Mexico’s Pemex Dismantled Resources Worth $342M From Two Top Fields

Mexican state oil company Pemex illegally destroyed hydrocarbon resources worth over $342 million in the three years up to August last year at two of its most important new fields, according to internal documents from the country’s oil regulator.

The three documents, presented by the regulator and dated August 2022, described how Pemex (PEMX.UL) burnt off resources worth$67 million from the Quesqui field in two years and $275 million from the Ixachi field in three years.

To add up the value, the regulator used prices from non-public contracts to commercialize such hydrocarbons. Neither Pemex nor the energy ministry replied to requests for comment. In late 2022, Pemex said it would halt the burning practice at Ixachi following Reuters reports on development plan violations at the two fields and related penalties.

Under pressure to achieve ambitious production goals by Mexican President Andres Manuel Lopez Obrador, has continually been penalized by the oil regulator for breaking its own pledges for the development of the Ixachi and Quesqui fields.

The plans, for the exploration and production of natural gas and other hydrocarbons in the southeastern states of Tabasco and Veracruz, were authorized by the regulator – which is in charge of ensuring adherence.

Burning off gas and condensate – a blend of liquid hydrocarbons similar to a very light crude oil – has also resulted in serious environmental damage. Reuters reported in 2022 that Pemex had been overly flaring gas across the region, but the value of the destruction has not formerly been reported.

Mexico – the world’s eighth-largest gas flarer – is under growing pressure, including from the United States, to reduce the practice and methane emissions. Controlling emissions is set to become more difficult as fields age and the world’s most indebted oil company lacks enough funds to upgrade languishing infrastructure.

In Ixachi, the destruction was particularly substantial because production began a year earlier. There, the documents reveal Pemex flared some 62.9 billion cubic feet of gas and 310,000 barrels of condensate.

That is equal to 31% of the total amount of gas generated from the field, and 1.3% of total condensate, based on Reuters calculations.

The documents were addressed to the country’s energy minister, Rocio Nahle, the head of regulatory compliance at Pemex’s exploration and production division, and top officials at the regulator and the interior ministry.

Missing Infrastructure

Pemex generated 201.2 billion cubic feet of gas and 24.3 million barrels of condensate from Ixachi. But it still fell behind its targets.

The documents also indicate that 77.6% of the investment into the field Pemex had pledged in its development plan – amounting to $2.9 billion – was not made.

Lopez Obrador announced early on in his presidency that Ixachi and Quesqui made up part of 17 new priority fields expected to significantly ramp up national production as part of a broader effort to make the country energy independent.

The fields were supposed to get more resources so Pemex can begin exploration and production earlier and faster and offset declining output from aging fields elsewhere. But Pemex failed to finish making the wells, pipelines, and other infrastructure required to produce gas and condensate from the fields without significant levels of waste.

It has not formerly been reported that condensate was also flared over at the fields. Under Mexican law, documentation around such violations is not announced.

“The objective should be to maximize making use of all hydrocarbon products in the field,” one of the documents said, adding that “(Pemex) does not meet production it committed to because wells and infrastructure are not in place”.

In the documents, the regulator also advocates for changes so that Pemex “avoids the burning off and the destruction of commercial value of the hydrocarbon products.” Pemex has historically considered investing in infrastructure to explore and produce gas too costly and alternatively imported much of it from the United States.

In recent years, it has faced pressure because of the environmental damage linked to burning off gas.

In late 2022, Pemex admitted in its updated business plan for 2023 to 2027 that its poor environmental, social, and governance (ESG) record risked weighing on its financing as rivals were switching faster to clean energies.