gas resources in Mexico.

Javier Lopez, a San Antonio attorney specializing in energy issues, addressed concerns about Mexico’s President-elect Andrés Manuel López Obrador, who has said he wants more state control over Mexican oil and gas resources and has discussed changes to the country’s framework to sign contracts with private energy companies.

The new government may not like the liberalization, but is legally not allowed to do anything to existing contracts, Lopez said.

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President-elect Lopez Obrador Slams Pemex For Crude Import Plan

(Reuters, 23.Oct.2018) — Mexico’s president-elect Andres Manuel Lopez Obrador on Tuesday criticized state-run Pemex’s plan to import U.S. light crude from refiner Phillips 66, calling it a sign of the country’s failed economic policies.

Pemex is set to begin crude imports in November, for the first time in over a decade. It needs them to feed Mexico’s main refinery, which is working below capacity due to a lack of light oil.

The purchase of 1.4 million barrels of U.S. Bakken crude will follow a tender awarded earlier this week to Phillips 66. Up to 100,000 barrels per day (bpd) of crude imports are planned for the last quarter of 2018.

“This announcement … is another example of the great failure of neo-liberal economic policies in the last 30 years,” Lopez Obrador said on Twitter.

Once he takes power in December, Lopez Obrador could force Pemex to halt the imports, which would likely impact domestic refining and boost the need for other kinds of imported fuel.

The issue has divided opinion among his allies.

One of his economic advisers, Abel Hibert, said earlier this month that crude imports could continue as a way to increase processing levels at Mexico’s refineries, even after Lopez Obrador takes office.

“I think Pemex has good reason to do it due to current market conditions,” he told local media.

Mexico’s light crude output has declined faster than expected this year, hit by operational problems at the Xanab oilfield.

Pemex chief executive Carlos Trevino has said the company’s goal of producing 1.95 million bpd of crude this year will not be met, and that the 2019 target is also likely to be missed.

If Pemex does not start crude imports for its refining network, purchases of finished fuel, especially gasoline, would grow again to satisfy Mexico’s consumption of about 1.5 million bpd, analysts have said.

Lopez Obrador’s main plan for the oil industry involves building a new mid-size refinery to boost fuel production while reducing crude exports with the final goal of halting them.

He has criticized his predecessor’s opening of the oil and gas industry to foreign investment, but has not given details of how he would reverse the country’s dwindling crude production.

Rating agencies Moody’s and Fitch earlier this month said cutting oil exports would imply a significant cash flow sacrifice for Pemex, whose main source of revenue is crude exports. Fitch changed Pemex’s outlook to negative from stable.

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Pemex Taking Preventative Measures Ahead of Hurricane Willa

(Pemex, 23.Oct.2018) — Pemex implemented the Hurricane Emergency Response Plan (PREH initials in Spanish) to safeguard and protect workers’ safety and its facilities in the states of Jalisco, Nayarit, Colima, Sonora, and Sinaloa.

Because of the geographical region where the hurricane is expected to make landfall, it will not impact directly into the company’s facilities.

The Storage and Distribution Port Terminals (TAD initials in Spanish) of the Pacific Regional Logistics Management, which are located in the states of Sinaloa and Nayarit, are currently operating with preventative measures due to extreme weather conditions. Currently reporting no setbacks.

The TAD in Mazatlán is the only facility that had shut down since 15:00 hours onwards, in accordance to the instructions with the government of the city of Mazatlán and the state of Sinaloa’s Civil Defense Agency, to stay sheltered in place and roads clear for emergency vehicle transit only.

Furthermore, taking into account that heavy rain and strong winds are expected, the system shutdown was performed, and operating areas were turned off as additional preventative measure.

This Tuesday morning, the supply of Pemex products was prioritized for the areas that could be affected by the hurricane. It is important to note that the company has sufficient products on hand to cover fuel demand over the coming days.

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Pemex Confirms No Natural Gas Shortages In The Southeast Of Mexico

(Pemex, 23.Oct.2018) — Petróleos Mexicanos through its subsidiary Pemex Transformación Industrial (acronym in Spanish, TRI), confirms delivery of almost 100 MMcf/d of natural gas for customers in the Mexican Southeast using a first hand sales scheme.

This measure guarantees there will be no natural gas shortages in the southeast region.

Pemex wishes to remind customers that they have various commercial options to acquire natural gas to meet their requirements.

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Phillips 66 Wins Tender To Sell U.S. Bakken Crude To Pemex -Traders

(Reuters, 22.Oct.2018) — Refining firm Phillips 66 was awarded a tender to supply Mexico’s Pemex with at least four 350,000-barrel cargoes of U.S. Bakken crude for delivery from November through December, traders with knowledge of the offer’s results said on Monday.

The purchase will mark the state-run company’s first crude import in more than a decade.

(Reporting by Marianna Parraga Editing by Dave Graham)

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Pemex Designates Four Shipments to Import Light Crude Oil

(Pemex, 22.Oct.2018) — Petróleos Mexicanos evaluated several proposals for shipments to supply light crude oil, in accordance to the parameters established by Pemex Transformación Industrial (Pemex Industrial Transformation).

As a result, PMI assigned four shipments of 350,000 barrels each for the import of Bakken light crude oil, which will be delivered during the month of November.

Currently, the contracts are in the process of being signed and the details of the assignment will be published once this process is completed.

This decision is in line with the strategy to improve the quality of the crude oil used in the National Refining System, which will result in higher value distilled products, such as gasoline and diesel fuel.

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Mexico’s Peso Falls To Lowest Level In 5 Weeks On Pemex Outlook

(Reuters, 19.Oct.2018) — Mexico’s peso currency reversed gains on Friday to fall 1 percent, hitting its lowest level in five weeks after a report by ratings agency Fitch on national oil company Pemex.

Following the decision by Fitch to revise the company’s outlook rating to negative from stable, the peso currency weakened to 19.34 pesos per dollar. (Reporting by Miguel Angel Gutierrez)

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Petrofac Completes Sale Of 49% Interest In Mexican Operations

(Petrofac Limited, 19.Oct.2018) — Petrofac Limited announces that it has completed the sale of 49% of the company’s operations in Mexico to Perenco (Oil & Gas) International Limited, following approval from the Federal Competition Commission of Mexico (COFECE).

Related Stories

Petrofac Introduces Partner In Mexico

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Gas Shortages In Southern Mexico To Reach Critical Levels In November

(S&P Global Platts, 18.Oct.2018) — Gas shortages in southern Mexico will reach a critical point in November as Pemex natural gas production continues declining and users lack access to LNG terminals, industrial users in southern Mexico told S&P Global Platts on Thursday.

Pemex is not nominating gas for several industrial users in southern Mexico as a result of decreasing production, Cleantho de Paiva Leite, director for new businesses with Braskem Idesa, told Platts on the sidelines of the Mexican National Petrochemical Forum.

“The situation could lead to a complete stoppage of the industrial activity in southern Mexico,” said de Paiva Leite, whose company operates the most polyethylene capacity in Mexico.

Pemex is allocating its diminishing gas output to fulfill the needs of its subsidiaries and power generators, a second petrochemical company in southern Mexico told Platts at the forum.

PIPELINE CONSTRAINTS

Gas shortages in southern Mexico have become more acute due to infrastructure constraints on gas flows into Coatzacoalcos, Veracruz, one of Mexico’s largest petchem and industrial hubs, Paiva said.

This situation will be eased once the Mexican government completes the reconfiguration of the Cempoala compressor station in the state of Veracruz, which is expected to be completed in Q1 2019, according to Mexico’s Energy Secretariat (SENER).

The only options for users in this situation is to shut down operations or consume gas without a nomination being sent to Pemex, which would result in steep penalties, Miguel Benedetto, general director of the Mexican Association of the Petrochemical Industry (ANIQ), told Platts on the sidelines of the forum.

However, consuming gas under or above the nominated level leads to natural gas imbalances in the network that is addressed by system operator Cenagas via LNG injections, Benedetto said.

A large steelmaker in northern Mexico told Platts that some industrials with access to declining Pemex gas fields in northern Mexico also are resorting to taking gas from the system without nominations and incurring imbalance penalties.

Earlier this month, Mexico’s business coordinating council, or CCE, told Platts that Pemex also is not delivering all the gas that is being nominated.

“It isn’t a good signal. We are having gas supply problems,” Roger Gonzalez, president of CCE’s energy commission, told Platts. “The reduction has been limited, but this is decreasing system pressure and affecting industrial users’ operations.”

LNG PENALTIES

Cenagas charges for LNG at spot prices with a 50% penalty, which is hugely uncompetitive, he added. “So, choose how you want to die: by shutting down operations or paying $21/MMBtu gas,” Benedetto said. LNG prices in Mexico are three to four times more expensive than continental gas imports.

Pemex, Braskem Idesa and INAQ told Platts that to address the current gas shortage the Mexican government must stop targeted LNG penalties to shippers and end-users and reverse deregulation to a situation in which all users share LNG costs.

Benedetto said the government needs to intervene because the imbalances on the system are a result of gas shortages due to declining Pemex production.

“Before when unbalances happened, LNG expenses were shared by everyone in Mexico, pushing gas prices to $4-$5/MMBtu. Now, we in the south pay gas at $20/MMBtu due to the new balancing regulation,” Paiva said.

Recent data from SENER shows the gas demand in the petchem sector has been in free fall, reaching 214 MMcf/d in 2016 from 697 MMcf/d in 2013.

Pemex didn’t immediately respond to requests for more information on the southern supply shortages. However, Carlos Trevino, Pemex’s CEO, previously told Platts the country is facing irregularities in its gas supply. “Without a doubt, there is not enough gas to supply all the market demand including Pemex and its subsidiaries,” Trevino said in an interview at the Mexican Petroleum Congress in Acapulco at the end of September.

REVERSING LIBERALIZATION

Benedetto said ANIQ wants Mexico’s Energy Regulatory Commission (CRE) to reverse the liberalization of wholesale gas prices, known as first-hand gas sales or VPM.

CRE previously set the maximum price for gas to be sold by Pemex using a formula based on US prices. VPM prices were regulated under this formula at two hubs, Reynosa on the Mexico-Texas border and Ciudad Pemex in southern Mexico. The switch to free-market conditions was expected to provide Pemex and other independent producers the revenue to reverse the country’s production declines.

Pemex’s gas production has declined from more than 6 Bcf/d at the beginning of the decade to an average of 3.9 Bcf/d in 2018, SENER’s data shows.

Benedetto said no open-market conditions exist today in southern Mexico, adding that lack of infrastructure to move gas south prevents new shippers from servicing users in this region, leaving a captive market under Pemex.

Pemex also isn’t reacting to market incentives to boost production in southern Mexico although industrial users are being curtailed or are having to pay LNG gas prices, he added. The regulations anticipated a “competitive market that doesn’t exist,” Benedetto said.

Braskem Idesa’s Paiva said that Mexico can’t change overnight from a state monopoly to a free market without ensuring there is enough infrastructure and interconnections in the system. “This has to be an organized transition with the coordination of CRE, Cenagas, Pemex, and SENER,” he added.

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Moody’s: Mexican Government’s Plan To End Oil Exports Raises Risks

(Kallanish Energy, 18.Oct.2018) — The incoming Mexican government’s announcement to end oil exports is credit negative to both Petroleos Mexicanos (Pemex) and to the government’s credit quality, says Moody’s investors Service, in a new report.

The oil company’s operating cash flow would decline and become more volatile under the new refining-focused business model, Moody’s believes.

“Pemex would be exposed to greater foreign exchange volatility, since its income from fuel sales would be in Mexican pesos, while 87% of its $104 billion debt as of June 2018 is in U.S. dollars or other hard currencies.” said Moody’s senior vice president Nymia Almeida.

“The new plan could also force Pemex to import crude, which would add to its cash-flow and foreign-exchange risk.”

The oil company’s credit quality would weaken depending on how much crude it needs to import to feed its refining capacity, Kallanish Energy understands.

Moody’s believes the risk of Pemex posting lower operating cash flow within the next three years is even greater considering the upward momentum on crude prices, and the new government’s stated intention to not increase domestic fuel prices.

Although the federal government has decreased its reliance on oil revenue since its 2013 tax reform, the loss of oil revenue from a loss-generating Pemex could substantially widen Mexico’s fiscal deficit.

Plans to halt oil exports would deprive the government of nearly 2% of GDP (Gross Domestic Product) in revenue, forcing it to raise taxes or abandon its pledge of fiscal discipline.

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Pemex Has Registered 40,000 Illicit Connections Since 2012

Pemex’s Carlos Treviño. Source: Pemex

(Energy Analytics Institute, Piero Stewart, 17.Oct.2018) — Petróleos Mexicanos (Pemex) has registered 40,000 clandestine pipeline connections in the last six years, announced company General Director Carlos Treviño during a speech to the Chamber of Deputies.

“Pemex is most concerned about this problem as it damages a company of Mexican citizens,” reported the daily El Financiero, citing Treviño.

Illicit pipeline connections continue to rise due to increased participation of organized groups mainly in states such as Puebla, Hidalgo, Guanajuato, Veracruz and Jalisco, reported the daily, citing data from 2008.

The municipalities most affected include: San Martin Texmelucan, Atlacomulco de Zuniga Jalisco, Cuautepec de Hinojosa, Gonzalez Tamaulipas and Tula de Allende, said the official.

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Pemex Sells $2 Bln Bonds To Fund Investment And Refinance Debt

(Offshore Technology, 17.Oct.2018) — Mexican state-owned petroleum company Pemex has reportedly sold $2bn of its bonds.

The sale of the ten-year Pemex bonds is said to have generated about 6.5% in a move, which is aimed at funding the company’s investment, as well as refinance debt.

A Pemex spokesperson said in a statement: “With this deal, our cash level for the end of 2018 has been strengthened and we guarantee the company’s liquidity for the start of 2019.”

Starting on 1 December, President-elect Andrés Manuel López Obrador will manage the company. Octavio Romero will serve as the head of the company.

HSBC, JPMorgan Chase, Scotiabank, and UBS handled the issue, which was oversubscribed 5.9 times, and involved the participation of investors from the US, Europe, the Middle East, Asia, and Mexico.

According to the Financial Times, an undisclosed Pemex investor said that the sale of Pemex bonds is required to pre-fund needs for next year.

The investor did not reveal details on whether tenders of oil assets will continue or not.

Pemex, which is struggling with a production fall for 14 years, announced discoveries of seven reservoirs in two new wells in Mexico’s Southeast Basin, last week.

With the new wells Manik-101A and Mulach-1, the company will be able to incorporate more than 180 million barrels of oil equivalent of 3P reserves.

Pemex said that the new shallow water discoveries will become part of its portfolio of fields that are under development and have been discovered in recent years.

The company is currently evaluating and developing six fields, which are expected to have combined peak production of up to 210,000 barrels of oil per day and 350 million cubic feet per day of natural gas.

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Mexico’s Next Government Faces Bind In Pemex Ethane Deal

(Reuters, Diego Oré, 17.Oct.2018) — Mexico’s incoming government will soon inherit a costly dilemma over an ethane supply contract between national oil company Pemex and a consortium led by a unit of Brazilian builder Odebrecht.

Under the contract’s terms, Pemex has had to supply ethane well below current market prices.

A hydrocarbon that comes from natural gas, ethane is used to make ethylene, which in turn is used to make the common plastic polyethylene at the Braskem-Idesa plant near the Gulf coast port of Coatzacoalcos.

The plant is operated by the consortium in which Odebrecht’s unit Braskem has a 70 percent stake and Mexico’s Grupo Idesa holds the remainder.

Energy aides to President-elect Andres Manuel Lopez, who takes office Dec. 1, have said the contract is problematic, but have not yet said what the new government will do about it.

“The contract with Braskem is very damaging to Mexico’s interests,” Sen. Armando Guadiana, of Lopez Obrador’s Morena party and heads the Senate energy commission, told Reuters last week. Pemex is fully owned by the government.

The Braskem-Idesa consortium told Reuters last week it has no plans to void the contract.

If President-elect Lopez Obrador were to direct Pemex to cancel the contract, it would be forced to purchase from the consortium the sprawling Etileno XXI petrochemical facility currently valued at $1.26 billion (£956.43 million), according to a contract annex seen by Reuters.

Neither Pemex or Braskem responded to questions about the valuation.

Conversely, if the new government opted to stick to the deal, it could only hope for more favourable ethane prices that might reduce its losses.

MUTUALLY BENEFICIAL?

Under the terms of the 20-year-long contract, Pemex committed to selling ethane to Braskem-Idesa for 16 cents per gallon. When the contract was signed in 2010 market prices for ethane were three times that, at 50 cents per gallon.

Current ethane prices hover around 40 cents per gallon.

A Pemex spokesman said the contract, which took effect in 2016, “responded to the market conditions of that time.”

Before the facility began operations in 2016, Pemex produced more ethane than it needed, forcing it to inject excess supply back into its natural gas pipelines.

Pemex’s production of ethane this year averages 88,000 bpd, but this is now insufficient to supply its own Morelos and Cangrejera petrochemical facilities that require a combined 66,900 bpd, plus the Baskem-Idesa contract obligation of 66,000 bpd.

As a result Pemex was forced to turn to ethane imports this year for the first time as domestic oil and gas production continues to fall, costing Pemex some $50 million during the first half of 2018, according to Reuters calculations, due to the cost of imported ethane at market rates compared to the cheaper fixed price in the contract with the Braskem-Idesa consortium.

If Pemex is left without enough ethane, it would have to shut down the so-called cracking plants at its two petrochemical facilities, and the cost of re-starting them after being idled one week would be some $2.6 million, according to comments from the head of Pemex’s ethylene unit, Alejandro Cruz, at a board meeting in December.

In June, pricing agency Platts reported that Pemex entered into a $237.6 million contract with Swiss commodities trader Vitol to supply 720,000 tonnes of ethane to Pemex through 2020.

Both Pemex and Vitol declined to confirm the deal.

In 2016, Mexico’s federal auditor determined that Pemex ethane exports during a 10-month stretch of that year could have yielded the company more than $100 million had it not been for the Braskem-Idesa contract.

Using official data, Reuters calculated a similar $100 million opportunity cost in 2017.

Both Pemex and Braskem declined to comment on the calculations.

Braskem said the contract was mutually beneficial, arguing that it helps cut Mexico’s reliance on foreign plastics.

“We are not planning on undoing a positive contractual relationship that we’ve been building with Pemex and that brings benefits to all,” said Sergio Plata, head of institutional relations for the Braskem-Idesa consortium.

Rocio Nahle, Lopez Obrador’s pick to be Mexico’s new energy minister, has said the incoming government will review the Braskem-Idesa contract for possible signs of corruption, part of a broader energy contract review.

The consortium’s Plata said he was confident the contract will not be modified.

According to a transcript of a recent session of the board of directors of Pemex’s ethane unit, acting director Rodulfo Figueroa, admitted that supplying the gas is “the most serious problem” it faces.

Lopez Obrador’s incoming transportation minister, Javier Jimenez Espriu, is an alternate member of the Grupo Idesa board of directors but told Reuters the contract was reviewed by the separate board of the Braskem-Idesa joint venture.

Luis Miguel Labardini, a Mexico City-based energy consultant, said an even bigger problem for Pemex lies with whoever agreed to the contract’s terms in the first place.

“We should give the benefit of the doubt to whoever negotiated this contract that they didn’t act in bad faith,” he said. “But they were negligent.”

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Mexico’s Salina Cruz Refinery Normal After Electrical Accident: Pemex

(Reuters, 17.Oct.2018) — Mexico’s Salina Cruz oil refinery is operating normally after three people were injured in an electrical accident, a spokesman for state oil company Pemex said on Wednesday.

The 330,000 barrel-per-day capacity facility, Pemex’s largest, had a short-circuit on Tuesday evening that sparked flames, the spokesman said.

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Pemex Seeks Up To 2.1 MMbbls Of U.S. Bakken Crude -Traders

(Reuters, 17.Oct.2018) — Mexico’s state-run oil company Pemex received bids this week for up to six 350,000-barrel cargoes of U.S. Bakken crude it wants to import from November through December, according to traders with knowledge of the tender.

This is Pemex’s second attempt to import U.S. light oil mostly for its Salina Cruz refinery. A previous tender launched earlier this month to buy U.S. Light Louisiana Sweet (LLS) crude was not awarded due to lack of bids.

