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).

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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).

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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.

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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.

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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.

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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.

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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.

***

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.

***

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

***

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.

***

 

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

***

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.

***

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?”

***

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

***

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.

***

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

***

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.

***

Sempra Energy Forms North American Infrastructure Group

(Sempra Energy, 8.Aug.2018) – Sempra Energy formed a new operating group for its North American infrastructure businesses and named Carlos Ruiz Sacristán chairman and CEO of the group, Sempra North American Infrastructure. Ruiz has served as chairman and CEO of Sempra Energy’s Mexican operating subsidiary, Infraestructura Energética Nova, S.A.B. de C.V. (IEnova) (BMV: IENOVA) since 2012.

Ruiz and the new Sempra North American Infrastructure group will report to Joseph A. Householder, president and chief operating officer of Sempra Energy. The group will encompass Sempra Energy’s Mexican operations contained within IEnova, Sempra LNG & Midstream’s existing operations, including Cameron LNG and all other liquefied natural gas (LNG) development and marketing activities.

As part of his new role, Ruiz will continue to serve as executive chairman of the board of directors of IEnova.

“Carlos Ruiz has overseen exceptional growth at IEnova, including its successful initial public offering in Mexico in 2013,” said Jeffrey W. Martin, CEO of Sempra Energy. “This new streamlined organizational structure will better align our non-utility operations to serve our global customers, and develop and execute projects even more effectively.”

“I’m honored and excited to serve in this new role at Sempra Energy and to continue my close involvement with IEnova,” said Ruiz. “We’ve built a strong and deep leadership team at IEnova and I will be devoting my full attention to growing Sempra Energy’s North American infrastructure business.”

Previously, Ruiz was a member of Sempra Energy’s board of directors from 2007 to 2012, when he became chairman and CEO of IEnova. Ruiz served as Mexico’s Secretary of Communications and Transportation during the administration of Dr. Ernesto Zedillo Ponce de León from 1994 to 2000. Previously he served in various positions at the Central Bank (Banco de Mexico) from 1974 to 1988, the Ministry of Finance from 1988 to 1992, and Petróleos Mexicanos in 1994. He currently is a member of the board of directors of Southern Copper Corp, Banco Ve por Más, S.A de C.V., Grupo Creatica, S.A. de C.V., member of the Technical Committee of Diego Rivera and Frida Kahlo Museum and a member of the Technical Committee Trust of Museo Nacional de Energía y Tecnología.

Ruiz, 68, holds a bachelor’s degree in business administration from Anahuac University in Mexico City and a master’s degree in business administration from Northwestern University in Chicago.

Tania Ortiz Mena, 48, will succeed Ruiz as CEO of IEnova, effective Sept. 1. Ortiz will report to Ruiz and will be nominated to serve on IEnova’s board of directors. Ortiz has served as IEnova’s chief development officer since 2014 and has held a range of leadership positions with IEnova since joining the company in 2000, including vice president for business development and external affairs, vice president of external affairs and director for government and regulatory affairs. Previously, Ortiz worked for PMI, Pemex’s international trading subsidiary.

Ortiz is a board member of Oncor Electric Delivery Co. and the Mexican Natural Gas Association, as well as vice president of the board for the World Energy Council – Mexico Chapter, member of the Energy Regulatory Commission Advisory Board and member of the Mexican Council for International Relations.

Octávio M. Simões, 59, currently president of Sempra LNG & Midstream, has been promoted to president and CEO of that company, reporting to Ruiz. Simões and his team will focus on maximizing the value of the company’s LNG opportunities. Simões also will continue in his role as chairman of Cameron LNG, LLC., the joint venture of which Sempra owns 50 percent. He has served as president of Sempra LNG & Midstream since 2012. Previously he was vice president of commercial development for Sempra LNG, where he was responsible for marketing the capacity of LNG receipt terminals, developing LNG facilities, securing LNG supply, securing shipping and acquiring equity positions in liquefaction plants. Prior to that, Simões served as vice president of asset management and vice president of planning and analysis for Sempra Generation, and in senior positions with Earth Tech and NEERI.