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Pemex Places $2 Billion Bond In International Markets

Pemex CEO Carlos Treviño Medina. Source: Pemex

(Pemex, 16.Oct.2018) — Petróleos Mexicanos in September disclosed the application of a series of operating and marketing measures could generate an improvement of 30 billion pesos on the 2018 balance sheet, placing the company at an approximate deficit of 49.414 billion pesos, instead of the deficit for 79.414 billion pesos that was originally approved by the Congress.

In line with the above, Pemex is reducing its debt outlook for 2018, this will focus exclusively on financing the updated deficit of 49.414 billion pesos. In the framework of the financing program authorized for 2018, today the company placed a bond in the international debt markets:

— The total amount of the bond is 2 billion American dollars, with a 10-year maturity.

— This placement’s maturity date is due on January 2029 and yields an interest rate of approximately 6.5 per cent for the investor.

The resources from this emission will be used to comply with Pemex’s investment program, as well as to liquidate or refinance debt to its favor. This operation strengthens the cash level for the end of 2018 and guarantees the company’s liquidity for the beginning of 2019.

The placements performed throughout the year are directed towards the appropriate functioning of the company in compliance with its Business Plan. During the issuance process, talks were held with the transition team for the new Federal Administration.

Investors, mainly from United States, Europe, Middle East, Asia, and Mexico participated in this transaction, which had a demand of 5.9 times the amount placed. Placement agents for this bond were HSBC, J.P. Morgan, Scotiabank and UBS.

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Mexico’s AMLO Presses Big Oil To Start Pumping From Recent Finds

(Oilprice.com, Tsvetana Paraskova, 16.Oct.2018) — Mexico wants Big Oil to start producing from the recently discovered oil fields in Mexico as soon as possible, incoming President Andrés Manuel López Obrador told foreign executives at a recent meeting, Reuters reported on Tuesday, quoting sources and executives who attended the meeting.

In this first meeting with major international oil companies operating in Mexico, however, the president-elect didn’t give any indication whether new oil blocks will be offered and oil tenders held, according to attendees who spoke to Reuters.

Outgoing Mexican President Enrique Peña Nieto opened up the energy sector to foreign investment in 2013, ending 70 years of state monopoly. Since then, Mexico has held several successful auctions that have attracted oil majors to its oil and gas exploration industry.

However, incoming president López Obrador, who takes office in December, has been critical of the energy reform and has vowed to review the contracts that foreign firms have already signed with Mexico.

In July, Mexico’s energy regulator postponed two oil auctions that were set for September and October to February 2019, after López Obrador takes office this December. Then in August, reports emerged that the incoming administration was thinking of indefinitely halting competitive tenders for oil and gas in Mexico.

Last month, the incoming administration began the review process for a contract with a consortium led by U.S. Talos Energy.

Talos Energy’s chief executive Tim Duncan was one of the executives who met with López Obrador at the first meeting with foreign oil firms at the end of September.
“We know we have to exceed expectations and we’re trying to make sure we do that,” Duncan told Reuters.

López Obrador wants to reverse a decline in Mexico’s oil production as many oil fields are maturing. Mexico’s current oil production stands at about 1.84 million bpd, of which 60 percent is exported.

López Obrador signaled at the meeting that he would put around 20 currently idle drilling rigs of Mexican oil service firms to work for state energy firm Pemex, three executives who attended the meeting told Reuters.

The incoming president still needs to show that he is on board with foreign investments and still needs to hold tenders if he is to meet his goal of reversing the slide in production.

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Mexico And Brazil’s Crude Politics

(Foreign Policy, Lisa Viscidi, .16.Oct.2018) — A potential return to resource nationalism could set both countries back.

Until this year, resource nationalism—when a government asserts its control over a country’s natural resources—seemed to be on the wane in Latin America. With oil prices low, state oil companies were struggling, and market-friendly governments had started opening their energy industries to private investment.

In the coming months, though, the region’s two largest economies may both have new leaders who came to power on promises of a return to the old days. In Mexico, President-elect Andrés Manuel López Obrador’s vow to restore Mexico’s state energy companies to their glory days and his emphasis on energy independence from the United States were central to his campaign. Similarly, Brazilian presidential candidate Fernando Haddad (who is polling well behind his rival, Jair Bolsonaro, but could still eke out a win later this month) wants to reassert state oil and power companies’ dominant positions in Brazilian energy markets. Both López Obrador and Haddad have argued that the current Mexican and Brazilian governments, in trying to open energy sectors to private investment, have effectively handed over state assets to foreign companies.

This is not the first time Latin American countries have flip-flopped on resource nationalism. The idea was initially championed in the 1950s and ’60s by Juan Pablo Pérez Alfonzo, the Venezuelan oil minister who helped found OPEC, and Getúlio Vargas, the Brazilian president who created the state oil company Petrobras in 1953. The slogan he gave it: “O petróleo é nosso,” or “The oil is ours.”

In the 1990s, historically low oil prices pushed Latin America’s energy sectors toward privatization. Petrobras shares were floated on the São Paulo and New York stock exchanges. Argentina’s state oil company, YPF, was sold off to private investors entirely. Then, in the early 2000s, as oil prices rose again, governments across the region began expropriating energy assets. A wave of recent reforms, again tied to low prices, encouraged private investment once more. In Mexico and Brazil, however, these reforms were never popular. And so, in both countries, the idea of energy sovereignty, part of a broader economic nationalist and protectionist approach, is again taking root.

For his part, López Obrador has long criticized the energy reform that the current president, Enrique Peña Nieto, signed into law in December 2013. That reform revised the constitution to open the oil and power sectors to greater private investment, creating competition for state monopolies. As a presidential candidate, López Obrador condemned the opening as putting the country’s riches into foreign rather than Mexican hands. Now, he wants to strengthen the state oil company, Pemex. He has vowed to increase Pemex’s investment budget to boost oil production, which has plummeted to 1.8 million barrels per day from a peak of 3.4 million barrels per day in 2004. His goal of 2.6 million barrels per day by the end of his term in 2024 is ambitious.

In order to end imports of gasoline from the United States by 2022, another of the president-elect’s goals, López Obrador plans to build a new refinery in his home state of Tabasco and upgrade six existing refineries, which would add over 1 million barrels per day in output if all existing refineries ran at full capacity. Mexico produces mostly heavy crude oil, much of which it ships to the United States for refining. It then imports about 1.3 million barrels per day of refined products back from the United States for domestic consumption. At the same time, López Obrador has promised Mexican voters a decrease in gasoline prices. The Peña Nieto government had cut gasoline subsidies just as international oil prices started to rise again, causing a 20 percent bump in fuel prices.

In the power sector, López Obrador plans to strengthen the state utility company and expand hydroelectric capacity in Mexico to slash imports of natural gas. In recent years, Mexico has become a critical market for U.S. shale gas as the pipeline infrastructure between the two countries has been beefed up. Cheap U.S. natural gas has also lowered the cost of electricity generation in Mexico, so tapering off the imports could hurt on both sides of the border.

In Brazil, the polarizing right-wing candidate Bolsonaro, who won 46 percent of the vote in the country’s first-round presidential election on Oct. 7, will face Haddad, a left-wing candidate from the Workers’ Party, in a second round later this month.

Bolsonaro has said that he is open to foreign investment, privatizing state companies, and creating more competition in oil and gas markets. He would likely push onward with the Petrobras divestment plan that was started under the current center-right president, Michel Temer. As part of that plan, which was designed to reduce Petrobras’s enormous debt, the company has sold off assets in refining, logistics, and transport to focus on its more profitable core business of oil exploration and production. Continued privatization is worthwhile, but beyond his support for it, Bolsonaro has been widely criticized for lacking any specific energy plan or even a detailed economic agenda.

Haddad, meanwhile, is fairly clear in his support for a return to the resource nationalism favored by his fellow Workers’ Party member former President Luiz Inácio Lula da Silva. Following the 2007 discovery of vast deepwater oil reserves, Lula introduced reforms that increased the government’s stake in Petrobras and made the state company the exclusive operator of the new fields. Temer later signed a law that reversed Lula’s bill, creating more opportunities for private investment in the sector. Haddad has promised to reverse Temer’s reversal and recover the oil to benefit the people. He has also pledged to strengthen Petrobras and to support the development of local industries by increasing local content requirements in oil exploitation and production. In short, Haddad would likely look to slow Petrobras’s divestment to keep energy assets in the state company’s hands and reassert its role as a driver of economic development.

Once in office, the new leaders of Mexico and Brazil will inevitably face challenges to implementing many of their plans. It is unlikely that Brazil’s next president will have enough support in Congress to overturn Temer’s law, for example. Likewise, in Mexico, although the president has broad powers to roll back aspects of the energy reform, only a two-thirds congressional majority—which López Obrador is unlikely to secure—can undo a constitutional reform. And in both countries, the administrations would face major legal challenges if they tried to unilaterally change existing contracts with private energy companies.

And then there’s the budget to think of. New refineries cost billions of dollars, are highly susceptible to corruption, and ultimately won’t lower gasoline prices for consumers. Expanding large hydroelectric dams also takes money, and it presents tremendous social and environmental challenges. Forcing a state oil company to operate all exploration and production projects risks massive corporate debt and a credit rating downgrade—precisely what happened to Petrobras under Lula and his successor, Dilma Rousseff. Meanwhile, strict local content requirements that are not coupled with programs to modernize local suppliers merely slow the development of oil and gas reserves. Despite the discovery of the undersea reserves in 2007—one of the most significant oil finds in the world in years—Brazil’s oil production remained nearly flat for years.

State-led development of energy resources can be very successful. Witness Saudi Aramco, the state oil company that has made Saudi Arabia one of the largest oil producers in the world. But experience in Latin America suggests that giving state companies a monopoly over energy production tends to restrict the industry rather than boosting it. And beyond that, it is worth considering whether it is wise to continue depending on oil to float the economy at all. As many other countries around the world, from nearby Colombia to Saudi Arabia, debate whether the time has come to transition the economy away from dependence on fossil fuels, in Mexico and Brazil, debates over energy policy continue to focus on nationalization versus privatization.

Considering resource nationalism’s poor track record in actually benefiting most citizens, it is time for these countries to shift the focus of policy discussions toward addressing today’s more pressing problems.

Lisa Viscidi is the director of the Energy, Climate Change, and Extractive Industries Program at the Inter-American Dialogue.

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Texas Would Have A ‘Party’ If Mexico Prohibited Fracking

(Energy Analytics Institute, Ian Silverman, 16.Oct.2018) — Prohibiting fracking in a generalized manner, as announced by Mexico’s president-elect Andrés Manuel López Obrador (AMLO), would be an error that would benefit the United States.

“I’d regret this initiative to ban fracking in a general way in our country. The day it happens there would be a party in Texas for the gift we Mexicans are giving them,” reported Mexican media El Financiero, citing Mexico’s Energy Secretariat Pedro Joaquín Coldwell. “It would condemn [Mexico] to continue importing gas.”

Besides, approximately 53% of Mexico’s gas reserves are precisely unconventional resources, he added.

Fracking has been carried out in Mexico since 1960, and nearly 22% of the wells that have been exploited in conventional deposits have used this controversial technique in one way or another, announced Coldwell.

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Mexico’s Lopez Obrador Pushes Big Oil To Hurry, But Offers Little

(Reuters, David Alire Garcia, Marianna Parraga, 16.Oct.2018) — At his first meeting with foreign oil majors, Mexico’s leftist president-elect pushed the companies to prove themselves by quickly pumping oil from recent finds, sources say, but gave no sign of offering up new fields to reverse dwindling output.

President-elect Andres Manuel Lopez Obrador repeated a promise to respect more than 100 existing contracts awarded following a sweeping five-year-old energy overhaul as long as a review by his team finds no corruption. And he added: companies must show results, three executives who attended the meeting said.

For U.S. independent Talos Energy, which is developing a high-profile, big offshore discovery announced last year along with partners Premier Oil and Sierra Oil & Gas, Lopez Obrador’s message was clear: quickly bring new streams of production online.

“We know we have to exceed expectations and we’re trying to make sure we do that,” said Talos Energy CEO Tim Duncan, one of the executives who attended the session.

At the Sept. 27 meeting, the president-elect also criticized the 2013 constitutional reform for failing to stop an extended output slide.

Operators such as Talos and Italy’s Eni, which also announced a major offshore find last year, are on Lopez Obrador’s watch list to pump oil quickly, said Carlos Pascual, a former U.S. ambassador to Mexico who now helps run consultancy IHS Markit’s global energy business.

“The focus on increased barrels is going to create greater pressure for some companies,” he said.

The oil and gas blocks awarded in bidding rounds over the past three years to companies including Royal Dutch Shell and Chevron will result in $160 billion in new investment, the outgoing government estimates.

Lopez Obrador’s pick to be the new oil minister, Rocio Nahle, did not respond to a request for comment about Lopez Obrador’s presentation.

RIG OIL NOT BIG OIL

At the meeting, Lopez Obrador also explained he intends to put some 20 idle drilling rigs belonging to a few Mexican service firms to work for state giant Pemex, according to three executives who attended the meeting.

The executives, who asked not to be named to avoid any ill-will from the incoming government, said they were surprised at the decision to talk up the service contracts for Pemex instead of encouraging much bigger investments the oil companies are capable of making.

A former senior executive with Pemex said the plan could add at most 150,000 barrels per day (bpd) to Mexico’s 1.8 million bpd production in a year, far short of the 40 percent increase to 2.6 million bpd he is targeting during his six year term.

Lopez Obrador is a long-time critic of the energy reform that brought major oil companies to Mexico for the first time in more than 70 years, and has warned he will not offer up more areas for auction.

Oil companies still hope he will soften that position in order to meet his ambitious production goals.

The veteran leftist politician adopted a diplomatic tone at the industry session, said the company executives, and his team even pledged to ease regulatory delays companies face.

“Reality could force pragmatism,” said an oil executive who attended the meeting, arguing it is highly unlikely Mexico could meet Lopez Obrador’s lofty output goal with government spending alone.

As an indicator, firms are closely watching whether oil auctions set for February by Mexico’s independent oil regulator will be canceled or postponed after Lopez Obrador takes office in December.

If that happens, along with the pledge to focus production plans on squeezing more out of Pemex fields with local rigs, outside investment could cool for years in Mexico’s oil patch, home to under-explored shale plays and the country’s potentially lucrative deepwater Gulf of Mexico, according to the executives and sector analysts.

The head of the oil regulator, Juan Carlos Zepeda, has said Pemex would need to dedicate $20 billion each year to exploration and production activities to hit Lopez Obrador’s output goal, about double this year’s budget.

Advisor Rocio Nahle, Lopez Obrador’s pick to be energy minister, said last month Pemex will be allocated about $4 billion for “exploration and drilling” in 2019, without going into detail.

The nearly two hour meeting between Lopez Obrador and oil company executives ended with a promise to maintain “continuous dialogue” going forward

However, there was no question-and-answer period, and following the set speeches, Lopez Obrador and his senior energy aides quickly departed. No new meetings have yet been scheduled.

One attendee bluntly quipped afterwards: “He really doesn’t like us.”

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Mexico Plans To Enforce Odebrecht Fines Via Seizure -Official

(Reuters, 12.Oct.2018) — Mexico plans to enforce fines imposed on Odebrecht over corruption allegations by confiscating some $30 million owed by state oil company Pemex to the Brazilian firm, a top official at the public administration ministry said.

Christian Ramirez, coordinator-general of the public administration ministry (SFP), told Reuters on Tuesday that he expected Mexico’s tax authority to seize the $30 million “in the coming months.”

Brazilian construction firm Odebrecht has spent the past few years at the center of one of the largest corruption scandals in Latin America, and has admitted paying bribes from Peru to Panama.

In Mexico, the SFP imposed fines worth some $56.8 million in total on two Odebrecht subsidiaries in April. Since the end of 2017, it has punished several Odebrecht businesses in Mexico, barring them from signing contracts with public bodies for up to four years.

Mexico’s government did not detail the reasons for the fines, but officials said they related to probes into suspected corruption between Odebrecht and Pemex.

Ramirez on Tuesday said the Brazilian firm had “practically left” Mexico and that tax officials who recently visited an Odebrecht subsidiary only found “two computers and a desk.”

Neither Odebrecht in Mexico nor in Brazil responded to requests for comment. In April, the company said it planned to fight the fines.

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Pemex Rolls Out New Fuel Additive To Protect Gasoline Engines

(Pemex, 11.Oct.2018) — Pemex introduced the new gasoline additive that will be added into Pemex Magna and Pemex Premium fuels, the additive will be promoted under the brand name of Pemex Aditec. This fuel additive is environmentally friendly, and will keep the engine up to 97 per cent free of dirt, to promote efficient combustion and higher-powered driving.

This Mexican technological innovation is a competitive advantage for the Pemex franchise, which comprises over 10,000 service stations throughout the country.

During the presentation of the product, led by Pemex Transformación Industrial Executive Director (Pemex Industrial Transformation), Carlos Murrieta Cummings, it was highlighted that this technology maintains engine pistons at peak performance and optimal working conditions, will allow emissions of polluting gases to decrease.

Technical Information about the fuel additive

The new Pemex fuel additive contains detergent agents that maintain the intake valves and injectors of the engine free of dirt. It optimizes the engine’s output, actively contributing to obtain peak performance and reducing polluting emissions.

The additive contains an antioxidant or prevention agent to prevent valves from rusting and deteriorating, as well as an anti-adhesive agent that prevents valves from getting stuck.

It also contains a solvent that contributes to maintain the stability of the compound when mixed with gasoline at different temperatures, to maintain its fluidity into the engine. Furthermore, it contains an emulsion prevention additive, an agent that reduces the formation of emulsions in the engine, as well as a corrosion inhibitor.

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Pemex Hopes Gulf Discoveries Mesh With New President’s Goals

(Houston Chronicle, Jordan Blum, 11.Oct.2018) — Leaders of Mexico’s state oil company Pemex initially feared the inevitable election of leftist presidential candidate Andrés Manuel López Obrador, who spoke of rolling back the nation’s recent energy reforms and building new refineries.

Now with López Obrador set to take office in two months, Pemex is seemingly adjusting its priorities to adapt to the incoming president.

Pemex announced new shallow Gulf of Mexico discoveries this week that the company will develop on its own, aiming to undo the nation’s decade-long reduction in oil production and rely less on volumes produced from international companies, including those from Texas.

More conservative administrations in recent years pushed through the constitutional amendments to undo Pemex’s century-long monopoly and open Mexico up to exploration and production from energy companies worldwide. Pemex downsized and focused on becoming a profitable, competitive company.

While those changes won’t be undone any time soon, Lopez Obrador wants to build new refineries and reduce oil and gasoline imports, especially as Mexico is increasingly relying on U.S. companies for fuel and power supplies.

By focusing on new shallow-water oil discoveries that can ramp up more quickly, Pemex now aims to produce more oil for domestic consumption, said Ulises Hernández, director of resources, reserves and partnerships for Pemex, in a phone interview.

“It really fits in with the priorities of the next administration,” Hernández said. “All of these fields are to be developed exclusively by Pemex with no partners.”

Pemex aims to get most of these new discoveries online by the end of 2020 and rely less on U.S. oil and gas from Texas in areas like the booming Permian Basin and the Eagle Ford shale.

“We want to accelerate the development of these fields to supply the necessary light oil for our refining system,” he added.

Pemex will continue to work with other companies for deepwater exploration and production where U.S. and European companies have more expertise.

Pemex said its new discoveries offshore of southeastern Mexico near Tabasco are named Manik and Mulach and – combined with other recent finds in the region – should provide a big boost to oil and gas production volumes in the coming years.

As for the new discoveries, Pemex said the Manik and Mulach plays add 180 million barrels of oil equivalent to its probable and possible reserves. They wells have the potential to produce 250 thousand barrels of oil per day and 600 million square feet of cubic gas, Pemex said. Both new finds are proving much more fruitful than Pemex initially anticipated.

Pemex also touted the potential for its other recent finds in the region that are called the Kinbe, Koban, Xikin and Esah fields.

All of the recent discoveries add up to well more than 800 million barrels of oil equivalent.

Still, there’s the question of whether Lopez Obrador’s proposed multibillion-dollar refining investments will take away from Pemex’s exploration and production.

Pemex Chief Executive Carlos Treviño has complained it is too expensive to build new refineries and that it’s much cheaper and more efficient to overhaul and improve the existing refineries.

“That’s a decision that will have to be made at some point,” Hernández said. “But we will need to produce more oil to meet the refining capacity.”