Justin C. Bird, 47, currently vice president of gas infrastructure and special counsel for Sempra Energy, has been named chief development officer for the Sempra North American Infrastructure group. In his new role reporting to Ruiz, Bird will be responsible for activities related to project development for all current and future LNG and midstream projects.

Amy Chiu, 52, vice president of asset management for Sempra LNG & Midstream, has been named chief asset management officer for the Sempra North American Infrastructure group. In her new role, Chiu will oversee Cameron LNG joint-venture management, Energía Costa Azul joint-venture management and LNG operations.

Kathryn J. Collier, 50, vice president and treasurer for Sempra Energy, has been appointed chief financial officer and chief administrative officer for the Sempra North American Infrastructure group. In her new role, she will oversee accounting, economic and financial modeling, human resources, information technology and procurement for the new operating group.

All of the organizational changes described above are effective Aug. 25, unless noted otherwise.

***

Talos Energy Conference Call, Webcast

(Talos Energy Inc. 6.Aug.2018) – Talos Energy Inc. will host a conference call, which will also be broadcast live over the internet, on Tuesday, August 7, 2018 at 10:00 am Eastern Time (9:00am Central Time).

Listeners can access the conference call live over the internet through a webcast link on the Company’s website at: https://www.talosenergy.com/investors. Alternatively, the conference call can be accessed by dialing 1-877-870-4263 (U.S. toll-free), 1-855-669-9657 (Canada toll-free) or 1-412-317-0790 (international). Please dial in approximately 10 minutes before the teleconference is scheduled to begin and ask to be joined into the Talos Energy call.

A replay of the call will be available one hour after the conclusion of the conference call through Tuesday, August 14, 2018 and can be accessed by dialing 1-877-344-7529 and using access code 10122717.

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Talos Energy Announces 2Q:18 Financial, Operational Results

(Talos Energy Inc., 6.Aug.2018) – Talos Energy Inc. announced its financial and operational results for the second quarter ended June 30, 2018, and reaffirmed the previously released pro forma full year 2018 production, expenses and capital expenditure guidance.

Combination with Stone Energy Corporation

On May 10, 2018, Talos Energy LLC and Stone Energy Corporation completed a strategic transaction pursuant to which both became wholly-owned subsidiaries of the Company (“Stone Combination”). Talos Energy LLC was considered the accounting acquirer in the Stone Combination under accounting principles generally accepted in the United States of America (“GAAP”). Accordingly, the Company’s historical financial and operating data, which cover periods prior to May 10, 2018, reflect only the assets, liabilities and operations of Talos Energy LLC (as the Company’s predecessor through May 10, 2018), and do not reflect the assets, liabilities and operations of Stone prior to May 10, 2018.

The pro forma financial information set forth in this press release gives pro forma effect to the Stone Combination as if it occurred on January 1, 2018. Stone’s acquisition of the Ram Powell deepwater assets on May 1, 2018 and Ram Powell’s respective financial results are included in the Company’s pro forma results from May 1, 2018 onwards. Unless expressly stated as pro forma, the financial and operating data in this press release is presented in accordance with GAAP.

President and Chief Executive Officer Timothy S. Duncan commented, “It was a historical quarter for Talos, as we closed our transformational acquisition of Stone and the Ram Powell deepwater asset, both in May 2018. These assets will also provide significant scale and diversity to our base business, which we expect will allow us to continue to maintain positive free cash flow after investing in our capital program and servicing our debt. Production from the acquired assets will be more impactful in the second half of 2018, since Ram Powell was only partially included in the second quarter. The commencement of production from the Mt. Providence well in July, at the high end of our production rate expectations, will also positively impact the remainder of the year as compared to the first six months.

“Our growth capital is focused on two main goals, which are investing in projects that utilize our existing infrastructure to add high margin barrels with superior pricing, and continuing to pursue moderate risk but high impact exploration efforts, following the success of our significant Zama discovery in offshore Mexico. We continue to stay on schedule on both fronts.

“We also continue to find synergies related to the combination with Stone and our integration team is focused on realizing these savings by year end. The strength of the combined business will deepen our inventory portfolio and will also put us in a position to pursue accretive business development opportunities in the core areas where we currently operate.”

Reaffirmation of 2018 pro forma Full-Year Financial and Operating guidance

The Company reaffirms the previously released 2018 pro forma full-year financial and operating guidance. This guidance is subject to all cautionary statements and limitations described under “Cautionary Statement About Forward-Looking Statements” below:

Recent Developments and Operations Update

U.S. Gulf of Mexico

— On July 10, 2018, our Mt. Providence well began producing 60 days ahead of the originally scheduled completion date of early September. The Mt. Providence well was successfully drilled in January 2018 by Stone. We completed the well and connected it to the 100% Talos owned Pompano platform in the Company’s Mississippi Canyon Complex within six months of concluding drilling operations. The well is currently producing 3,850 Boe per day (“Boe/d”) gross (3,370 Boe/d net).

— We drilled the first two development wells in our 2018 Shelf drilling program – Ship Shoal 224 (“SS224”) E21ST and Ewing Banks 306 (“EW306”) A20 – during the first half of 2018:

– SS224 E21ST is currently producing at approximately 750 Boe/d gross (610 Boe/d net)

– The EW306 A20 well encountered approximately 120 feet of pay across 5 sands. The A20 well successfully targeted three previously defined field sands and discovered two deeper reservoirs. The deeper discovery will be completed first with an expected initial production rate of approximately 1,250 – 1,500 Boe/d gross (1,000 – 1,200 Boe/d net) starting in the third quarter of 2018. Talos owns 100% working interest (“WI”) in EW306

— Our asset management activities, typically consisting of smaller recompletions and well work, added approximately 2,000 Boe/d in the second quarter and year to date have added approximately 2,600 Boe/d, using the 30 day average of their first month of production. These opportunities represent low conversion costs, quick payouts, lower unit cost per barrel and allow us to better manage the timing of the plugging obligations of our more mature assets.

Mexico

— In April of 2018, Talos submitted the appraisal plan relating to Block 7 for the Zama discovery to the Mexican industry regulator, the National Hydrocarbons Commission (“CNH”). This appraisal plan involves, at a minimum, the drilling of three boreholes, a Drill Stem Test (DST) and extensive coring and reservoir fluid sampling. Talos has been in consultation with the CNH and anticipates timely approval of the appraisal plan. The first well in the appraisal program is planned to spud in the fourth quarter of 2018 utilizing the semi-submersible rig Ensco 8503, which is the same rig that drilled the Zama #1 discovery well in 2017. We expect the appraisal program to last through mid-year 2019.

— In July 2018, Talos requested approval from the Mexico Ministry of Energy (“SENER”) to enter into a Preliminary Unitization Agreement (“PUA”) with Pemex for a potential unit involving the Zama field in Block 7 and the Pemex grant to the east of Block 7. The PUA serves primarily to create a clear path to signing the governing Unit Agreement and Unit Operating Agreement for the Zama discovery. This will allow for a timely Final Investment Decision (“FID”) and commencement of development activities, with a goal of first production from Zama in 2022.

— In addition to Zama, the appraisal campaign proposes to deepen one wellbore to test the Marte prospect in Block 7.

— We are also focusing our efforts on executing our first exploration project on Block 2, which is located in approximately 100 feet of water. The first well will test the Bacab prospect, which is expected to be drilled in the second quarter of 2019.