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Pemex: 2 New Wells Have 180 Million Barrels 3P Oil

(AP, 9.Oct2018) — Mexico’s state-owned oil company says two wells in shallow Gulf of Mexico waters have found about 180 million barrels of proven, probable and possible oil and gas reserves.

The Manik well is about 52 miles (85 kilometers) offshore, and the Mulach is about 11 miles (17 kilometers) offshore.

In April, Manik found two separate reserves, and Mulach found five oil pockets.

The Pemex oil company said Tuesday four other shallow-water fields discovered between 2011 and 2016 will enter production soon.

The Kinbe and Koban fields hold about 325 million barrels of 3P reserves, and the Xikin and Esah fields hold 360 million barrels.

Pemex’s production dropped to 1.88 million barrels per day in the first half of 2018, down from 3.4 million barrels per day in 2005.

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Pemex Finds 2 New Oil Fields in Gulf of Mexico

(FT, Jude Webber, 9.Oct.2018) — Mexican state-owned oil company Pemex said it had discovered two new shallow water fields that, combined with other discoveries in recent years, would add production of as much as 210,000 barrels of oil per day and 350m cubic feet of gas.

The Manik-101 A and Mulach-1 fields, in shallow waters of the south of the Gulf of Mexico, could contain so called possible, probable and proven reserves of 180m barrels of oil equivalent and are located near existing infrastructure. The discoveries included light and super light oil, which is the most used by Mexico’s refineries.

Carlos Treviño, Pemex chief executive, said the discoveries represented a “good platform” for the incoming government of Andrés Manuel López Obrador, which takes office on December 1. Mexico’s oil production has been in steady decline since 2004.

Pemex said Manik-101 A was expected to produce 10,000 to 15,000 bpd of oil, while Mulach-1 was expected to produce 20,000 to 30,000 bpd of oil.

Pemex also spelt out expected production at four previously discovered fields — Kinbe, Koban, Xikin and Esah-1.

Kinbe was expected to add 24,000 bpd of oil and 35m cubic feet a day of gas. Koban is expected to produce 46,000 bpd of oil and 219m cubic feet per day of gas. Xikin should add 70,000 bpd of oil and 91m cubic feet of gas. Esah-1 will produce 23,000 bpd of oil and 9m cubic feet of gas a day.

Esah-1 is expected to begin production next year and Xikin in the first quarter 2020.

Total investment in the six fields was expected to be $7bn to $10bn, said José Antonio Escalera, Pemex’s exploration director.

Pedro Joaquín Coldwell, energy secretary, said the new discoveries were among the 10 most important in shallow waters in the last 15 years and said they meant Pemex would be close to reversing the downward trend of oil reserves in the next two years.

The announcement will be music to the ears of the president-elect, who wants to boost production by at least 600,000 barrels per day by the end of his six-year term, including some 280,000 from the private sector.

Pemex’s production sank to 1.816m barrels of oil per day in August and this year’s goal had been 1.951m, but Mr Treviño told an oil congress last month that the output this year would be “significantly” under target and Pemex would need to import 100,000 barrels of light crude a day in October to meet refining needs. He declined to give a new output goal for 2018.

Mr López Obrador has softened his former opposition to a landmark energy reform four years ago that opened Mexico’s energy sector to private investment but nonetheless seized on that as proof that the reform was failing to deliver as expected.

Mr López Obrador has announced a sweeping “rescue” plan for the sector, including a $4bn capital injection for Pemex and construction of a new refinery and improvements to Pemex’s existing six refineries. He has yet to spell out how he intends to pay for the projects but Arturo Herrera, incoming deputy finance minister, told the FT Pemex’s debt would not be increased.

The incoming government has said it will auction service contracts to drill existing Pemex assets but has not yet said whether the next scheduled oil tenders, due on February 14, will go ahead. However, those tenders include shale assets and Mr López Obrador insisted at the weekend that there would be no fracking — the horizontal drilling technique used to extract so-called unconventional resources contained in rock formations — anywhere in Mexico during his term, suggesting that at least the shale auctions would be scrapped.

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Pemex Announces Oil Field Find In Shallow Waters Of Southeast Basin

(Pemex, 9.Oct.2018) — Pemex CEO, Carlos Treviño, confirmed the discovery of seven reservoirs in two new wells in Mexico’s Southeast Basin, named Manik-101A and Mulach-1, which will allow the company to incorporate more than 180 million barrels of oil equivalent (MMBOE) of 3P reserves.

Accompanied by Mexico’s Energy Secretary and chairman of Pemex’s Board of Directors, Pedro Joaquín Coldwell, Carlos Treviño outlined the progress the company has done in the two fields as well the development of two other fields that will commence production in the near future.

These new shallow water discoveries will become part of Pemex’s portfolio of fields under development that have been discovered in recent years. The combined peak production of the six fields Pemex is currently evaluating and developing could be up to 210,000 b/d. and 350 MMcf/d of natural gas.

Earlier in April 2018, Pemex drilled Manik-101A in a water depth of 90 meters, reaching a total depth of 4,765 meters. It is located northeast of the Manik field and is between the Ixtal and Ixtoc fields, 85 kilometers from the coast and 102 kilometers from Ciudad del Carmen.

Manik-101 discovered two oil reservoirs, one in the Upper Jurassic Kimmeridgian and another at the Upper Cretaceous horizon. Pemex estimates Manik holds 80 MMBOE of 3P reserves.

Also Pemex successfully drilled Mulach-1 located 8 kilometers from the Yaxche Field and 17 kilometers from Paraiso, Tabasco. This well has a water depth of 21 meters, reaching a total depth of 3,976 meters.

The well discovered five oil reservoirs of light oil in sandstone, dating to the Upper Miocene. Pemex estimates Mulach holds 3P reserve superior to 100 MMBOE.

Treviño also informed that Pemex is assessing its Kinbe and Koban fields, each discovered in 2011 and 2016 respectively. Both are expected to hold important quantities of hydrocarbons.

The Kinbe field is located in the Jurassic rocks and is expected to produce light crude. The field is in a water depth of 21 meters, and a total depth of 5,843 meters.

It is located 28 kilometers from the city of Frontera, Tabasco, the Kinbe-1 well produced more than 5,000 b/d during production trials. Kinbe holds 3P reserves estimated over 120 MMBOE.

Pemex is also delineating its Koban field. Which has a water depth of 11 meters and a total depth of 6,400 meters. The Koban well holds gas and condensate in fractured lime stones of the Cretaceous period with estimated 3P reserves of 205 MMBOE.

Finally, Treviño informed Pemex will soon begin developing its Xikin and Esah shallow water fields. Both fields were discovered in 2015 and hold a combined 360 MMBOE of 3P reserves.

In a water depth of 32 meters, Xikin is located 31 meters from the city of Paraiso, Tabasco. It is in shallow waters 24 kilometers from the coast.

The total depth of the field is located between 6,400 and 7,050 meters and will produce light oil. It has 3P reserves estimated to be around 230 MMBOE.

Additionally, Esah is located 70 kilometers from the coast and 94 kilometers from Ciudad del Carmen, Campeche. The field is in a water depth of 67 meters with a depth ranging 4,200 and 4,700 meters. This field will primarily produce crude, with 3P reserves of 130 MMBOE.

These discoveries are the results of the focus of Pemex’s investments towards areas of greater prospective for oil and they confirm the potential of the Southeast Basin.

Additionally, given its proximity and current infrastructure, its future development will contribute to accomplish the production goals laid out by Pemex in coming years.

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Pemex Spill Prompts Evacuations In Mexico

(The Oil&Gas Year, 8.Oct.2018) — Around 300 people were evacuated in the Mexican state of Veracruz as hydrocarbons spilled from a vandalised Pemex pipeline into the Tepeyac creek, which flows into the Coatzacoalcos River, local media reported over the weekend.

According to officials, the spill has also led to the deaths of thousands of animals in a seven-kilometre area and will take months to clean up, necessitating the suspension of fishing activities in the community.

A representative from Mexico’s Secretariat of Environment and Natural Resources characterised the spill as “a problem [affecting] the social and economic structures of the region.”

Local officials have criticised Pemex for its slow response time, saying the company waited around a week to notify authorities and begin clean-up efforts. The city of Nanchital is expected to bring a claim against the NOC for environmental damage.

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Pemex Receives “2018 Most Innovative Award”

(Pemex, 5.Oct.2018) — Pemex Digital, Pemex’s Digital Transformation project, which is spearheaded by the Corporate Office of Information Technology and is supported by Pemex CEO Carlos Treviño Medina and the company’s senior management, received the 2018 Most Innovative Award (Las Más Innovadoras 2018), from Netmedia Research’s IT Masters Mag.

This acknowledgment is awarded to private and state-owned companies that promote the strategic use of information technologies for innovation and value generation. Pemex Digital is such an initiative, which seeks to increase profitability, production, security and efficiency for Mexico’s largest company.

This award assesses the use of new technological tools, outward impact, and tangible results. It is awarded by the magazine’s board of editors, assessed by a Qualification Committee comprised of IT executives from the private sector, former Government officials, experts and senior Netmedia officials. The assessment is then audited and validated by consulting firm PriceWaterhouse Coopers.

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AMLO Sees EOR, Pemex Farm-Outs As Key To Boosting Mexican Oil, Gas Output

(S&P Global Platts, Daniel Rodriguez, 4.Oct.2018) — Mexico’s President-elect Andres Manuel Lopez Obrador will allow Pemex to continue farming out projects to boost oil and natural gas production from mature and aging fields, according to a senior adviser to the incoming administration.

The incoming administration, in its oil production forecast for 2024, expects new secondary oil production will produce 380,000 b/d, or 15% of that year’s 2.48 million b/d expected output.

Lopez Obrador is going to be a pragmatist and will evaluate all options available for boosting oil and gas output, Abel Hibert, an economic adviser on the president-elect’s transition team, said at an event Wednesday.

“Pemex can’t do it all alone, from a financial point of view firstly and secondly from a technical know-how” perspective, Hibert said.

When asked by S&P Global Platts if a projected increase in secondary oil and gas was a clear message that Pemex farm-outs would continue under the incoming administration, Hibert responded: “Yes, definitely.”

In a meeting last week, Lopez Obrador sought the support of private operators to continue Pemex’s farm-outs to enhance recovery from mature fields, he added.

“Under Lopez Obrador’s administration, Pemex will be open to continuing farm-outs to exploit mature fields and raise output,” Hibert said.

Pemex is responsible for 80% of Mexico’s proven and probable reserves. In some cases, the company has not been able to produce oil or gas from these resources due to technical limitations or lack of funds, he added.

“The president-elect has described the decrease in oil production as an emergency, so Pemex requires all the support it can get to boost output,” Hibert said.

Pemex’s executive team under the outgoing administration of President Enrique Pena Nieto has an ambitious farm-out program in place that seeks partners for all its deepwater and most of its onshore projects.

In 2017, Pemex said it was looking to farm out as many as 74 clusters composed of 155 prospective production areas and 66 exploration areas, which would represent more than 55% of all its production and 65% of its exploration portfolio.

The company is currently tendering farm-outs for seven onshore clusters in southern Mexico. The auction will be held in February.

Due to a lack of resources, Pemex has been investing the minimum necessary to maintain operations in these areas. If the situation continues, their production will decrease to 14,100 b/d and 90 MMcf/d by 2020, data from Mexico’s National Hydrocarbon Commission show.

However, if Pemex can attract companies to come in and operate these areas, it expects to invest close to $4.65 billion over the life of the areas alongside its potential partners.

With greater resources, Pemex believes production in these areas could be raised to a combined 47,630 b/d and more-than 525 MMcf/d in the medium term.

According to CNH data, the seven clusters held a total of 191.3 million barrels of oil and 951.3 Bcf of gas of proven, probable and possible reserves in January 2017. Also, four of the seven areas have close to 450 million barrels of equivalent oil in prospective resources.

Pemex is also looking in the short term to farm out its Ayin-Batsil shallow water and Maximino-Nobilis deepwater projects. Their combined potential production peak is 280,000 b/d. The company tried unsuccessfully to auction both projects last year.

***

Mexico’s President-Elect AMLO Commits to Respect Oil Contracts

(Renaissance Oil Corp., 2.Oct.2018) — Renaissance Oil Corp. announced that Mexico’s president-elect, Andres Manuel Lopez Obrador, who will take office on December 1, 2018, assured private energy executives on September 27, 2018 that their contracts will not be canceled if they meet existing terms.

During the meeting with AMEXHI, Mexico’s association of oil and gas producers, which Renaissance is a member of, Mr. Lopez Obrador underlined the importance of the private sector’s participation in developing the oil and gas sector in Mexico and its important role in increasing production in the following years.

Further, Mr. Lopez Obrador’s designated Energy Minister, Rocio Nahle, confirmed the incoming administration’s support for the contracts as well as a commitment to resolving regulatory delays.

“Renaissance is reassured by these developments and encouraged that the Mexican government is supportive of the important role international oil companies, like Renaissance, play in the development of the Mexican petroleum industry,” said Renaissance CEO Craig Steinke.

***

Pemex to Import U.S. LLS Crude for Oct Delivery

(Reuters, 1.Oct.2018) — Mexico’s state-run Pemex has launched a tender to buy 350,000 barrels of U.S. Light Louisiana Sweet (LLS) crude for October delivery, according to a document seen by Reuters on Monday, a deal that marks the first crude imports in over two decades.

Pemex, which plans to use the foreign crude to supplement its dwindling domestic fuel output, would mostly process the oil at its largest refinery, the 330,000-barrel-per-day Salina Cruz, the company’s chief executive said last week.

Since 2015, Pemex has been considering a crude swap with the United States so it can import lighter oil while exporting its flagship heavy Maya crude. The company finally opted for importing the U.S. light oil on the open market at least until the current administration finishes its term at the end of November.

“(The) Light Louisiana Sweet shall be obtained from conventional fields without being blended, processed chemically or being added with naphtha or condensates,” according to the document detailing the tender’s terms.

Pemex is requesting the cargo be delivered between Oct. 20-22 at its Pajaritos terminal in the Gulf coast state of Veracruz.

Payment will be made 45 days after delivery. Bids will be received until Oct. 3, and must be indexed to West Texas Intermediate crude prices, according to the document.

LLS is a very light crude grade with 38.5 API degrees of density and about 0.4 percent of sulfur content. Tests for choosing the crude to be purchased were completed several days ago, Pemex said.

Pemex’s fuel imports increased 17 percent in 2017 as Mexico’s refining network worked far below capacity. So far this year, fuel purchases have remained almost unchanged at 961,100 bpd as input of light grades to its domestic refineries has been limited. Independent retailers have started importing their own gasoline and diesel on top of that volume.

Apart from a limited oil exchange with the U.S. Strategic Petroleum Reserve in the late 1990s, Mexico has not recently swapped or otherwise imported U.S. crude.

Some U.S. crude exporters have this year sought new customers amid trade tensions between China and the United States affecting the bilateral oil trade.

U.S. crude exports have grown this year. In July, they averaged 2.139 million bpd versus 956,000 bpd in the same month last year, according to the Energy Information Administration.

***

Obrador’s Government Will Renovate Refineries of Petroleos Mexicanos

(Prensa Latina, 1.Oct.2019) — The government of elected president Andres Manuel Lopez Obrador will make a strong investment to rehabilitare the six refineries presently property of Petroleos Mexicanos (Pemex) in the country, it was known today.

Obrador announced that in the period 2019-2020 they will use with such purpose 50 billion pesos (about three billion dollars).

Refineries are located in Tula, Hidalgo; Cadereyta, Nuevo Leon; Salamanca, Guanajuato; Minatitlan, Veracruz; Salina Cruz, Oaxaca, and Ciudad Madero, in Tamaulipas.

Those industries have had operational problems and México was forced to increase gasoline imports.

Mexico’s Oil Regulator Backs Pemex Picking Its Own Partners

(Reuters, 30.Sep.2018) — Mexico’s oil regulator supports a proposal to allow state-run oil company Pemex to pick its own equity partners for exploration and production projects, the head of the National Hydrocarbons Commission (CNH) said on Friday.

Aides to President-elect Andres Manuel Lopez Obrador, a fierce critic of a four-year-old energy reform, have said the new government will seek to allow Pemex to select the companies it ties up with for oil and gas projects.

The reform required competitive auctions conducted by the CNH to select Pemex’s joint venture partners.

“I agree (that Mexico’s national oil company picks its partners),” said CNH President Juan Carlos Zepeda at an oil conference in the Pacific beach resort of Acapulco.

“I think its good… but what we have to demand and what needs to be established in law is that Pemex does this with at least the same transparency standards that the National Hydrocarbons Commission has used,” he added.

The current selection process in Mexico is rare in oil producing countries, in which national companies are generally free to choose their partners to better suit their own strategies.

(Reporting by David Alire Garcia and Marianna Parraga; Editing by Sandra Maler)

***

Mexico Must Double Oil Exploration Spending to Halt Output Fall: Pemex

(Reuters, Marianna Parraga, David Alire Garcia, 28.Sep.2018) — Mexico will need to double to about $4 billion its annual oil exploration investment to reverse a 14-year decline in output, a move that will require more funding by Pemex and private producers, a top official with the state-run firm said Friday.

The nation’s oil industry needs Petroleos Mexicanos to invest more than $2.5 billion per year and another $1 billion to $1.5 billion from private companies to fully replace its reserves, Jose Antonio Escalera, the firm’s chief of exploration, said at an energy conference in Acapulco.

Pemex this year expects to invest about $1.65 billion, roughly the same as 2017. Reserves fell 7 percent this year, to 8.48 billion barrels of oil equivalent, and have slid more than 40 percent over the past decade, according to government data.

Escalera made the comments as the administration of President-elect Andres Manuel Lopez Obrador is still formulating its plan for Pemex and has given mixed signals over the future of the landmark energy reform.

Lopez Obrador, who will take office in December, has said he aims to boost Mexico’s oil production by a third to 2.5 million barrels per day (bpd,) from 1.82 million bpd in August. He also wants to increase domestic refining to end imports of foreign fuel.

However, he has been a critic of the nation’s opening of its oil industry to outside firms and has called for a review of the more than 100 exploration and production contracts awarded to oil companies, and a suspension of future auctions, casting doubts on what direction the energy reform will take in coming years.

“The reason why Mexico has seen an output decline since 2004 is not because of lack of potential, it is because it stopped exploring,” Juan Carlos Zepeda, chief of Mexico’s energy regulator National Hydrocarbons Commission (CNH), said at the energy conference.

Pemex said it will not meet its annual output target in 2018, and is likely to see a further slide in 2019.

LONG RANGE INVESTMENT

Pemex is making progress: It drilled 24 exploratory wells in 2017 and 35 are planned for 2018. But stemming the oil output decline will require the country to replace its reserves faster, Pemex and experts interviewed at the conference said.

The country will need $20 billion in exploration investment in the long term to confirm its estimated reserves and increase oil and gas output, according to Pemex’s calculations, a difficult task as prospective oil and gas resources to be confirmed are mostly in deep waters and onshore shale formations that require higher investment and technical knowledge.

As a sign of how it has fallen behind in replacing those reserves, Mexico has drilled 58 exploration wells on its side of the deep water Gulf of Mexico, compared with more than 1,100 on the U.S. side.

“What we need is more activity, even more exploration,” said Monica Boe, Mexico country manager of Norwegian oil major Equinor. She said auction terms could be changed to encourage more exploration activity.

***

Grid Connection for Over 1 GW of Enel Solar Parks in Mexico

(Renewables Now, 28.Sep.2018) — Italian energy major Enel SpA has switched on and hooked to the grid two solar parks in Mexico totalling 1,089 MW.

The 828-MW Villanueva and 260-MW Don Jose projects were implemented by the company’s subsidiary Enel Green Power Mexico (EGPM). Their construction required an investment of USD 950 million (EUR 815.7m).

Located in the municipality of Viesca, Coahuila state, the Villanueva photovoltaic (PV) park uses more than 2.5 million solar panels and is currently the biggest operating solar farm in Mexico, Enel said. Its output is expected to exceed 2,000 GWh per year, which will help offset more than 1 million tonnes of carbon dioxide (CO2) emissions. Construction of the plant was initiated in March last year, followed by that of the second facility a month later.

The 260-MW Don Jose plant is situated in the municipality of San Luis de la Paz, Guanajuato, and is powered by 810,000 PV panels with an expected annual output of over 625 GWh.

Enel won the two projects in Mexico’s first long-term public tender in March 2016. Following their completion, it has 1,553 MW of grid-connected renewable energy capacity globally that was put on stream since the start of the year, it noted.