SECOND QUARTER 2018 RESULTS

Production, Realized Prices and Revenue

Production: Production for the second quarter of 2018 was 3.9 million Boe compared to 2.6 million Boe for the second quarter of 2017. Second quarter of 2018 production was comprised of 2.7 million barrels of oil, 0.3 million barrels of NGLs and 5.9 billion cubic feet (“Bcf”) of natural gas. Oil and NGLs production accounted for 75% of the total production for the second quarter of 2018, as compared to 73% of the same period in 2017.

On a pro forma basis, production for the second quarter of 2018 was 4.7 million Boe. Second quarter of 2018 pro forma production was comprised of 3.2 million barrels of oil, 0.3 million barrels of NGLs and 7.0 Bcf of natural gas. Oil and NGLs production accounted for 75% of the total pro forma production for the second quarter of 2018.

Production was negatively affected by two unplanned third-party downtime events in the second quarter. Helix required an eight-day downtime in the Helix Producer 1 (“HP-1”), effectively shutting-in production from the Phoenix and Tornado fields by the same number of days. In addition, downtime in third-party pipelines further affected the quarter by curtailing production from several shallow water fields. These brief interruptions were limited to the second quarter and are not expected to have an impact in our reaffirmed annual production guidance.

The table below provides additional detail of our oil, natural gas and NGLs production volumes and sales prices per unit for the three months and six months ended on June 30, 2018:

Revenue: Total revenue for the three months ended June 30, 2018 was $203.9 million compared to $95.4 million for the three months ended June 30, 2017, an increase of approximately $108.5 million, or 114%.

Oil revenue increased approximately $101.4 million, or 129%, during the three months ended June 30, 2018. This increase was primarily due to an increase of $21.98 per Bbl in our realized oil sales price and a 10.3 MBbl per day increase in oil production volumes, 9.6 MBbl per day of which was attributable to the Stone Combination.

Natural gas revenue increased approximately $3.6 million, or 28%, during the three months ended June 30, 2018. This increase was primarily due to a 19.1 MMcf per day increase in gas volumes, 22.6 MMcf per day of which was attributable to the Stone Combination, partially offset by a $0.29 per Mcf decrease in our realized gas sales price.

NGL revenue increased approximately $3.9 million, or 112%, during the three months ended June 30, 2018. This increase was due to an increase of $6.03 per Bbl in our realized NGL sales price and a 1.2 MBbl per day increase in NGL volumes, all of which were attributable to the Stone Combination.

Expenses

Lease operating expense: Total lease operating expense for three months ended June 30, 2018 was $38.9 million compared to $31.9 million for the three months ended June 30, 2017, an increase of approximately $6.9 million, or 22%. This increase was primarily related to $9.9 million of lease operating expense in connection with the Stone Combination, partially offset by a $2.9 million decrease due to additional reimbursements related to our production handling agreements primarily in the Phoenix Field.

Depreciation, depletion and amortization: Depreciation, depletion and amortization expense for the three months ended June 30, 2018 was $67.7 million compared to $36.2 million for the three months ended June 30, 2017, an increase of approximately $31.6 million, or 87%. This increase is primarily due to a $3.33 per Boe, or 24%, increase in the depletion rate on our proved oil and natural gas properties during the three months ended June 30, 2018. Depletion on a per Boe basis increased primarily due to an increase in proved properties related to the Stone Combination and higher estimated future development costs related to proved undeveloped reserves in the Phoenix Field.

General and administrative expense: General and administrative expense for the three months ended June 30, 2018 was $30.9 million compared to $7.5 million for the three months ended June 30, 2017, an increase of approximately $23.4 million, or 313%. This increase was primarily attributable to $18.3 million in transaction related costs related to the Stone Combination and additional general and administrative expenses as a result of the combined company. In connection with the Stone Combination, we expect to capture significant synergies, and Talos is focused on realizing these savings by year-end 2018.