(USD 1.0 = EUR 0.859)

***

Mexico Oil Auction Winners Stay Positive

(Bloomberg, Amy Stillman, 28.Sep.2018) — Mexico’s oil auction winners BHP Billiton Ltd and DEA Deutsche Erdoel AG are hopeful that the slowdown in bid rounds is a feature of the country’s political transition and won’t be permanent.

“We have expectations that things will pick up again and continue,” said DEA Deutsche chief executive officer Maria Moraeus Hanssen. The company expects to start wells in Mexico in one or two years and is in the process of seeking approval of its development plan for the onshore Ogarrio field that it operates in a joint-venture with Petroleos Mexicanos. It has also won rights to four exploration blocks in Mexico and is the operator of three of them.

Australian miner BHP, which won a 2016 tender to partner with PEMEX in its deep-water Trion field in the Gulf of Mexico, expects to start appraisal drilling before the end of the year and take advantage of higher oil prices, said Steve Pastor, the company’s petroleum operations chief, in a Thursday interview in Acapulco. “The opportunity is very attractive for us to move quickly right now because we’re still enjoying a relatively low point in the cost cycle,” said Pastor.

While Mexico is due to hold competitive bid rounds in February next year, President-Elect Andres Manuel Lopez Obrador has said he could indefinitely suspend oil auctions when he comes into office on December 1. That could see private companies focus their efforts on purchasing stakes of privately-owned oil assets in Mexico.

“At a certain time there will be a secondary market that we are not ruling out,” said Moreaus Hanssen.

***

Energy Reform To Continue To Reap Benefits For Mexico: Treviño Medina

(Pemex, 27.Sep.2018) — Petróleos Mexicanos CEO, Carlos Treviño Medina, assured that the Energy Reform is beginning to yield important benefits for Mexico by allowing new financial actors to participate that will contribute to the generation of greater wealth for the country.

He stated that this new framework gives the energy sector greater solidity and added that Pemex has more tools to contribute to relevant development in coming years.

This energy reform “is the great reform,” Treviño Medina explained during his speech at the International Forum titled “The Importance and Role of Partnerships in the Development of the Oil Industry in Mexico,” as part of the XIII edition of the Mexican Oil Conference (Congreso Mexicano del Petróleo).

During the encounter he emphasized the confidence that companies from the energy sector have for investing in Mexico and in developing new projects with complete transparency within an appropriate and solid regulatory framework.

“I believe that the Energy Reform has without any doubt proven to be a great reform and I hope that it will continue to bring great benefits to Mexico,” said Treviño Medina who accompanied the BHP Billiton President of Operations, Steve Pastor, CEO and Chairwoman of the Board for DEA Deutsche Erdoel, Maria Moraeus Hanssen, and CEO Grupo Diavaz, Alfredo Bejos Checa on the panel.

Moraeus Hanssen, as well as Pastor and Bejos Checa agreed that the Energy Reform allowed them to gain presence in Mexico which has made dynamic development of the sector possible and with greater benefits for the public.

Moraeus Hanssen explained that thanks to this reform, companies like DEA Deutsche Erdoel are now in Mexico developing projects and consolidating investment plans for the future.

Steve Pastor underscored that this new framework in the energy sector opens the possibility for companies to enter into partnerships with Pemex to promote mutually beneficial projects and stated that the potential to tap into greater benefits is improved through a partnership with Pemex rather than doing it on their own.

Bejos Checa highlighted the benefits that Grupo Diavaz has obtained through this reform that was approved in 2013, which has allowed the company to grow and contribute more to the financial development of the country.

All three agreed that two of the most important reasons for entering into a partnership with Petróleos Mexicanos are the vast knowledge base and know-how of the company, regarding the geography and geology of the fields, as well as regarding the Way of Doing Business in Mexico.

Likewise, the oil companies including Pemex, acknowledged the transparency and order of the opening processes for the participation in farm-outs and migrations.

As the panel’s moderator, Carlos Treviño Medina spoke about the social role of the oil sector as well as the positive impact of the sector in the communities around the country. He especially underscored the importance of the human capital of the sector.

The participants of the panel recognized the responsibility of the Mexican oil sector towards environmental protection and pointed out that the industry is committed to make all necessary efforts to keep this topic always on their work schedule.

In this regard Pemex CEO, Carlos Treviño Medina, mentioned the meeting held recently in New York with other oil companies. Pemex is a member of the Oil & Gas Climate Initiative (OGCI), which has committed to reduce greenhouse gas emissions into the atmosphere to comply with the Paris Agreement signed in December 2015.

***

#LatAmNRG

Pemex to Begin Importing US Crude in H2 October: CEO

(S&P Global Platts, Daniel Rodriguez, 27.Sep.2018) — Pemex plans to begin importing light crude from the US Gulf Coast in the second half of October, CEO Carlos Trevino told S&P Global Platts.

The imports will enable Pemex to raise its total crude processing to 700,000 b/d-800,000 b/d in the final months of 2018, he said on the sidelines of the Mexican Petroleum Congress in Acapulco Wednesday.

A “question many people ask me is, ‘will this benefit us?’ The definite answer is yes,” Trevino said, adding that the measure will allow Pemex to improve its crude processing and marketing margins.

Trevino did not specify the volume or the terms of the purchase, saying it was competitive, private information. He added that the incoming administration has to decide whether the strategy would continue.

It will enable Mexico’s 330,000 b/d Salina Cruz refinery to raise its operational levels by 100,000 b/d. The refinery lacks coking capacity, preventing it from processing Mexican Maya heavy crude blend at a positive margin, Trevino added.

“We are going to empower Salina Cruz as it is the refinery where we can boost crude processing levels the most,” Trevino told reporters on Thursday at a press conference.

Salina Cruz processed 150,550 b/d in August, compared with a 2018 monthly peak of 236,700 b/d in April and an average of 269,000 b/d for the full-year 2014.

Trevino also told reporters the imports could be used to enhance operations at its other two refineries designed to process light oil: the 315,000 b/d Tula and 220,000 b/d Salamanca facilities.

The optimal and profitable operation of these facilities has been affected by light crude shortages. Tula processed 132,200 b/d and Salamanca 158,320 b/d in August.

Pemex’s light crude production has been skidding lower for some time. Its light crude output was 759,250 b/d in August, down from 861,160 b/d in January and 1.16 million b/d in 2014.

The slide has steepened this year because of seawater invading its Xanab shallow water field in on the Tabasco coastline.

Xanab’s production has been in freefall since January, decreasing its output by 68,200 b/d to 104,400 b/d in August. Pemex produced 1.81 million b/d in August, down from 1.93 million b/d in January.

Trevino said the company is doing its best to solve the “premature” water invasion at Xanab as fast as possible.

In August, the company processed 404,300 b/d of light crude, 60% of its overall slate, compared with 455,800 b/d in 2017 and 651,000 b/d in 2014.

The company is focusing on profitability rather than refining fuel at any cost. For the first time in decades, Pemex’s refining unit posted positive results in 2017, although this led to lower crude processing.

Pemex’s downstream director, Carlos Murrieta, previously told Platts the company has been weighing the costs of importing fuel against refining it domestically.

Murrieta also said the company is going to evaluate the differentials between light and heavy crude oil to decide how much sweet crude it could import.

***

Interview: Pemex’s CEO Expects FID for Four New Fields in 2019

(S&P Global Platts, Daniel Rodriguez, 27.Sep.2018) — Mexico’s state oil company Pemex expects to make a final investment decision (FID) and begin development of its Ixachi, Pokche, Xikin, and Suuk discoveries in 2019, CEO Carlos Trevino told S&P Global Platts.

These fields are at the top of Pemex’s project pipeline, but their FID will depend on other stakeholders such as Mexico’s Treasury Secretariat, Trevino said on the sideline of the Mexican Petroleum Congress in Acapulco late Wednesday.

“We expect the incoming president will give a great value to these fields in his mission to raise Mexico’s oil production,” Trevino said.

Based on the information available, Platts Analytics estimates the peak production of these four fields could produce a combined 135,000 b/d.

Xikin has 190 MMbbl 2P reserves, Suuk has 50 MMbl 2P and 205 MMbbl 3P, Pokche has 36 MMbbl 2P and 186 MMbbl 3P, and Ixachi with 67 MMbbl 2P and 120 MMbbl 3P.

President-elect Andres Manuel Lopez Obrador has pledged to raise Mexico’s crude oil production to 2.6 million b/d by the end of his term in 2024, up from 1.8 million b/d in August.

Trevino said Pemex is not going to be able to achieve its goal of having a yearly production average of 1.95 million b/d for 2018.

The company will not be able to achieve its goal because of water invading its Xanab shallow water field in Tabasco’s coastline.

Xanab’s production has been in a freefall since January, decreasing its output by 68,200 b/d to 104,400 b/d in August. Pemex produced 1.81 million b/d in August, down from 1.93 million b/d in January.

THE CHALLENGE: A FINANCIALLY INDEPENDENT PEMEX

The great challenge Pemex faces is to decouple itself from the country’s federal government budget in its mission to become a competitive state-owned company, Trevino said.

“It is hard to know what Pemex’s budget will be as long as it will depend on the state of public finances,” Trevino added.

Since oil prices crashed in 2014, Pemex’s upstream capital investment budget was cut by two thirds to $7.2 billion in 2018, making it difficult for the company to develop its production portfolio.

If prices stay at $80/b, Trevino said Pemex’s upstream capital investment budget should return to levels similar to 2014 or 2015, somewhere between $12.7 and $17 billion.

However, the final budget the company will have will depend on the incoming administration, led by President-elect Andres Manuel Lopez Obrador.

According to Mexico’s National Hydrocarbon Commission, Pemex requires an investment of at least $20 billion to be able to develop the acreage it won at hydrocarbon auction round zero.

According to CNH, this will allow Pemex to increase its crude oil production to 1.96 million b/d by 2022 from a bottom of 1.7 million b/d in 2020.

Trevino said that he expects Pemex to reach an inflection point somewhere before 2020, adding that CNH’s projection is the worst case scenario while the state company’s forecast of producing 2 million b/d by 2020 is the best case scenario.

The critical difference between Pemex and CNH’s projections are the permitting times. “We input the shortest approval times possible while they take the maximum allowed times for granting permits,” he added.

***

Talos Energy Announces Approval Of Zama Appraisal Plan

(Talos Energy, 27.Sep.2018) — Talos Energy Inc. announced the Mexican oil & gas regulator, the National Hydrocarbons Commission (CNH) has approved the appraisal plan for the Zama discovery.

The approval of the appraisal plan by the CNH is a key approval required to commence the appraisal of the Zama discovery. CNH is currently reviewing the application for drilling permits, which are required to commence drilling operations. Talos estimates that it will spud the first appraisal well, the Zama-2, in the fourth quarter of 2018 and that the appraisal program will be completed by mid-2019.

In addition, the Block 7 Consortium – which includes Talos as the operator with a 35% participating interest, as well as Sierra Oil & Gas and Premier Oil – has entered into a firm contract with a subsidiary of Ensco PLC to utilize the Ensco 8503 semi-submersible rig for the appraisal plan. The contract covers the drilling of two wells, a sidetrack and a well test. The rig is expected to be on location ready to commence operations in November.

The appraisal plan includes three new reservoir penetrations. The first well in the program, the Zama-2, will be deepened by approximately 500m to test an exploration prospect called Marte, which has an unrisked recoverable resource range between 60 MMBoe and 150 MMBoe. The estimated cost to deepen the Zama-2 wellbore for the Marte test is approximately $10 million gross, with Talos’s share expected to be approximately $3.5 million.

The CNH approved a gross budget of $325 million for the appraisal plan, which includes approximately $75 million of contingent operations. The budget includes the cost of drilling the wells, performing a drill stem test to gather information about the reservoir continuity and productivity, hole coring across the Zama reservoir, and collecting a number of rock and fluid samples. Talos expects its net share of the costs to be approximately $75 to $80 million for the entire appraisal campaign, before any contingency costs.

President and Chief Executive Officer Timothy S. Duncan commented,

“Following last week’s announcement of the Pre-Unitization Agreement with Pemex. This approval allows us to maintain an accelerated schedule of investments on the Zama project in Mexico, and begin drilling operations on the appraisal plan by the end of this year. This should allow us to stay on track for our ultimate goal of achieving initial production from the Zama discovery in 2022, thereby providing local jobs, increasing government revenues to Mexico, and materially adding to Mexican domestic production.”

***

#LatAmNRG

Venezuela Faces Fresh Blow With Ship-Fuel Rules Threatening Exports

(Bloomberg, 27.Sep.2018) — New rules forcing ships to use cleaner marine fuels may deal yet another blow to cash-strapped Petroleos de Venezuela SA, an exporter of high-sulfur fuel oil.

From Jan. 1, 2020, vessels will have to switch to less-polluting bunker fuel or be fitted with equipment to curb emissions, under new International Maritime Organization rules. That’s expected to weaken demand for the high-sulfur residual fuel oil produced by PDVSA, pushing prices lower at the same time that the cost of importing clean fuels rises, said Mel Larson, a consultant at KBC Advanced Technologies Inc.

As refiners prepare to produce IMO-compliant fuels that rely on low-sulfur crude oils, sour crude produced by Venezuela and Mexico may be sold at deeper discounts. Meanwhile, demand for lighter distillates, including diesel, is expected to increase. That ultimately will take a toll on the economies of Venezuela, Mexico and Ecuador that rely on imported diesel and gasoline.

“IMO 2020 has the potential to hurt GDP growth in most Latin American economies, especially the ones that subsidize fuel prices,” Larson said by email. “As the cost of imported fuels rise, subsidizing gasoline and diesel will only serve to expand a country’s or company’s debt load.”

Most refiners in Latin America haven’t invested in units that can remove sulfur or crack residuals into more valuable molecules. That puts them at a disadvantage ahead of the rule, which is expected to slash global demand for high-sulfur bunker fuel to as low as 1 million barrels daily from 4 million barrels currently.

By this measure, Petroleos Mexicanos and PDVSA, respectively Latin America’s largest and second-largest exporters of fuel oil, are the ones who have most to lose.

Petroleo Brasileiro SA, on the other hand, is set to take advantage of the fuel shift, according to Guilherme Franca, executive manager of commercialization. Petrobras already exports IMO-compliant fuels and is exploring the re-opening of fuel oil storage tanks in Singapore to better supply bunker fuel markets in Asia.

***

Pemex Plans up to 100,000 b/d of Light Crude Imports, Says CEO

(Reuters, David Alire Garcia, Marianna Parraga, 26.Sep.2018) — Mexican state-run oil company Pemex expects to begin importing up to 100,000 barrels per day of light crude oil, likely from the United States, from late October and at least until the end of November, its chief executive said on Wednesday.

“A hundred thousand barrels (per day) more or less is what we’re going to import to process and incorporate into our refineries, mostly at Salina Cruz,” Pemex CEO Carlos Trevino said in an interview with Reuters on the sidelines of the Mexican Petroleum Congress in Acapulco.

The imports, planned to run through at least the end of President Enrique Pena Nieto’s tenure in office on Nov. 30, mark a stark shift for historically major crude exporter Mexico, where decades of oil self-sufficiency are a badge of pride.

Years of under investment and declining crude output have severely hampered Mexico’s refineries and helped necessitate the move.

Salina Cruz, like Pemex’s other five refineries, has recently been producing far below capacity due to accidents and operational problems, as well as Pemex’s focus on maximizing the value of its oil even if that means refining less domestically.

“We’re going to mix it with Mexican crude, with some of our mix to be able to process at the levels we want to get back to in refining. We should be around 800,000 barrels (per day of refining in the country’s entire system) by the end of the year,” he added.

Mexico’s refining network can process up to 1.6 million bpd of crude. It has been working this year at around 40 percent.

Trevino said he expects auctions of oil exploration and production blocks scheduled for February, which include the selection of key partners for Pemex, will take place as planned.

“I think there is total certainty” that Mexico’s oil regulator, the National Hydrocarbons Commission (CNH), will carry out the auctions.

Mexican President-elect Andres Manuel Lopez Obrador has said that oil auctions are suspended until contracts already awarded over the past few years have been reviewed, but he has not specifically weighed in on the February tenders.

Pemex, whose oil production and refining volumes have continued declining this year amid the depletion of some of its main oilfields, will not meet its crude output target of 1.95 million barrels per day in 2018.

“We’re going to be considerably below that,” Trevino told reporters at the conference later in the evening, declining to provide a specific volume.

He expects another year of production decline in 2019, even though Pemex had originally planned to stabilize output by then.

Lopez Obrador, who takes office on Dec. 1, handily won Mexico’s presidential election in part by promising sweeping changes to Mexico’s energy industry. His energy team has signaled they want Pemex to select its own partners instead of having them chosen in auctions run by the CNH.

Trevino said the new process would be “easier,” underscoring that the current selection process “costs us time.”

***

Giving More Money to Pemex Could Hurt The Company

(Energy Analytics Institute, Ian Silverman, 25.Sep.2018) — Contrary to what is thought, investing in Pemex and increasing its production could weaken the oil company, since it hasn’t achieved the profitability necessary to operate with good finances.

The solution is no as easy as just opening the wellhead and allowing production to flow, as Mexicans sometimes think is the case, reported the daily newspaper El Financiero, citing the Pulso Information Director Pabló Zárate. “On the one hand we need more investment, but we also have to see that investments are done with profitability in mind so that Pemex is strengthened and not be weakened,” he said.

The executive added that giving more resources to Pemex doesn’t mean that its level of debt and finances will improve.

“You could end up pushing Pemex into a scheme where it produces more, its activities expand, its income is higher, but its earnings don’t necessarily increase at the same rate,” he said. “[Instead] what you would have would be something bigger but not necessarily stronger,” he concluded.

***

Pemex, Consortium Sign First Ever Pre-Unitization Agreement in Mexico

(Pemex, 20.Sep.2018) — Pemex and the Block 7 consortium signed the first ever pre-unitization agreement in Mexico.

Petróleos Mexicanos (Pemex) and Talos Energy, as operator of the Block 7 Consortium, announced that Pemex and the international Block 7 Consortium (Talos Energy, Sierra Oil and Gas, and Premier Oil) signed a Pre-Unitization Agreement (PUA) related to certain tracts within the Amoca-Yaxche-03 allocation (assigned to Pemex as part of Round 0) and the contiguous Block 7 production sharing contract (assigned to the consortium by the National Hydrocarbons Commission as part of the first tender of Round 1). Both areas are situated in the offshore portion of Mexico’s prolific Southeast Basin.

This is the first Pre-Unitization Agreement ever to be signed in Mexico. Under the country’s recently revamped legal and regulatory framework, this two-year agreement enables information sharing related to the recently announced Zama discovery and its potential extension into Pemex’s neighboring block. It also sets a clear path for the signing of a Unit Agreement and Unit Operating Agreement in the event a shared reservoir is confirmed, as it establishes a defined process based on international practices to determine the resulting participation of each party in the potential overall development.

As a result of the agreement, both parties will immediately form a Working Group, with the objectives of maximizing operational and informational efficiencies, defining activities on each tract that optimize the collection of data in the area, and reducing any potential hazards, all to maximize the benefits for México. The Working Group will be comprised by legal and technical representatives from the member companies.

The PUA has previously been approved by the Ministry of Energy (SENER).

***

Pemex CEO Launches Management System at Cangrejera Petrochemical Complex

(Pemex, 19.Sep.2018) — The CEO of Petróleos Mexicanos, Carlos Treviño Medina, launched the Management Assessment System at the Cangrejera Petrochemical Complex, located in the state of Veracruz that will help increase the production value of oil products processed in this center, through the identification of critical inventory items, oversight the plant´s operation, inputs and consumables for production, maintenance and financial performance.

Following up on the visits he has made to strategic Pemex facilities around the country, on Sept. 20 Treviño Medina toured the Cangrejera Complex and the “Lázaro Cárdenas” Refinery in Minatitlán, to oversee operations and get a first-hand account of the concerns and needs of the oil workers stationed in these work centers.

Regarding the Control Center and the Management Assessment System of Pemex Etileno (Pemex Ethylene), the CEO of the state-owned productive company pointed out that launching this system will allow the company to anticipate and manage changes promptly, solve problems and make better decisions using a single system that allows for real-time monitoring of all processes simultaneously from a single location.