Other operating expense: Other operating expense for the three months ended June 30, 2018 was $27.2 million compared to $13.5 million for the three months ended June 30, 2017, an increase of approximately $13.7 million, or 101%. This increase was primarily related to an increase of $4.5 million and $4.1 million in workover and maintenance expense and accretion expense, respectively, in connection with the Stone Combination. This increase also relates to a $5.0 million increase in repairs and maintenance during the three months ended June 30, 2018 primarily related to $1.3 million in repairs on SMI 130 and inspection and reconnection support in the Phoenix Field of $1.2 million.

Price risk management activities: Price risk management activities for the three months ended June 30, 2018 resulted in a $91.2 million expense compared to income of $39.0 million for the three months ended June 30, 2017. The change of approximately $130.2 million was attributable to an $87.4 million decrease in the fair value of our open derivative contracts and a $42.8 million decrease in cash settlement gains for the three months ended June 30, 2018.

Other financial metrics

Net Income (Loss) and Adjusted EBITDA: Net Income (Loss) in the second quarter of 2018 was ($75) million and in the first six months of the year ($98) million. The loss numbers are primarily due to non-cash mark-to-market expenses associated with unrealized commodity hedges. Pro forma Net Income (Loss) in the second quarter of 2018 was ($46) million and in the first six months of the year ($51) million. The pro forma loss numbers are primarily due to non-cash mark-to-market expenses associated with unrealized commodity hedges.

Adjusted EBITDA for the three months ended on June 30, 2018 was $101 million and Adjusted EBITDA margin was 50%, or $25.89 per Boe. For the first half of 2018, Adjusted EBITDA was $187 million, with a margin of 53% or $27.37 per Boe. Excluding the effect of hedges, the margins would have been 66% or $34.48 per Boe for the second quarter and 69% or $35.28 for the first six months of the year.

Pro forma Adjusted EBITDA for the three months ended June 30, 2018 was $128 million and pro forma Adjusted EBITDA margin was 52%, or $27.18 per Boe. For the first half of 2018, pro forma Adjusted EBITDA was $269 million, with a margin of 57% or $29.30 per Boe. Excluding the effect of hedges, the pro forma margins would have been 67% or $34.79 per Boe for the second quarter and 70% or $35.79 per Boe for the first six months of the year.

Financial position: As of June 30, 2018, the Company had approximately $648 million of long-term debt, excluding deferred financing costs and original issue discount. The balance includes $397 million of second lien notes, $240 million of borrowings under the bank credit facility and an $11 million building loan. In addition to the Company’s long-term debt, as of June 30, 2018, Talos had a capital lease obligation with a balance of approximately $100 million.

Liquidity position: As of June 30, 2018, the Company had a liquidity position of approximately $433 million, which included $354 million available under the $600 million bank credit facility and approximately $79 million of cash.

Leverage and credit metrics: The pro forma annualized Adjusted EBITDA for the six months ended on June 30, 2018 was $538 million. As of June 30, 2018, the Company’s total debt was $748 million and net debt was $669 million, both including capital lease. Therefore, the Net Debt to annualized pro forma Adjusted EBITDA ratio of Talos was 1.2x.

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Shell Offers 1H:18 LatAm Updates

(Energy Analytics Institute, Jared Yamin, 1.Aug.2018) – Royal Dutch Shell plc announced the following updates during the first half of 2018.

Mexico

In the deep-water bid round in Mexico in January for the Gulf of Mexico, Shell won four exploration blocks on its own, four with its partner Qatar Petroleum and one with its partner Pemex Exploración y Producción. Shell will be the operator of all nine blocks.

Brazil

Shell won four additional deep-water exploration blocks in Brazil, one block on its own, and three in joint bids with Chevron, Petrobras and Galp. Shell will be the operator of two blocks.

Argentina

In April, Shell signed an agreement to sell its Downstream business in Argentina to Raízen. The sale includes the Buenos Aires refinery, around 645 retail stations, the global commercial businesses, as well as supply and distribution activities in the country. The businesses acquired by Raízen will continue the relationship with Shell through various commercial agreements.