He explained that the automated management system is based on information technologies that promote the coordination of efforts through the periodical exchange and analysis of electronic data providing the characteristics of various different analysis and decision-making systems in a single application. “With this system, we integrate key operating, logistics and financial information for online and prompt decision-making,” he said.

In recent weeks, Treviño Medina has kept up an intense schedule of visits to various strategic facilities to oversee their operation. During July and August, he visited the Storage and Dispatch Terminal (TAD) in the state of Querétaro and the Tanker Vessel Calakmul, which is docked at the facilities of the Integrated Port Management of Puerto Progreso, in the state of Yucatán.

He awarded acknowledgments to both facilities for their outstanding compliance with the Order and Cleanliness Campaign.

He also toured the Antonio M. Amor Refinery, located in Salamanca, in the state of Guanajuato, as well as the Dos Bocas Maritime Terminal in the state of Tabasco, where he learned of the progress made on the Command and Control Center that will safeguard this strategic facility.

He was recently at the “Antonio Dovalí Jaime” Refinery in Salina Cruz, in the state of Oaxaca, where he oversaw the progress of the ongoing reconstruction efforts of several facilities that were damaged during the earthquakes that occurred on September 2017.

During his visits, Treviño Medina has expressed his deepest recognition tothe oil workers, who, with their daily effort, commitment and capabilities, have turned Pemex into the largest company in Mexico and one of the most valued Latin American brand names.

“A time of great change is coming, but what we have sown here will endure forever, because Pemex is one of the foundations of Mexico thanks to the strength you have given this great company, which is a source of pride and wealth for the country,” he affirmed.

***

Pemex Performs Earthquake Drill at 140 Facilities Across Mexico

(Pemex, 19.Sep.2018) — At 13:16 hours, on September 19th a massive, country-wide earthquake drill started and 140 Petróleos Mexicanos facilities participated simultaneously. This country-wide drill is held in Mexico each year to commemorate the National Civil Defense Day and as a day to honor the victims of the devastating 1985 and 2017 earthquakes.

At the Petróleos Mexicanos Management Center (Acronym in Spanish: CAP) in Mexico City, over 12,000 employees were evacuated, 30 percent of whom work in the executive tower. Prior to the drill, a minute of silence was held to honor the victims of both earthquakes.

The drill was supervised directly by Pemex CEO Carlos Treviño Medina and the Corporate Director of Management and Services, Marco Antonio Murillo, from the Emergency Command Center of the company, which is located on the ground floor at CAP building B.

As part of promoting a culture of civil defense and disaster preparedness within the company, which is aimed to promote workers’ safety, the drill allowed for the assessment of current protocols and safety programs in Pemex facilities and test alarm systems, safety and firefighters´ equipment.

After three short bells, members of the safety brigade began to evacuate personnel using established routes to the emergency gathering points, using the slogan: “No running, no yelling, no pushing.”

Additionally, Fire and Rescue personnel from CAP performed a rescue drill for three “victims”, who were taken to the Medical Unit of the Management Center.

***

Mexico’s New President Should Postpone Oil Auctions: Former Pemex Official

(Reuters, Collin Eaton, 19.Sep.2018) — A former Petroleos Mexicanos board member said on Wednesday Mexican President-elect Andres Manuel Lopez Obrador has enough political support to change the nation’s energy law and should postpone planned competitive oil auctions until the law is revised.

Fluvio Ruiz Alarcon said, following an address at the Baker Institute of Public Policy, the new administration would have the clout in congress to roll back portions of the nation’s landmark energy reforms that opened its oil fields to foreign investment.

Lopez Obrador, who takes office on Dec. 1, handily won Mexico’s presidential election in part by promising sweeping changes to Mexico’s energy industry. One of his aims is to have the state-owned oil company, known as Pemex, select partners instead of having them chosen in auctions run by Mexico’s National Hydrocarbons Commission (CNH).

“Pemex should choose its own allies,” said Ruiz. “The hydrocarbon law says that it is CNH that makes the bidding for the alliance of Pemex. They say, ‘Who wants to marry Pemex?’ They say, ‘Who offers more?’ We want Pemex to choose.”

He also said Mexico should postpone the competitive tenders for Pemex joint ventures scheduled for February until the law is changed.

The Feb. 14 oil auctions are the only ones scheduled and cover 46 onshore blocks in northern Nuevo Leon and Tamaulipas states, including the first shale areas.

The February tender would also feature seven opportunities to tie up with Pemex on onshore projects in the southern states of Veracruz, Tabasco and Chiapas.

The auctions were originally scheduled this year in the waning months of President Enrique Pena Nieto’s term, but were postponed by the National Hydrocarbons Commission (CNH), Mexico’s independent oil regulator which runs auctions and supervises the contracts.

When it announced the later date, CNH officials said they wanted to give interested oil companies more time to evaluate the projects. They also expressed a desire to work with the incoming administration of President Andres Manuel Lopez Obrador.

To date, 17 companies have begun the process of pre-qualifying for the auctions while another eight have done so for the Pemex joint ventures.

***

IEnova, BP Sign Contract For Liquid Fuels Terminal In Baja California, Mexico

(Sempra Energy, 11.Sep.2018) — Sempra Energy announced its Mexican subsidiary, Infraestructura Energética Nova, S.A.B. de C.V. (IEnova) signed a long-term contract with British Petroleum (BP) for the remaining 50 percent of the initial capacity of the proposed Baja Refinados liquid fuels marine terminal in Baja California, Mexico.

Under the agreement, BP will have storage capacity of 500,000 barrels of liquid fuels to supply its growing network of service stations in northern Mexico. In addition, subject to the execution of certain agreements, BP will have the option to acquire up to 25 percent of the terminal’s equity after commercial operations begin in the second half of 2020.

In April, IEnova announced it signed a long-term contract with Chevron Combustibles de México S. de R.L. de C.V for approximately 50 percent of the facility’s initial storage capacity to supply Chevron service stations and other commercial and industrial consumers.

“The Baja Refinados project is an important part of our growth strategy,” said Carlos Ruiz Sacristán, chairman and CEO of the Sempra North American Infrastructure group and chairman of IEnova. “This new terminal will increase Baja California’s energy reliability and will foster competitive prices for gasoline and other refined products on the West Coast of Mexico.”

IEnova will be responsible for the development of the liquid fuels terminal project, including financing, obtaining permits, engineering, procurement and construction, as well as maintenance and operations. The project will be located at the La Jovita Energy Hub in Ensenada and have an initial capacity of 1 million barrels of liquid fuels, with the potential for future expansion.

IEnova develops, builds and operates energy infrastructure in Mexico. As of the end of 2017, the company had invested more than $7.6 billion in operating assets and projects under construction in Mexico, making it one of the largest private energy companies in the country. IEnova was the first energy infrastructure company to be listed on the Mexican Stock Exchange.

***

Mexico Oil Production to Reach 2.6 MMb/d by 2025: Lopez Obrador

(S&P Global Platts, Daniel Rodriguez, 11.Sep.2018) — Mexico’s President-elect Andres Manuel Lopez Obrador said Sunday he plans to focus on developing and exploring onshore and shallow water areas under the control of state oil company Pemex to boost the country’s oil production.

“We have a projection, and our plan is to have production of at least 2.6 million b/d by the end of the presidential term; additional production of 800,000 b/d,” Lopez Obrador said in webcast press conference.

Lopez Obrador was speaking to journalists after a meeting with Mexican drilling and oil service companies at Villahermosa in Tabasco.

Mexico’s production averaged 1.8 million b/d in July, down from an historical high of 3.4 million b/d in 2004, latest data from Mexico’s National Hydrocarbon Commission showed.

Lopez Obrador said the incoming administration plans to tender drilling contracts in December when his six-year term begins to develop Pemex’s shallow water and inland areas to boost oil production. “We are inviting all companies to participate in these tenders. However, we will have a preference over domestic contractors,” he added.

He said he planned to add Peso 75 billion ($3.9 billion) to Pemex’s exploration and production budget to boost drilling and thus raise output. The tenders will help Mexico reverse its production downtrend by the end of 2019, he added.

Mexico’s oil industry is at a crisis as a result of low public investment in the sector. Pemex in 2017 had an E&P capital expenditure budget of Peso 81.5 billion, down from Peso 222 billion in 2014, the company’s annual financial statements show. The cut in Pemex’s budget resulted in a significant decrease in drilling activity; it drilled 83 wells in 2017, compared with 705 in 2013.

Lopez Obrador blamed the previous administration for Pemex’s lower capital expenditure, claiming it was done on purpose amid expectations the private sector would offset lower activity from the state company. “It has been a complete failure, this wrongly named energy reform,” Lopez Obrador said

The president-elect has historically been an opponent of private participation in Mexico’s energy sector. His critics note Pemex’s spending cuts reflect lower global oil prices after 2014.

The president-elect neither mentioned the long-term nature of the energy sector nor the advances made by Eni at Amoca, PanAmerica with Hotchi and Talos with Zama, where peak production across the three fields could be above 250,000 b/d.

Analysts also point out that Lopez Obrador does not acknowledge that it has been a challenge for Mexico to replace production from the aging Cantarell super field, which produced 2.1 million b/d in 2003 and but 160,000 b/d in July.

Mexico won’t call for new hydrocarbon auction rounds until all 107 contracts awarded to date under the energy reform are reviewed for corruption, Lopez Obrador said.

“The majority aren’t working, there is no investment, but those 107 contracts don’t include all the oil regions in the country, just a fraction of Mexico’s hydrocarbon potential,” he added.

The president-elect did not indicate when this contract review process could conclude. Currently, Mexico’s National Hydrocarbon Commission is organizing two gas-rich auction rounds, which are expected to be awarded in February.

The commission postponed both auctions as well as a Pemex’s auction to farm out seven onshore clusters in southern Mexico from this summer until the coming year, citing a request from the industry for more time to analyze the areas as well as the opportunity to involve the incoming administration in the process.

Lopez Obrador said the state owns all of Mexico’s oil resources, and has greater control over areas that have not yet been assigned. “The greater majority of our oil potential is still under the control of Pemex,” he added.

***

Concerns Raised Over Contract Release Program in Mexico

(S&P Global, 6.Sep.2018) — Mexico gas market observers have expressed concern that a lack of liquidity and supply guarantees will complicate the final phase of Pemex’s natural gas contract release program, which is designed to allow the entry of new gas marketers.

Mexico’s Energy Regulatory Commission (CRE) last week approved the final phase of the release program, known as PCC for the acronym of its Spanish name. The final rules of the regulation have yet to be published in Mexico’s Official Federal Journal (DOF).

The commission joined the second and third phases of the program as one and set its rules in a motion approved August 31.

In January 2017, CRE approved the program, setting the goal for Pemex to release 70% of its gas marketing contracts under a four-year period.

As of March 2018, Pemex has released 30% of its marketing portfolio, 10% more than the goal established in PCC’s first phase, which began in February 2017.

CRE said Friday the final phase would maintain some first phase rules, including full transparency on offers made to users, and a no-penalty clause to end contracts with Pemex.

Other rules to be retained include one requiring Pemex to provide binding offers to users, and another requiring provision of a base formula to allow comparison of offers from Pemex and new marketers.

The energy manager at one of the largest industrial users of gas in northern Mexico told S&P Global Platts that insufficient access to cross-border pipelines is limiting the entry of new marketers.

“At the time of selecting a marketer, the factors most important for users are the economic benefits and supply warranty,” the manager said.

Industrial users’ largest concern is finding a marketer that can offer a real supply alternative beyond Pemex and CFE, the manager said. “We have seen both state companies have a monopoly in most cross-border pipelines,” he added.

EYES OPENED

“The PCC’s first phase opened the eyes to users of the supply alternatives beyond Pemex as well as the mechanics and rules of the new market,” he said.

Before Pemex’s gas supply was taken for granted and users didn’t know how to optimize its gas supply and consumption, the manager said.

“For users, the opportunity in the PCC program is to diversify their supply portfolio beyond Pemex,” he added.

“It is true Pemex is still behind most cross-border pipeline capacity, but the PCC program has empowered users by giving us more information and thus increasing our negotiating power to a certain extent,” he added.

Gonzalo Monroy, managing director of Mexico City-based energy consulting firm GMEC, told Platts he has concerns related to PCC’s last phase.

“For this final phase, due to the lack of reliable private supplies, practically everyone will sign with Pemex or CFE,” Monroy said.

INFRASTRUCTURE ACCESS

The PCC was well drafted, but realistically it has a limited possibility of being applied. It is hard to migrate to a new marketer if it doesn’t have access to reliable infrastructure, Monroy said.

“Contracts have to be sold desegregated in its different components; companies can quit their contract without a penalty; all that is good. But at the end of the day, everything comes down to supply warranty,” Monroy said.

Mexico seeks to have an open access market, but this goal is difficult to achieve due to lack of liquidity and access to cross-border capacity for new marketers, he added.

Market participants have told Platts that the three private companies growing the most in Mexico are Shell, BP and Macquarie.

Monroy said these companies have enough upstream assets in the US to allow them to negotiate with CFE and Pemex for market access in Mexico.

‘However, as a marketer, if you have no bargaining position, no trading chip, you’re hanged,” Monroy said.

***

AMLO to Continue Drilling Service Contracts

(Bloomberg, Amy Stillman and Eric Martin, 6.Sep.2018) — Mexico’s next president said he will continue with tenders for drilling service contracts starting when he takes office.

“We are preparing the rescue plan for the oil industry that will consist of producing more crude oil soon, and we will need these companies that have experience, most of them national companies,” President-elect Andres Manuel Lopez Obrador told reporters on Thursday in Mexico City. “We are already preparing tenders for the drilling of wells, and we are getting ready because we are going to launch those tenders from the first days of December.”

Lopez Obrador said he will travel to his home state of Tabasco on Saturday to meet with representatives from oil service companies. The meeting will take place with his pick for energy minister Rocio Nahle and the next chief executive officer of Pemex, Octavio Romero, according to a spokesman for Lopez Obrador who asked not to be identified, citing internal policy.

Mexico’s National Hydrocarbons Commission plans to hold auctions for more than 40 blocks and Pemex farm-out deals on February 14.

The leftist leader had previously indicated that future oil auctions, which have lured some of the world’s biggest oil companies, could be suspended or canceled as his government seeks to strengthen Pemex and focus on expanding refining capacity. He has also said that more than 100 oil contracts already awarded to companies such as Royal Dutch Shell Plc, Exxon Mobil Corp and BP Plc are being reviewed.

Pemex’s crude oil output has declined every year since 2004, which Amlo has pledged to turn around with an additional 75 billion pesos ($3.9 billion) for exploration and production investment.

***

AMLO Plans Massive New Oil Refinery

(OilPrice.com, Irina Slav, 5.Sep.2018) — Mexico’s President Andres Manuel Lopez Obrador has plans to build the country’s largest refinery with a capacity to produce 400,000 barrels of gasoline daily, Reuters reports, citing comments by Obrador during a meeting with businessmen in Monterrey.

The refinery would cost US$8 billion to build and construction could start soon, which would see it complete within three years. Though Reuters quoted Obrador as saying, “400,000 bpd of gasoline,” it added in its report that the comments did not made it clear whether he was referring to the crude oil processing capacity of the future facility or its gasoline production capacity.

Currently, Mexico’s refineries have a combined processing capacity of a maximum 1.6 million bpd of crude but, Reuters notes, it has been working at just 40 percent capacity since the start of the year because of accident-caused outages and operational issues. Pemex, which operates the six refineries, also exported more crude as prices improved internationally. In July, the state oil company produced 213,000 bpd of gasoline.

Earlier this year, Rocio Nahle, an adviser to Obrador and the most likely candidate for the Energy Minister job, said “In a three-year period, at the latest, we need to try to consume our own fuels and not depend on foreign gasoline.” This would be bad for U.S. refiners, who export the biggest portion of their production to Mexico. In the last few years, Mexican imports of gasoline and diesel have risen to more than 800,000 bpd, representing over 66 percent of domestic demand.
Mexico’s current oil production stands at about 1.84 million bpd, of which 60 percent is exported. At the same time, according to Reuters, the country imports around 1 million bpd of refined products.

“The commitment is to produce gasoline in Mexico,” Obrador said at the Monterrey meeting. “We want to produce gasoline because we have the raw material, we have crude oil.”

Regarding production, last month Obrador said all oil auctions would be suspended until contracts awarded by the previous government over the last three years are reviewed.

***

New Fortress Builds On LNG Presence With Irish, Mexican Projects

(LNG World Shipping, Mike Corkhill, 4.Sep.2018) — New Fortress Energy has added two major LNG import projects to its portfolio, as part of its drive to bring the benefits of clean-burning gas to new markets

New Fortress Energy (NFE) has agreed to buy a site at Ballylongford in Ireland’s County Kerry with the intention of constructing a new LNG receiving terminal. The proposed €500M (US$581M) facility has already been awarded the necessary planning permission and was recently designated an EU Project of Special Interest by the European Commission.

The project, termed Shannon LNG, has been under consideration for several years but the conditions have not been deemed amenable for a final investment decision on Ireland’s first LNG import terminal.

Circumstances are now changing, however. On the one hand, the European Commission is putting pressure on EU member countries to substitute clean-burning gas for coal in power generation under its increasingly rigorous environmental programme. And on the other, the possibility of the UK’s imminent departure from the EU occurring as a “hard Brexit” is raising the prospect of higher charges for UK pipeline supplies, currently Ireland’s only source of natural gas, due to regulatory divergences.

NFE and its backers are likely to rely on public funding to cover up to half the cost of the Shannon LNG project. The scheme would be the company’s largest play in the LNG sector to date.

To be situated on the south side of the Shannon Estuary on Ireland’s west coast, the terminal will have the capacity to process 3 mta of LNG and will feature four 200,000-m3 LNG storage tanks and a jetty able to accommodate LNG carriers of up to 266,000 m3. Shannon LNG also has planning permission to build an adjacent 500-MW gas-fired combined heat and power plant.

Down Mexico way

NFE has been increasing its commitment to bringing LNG to new markets this year. Earlier in August 2018, just two weeks before breaking the news about Shannon LNG, NFE was awarded a long-term contract by Mexico’s Port Authority of Baja California Sur (APIBCS) to develop, construct and operate an LNG import terminal at Pichilingue.

Pichilingue is located close to La Paz near the southeastern tip of Baja California. Mexico’s southern Baja California state currently lacks any natural gas infrastructure.

The contract announcement coincided with the start of work at the terminal site. The US$185M facility should be in service by 2020. Although NFE and APIBCS provided no details of the terminal on announcing the scheme, the project’s cost and timing indicate an LNG receiving terminal based on using a floating storage and regasification unit (FSRU).

LNG regasified at the terminal will be utilised locally, including as a substitute fuel for oil in the region’s power plants. Road tanker loading bays to be provided adjacent to the jetty will enable the distribution of LNG to nearby vehicle fuelling stations and LNG bunkering jetties.

Outside of Mexico, NFE developed an LNG project in Jamaica in 2016 for Jamaican power utility JPS, to supply the 120-MW Bogue power station at Montego Bay on the north side of the island. This was NFE’s first involvement in an LNG project and to meet its commitments the company chartered 138,000-m3 Golar Arctic for two years for use as a floating storage unit (FSU) and 6,500-m3 Coral Anthelia to shuttle LNG to the power plant.

Jamaica is seeking to press ahead with substituting oil with gas in power generation to the greatest extent possible. New customers for gas are being lined up and JPS has requested an enhancement of the country’s LNG-processing capabilities. In response NFE is chartering Golar LNG Partners’ 126,000-m3 FSRU Golar Freeze, for 15 years, commencing in Q4 2018, for stationing at Port Esquivel on the south side of the island, to the west of Kingston.

Gas from Golar Freeze will be piped ashore to fuel the new 190-MW Old Harbour Bay power plant. Some LNG will be transhipped from the FSRU to a shuttle tanker and transported to the upgraded, 140-MW Bogue power station. A third gas-fuelled plant, of 94 MW, is being built in Clarendon for the Jamalco bauxite company.

Fortress affiliates

NFE is controlled by the New York-based investment management firm Fortress Investments Group LLC. American LNG Marketing, an affiliate company, is also involved in the LNG sector through its shipment of LNG in ISO tank containers to islands in the Caribbean.

American LNG operates a small liquefaction plant in the Florida town of Medley near Miami. The company dispatched its first LNG tank container export shipment from this plant, known as Hialeah, in February 2016.

Hialeah has been approved for exporting up to 66,000 tonnes per annum of LNG in tank containers to countries with which the US does not have a free trade agreement. Natural gas for the facility is supplied by Peninsula Energy Services.

Between February and June 2018 American LNG Marketing handled 110 tank container shipments of LNG to Barbados and 50 to the Bahamas. The tanks were loaded onto ships berthed at Port Everglades in southern Florida.

Florida East Coast Railway (FECR), operator of 550 km of track linking the state’s eastern ports, from Jacksonville in the north to Miami in the south, is another Fortress Investments Group company. Both the Hialeah LNG plant and Port Everglades have intermodal terminals and FECR trains are used to shuttle laden and empty American LNG Marketing tank containers between the two facilities.

FECR is also using LNG as a locomotive fuel. Each train is powered by a pair of suitably modified locomotives while the fuel tender is comprised of a 40-foot LNG tank container mounted on a heavy-duty flat car. Such trains, which run on an 80/20 LNG/diesel mix, can make a return journey along the full length of the FECR line before an LNG fuel refill is required.

***

OOS Drillship to Support Pemex Campaign

Photo: OOS Energy

(Offshore, 4.Sep.2018) — OOS Energy has won its first drilling contract offshore Mexico.

The OOS Tiger 1 drillship will support Marinsa & PPS (Pemex Drilling) for a 15-month program.

The vessel, built at Shanghai Shipyard in China, is a moored drillship capable of working in water depths up to 5,000 ft (1,524 m), and to drilling depths of up to 31,500 ft (9,601 m).

***

Mexican Fuel Consumption 778 Mb/d: Jan.-Jul. 2018

(Energy Analytics Institute, Jared Yamin, 3.Sep.2018) — During the first seven months of 2018, the average consumption of gasoline in Mexico was 778,000 barrels per day, or 124 million liters per day.

Of the total, approximately 659,000 barrels per day, or 85% of total consumption, corresponded to Pemex Magna, while the remaining 119,000 barrels per day, or 15% of total consumption, corresponded to Pemex Premium, announced Pemex in a Twitter post.

During the same time period, consumption of diesel was approximately 339,000 barrels per day or 54 million liters per day, according to the state oil company.

***

S&P Confirms Pemex’s Global Rating at BBB+

(Pemex, 31.Aug.2018) — Rating agency Standard and Poor’s (S&P) confirmed the global rating of Petróleos Mexicanos at ‘BBB+’ with stable outlook after its annual review of the company, and modified its individual credit profile from ‘bb’ to ‘bb-‘.

Additionally, the global rating and stable outlook reflect not only the implicit support of Pemex from the Federal Government regarding adverse financial scenarios, but also an improvement in the company’s financial position, such as  adequate liquidity as its cash flow sources are 1.2 times higher than its forecast expenditures for the next 12 months. The ratings agency also underscored that Pemex has started various initiatives to improve its financial balance, which could, in its opinion, gradually improve the company’s profitability and reduce its requirements for financing in the future.

The analysis additionally includes qualitative factors, such as a strong relationship with banks, excellent presence in capital markets and, overall, prudent risk management.

On the other hand, the amendment of the company’s individual credit profile follows production forecasts and is caused by the natural decline of the platform and the restoration of reserves recorded in 2017. According to the ratings agency, the downward production trend is caused by delays in the company’s new projects and the uncertainty associated with the implementation of farm-outs and partnerships.

***

Pemex Pauses Light Crude Exports: Data, Source

(Reuters, Ana Isabel Martinez, Marianna Parraga, 30.Aug.2018) — Mexico’s state-run oil firm Pemex has not exported light crude since May, according to a source and export data seen by Reuters on Thursday, as it gears up to process more of the oil at its domestic refineries.

Mexico’s President-elect Manuel Andres Lopez Obrador has said he wants to reduce the country’s crude exports and increase domestic production of gasoline and diesel despite a persistent lack of investment in refinery expansion and modernizing.

Pemex’s domestic refining network has underperformed again this year, increasing the need for imported fuel. Mexico has bought 1.19 million barrels per day (bpd) of U.S. fuel this year, a 12 percent increase versus the 1.06 million bpd imported in 2017, according to the U.S. Energy Information Administration (EIA).

Pemex’s lightest crude grades, Isthmus and Olmeca, were traditionally offered and sold on a spot basis, not through long-term supply contracts, so the pause should not affect specific customers, according to a trader from a company that made purchases last year.

In recent years, Olmeca and Isthmus crudes were mostly exported to customers in Asia, according to the trader and Reuters trade flows data.

“Those crude are for our refineries,” said the Pemex source who was not authorized to speak publicly about the matter.

Exports of Isthmus crude declined to an average of 53,000 bpd this year versus 86,000 bpd in 2017, while no barrels of Olmeca have been exported during 2018 compared with 19,000 bpd sold last year, according to Pemex figures.

Conversely, exports of Maya heavy crude, Mexico’s flagship crude grade, has averaged 1.157 million bpd this year versus 1.07 million bpd in 2017. Most Maya crude exports ended up in the United States.

Pemex’s crude output declined to 1.84 million bpd last month, including 1.07 million bpd of heavy grades. Its refineries worked in July at about 40 percent of their joint capacity of 1.6 million bpd, down from 57 percent of capacity for all of 2017.

***

Pemex’s Oil Workers Donate to Mexican Red Cross

(Pemex, 28.Aug.2018) — Pemex CEO Carlos Treviño Medina, presented the donation of 15,685,324 pesos made by the oil workers’ community in the country as part of the 2018 Fundraiser to the director of the Mexican Red Cross, Fernando Suinaga Cárdenas.

Source: Pemex

He stated that Petróleos Mexicanos’s most important assets are its people, and this fundraiser shows that solidarity is still one of the distinguishing features of the oil workers’ community, which has also translated into hundreds of tons of food and the invaluable support provided by volunteers of the institution during natural disasters, such as the devastating earthquakes of 2017.

During a ceremony that was held this morning at the Executive Tower of the Pemex Management Center, Treviño Medina pointed out that during this administration, the state-owned company has donated over 135 million pesos thanks to the support and commitment of its workers of all levels, members of the Mexican Oil Workers’ Union, as well as the nationwide network of Petróleos Mexicanos volunteers.

“This great institution is always there to come in our aid during natural disasters, which are a danger for all of us. I commend its courage, its contribution, organization and capacity for deployment, as well as its readiness to work side by side with Pemex personnel at any time,” Treviño Medina emphasized.

Mexican Red Cross director Fernando Suinaga thanked Pemex for its contribution on behalf of all Red Cross volunteers and contributors, as, he said, it will be vital to maintain and improve all ongoing relief and assistance operations throughout the country. “Pemex and the Red Cross have one thing in common: we work as a single team for the benefit of all Mexicans,” Suinaga said.

Mrs. Bertha Galván de Treviño, honorary chairwoman of Voluntariado Pemex (Pemex Volunteers); Mrs. Carmen Lebrija de Suinaga, Chairwoman of the Gray Ladies of the Mexican Red Cross; Mrs. Blanca Alencaster de Murillo, honorary co-chairwoman of Voluntariado Pemex; Marco Murillo Soberanis, Corporate Director of Management and Services; and Daniel Aguado Rojas, Adjustments Secretary of the General Executive Committee of the Oil Workers’ Union; as well as senior management officers of the state-owned company and the Trust of the Mexican Red Cross, were present at the event.

***

AMLO Says NAFTA Preserves Energy ‘Sovereignty’

(Reuters, 28.Aug.2018) — Mexican president-elect Andres Manuel Lopez Obrador welcomed a deal between Mexico and the U.S. to overhaul the North American Free Trade Agreement (NAFTA) that he said preserved Mexican “sovereignty” in the energy sector.

The U.S.-Mexico deal was announced by U.S. President Donald Trump on Aug. 27, putting pressure on Canada to agree to new terms and details that were only starting to emerge. Lopez Obrador said it was important that Canada be part of the deal.

Lopez Obrador, who is scheduled to take office on Dec. 1, said Trump “understood our position” and accepted his incoming administration’s proposals on the energy sector. The text of the new agreement has not yet been made public.

“We put the emphasis on defending national sovereignty on the energy issue and it was achieved,” Lopez Obrador told reporters after arriving in the southern state of Chiapas.

“We are satisfied because our sovereignty was saved. Mexico reserves the right to reform its constitution, its energy laws, and it was established that Mexico’s oil and natural resources belong to our nation,” he said.

Lopez Obrador opposed a constitutional change pushed through by Mexican President Enrique Pena Nieto that opened production and exploration in the energy sector to private capital.

Mexico has already awarded more than 100 oil exploration and production contracts to private companies.

Lopez Obrador has said he would pour resources into state oil company Pemex while still respecting private sector contracts, as long as a review does not find evidence of corruption.

He is expected to slow down or stall the process of offering more contracts to private players.

Jesus Seade, Lopez Obrador’s designated chief NAFTA negotiator, participated in the latest talks between the current Mexican administration and the U.S. Trade Representative to strike the new NAFTA agreement.

Seade said on Aug. 27 that both Pena Nieto’s team and the U.S. had agreed to change language in a draft proposal of the NAFTA overhaul on energy that had previously been a “cut and paste” from the text of Mexico’s energy reform.

The new language still preserved the same ideas and was consistent with Pena Nieto’s reform, Seade said, adding that Lopez Obrador was not seeking to change the legal framework for private energy projects in Mexico.

While the new administration planned to increase production at Pemex, Seade told a news conference in Washington “there will be areas where cooperation with the private sector is needed.”

***

Pemex Insider Destined for Key Post Under AMLO

(Bloomberg, Amy Stillman, 28.Aug.2018) — Mexico President-elect Andres Manuel Lopez Obrador will name Fluvio Ruiz Alarcon as Petroleos Mexicanos’s next exploration and production chief, according to two people with knowledge of the plans.

Ruiz Alarcon, a former independent adviser to Pemex, will take over on Dec. 1, when Lopez Obrador takes office. He’ll replace the current exploration and production director Juan Javier Hinojosa Puebla.

A board member, committee president and independent adviser to Pemex during two presidential administrations, Ruiz Alarcon is well-versed on the inner workings of the state energy giant. Born in Coatzacoalcos, Veracruz, a major oil hub, he is also close to Lopez Obrador’s pick for energy minister Rocio Nahle, who once worked at Pemex’s petrochemicals complex there.

A physicist and petroleum engineer, Ruiz Alarcon is critical of Pemex’s income being tapped to fund the government. If Pemex is subject to high taxes and budgetary controls, the company will struggle to reverse its flagging production, he said on Friday in an interview with national newspaper El Universal.

A spokesman for Lopez Obrador declined to comment. Ruiz Alarcon did not respond to requests for comment.

Last year Pemex’s tax contributions accounted for about 20 percent of the federal budget, down from about 40 percent a year ago.

New President

The interaction between Pemex’s finances and those of the government -– and how sharply they are distinguished — is an important question for investors following the arrival of a new president that has said he will expand oil and fuel output by spending more.

Lopez Obrador, who swept into power in a landslide July 1 election victory, has pledged to spend an additional 75 billion pesos ($4 billion) on exploration and production, with the aim of boosting output by one-third over two years. Last month, Lopez Obrador named his longtime political ally Octavio Romero Oropeza, who has no oil background, as the next Pemex chief executive officer.

Lopez Obrador is in the process of reviewing more than 100 contracts already awarded to private companies under the country’s landmark 2014 energy reforms.

Ruiz Alarcon has his work cut out for him. Pemex produced 1.866 million barrels of crude a day during the second quarter, its 13th consecutive year-over-year decline. Its reserves have shrunk by more than half over the past six years.

***

Renaissance Oil Reports 2Q:18 Results

(Renaissance Oil Corp., 27.Aug.2018) — Renaissance Oil Corp. reported second quarter 2018 results. All dollar figures are Canadian dollars, unless otherwise noted.

SECOND QUARTER 2018 HIGHLIGHTS

— Revenue in Q2 2018 reached a company record of $7.0 million, an increase of 40% compared with the previous quarter, and higher by 31% compared to Q2, 2017;

— Production in Q2 2018 increased to 1,656 boe/d compared to 1,249 boe/d in the previous quarter and 1,552 boe/d in the second quarter of 2017;

— Renaissance, in conjunction with its partner, LUKOIL, drilled six new wells targeting the shallow Chicontepec formations at Amatitlán, and;

— The recent improvement in oil and gas prices continued into the second quarter as sales of crude oil averaged $80.68/bbl compared to $72.98/bbl in the previous quarter and $54.09/bbl in the second quarter of 2017, while sales of natural gas averaged $4.51/Mcf compared with $4.19/Mcf in the second quarter of 2017.

PRESIDENT’S MESSAGE

The second quarter of 2018 saw continued oil field development by Renaissance, and its partner LUKOIL, at the Amatitlán block in Veracruz, Mexico. During the quarter, six additional wells were drilled intersecting the shallow Tertiary aged Chicontepec formations. To date sixteen Chicontepec wells, of a seventeen well program, have been drilled with the drilling of a seventeenth well now underway. Eleven of the new wells have undergone completion operations and been brought onto production with further completions expected to be concluded in the coming weeks. Renaissance has also completed workovers and repair operations on eight wells of the scheduled workover program.

Renaissance produced 1,656 boe/d at the Mundo Nuevo, Topén and Malva blocks (the Chiapas Blocks). The rising prices for crude and natural gas continued into the second quarter of 2018 resulting in a record high quarterly revenue of $7 million. The company is currently contracting drilling services and awaiting rig certification to initiate the Chiapas development program. This drilling program of four new wells and a series of workovers to existing wells, is expected to increase the company’s production base in Mexico.

***

Renaissance Oil Advancing at Amatitlán block in Mexico

(Renaissance, 27.Aug.2018) — Renaissance Oil Corp. announced that in the second quarter of 2018 it saw continued oil field development with its partner LUKOIL, at the Amatitlán block in Veracruz, Mexico.

During the quarter, six additional wells were drilled intersecting the shallow Tertiary aged Chicontepec formations. To date sixteen Chicontepec wells, of a seventeen well program, have been drilled with the drilling of a seventeenth well now underway.Eleven of the new wells have undergone completion operations and been brought onto production with further completions expected to be concluded in the coming weeks. Renaissance has also completed workovers and repair operations on eight wells of the scheduled workover program.

Renaissance produced 1,656 boe/d at the Mundo Nuevo, Topén and Malva blocks (the Chiapas Blocks). The rising prices for crude and natural gas continued into the second quarter of 2018 resulting in a record high quarterly revenue of $7 million. The company is currently contracting drilling services and awaiting rig certification to initiate the Chiapas development program. This drilling program of four new wells and a series of workovers to existing wells, is expected to increase the company’s production base in Mexico.

***

Atlas Renewable Energy, Bancomext Closing Long-Term Financing

(Atlas Renewable Energy, 27.Aug.2018) — Atlas Renewable Energy and Banco de Comercio Exterior (Bancomext) announced the signing of a long-term financing agreement for Atlas Renewable Energy’s solar power plant in Mexico, located in the state of Hidalgo.

Bancomext will provide $88.5 million dollars to finance the construction of the project, along with a $17 million dollars line of credit for Value Added Tax (VAT). The plant will have an installed capacity of approximately 129.5 MWp.

The project was awarded a power purchase agreement (PPA) with the Federal Electricity Commission (CFE), Mexico’s federal electricity company, in the first long-term energy auction, carried out in 2016 as part of Mexico’s energy reform.

The Guajiro Solar project is expected to begin operations in the second quarter of 2019. The plant will span over 410 hectares in Nopala de Villagrán, located in the state of Hidalgo. Guajiro Solar estimates it will generate 300 GWh annually, equivalent to the demand of roughly 120,000 homes. Atlas Renewable Energy estimates that the operation of the project will prevent the annual emission of more than 215,000 tons of carbon dioxide, which is equivalent to eliminating more than 46,000 cars from circulation.

Carlos Barrera, CEO of Atlas Renewable Energy, stated that, “The financing of the Guajiro Solar project marks an important milestone for Atlas Renewable Energy and consolidates Mexico as one of our main markets. It also strengthens our track-record of successful renewable energy project financings throughout Latin America.” He recognized Bancomext’s management of this transaction and for the positive impact it has had in accelerating investment in renewable energy projects throughout Mexico. “As we continue to grow, we will look for other opportunities to partner again with leading financial institutions such as Bancomext and government entities such as CFE,” he concluded.

Camilo Serrano, general manager of Atlas Renewable Energy for Mexico, emphasized that, “This project demonstrates a collaboration of public and private interests to increase the presence of renewable energy in Mexico,” and commented that they will look for more opportunities to expand Atlas Renewable Energy’s footprint in Mexico.

Francisco N. González Díaz, general director of Bancomext, highlighted that, “The Guajiro Solar project positions Atlas Renewable Energy as a reliable partner for investment and infrastructure development within the Mexican energy sector.” This project will generate 300 GWh annually, while helping achieve the goal of generating 35% of Mexico’s energy from renewable sources by 2024. Additionally, it provides an economic stimulus for the region. He added that, “This type of financing is intended to continue supporting the development of projects aligned to the Federal Government’s market strategy for renewable energy.”

As its first solar energy project in Mexico, Guajiro is part of Atlas Renewable Energy’s growth strategy to deepen its position in Mexico, a core market for Atlas Renewable Energy. The company launched its regional expansion in last year, with the inauguration of a plant in Chile that generates 110 MW, and the acquisition of an operating 70MW plant in the North of Chile. In July of this year, the company raised a green bond for two of its operating plants in Uruguay, and currently the company is in construction and advance development stage for several photovoltaic plants in Brazil with a total capacity of 450 MW.

Bancomext considers the energy sector strategic for the development of the country, so it has a program for the financing of renewable energy projects through the granting of long-term resources, in local currency or US dollars, to support companies during the construction, operation, and maintenance stages of the projects.

About Atlas Renewable Energy

Atlas Renewable Energy (Atlas) is a renewable energy generation company that develops, builds, and operates renewable energy projects with long-term energy contracts across Latin America. The current Atlas portfolio is 800MW+ of contracted projects in development, construction, or operational stages, and aims to grow an additional 1.5GW over the next decade.

Launched in early 2017, Atlas includes an experienced team with the longest track record in the solar energy industry in Latin America. The company is recognized by its high standards in development, construction, and operation of large-scale projects.

Atlas Renewable Energy is part of the Energy Fund IV, founded by Actis, a leading private equity investor in the energy sector of emerging markets. Actis has allocated more than $600 million of equity in Atlas Renewable Energy to invest in long-term renewable energy contracted projects.

Atlas’s growth is focused on the main emerging markets and economies of Latin America, using its proven development, commercialization and structuring know-how to bring clean energy to the region. By actively engaging with the community and stakeholders at the center of its project strategy, Atlas works every day to provide the world with a cleaner future.

***

Mexico’s New President To Deal Blow To Oil Industry

(Oilprice.com, Nick Cunningham, 26.Aug.2018) — Mexico will likely halt oil auctions for at least two years, dealing a blow to its oil industry.

Mexico’s president-elect Andres Manuel Lopez Obrador (AMLO) will reportedly suspend oil auctions for at least two years, according to the Wall Street Journal, with some experts believing that his administration won’t hold any new oil auctions at all during his six-year term. He has also vowed to review the 107 contracts already awarded to companies through auctions over the last few years to check for corruption, although he has said he would not try to invalidate them so long as they check out.

Also, AMLO wants to revise some of the energy laws that govern the oil and gas sector, which could dramatically alter the landscape for foreign oil and gas companies. He long opposed the historic reforms that ended seven decades of state control over the energy sector, although he moderated his position during this year’s presidential campaign. Rolling back the reforms would be exceedingly difficult, requiring a change to the country’s constitution.

Instead, AMLO wants more modest, though still significant, legislative changes. The WSJ reports that he will pursue legislative tweaks that bolster the power of state-owned Pemex, while weakening the regulatory body that has pursued a technocratic approach and presided over the oil auctions over the last three years.

AMLO’s desired changes include allowing Pemex to choose its own private-sector partners, without needing the approval from regulators. Current rules require Pemex to partner with the highest bidder for blocks put up for a farm-out. He wants the government to be able to award Pemex with oil blocks directly. And he wants to make Pemex the sole marketer of oil produced by private firms, the WSJ reports.

These changes would amount to a partial rollback of the energy reforms, re-empowering Pemex and government control over the oil sector. Moreover, as president, AMLO chooses the head of Pemex, granting him a lot of leverage over the company. “If licensing rounds are canceled and joint ventures are the only vehicle for entry to the country, it reflects a consolidation of power within” Pemex, Maria Cortez, Latin America Upstream Senior Research Manager at Wood Mackenzie, told Bloomberg in an email. ”That could be viewed negatively by outside investors.”