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Shell Provides 3Q:18 Outlook Update

(Energy Analytics Institute, Jared Yamin, 1.Aug.2018) – Royal Dutch Shell plc offered the following outlook for the third quarter of 2018.

Compared with the third quarter 2017, Integrated Gas production is expected to be 40 – 70 thousand boe/d lower, mainly due to divestments and higher maintenance. LNG liquefaction volumes are expected to be at a similar level.

Compared with the third quarter 2017, Upstream production is expected to be 210 – 240 thousand boe/d lower, mainly due to divestments, field decline and higher maintenance, partly offset by volumes from new fields.

Given the unplanned downtime events in the third quarter 2017, refinery availability is expected to increase in the third quarter 2018 compared with the same period a year ago. This will be partly offset by higher planned maintenance.

Oil products sales volumes are expected to be at a similar level compared with the same period a year ago.

Given the unplanned downtime events in the third quarter 2017, chemicals availability is expected to increase in the third quarter 2018 compared with the same period a year ago. This will be partly offset by higher planned maintenance from the turnaround season.

Corporate earnings excluding identified items are expected to be a net charge of $ 400 – 450 million in the third quarter and a net charge of around $1.4 – 1.6 billion for the full year 2018. This excludes the impact of currency exchange effects.

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Pemex Has or Doesn’t Have Money?

(Energy Analytics Institute, Aaron Simonsky, 1.Aug.2018) – If Mexico’s Pemex doesn’t have the necessary funds to invest in deep water or shale activities, how is it the state oil company will have funds to invests in new refineries as proposed by President-elect Andrés Manuel López Obrador?

Join the discussion below or on Reddit:

 

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Pemex Inaugurates 1st Petrol Station with New Image

(Pemex, 1.Aug.2018) – The CEO of Pemex Transformación Industrial stated that the new concept will help the franchise maintain its leadership in the national market​

The first “Flagship” service station of the Pemex franchise, located in the colonia Centro in the municipality of Atizapán Santa Cruz, State of Mexico, was inaugurated today with the purpose of improving the commercial model and renewing the processes of the Petróleos Mexicanos franchise.

During the event, the CEO of Pemex Transformación Industrial (Pemex Industrial Transformation), Carlos Murrieta Cummings, stated that this opening introduces the new concept to maintain the franchise’s leadership in the national market and materializing the evolution of the Pemex gas station network.

Murrieta Cummings reported that a total of 45 service stations will be incorporating the new image this year, 37 will be remodeled and eight will be new.

Our goal, he said, is to comply with the highest service standards, offering the client our experience, reliability, modernity and innovation. The new image breaks with conventions and projects the new Pemex: a highly competitive company in an open market.

On the other hand, Carlos Eduardo Gómez, CEO of the Tianguistenco S.A. de C.V. service stations, stressed that Pemex has complied 100 per cent with the benefits to franchise holders announced in November during the presentation of the new franchise model.

He said that since his gas station began using the new image in mid-June, sales have doubled. “Pemex is the best option in the fuel market,” Gómez said.

Municipal President Javier Guadalupe Pérez Arcadio and the representative of the construction company Deportigas S.A. de C.V, in charge of the remodeling project, Jorge Garduño, were also present at the event.

The new design of the franchise reflects an eagle in full flight, a strong, agile leader extending its wings to meet new challenges.

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Mexico Oil Output to Trend Upwards in 2027

(Energy Analytics Institute, Aaron Simonsky, 31.Jul.2018) – Mexico’s oil production will cease to decline in 2025.

That’s according to details of a report published by S&P Global Platts Energy Analyst and Consultant Manager Javier Díaz during an energy forum.

Díaz announced details of projections for Mexican crude oil production until 2040 that showed national crude production stabilizing in 2025; starting to rise in 2027, and reaching 2 million barrels per day through 2035, according to the daily newspaper El Financiero.

Reaching these goals, said Díaz, will depend to a large extent that in the “new era” the following will occur in the energy sector: foreign investment will continue to flow into Mexico, and the tendency to reverse the fall in production and continue the liberalization of the markets will also continue to improve market efficiency.

“These are the focal points that we see that can make the energy market more effective for Mexico,” said Díaz during an interview.

When questioned about the profitability of the possibility that Mexico’s President-elect Andrés Manuel López Obrador would build two new refineries and modernize the existing infrastructure, Díaz said that in the first instance a technical and financial study should be done regarding the possibility to modernize the infrastructure taking into consideration the age and conditions of the refineries.

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Mexico’s Next President Promises Pemex Investment

(Bloomberg, Amy Stillman, 30.Jul.2018) – Mexico’s incoming president named a new chief executive officer for Pemex and promised government investment of 75 billion pesos ($4 billion) in the oil sector, in a bid to revive the state-owned oil company.

Andres Manuel Lopez Obrador tapped longtime political ally Octavio Romero Oropeza, who has no oil background, as the next CEO of Petroleos Mexicanos. Romero will take over when the new government comes in this December. The announcement came at an event in which the president-elect promised to boost crude output as part of a 175-billion-peso rescue plan for the industry. He said 49 billion pesos will be spent on refinery upgrades.

Romero, 59, was a government official during Lopez Obrador’s five-year term as the mayor of Mexico City from 2000 to 2005. He also shares the same birthplace as the leftist leader, the oil hub of Tabasco. Lopez Obrador has said he wants to to revitalize oil ghost towns there and build a new refinery near the port of Dos Bocas at a cost of 160 billion pesos.

For a career politician with a degree in agronomy, turning around the beleaguered oil company won’t be easy.

“It’s a political appointment for an entity whose debt represents about 14% of gross domestic product,” John Padilla, managing director of energy consultant IPD Latin America LLC, said in a phone interview. “Whether that’s going to give markets a lot of confidence at this stage, at a point when Pemex is in such a debilitated state, remains to be seen.”

Romero, who replaces Carlos Trevino, will inherit a mountain of debt — more than $100 billion — and oil production that is in free-fall. Pemex pumped 1.866 MMbbl of crude a day during the second quarter, its 13th consecutive decline compared to the same period in previous years. And even as oil prices rise, the company on Friday reported a 163-billion-peso loss, the worst quarterly result since 2016.

The company expects to average 1.9 MMbpd in the third quarter of the year and 1.95 MMbbl in the fourth quarter, Luis Ramos, deputy director of exploration and production at Pemex, said on a conference call with investors. Pemex’s proven and probable reserves have dropped by more than half since 2012, as older fields become depleted and the company fails to develop ones.

Refinery upgrades

Pemex’s refining business is in such poor condition, with aging units struggling to process less expensive heavier crudes, that it loses money if it raises output. The problem has created a reverse incentive to refine less and import more. The plants, which processed 22% less crude than last year at 704,000 bpd, operated at 43% of capacity between April and June, company data show.

Lopez Obrador, who won a landslide victory in national elections on July 1, has promised to change that. He said he will prioritize raising refinery output to full capacity in two years, and build the new refinery in Tabasco.

He also named Manuel Bartlett as head of the Federal Electricity Commission, Rocio Nahle to the post of energy minister and Alberto Montoya as deputy energy minister.

Under Lopez Obrador’s predecessor, international oil companies had recently been allowed to re-enter Mexico’s production areas after being banned for more than 70 years. The new president could suspend oil auctions and review contracts already awarded for signs of corruption. The National Hydrocarbons Commission said last week that an auction to develop seven onshore areas in partnership with Pemex will now be held on February 14, from October 31 previously. A competitive bid for over 40 onshore areas will take place the same day after being pushed back from September 27.