On top of that, the WSJ says AMLO will push to raise local content rules, which would require a higher percentage of domestic involvement in oil projects. That means that if a company like ExxonMobil or Chevron or some other outside entity wants to drill for oil in Mexico, it would need to source a certain percentage of equipment and services from within Mexico. The idea is to capture a greater portion of the benefits of oil and gas development for the country, while also building up expertise for local industries.

However, many of these changes will be loathsome to the international oil companies, who will view them as onerous burdens that inject higher levels of uncertainty into their investments. Oil companies have repeatedly blamed strict local content rules in Brazil for years of cost inflation and delays.

“If all of this is confirmed, it would send a signal that the continuity of the oil opening may be in doubt,” Pablo Medina, an analyst with Welligence Energy Analytics, a research firm based in Houston, told the WSJ in an interview.

Meanwhile, in addition to the legislative changes to the energy reforms, AMLO’s core energy plan consists of pouring billions of dollars back into Pemex for oil exploration, with a particular focus on revitalizing the downstream sector. He wants $2.6 billion to rehabilitate Mexico’s six aging oil refineries, plus more than $8 billion to build a new refinery from scratch. The idea is to cut down or even eliminate gasoline imports from the United States.

Mexico’s oil production has been declining for over a decade, falling to 1.9 million barrels per day recently, down from 3.4 mb/d in the mid-2000s. The IEA sees output falling by another 130,000 bpd this year, due to the aging offshore oil fields, although that is a narrower decline compared to the 235,000 bpd the country lost last year.

AMLO is aiming to boost production by 600,000 bpd over the next two years, which will be a monumental task. If he is to succeed, AMLO is betting that Pemex will lead the way.

***

Pemex Industrial Transformation to Challenge Cofece Fine

(Pemex, 26.Aug.2018) — As of today, the Commission of Economic Competition (acronym in Spanish, Cofece) published the fine imposed on Pemex TRI for over 418 million pesos, for allegedly having failed to comply with one of the obligations acquired in October 2016, to restore competition in marketing and distributing 7 oil products.

Pemex Transformación Industrial wishes to state the following in this regard:

– 1) Pemex TRI has complied with all the obligations it acquired with the Cofece to prevent any inappropriate practices in the first-hand competition and sales of  oil products currently under investigation.

– 2) Pemex TRI has worked with the Cofece from the start to correct such practices. Since Pemex TRI assumed the obligations assumed with the Cofece, the company has corrected all the practices that were observed.

– 3) Among the obligations that were acquired, Pemex TRI assumed the obligation to submit an annual report for five years, issued by an external auditor who will accredit that marketers of the oil products under investigation are receiving equal treatment. This report must be submitted during the first quarter of each year.

– 4) Pemex TRI ratified the obligations it assumed on October 11, 2016, and therefore, the obligation to prepare the annual report issued by the external auditors expired on October 11, 2017. From this period onwards, the report was to be issued during the first quarter of 2018. The external auditor’s report was submitted on March 23, 2018.

– 5)However, the Cofece stated that the annual auditing report for the first year was submitted out of time. It claims the report should have been filed during the first quarter of 2017, that is, four months after signing the commitment, which contradicts the nature of the annual report established by the Commission and article 114 of the Federal Law of Economic Competition.

– 6) Pemex TRI will file proceedings before the Judicial Branch to contest this measure, as the fine is in itself illegal and disproportionate.

– 7) Notwithstanding the above, Pemex TRI will continue to promote competition through actions that will further transparency and clarity in its relationships with its clients.

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Fuel Theft Rate Lowers in the State of Guanajuato

(Pemex, 25.Aug.2018) — During a meeting of the Guanajuato Coordination Group, Governor Miguel Márquez Márquez and the CEO of Petróleos Mexicanos, Carlos Treviño Medina, assessed the measures implemented to date by the three levels of government to fight fuel theft in the state, which has resulted in a lower crime rate in the State of Guanajuato.

As part of the obligations acquired by the Guanajuato Coordination Group, intelligence and field work have been prioritized to stop this crime, which involves the direct participation of Federal and State Authorities.

During this meeting, which was held in the capital of the State, the results of raids were analyzed, information on the progress of deployment actions was exchanged, and new plans were made to reinforce actions against this crime.

Specifically, the work made by the Federal Criminal Justice Center to respond to cases of impunity from fuel theft was addressed. This center currently responds to reports regarding fuel theft in Guanajuato.

Furthermore, a lower rate of criminal fuel theft has been recorded, proof that the actions set in motion by the Group are getting results.

***

Gas Producers Counting on Mexico Have Worries

(Houston Chronicle, Katherine Blunt, 24.Aug.2018) — For years, U.S. producers have counted on Mexico to buy enormous quantities of natural gas from the prolific shale fields in West Texas and elsewhere. The fracking boom has given rise to massive pipeline projects to carry that gas across the border, where energy production has plummeted.

Later this year, four long-awaited pipelines to distribute U.S. natural gas throughout Mexico are expected to start up to supply the nation’s power generation and industrial sectors, potentially helping to ease bottlenecks in the crowded Permian Basin.

The question is whether those exports will continue — at least at the same rate. That depends on two political variables: The inauguration of Mexico’s president-elect and the ongoing renegotiation of the North American Free Trade Agreement.

U.S. natural gas exports to Mexico ramped up in earnest after 2013 and 2014, when Mexico opened its energy market to foreign investment and pushed to expand its pipeline network to buy cheap natural gas from its northern neighbor. The country imported roughly 1.5 trillion cubic feet of U.S. natural gas via pipeline last year, more than double 2013 levels.

U.S. producers are banking on that export demand. Natural gas shipments to Mexico by pipeline exceeded 5 billion cubic feet per day for the first time last month, up from an average of 4.2 million cubic feet per day in 2017.

The July election of Andrés Manuel López Obrador, however, has spelled uncertainty for the energy sector. Among other things, he has pledged to boost domestic oil and gas production and decrease the country’s reliance on imports by investing billions of dollars in Petróleos Mexicanos, or Pemex, the country’s state-owned energy company.

Meanwhile, President Donald Trump and Mexican President Enrique Peña Nieto are aiming to nail down a NAFTA deal before Lopez Obrador assumes the presidency in December. NAFTA, long criticized as unfair by the Trump administration, makes it easier for Texas oil and gas producers to pipe or otherwise exports their products across the border.

The pipelines nearing completion, which include Enbridge’s Nueces-Brownsville project in the Rio Grande Valley and three projects in Mexico, depend in large part on that ease of access. They’re expected to start up in October and November, and several other major projects are under construction.

Complicating the equation: López Obrador built his support in part with a vow to oppose Trump. That could further undermine trade relations between the two countries when he takes office. Already, we’ve seena heated back-and-forth over Trump administration’s tariffs on steel and aluminum imports.

If relations continue to sour — either because of Obrador’s policies or Trump’s rebuke of NAFTA — natural gas exports would likely take a hit. For Texas, which supplies the majority of Mexico’s natural gas imports, that could mean less demand — and fewer projects.

***

Electric Stations Rising in Mexico

(Energy Analytics Institute, Jared Yamin, 22.Aug.2018) – From 2015 to July 2018, the number of recharging stations for electric vehicles, or electric stations, has grown by almost a multiple of 13 times, revealed the Electric Sector Energy Saving Program (PAESE by its Spanish acronym).

Ranking of top ten states by number of charging stations. Source: CFE, PAESE

In 2015 the total recharging stations was around 156, but by the seventh month of this year (July 2018), that number have grown to 2,017 stations, reported the daily newspaper El Financiero.

***

AMLO Eyes Mexican Oil Output at 2.5 MMb/d

(Energy Analytics Institute, Jared Yamin, 22.Aug.2018) – Mexico’s President-elect Andrés Manuel López Obrador announced plans to boost Mexico’s crude oil production to 2.5 million barrels per day (MMb/d) by 2021 from almost 1.9 million today.

Mexico’s production profile. Source: Pemex, El Financiero.

López said the plan was to boost Mexico’s production by 600,000 barrels per day during the first two years of his government, reported the daily newspaper El Financiero.

***

U.S. Co. Wins Contract for Mexico LNG Project

(Natural Gas Intelligence, Peter de Montmollin, 22.Aug.2018) — A U.S. company has secured a long-term contract to build a liquefied natural gas (LNG) import project on the southern tip of Mexico’s Baja California peninsula, a region isolated from the country’s main energy transmission systems.

New Fortress Energy (NFE) won a tender to develop, build and operate the facility in the port of Pichilingue in the state of Baja California Sur, the company said Wednesday. The port’s administrator, Administracion Portuaria Integral de Baja California Sur, awarded the contract in July.

The project sponsors offered few details, but said the facility would entail a 3.5 billion-peso investment ($184 million) and could start up in 2020. Pichilingue is located just north of La Paz, the state capital.

The terminal could introduce a natural gas supply to Baja California Sur for the first time, allowing power plants in the region to use the molecule in lieu of fuel oil. The state, which encompasses the lower half of the peninsula, now lacks gas infrastructure.

The Baja California Sur power systems are also isolated from the national power grid on the mainland, as well as the Baja California system on the northern half of the peninsula, which is interconnected with San Diego Gas and Electric Co.’s network in Southern California.

Mexican state power utility Comision Federal de Electricidad (CFE) last year announced plans to tender an 810-mile transmission line, including a subsea section through the Sea of Cortez, which would connect Baja California Sur to the national grid. The Mexican Energy Ministry (Sener) expects that project to come in-service by 2023.

At an event to announce the Pichilingue contract, state governor Carlos Mendoza Davis reportedly highlighted the earlier start date for the LNG project versus the interconnection planned by CFE.

“This is a project that will expand the horizons for our development” as a state, the governor said.

Baja California Sur consumed 2,622 GWh in 2017, according to the Sener. The state’s installed capacity was 1,019 MW by the end of last year. Sener forecasts Baja California Sur to add 316 MW of capacity by 2032, with most of those additions occurring between 2021 and 2023.

Because of its isolation and lack of fuel alternatives, Baja California Sur has some of the highest electricity prices in Mexico. In the wholesale power market, day-ahead prices at the state’s La Paz node averaged 3,588 pesos/MWh in July, versus 1,933 pesos/MWh at the Queretaro node in central Mexico and 1,777 pesos/MWh at the Reynosa node on the northeast border with Texas, according to calculations by NGI’s Mexico GPI.

Most of the state’s generation plants are thermoelectric. It is also home to one of Mexico’s first utility-scale solar park, the 39 MW Aura Solar 1 plant near La Paz, a project whose development was spurred in part by the region’s elevated power prices.

Two separate power grids serve Baja California Sur. The smaller Mulege system cuts through the northern half of the state, while the main BCS system is on the peninsula’s southern tip.

The Pichilingue LNG project is adjacent to the BCS grid. The facility would also be sited about 650 miles south of the idle 1 Bcf/d Energia Costa Azul import terminal in the port of Ensenada, near the border with California.

Costa Azul has not injected any gas into Mexico systems since mid-2016 in part because of  the natural gas production boom in the United States and growing LNG demand in Asia. The facility’s owner, the Mexico unit of Sempra Energy, is looking to convert Costa Azul into a liquefaction facility to send gas exports to Pacific markets.

Mexico’s two active LNG terminals are the 700 MMcf/d Altamira on the Gulf Coast and the 500 MMcf/d Manzanillo on the Pacific. Altamira injected 309 MMcf/d in May, while Manzanillo supplied 500 MMcf/d.

Pichilingue would thus be Mexico’s fourth LNG import facility. Authorities have also announced plans to install a floating storage regasification unit (FSRU) in the port of Pajaritos in the southeast, along the Gulf Coast, although the project lost one of its two anchor customers earlier this year.

The new LNG projects at Pichilingue and Pajaritos would both serve areas with limited or no gas supply. Overall, Mexican demand for LNG is expected to diminish as pipeline infrastructure connected to the Permian Basin in Texas and other U.S. basins comes in-service later this year

Outside of Mexico, New Fortress has developed an LNG project in Jamaica to supply the 120 MW Bogue power station, via an FSRU charted from Golar LNG Ltd. It has also signed a contract with the Caribbean country’s power utility for another LNG project to fuel the planned 190 MW Old Harbour combined-cycle plant.

NEF is controlled by New York-based investment management firm Fortress Investments Group LLC.

***

Pemex Unit Fined $22 Mln by Competition Authority

(Reuters, 21.Aug.2018) — Mexico’s competition authority said on Tuesday that it has fined a unit of state-owned oil company Pemex for presenting an annual compliance report on antimonopoly measures in the recently opened fuel market a year after it was due.

The Federal Commission for Economic Competition, or COFECE, fined Pemex’s Industrial Transformation unit, responsible for a range of refining and logistical activities, 418.31 million pesos ($22.1 million) for the late report.

COFECE said the report, one of the measures the Pemex unit committed to in 2016 to end an investigation into monopolistic practices in the sale and distribution of diesel and other fuels was presented a year late.

“By delaying the presentation of the aforementioned audit, Pemex’s TRI (Industrial Transformation unit) disregarded a necessary and fundamental element for COFECE to verify compliance with the obligations acquired,” the authority said in a statement.

Pemex will challenge the decision, contending that it has complied with all reporting requirements, and describing the fine as “illegal and disproportional,” the company said in a statement later on Tuesday.

Last year, COFECE fined Pemex’s Industrial Transformation unit nearly 369 million pesos for the “possible commission of a monopolistic practice… in the diesel market.”

At the time, Pemex said it would challenge the fine.

Reporting by Adriana Barrera and David Alire Garcia; Writing by Anthony Esposito; Editing by Sandra Maler

***

New Fortress to Build $184 Mln LNG Terminal in BCS

(MexicoNow, 20.Aug.2018) – U.S. energy infrastructure developer New Fortress Energy (NFE) announced that it was awarded a long-term contract for the development, construction and operation of a terminal dedicated to the import of liquefied natural gas (LNG) in the port of Pichilingue, Baja California Sur.

This contract was the result of offering the best proposal in the public tender carried out by the Port Authority of Baja California Sur (APIBCS), which awarded the project to NFE on July 19. The project will represent private investment of $184 million could start up in 2020.

The terminal will introduce a natural gas supply to Baja California Sur for the first time, allowing power plants to lower the energy cost by up to 30%, which will greatly benefit the hotel sector, one of the main industries of the state.

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Pemex Advances Digital Changes to Boost Competition

(Pemex, 20.Aug.2018) – Pemex commenced its Digital Week, so personnel could be trained with the new technological tools developed by the Corporate Department of Informational Technology (DCTI) to improve work strategies, as they are integrated through all the areas to become more efficient in the state-owned petroleum company.

At the event in the Administrative Center, the CEO Carlos Treviño Medina stated that the company initiated a complex plan to modernize the digital project as the most ambitious transformation in all Latin America, in comparison to other petroleum companies worldwide.

He affirmed that Internet, Big Data, and Advanced Analytics are resources that can be utilized in the firm to compete successfully in the open hydrocarbons market. The complex project, he declared, will allow predictive analysis of failures to be obtained to prevent power shortages and to predict the performance of the well during exploration.

Mr. Treviño Medina disclosed the ongoing plan of migrating 10 data stations all into a cloud and that in the last recent months, Office 365 has been made available to 60,000 employees for the adoption of a digital office in addition to amplifying the broadband connection.

¨Beyond personal ambition, the digital technologies are also of great importance in our business and we should take advantage of them to become more competitive in the global market. Pemex Digital is an effort of the entire company where the participation of everyone makes a difference¨, he commented.

He emphasized the work developed by the DCTI to improve the digital strategy and reinforce cyber security that has stopped online cyberattacks that intentionally weakened the company´s systems.

For its part, the head of the DCTI, Rodrigo Becerra Mizuno, assured that every company should introduce a digital transformation to be ahead of its competitors. Pemex, he stated, has entered a new digital era to become more profitable, increase production, reduce costs, and add security.

In the framework of the event, the general secretary of the Petroleum Union, Carlos Romero Deschamps, stated that Pemex has been, throughout history, a great pillar of economic stability, therefore the company is obligated to integrate all policies and resources towards enhancing its efficiency and competitiveness.

***

U.S.’s Perry Applauds Mexico’s Plan to End Fuel Imports

(Reuters, David Alire Garcia, 16.Aug.2018) – U.S. Energy Secretary Rick Perry praised the goal set out by Mexico’s incoming president to end massive gasoline and diesel imports, nearly all of which come from the United States, as a measure that will boost prosperity in its southern neighbor.

During a visit on Wednesday to the Mexican capital in which he met with both current officials as well as key advisers to President-elect Andres Manuel Lopez Obrador, Perry brushed off concerns that U.S. refiners stand to lose their biggest foreign market.

“It’s a good goal for Mexico. I tip my hat to the president-elect for having that as a goal,” said Perry, a former governor of Texas, the most prominent energy producing and refining U.S. state. “I hope they’re successful with that transition.”

So far this year, Mexico has imported an average of 1.19 million barrels per day (bpd) of fuel including gasoline and diesel, according to the U.S. Energy Information Administration.

Fuel imports now represent 60 percent of the country’s total consumption, as crude processing at Mexico’s domestic refineries has steadily declined.

Lopez Obrador won a landslide victory last month and in December will take office as Mexico’s first leftist president in decades.

He has repeatedly promised to end foreign gasoline imports within three years and grow domestic production of value-added fuels at home, pledging to revive the six existing state-owned refineries operated by national oil company Pemex, as well as build a new one.

“That’s not going to happen overnight. He knows that, we know that,” Perry told a group of reporters on Wednesday afternoon after meeting with Lopez Obrador’s designated chief of staff, Alfonso Romo, and his future energy minister Rocio Nahle.

He said Romo also met with David Malpass, the U.S. Treasury Department’s under secretary for international affairs.

“What I heard today was a bit of realism from both Nahle and Romo,” he added, without going into further detail.

The American Fuel and Petrochemical Manufacturers (AFPM), which represents U.S. refiners, did not immediately respond to a request for comment on Perry’s statement.

Perry pointed to growing South American markets as potential new buyers of U.S. refined products, noting that Venezuela’s oil output has plummeted amid a major economic crisis.

“We’re going to have more markets, most likely, than we’re going to have product,” he said.

Additional reporting by Marianna Parraga; Editing by Marguerita Choy

***

Pemex Ethylene, PE Output Unaffected by Pipeline Incident

(Platts, 16.Aug.2018) — State-owned Pemex’s ethylene and polyethylene production facilities ran normally even as a pipeline incident led fellow Mexican polymer producer Braskem Idesa to institute a temporary shutdown of operations, company sources said Thursday.

The incident occurred last week and resulted in the shutdown of two Pemex gas processing complexes following a “clandestine attack” on a natural gas pipeline in Veracruz, Mexico.

Repairing the damaged pipeline led to natural gas and naphtha processing slowing at Pemex’s Cactus and Nuevo Pemex sites, leading to reduced NGL production, a company source said.

Pemex, as a result, was unable to supply Braskem Idesa with contractual volumes of ethane, leading to a 36-hour shutdown of ethylene and PE production for Braskem Idesa that started August 10.

Pemex resumed supply to Braskem Idesa by Sunday, leading to the latter achieving a 90% operating rate by late Tuesday, a company source said.

Pemex’s supply of ethane to its own steam crackers at Cangrejera and Morelos was not impacted, as those feeds are part of a different pipeline system, a company source said Thursday.

Pemex also maintains some ethane reserves that aided it in avoiding a shutdown at Cangrejera and Morelos, the source said.

Pemex on August 3 restarted the Cangrejera cracker following a one-day shutdown tied to electrical outages. The company saw feedstock constraints and weather-related outages lead to reduced PE output in June. The company’s July production data is expected to be released in the coming weeks, it said.

The company produced a combined 30,301 mt of PE in June, down 5,409 mt or 15.1% compared with May, while the year-on-year dropoff was more pronounced at 7,560 mt or 20%.

Pemex has been dealing with an ethane production dropoff of around 20% since mid-2017 on lower wellhead output in southern Mexico as a result of elevated nitrogen levels and compression issues trimming overall NGL production in the region, according to company sources.

Pemex’s supply deal with Braskem Idesa calls for it to provide 66,000 b/d of ethane for 20 years, and Pemex has typically produced around 100,000 b/d-115,000 b/d overall in recent years before seeing production fall since the start of last summer, according to company sources.