The company is also seeking to raise an additional $3 billion to $3.5 billion in debt before the end of the year “if market conditions are favorable,” Pemex CFO David Ruelas said on a conference call with investors. Pemex’s total debt was 2.07 trillion pesos as of June 30 an increase from 1.95 trillion pesos three months earlier.

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Pemex Reports 2Q:18 Sales Rose 36%

(Pemex, 27.Jul.2018) – The company recorded operating yields of 120 billion pesos

During the first quarter of 2018, it achieved an EBITDA of 288 billion pesos and an EBITDA margin 35

Today, Petróleos Mexicanos announced its financial and operating results for the second quarter of 2018, which show a total increase in sales of 36 per cent, compared to the same quarter of the previous year.

Concerning exploration and production activities during the second quarter of 2018, Pemex achieved success in the Manik-101A well, which is part of the Chalabil Project, located in shallow waters off the coast of Tabasco. This discovery is expected to contribute 1,300 barrels of crude oil and 1.3 million cubic feet of gas per day. As of the closing of the second quarter, the company has 37 drills, which translates into a 37 per cent increase compared to the second quarter of the previous year. Crude oil production averaged 1,866 thousand barrels a day during this quarter.

On the 7th of May, through Pemex Exploración y Producción (Pemex Exploration and Production), Pemex signed the four deep-water contracts that were awarded in Round 2.4 (2 as part of a consortium and 2 individually); later, on the 27th of June, the company signed an additional 7 shallow-water contracts awarded in Round 3.1 (6 in a consortium and one individually).

It is important to point out that during this quarter, the efficiency of natural gas use increased from 95.9 to 96.7 %, compared with the same quarter of the previous year. This marks a reduction in gas flares, which is aligned with Pemex’s commitment towards environmental sustainability.

Regarding Transformación Industrial (Pemex Industrial Transformation), on the 3rd of May, Pemex signed a marketing contract for diesel and gasoline with one of its largest clients, who holds over 200 service stations throughout central Mexico. As of the month of June 2018, Pemex has undersigned 172 new marketing contracts with its gasoline and diesel clients, including independent service stations and large commercial corporations, which number over 2,200 service stations throughout the country. Petróleos Mexicanos reaffirms the trust and commitment it has placed in its commercial partners and continues to assure the supply of Pemex brand fuel in these service stations.

In connection with the adherence to its Occupational Health and Safety and Environmental Protection Program (initials in Spanish, SSPA), the accident frequency index fell to 0.33 injuries per million man-hours during the second quarter, so the company achieved the goal of zero accidents during this period. On the other hand, the Pemex severity index was reduced by 11 workdays lost per million man-hours, i.e., the days of work lost because of occupational accidents were reduced by 10 days compared to the second quarter of 2017.  Furthermore, sulfur oxide emissions were 20% lower than during the second quarter of the previous year.

As a result from these operations, Pemex achieved total sales for 254 billion pesos in the second quarter of 2018, a figure 36% higher than the result obtained during the same quarter of the previous year. Operating yields were 120 billion pesos, a growth almost 37% greater than the second quarter of 2017.  Operation, management, distribution and sales costs remained stable and aligned with the current austerity and expenditure policies.

Considering the depreciation of the peso against the dollar during the second quarter of 2018, the currency exchange losses and net financial costs increased, the impact of which was largely limited to accounting and did not carry any large cash operations, and led to a negative net result of 163 billion pesos. This result may be reversed if the appreciation of the peso against the dollar that was observed in July remains over the following months.

During the first quarter of 2018, Pemex maintained an adequate capacity for the generation of cash flow with an EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) of 288 billion pesos, 14% greater than the EBITDA obtained during the first semester of 2017.  The  EBITDA of the first semester of 2018 is 35%.

Pemex continues implementing its Business Plan for 2017-2021, continually seeking to improve its competitiveness and value generation.

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