Long term, Pemex expects to see PE production rise in line with additional feedstock supply after recently awarding a three-year tender to Vitol for US-origin ethane imports.

Regular contract deliveries began in July and will increase this month with the Emilius arriving at Morgan’s Point, Texas, this week for loading, company sources have said. Vitol has not responded to multiple requests for comment.

S&P Global Platts last assessed PE in the Mexican markets Wednesday as mixed week on week, with LDPE holding stable at $1,275/mt and LLDPE butene falling $5/mt to $1,115/mt, respectively

Platts’ Mexican HDPE assessments closed stable to lower, with film shedding $20/mt to close at $1,245/mt. HDPE blowmolding and injection grades, meanwhile, both held flat week on week at $1,285/mt and $1,215/mt, respectively. All Platts Mexico PE assessments are made on a delivered Mexico City basis, via rail or truck.

–Phillipe Craig, phillipe.craig@spglobal.com

–Edited by Keiron Greenhalgh, keiron.greenhalgh@spglobal.com

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Guyana to Become 5th Largest Oil Producer in LAC Region

(Energy Analytics Institute, Piero Stewart, 15.Aug.2018) – If all goes off as planned, by 2025, Guyana will be the 5th largest oil producer in the Latin American and Caribbean region.

Source: Trading Economics

That’s according to an analysis of data posted by Trading Economics, and extrapolation of estimates of Guyana’s future oil production, as announced by Kevin Ramnarine, the former Energy Minister of Trinidad and Tobago.

“Oil production in Guyana is expected to come online at 120,000 barrels per day in 2020 and peak at 750,000 barrels per day by 2025, according to Exxon,” said Ramnarine, now an international petroleum consultant, during a webinar with Guyana’s Minister of Finance, the Honorable Winston Jordan and hosted by Caribbean Economist Marla Dukharan.

Considering initial production of 120,000 barrels per day in 2020, Guyana will first occupy the spot as the 7th largest oil producer in the LAC region, assuming no drastic changes in the other countries’ production profiles over the next couple of years.

However, in the process, by the time peak production is reached five years latter, Guyana will have surpassed OPEC producer Ecuador, assuming production in that country, as well as others, doesn’t experience a drastic decline, as has been the case in Venezuela in recent years.

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Mexico’s Struggling Pemex Awaits New President’s Risky Fix

(Bloomberg, Amy Stillman, 14.Aug.2018) – By most financial measures, Mexico’s state oil company is seriously unwell. The country’s new leader is promising to revive it. But the treatment could end up killing the patient.

After borrowing more than $100 billion, Petroleos Mexicanos is one of the world’s most indebted oil majors. It doesn’t have much oil to show for it: Production has declined every year since 2004, and reserves are down more than half over the past six years. Its refineries lose money, and the more they refine, the more they lose.

Amid all this gloom, Pemex has managed to hang on to investment-grade credit ratings –- by cutting back on capital spending, and enlisting help from private companies to develop oil assets, in exchange for stakes in them. Investors and analysts worry that Andres Manuel Lopez Obrador will do the exact opposite.

The leftist politician won a landslide election victory on July 1, riding a wave of discontent with Mexico’s establishment parties and their austerity policies. AMLO, as he’s known, won’t take office until December. But he’s already busy outlining the change that’s coming, and filling key positions -– including in the oil industry, where his recipe is much the same as for the wider economy: Ramp up investment.

‘Risk Number One’

For Pemex, that means an additional 75 billion pesos ($4 billion) of spending on exploration and production, with the aim of boosting output by one-third over two years. There’ll be another 49 billion pesos to overhaul Pemex’s six refineries, currently producing 41 percent of their potential output. AMLO wants them operating at full capacity. And he may build new ones too.

Money to rehabilitate the refineries will come from the company’s budget, according to Lopez Obrador’s pick for energy minister, Rocio Nahle. And that’s the problem for investors who fear a return to the bad old days when the state company was saddled with outsized tax bills, tapped for spending projects that failed to generate new revenue, and steered toward less profitable areas such as refining rather than drilling.

“Risk number one for Pemex would be higher capital expenditure, from a company that is not generating that same amount in cash,’’ said Nymia Almeida, senior credit officer at Moody’s Investors Service, by phone from Mexico City.

Moody’s classifies Pemex debt as one step above junk. That rating could come into question if there’s a change in the trajectory of spending, Almeida said. While debt reached $104 billion in June, Pemex has actually been “on the right path’’ by gradually reducing the amount of new borrowing, she said. It currently plans to tap markets for $3 billion to $3.5 billion in the remainder of this year.

Bond Rout

The man chosen by Lopez Obrador to steer Pemex through these tricky waters is a longtime political ally — with zero experience in the oil industry.

Octavio Romero , an aide from AMLO’s years as Mexico City mayor last decade, was announced as the oil company’s next chief executive on July 27. The same day, Pemex reported a quarterly loss of $8.8 billion, the biggest since 2016. In the subsequent week, Pemex’s 2028 bonds posted their worst performance since they were sold.

One thing Pemex-watchers will be looking out for under the new regime is the interaction between Pemex’s finances and those of the general government -– and how sharply they’re distinguished.

Even specialists struggle to explain the formula under which Pemex pays taxes to its sole owner, the Mexican state. But whatever it is, the take amounts to a big chunk of the federal budget -– about 20 percent last year.

The figure has come down from 40 percent a decade ago. But, with crude edging back up again in the past year, tax payments are set to rise again -– and that will cancel out much of the benefit that Pemex reaps from the oil rebound, according to Sergio Rodriguez, an analyst at Fitch Ratings.

Gasolinazo

Lopez Obrador’s plans to refine more oil locally and freeze pump prices could add to the financial strain.

The cost of gasoline soared as much as 20 percent last year after the government stopped imposing a cap. The so-called gasolinazo, or price spike, triggered widespread protests. Lopez Obrador has said there’ll be no repeat under his administration, and that may require subsidies. It’s not clear whether any costs would be met by the Finance Ministry, or Pemex.

The latter would be “detrimental’’ to cash-flow, said Lucas Aristizabal, a senior director at Fitch Ratings. At the same time, if Pemex is expected to foot the bill for new refineries, “it’s a very high level of investment with a very low level of return,’’ he said. Lopez Obrador’s proposed new refinery in Tabasco, his home state, is estimated to cost $8.7 billion.

Pemex’s refining arm is making marginal financial improvements but analysts say its not enough. The company reduced its refining losses by about half last year, to a net loss of 31.6 billion pesos. Output hit the lowest level since 1990. The Salina Cruz refinery, Mexico’s largest, was out of operation for almost half the year due to flooding, fires and earthquakes, while others suffered maintenance delays.

The end of government-set fuel prices should allow Pemex to make some money from refining if ”they were competitive and if they were efficient,” said Almeida at Moody’s. ”The problem is that the company’s costs are too high.”

Pemex already spends less on the more profitable business of exploration and production than regional peers. Bringing in private cash to cover that gap was a key goal of the outgoing President Enrique Pena Nieto. His landmark measure in 2014 opened Mexican energy markets to competition after almost eight decades of state monopoly.

Lopez Obrador has a mandate to slow that process down, if not roll it back. His team is reviewing 105 already-signed contracts with private firms, looking for irregularities. Further auctions due in September and October, for exploration rights and contract-sharing with Pemex, have been postponed until February, by which time Lopez Obrador will be in office.

Stealing Fuel

One important Pemex file may land on the desk of AMLO’s police chief rather than his energy or finance ministers.

The practice of tapping pipelines has been around for decades, but it’s booming lately as drug gangs got in on the act. The result has been an increase in violence, and billions of dollars of losses for Pemex.

Lopez Obrador made the fight against corruption central to his campaign. He was often vague on the details.

“We haven’t heard much from AMLO in respect to the issue of fuel theft,’’ said Ixchel Castro, a senior analyst at energy consultant Wood Mackenzie in Mexico City. “But if you want to improve the operations of Pemex, if you want to reduce the losses of the company, this has to be one of the main priorities.’’

— With assistance by Justin Villamil

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Technology, New Innovations and the LatAm Energy Sector

(Energy Analytics Institute, Pietro D. Pitts, 14.Aug.2018) – The ability to use hydraulic fracturing to tap shale formations, to remotely monitor and manage assets, and use advanced technology to heat reservoirs, are a few of the many new innovations used in the capital intense hydrocarbon sector.

Faced with rising competition worldwide for conventional crude oil and natural gas reserves, both of which are limited and depleting resource bases, the global hydrocarbon sector has in general gravitated towards a common goal, maximizing oil and gas reserve recoveries, while at the same time maintaining or preferable reducing operating costs.

While advanced oil-field technologies such as three-dimensional (3D) and four-dimensional (4D) seismic have been used globally for many years, the varying complexities of today’s hydrocarbon sector require ever more sophisticated technologies with capabilities to process data in real-time, among other advances, and that help international oil companies (IOCs) and national oil companies (NOCs) to make rapid and most importantly, accurate decisions.

Still, the global hydrocarbon sector has been slow to embrace the use of Information Technology (IT) to assist in the collection, processing, analysis and distribution of data in real-time. But, this case has been especially true in the Latin American and Caribbean (LAC) region.

Regional NOCs have slowly taken to incorporate IT into their operations as they have come to realize the advantages outweigh the proposed disadvantages, which include but are not limited to giving access to sensitive information to third-party companies from countries that often do not share the same political or economic ideologies.

Today’s advanced and innovative technologies, including but not limited to: sensors, automated valves, and remote satellites, now help IOCs, and increasingly more regional NOCs, monitor producing fields and wells and any number of assets from remote centralized control centers in cities such as Mexico City, Sao Paulo, Caracas or Buenos Aires.

In essence, these technologies help the companies streamline their processes with the ultimate aim to increase oil and gas recovery factors and production, monitor assets for potential accidents or thefts, while helping to reduce time needed to gather information on their assets while also reducing personnel excesses. The bottom line is that the incorporation of certain technologies has assisted companies to reduce operating costs.

The ability to use hydraulic fracturing to tap shale formations, to remotely monitor and manage assets, and use advanced technology to heat reservoirs, are a few of the many new innovations in use in today’s hydrocarbon sector.

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Mexico’s Fuel Plan Won’t Immediately Impact Texas

(Texas Tribune, Juan Luis García Hernández, 14.Aug.2018) – After a dramatic spike in gasoline prices incited widespread protests in Mexico last year, then-presidential candidate Andrés Manuel López Obrador made a promise that caught the attention of Texas officials and the state’s oil and gas industry: The veteran left-wing politician vowed, if elected, to halt the import of gasoline and diesel from the United States and other countries by 2021.

The promise — which López Obrador had previously mentioned and which he reiterated one week after winning in a historic landslide last month — was a key component of his national development platform in his third run for the presidency.

Mexican President-elect Andrés Manuel López Obrador has vowed to halt the import of gasoline and diesel from the United States and other countries by 2021.

During the race, he vowed to reverse policies pursued by his predecessor, Enrique Peña Nieto, that made the country more reliant on the international gasoline market prices. He told supporters it would result in cheaper and more dependable fuel.

“Refineries will be built, gas extraction will be promoted, and the electric industry will be strengthened,” López Obrador said in November 2016, more than a year and a half before the July 1 election. “All this to stop buying gasoline and other fuels abroad.”

Such a policy could have enormous implications for the Texas economy. The state’s refineries produce much of the gasoline and diesel imported to Mexico, where about three out of every five liters of gasoline consumed comes from the United States.

But Texas’ energy regulators, industry groups and experts downplay the potential impacts, casting doubt on López Obrador’s ability to keep his promise — at least immediately.

They say Mexico has a long way to go to wean itself off foreign fuel imports. And they also don’t see Mexico severing ties with a top trading partner.

There’s a sense that López Obrador’s promise was more political than practical, said Steve Everley, managing director of FTI Consulting. Ultimately, he said, economics — and a strong and established trade relationship — will win out.

“That doesn’t mean you don’t take it seriously,” Everley added. “You don’t look at something that’s threatening $14 billion of economic activity and just sort of whistle on past it. But I think we also need to be realistic about the interrelationship between Texas and Mexico and how valuable that is both for them and for us.”

López Obrador’s plan calls for the construction of a refinery in his home state of Tabasco in southeastern Mexico and the rehabilitation of six existing refineries to increase the amount of fuel they can produce. That would cost a combined $11.3 billion.

“It’s very optimistic,” said Texas Tech University economics professor Michael D. Noel. “I will say that in terms of Texas refineries the impact in the short term is likely to be very, very low, and the reason is that you can’t build a refinery overnight. Those things take a long time.”

Noel said Texas refineries could stand to benefit from increased Mexican energy production if it outpaces refinery construction, which may require the country to export fossil fuels to the United States for processing.

Mexico currently only meets one-third of its fuel demand domestically, said Texas Railroad Commissioner Ryan Sitton. Last year, the Mexican market consumed 797,100 barrels of gasoline per day and 365,500 barrels per day of diesel, according to data from Pemex, Mexico’s state-run oil company. Only 35 percent of that came from Mexican refineries.

The U.S. Energy Information Administration doesn’t keep track of how much of U.S. fuel exports to Mexico come from Texas refineries. However, Sitton — one of three elected officials who regulate the state’s oil and gas industry — said Texas refineries sell about 800,000 barrels of gasoline and diesel a day to Mexico, which would mean Texas provides Mexico with an overwhelming majority of its fuel.

“It’s a pretty big shot,” said Sitton. “That’s gasoline production from four or five large refineries.”

Asked a few days after the July 1 election about his ambitious three-year deadline to build a new refinery, López Obrador, who takes office Dec. 1, pointed out that India achieved a similar goal.

That country’s Jamnagar complex was able to nearly double its capacity to 1.2 million barrels per day between 2005 and 2008 by building a second refinery at a cost of $6 billion.

Experts say refinery repairs could prove to be the fastest way for López Obrador to achieve his goal.

“[Building] a refinery takes eight years to do well. A rehabilitation takes between 6 months and a year, costs much less and maybe can reach 60 percent capacity,” said Duncan Wood, director of the Mexico Institute at the Wilson Center in Washington, D.C.

Jorge Canavati, co-president of the International Affairs Committee at the San Antonio Hispanic Chamber of Commerce, said even if Mexico increases its production, market prices will ultimately dictate how much fuel it imports. “When Pemex was aggressively producing, Pemex also imported [gasoline],” he recalled.

Last year started for Mexicans with a rise in gasoline prices of 20 percent, a situation that sparked a series of protests in January.

Experts also say three years would be enough time for Texas refineries to find a new market for their products. With the lifting of a ban on most crude oil exports in 2015 and the enactment of various policies to boost natural gas exports, the United States is poised to become a top fossil fuel exporter to Asia and Europe.

Susan Grissom, chief industry analyst at American Fuel and Petrochemical Manufacturers, scoffed at the idea that the loss of the Mexican market would have a big impact on the United States.

“You know, the world adjusts,” she said.

But it would be a major hole to fill. More than half of the gasoline the United States exported in 2017 went to Mexico, according to the Energy Information Administration. And Mexico has been increasing its imports in recent years due to refining problems. Pemex, which also oversees refining in Mexico, decreased its capacity to make gasoline in the first quarter of 2018 to 220,000 barrels per day. That’s compared to 421,000 barrels per day in 2014.

Energy experts say domestic fuel production has dropped because Mexico has failed to invest in repairs to its aging refineries. Its last one was built more than 40 years ago. There are six refineries in total.

Everley said no fuel export market more sense for the United States — and Texas — than Mexico.

“The question is not whether products refined in Texas can find a market,” Everley said. “The question here is: Do we want to upset a strong trading relationship between Texas and Mexico?”

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AMLO Pledges More Than $11 Bln for Refineries

(Reuters, 13.Aug.2018) – Mexican President-elect Andres Manuel Lopez Obrador said on Monday his administration will invest more than $11 billion to boost refining capacity in order to curb growing fuel imports.

Lopez Obrador, who will take office on Dec. 1, told reporters his government plans to invest $2.6 billion to modernize existing domestic refineries owned and operated by national oil company Pemex, and spend another $8.4 billion to build a new one within three years.

The $8.4-billion figure is higher than a $6 billion estimate provided by a key energy advisor during the campaign.

Lopez Obrador, set to become Mexico’s first leftist president in decades, did not detail how the projects would be financed or whether private capital would be involved, but he has often said he will not raise taxes or grow government debt.

Mexico is among Latin America’s largest crude exporters, but is also the biggest importer of U.S. refined products. The country’s next president has pledged to lift refining capacity, which he says has declined due to corruption and neglect.

Pemex, formally known as Petroleos Mexicanos, has six domestic refineries with a total processing capacity of some 1.6 million barrels per day (bpd), but the facilities are only operating at about 40 percent of capacity so far this year. Meanwhile, gasoline and diesel imports have sky-rocketed in recent months amid planned and unplanned refinery stoppages.

Pemex has posted losses in its refining division for years but Lopez Obrador aims to boost crude processing enough to halt imports within three years.

Lopez Obrador also said he plans to invest another $4 billion to drill new onshore and shallow-water oil wells in the states of Veracruz, Tabasco and Chiapas.

Pemex production has consistently declined in recent years to fall below 2 million bpd after hitting peak output of 3.4 million bpd in 2004.

President Enrique Pena Nieto passed a reform to open up Mexico’s state-run energy industry to private producers, which has led to a series of competitive auctions that have awarded more than 100 oil exploration and production contracts.

Lopez Obrador has said he will respect those contracts as long as an ongoing review does not find signs of corruption. He is widely expected to slow down the process of offering more contracts to private players.

Reporting by Ana Isabel Martinez; Editing by James Dalgleish

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Two Companies to Ship Fuels from US to Mexico

(Energy Analytics Institute, Ian Silverman, 11.Aug.2018) – To-date, two oil companies are working to export fuels from the U.S.A. to neighboring Mexico, through the Port of Brownsville.

“Our main client is P.M.I. Comercio Internacional, a subsidiary of Pemex, that’s dedicated to the import and export of hydrocarbons,” reported the daily newspaper El Financiero, citing Port of Brownsville General Director Eduardo Campirano. “But, with the new energy reform, opportunities were opened up.”

Campirano didn’t reveal the identity of the companies, but explained they would receive gasoline and diesel by ship in the Port of Brownsville, and then move the fuels either by truck, rail or pipeline, depending on the final destination of the product in Mexico.

Located in South Texas, the Port of Brownsville is the only deep water port connected directly with Mexico along the southern U.S. border. The port serves as the main marine transport route for steel exported to the northern region of ‘the Aztec nation’.

Sergio Lopez, commission secretary with the Port of Brownsville, said the entity has all the necessary equipment to provide services to private energy companies importing fuels into Mexico.

Together with Canada, Mexico currently consumes almost 90 percent of the steel material exported from the U.S., reported the daily. The Port of Brownsville plays a vital role as a main port in terms of steel shipments to the Latin American country.

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Mexico’s CNH to Speak at EnerCom Conference

(Energy Analytics Institute, Jared Yamin, 9.Aug2018) – The 23rd annual EnerCom conference will take place in the Denver Downtown Westin Hotel on Aug. 19-22, 2018.

Companies with exposure to Latin America that will participate in special panels during the event include the following:

Oil & Gas in Mexico Panel

— Talos Energy Inc. – Gulf Coast region and Gulf of Mexico offshore operations

— International Frontier Resources – drilling the Tecolutla Block onshore Mexico

— Mexican Commission National Hydrocarbons (CNH) – Mexico’s national oil and gas regulator

International Panel

— Jadestone Energy, Inc. – Asia Pacific E&P

— Valeura Energy Inc. – Canadian E&P with principal operations in Turkey

— GeoPark – Latin oil and gas company developing assets in Chile, Colombia, Brazil, Peru and Argentina

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Pemex’s Salina Cruz Refinery Halts Operations

Salina Cruz Refinery in Oaxaca. Source: Bloomberg

(Energy Analytics Institute, Ian Silverman, 9.Aug.2018 – Pemex’s Salina Cruz refinery halted operations Wednesday night due to a power outage.

The refinery, located in Oaxaca, is one of six refineries owned by Pemex, and is currently processing 238,000 barrels per day (b/d), reported the daily newspaper El Financiero. The refinery has a refining capacity of 330,000 b/d, the daily added.

The refinery “is in the process of being started,” reported El Financiero, citing a Pemex spokesperson. The name of the official wasn’t revealed by the daily.

Operations at the refinery are expected to resume shortly, the official added.

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