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Pemex stabilizes crude production, targeting growth in H2

Denver — Mexico's state-owned Pemex stabilized its crude production in the second quarter of 2019, marking a first milestone for the company's five-year business plan, executives said on an earnings call Friday.

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During the quarter, the company's crude production averaged 1.66 million b/d, which was flat compared with average production during Q1. The company hopes to begin increasing production later this year with the startup of new exploration and production activity in the shallow-water fields of the Gulf of Mexico.

In a bold plan announced earlier this month, Pemex CEO Octavio Romero Oropeza said the company would increase production to 2.7 million b/d by 2024 and balance its budget by 2021.

The 2019 to 2023 business plan also aims to increase production of petroleum fuels and petrochemicals with investments and upgrades at the company's refineries.

Pemex made progress toward those goals in the second quarter, boosting total production of gasoline, fuel oil, diesel and other fuels by about 13% to an average 630,000 b/d.

Executives said that the stabilization of operations at the Minatitlan and Salamanca refineries helped to increase both refined products output and crude processing levels. A reduction in refined product prices during the quarter, though, saw the company's refining margins fall below breakeven.

Natural gas production at Pemex continued to decline during the second-quarter. Gross production fell 30 MMcf/d to 3.634 Bcf/d. The decline in dry gas production was steeper, though, falling by 96 MMcf/d to 2.218 Bcf/d, company data showed.

Pemex's plan to grow production has come under scrutiny recently following the cancelation of joint venture auctions, which were previously expected to help boost the company's output.

At the behest of Mexico president Andres Manuel Lopez Obrador, the Comision Nacional de Hidrocarburos or CNH in June canceled a joint-venture auction for Pemex in seven onshore areas.

At the time, one of the panel's commissioners openly opposed the decision saying that the government's aggressive production goals for Pemex would be unachievable without private investment support.

Previous farm-outs by Pemex have delivered significant capital injections for the company.

Earlier this year, joint development plans announced by the CNH for the Trion deepwater and onshore Ogarrio and Cardenas-Moras fields, represented a $1.6 billion capital injection for the company.

Under Lopez Obrador's administration, though, Pemex has received considerable financial backing this year, which the government says should be sufficient to help get the state-owned company back on track.

In addition to a package of tax breaks, the Mexican government has promised to increase Pemex's upstream budget to $14.2 billion this year, up from the current $11.1 billion, according comments made by Pemex CFO Alberto Velazquez last month at the Mexican Petroleum Conference.

--J. Robinson, jrobinson@spglobal.com

--Edited by Gary Gentile, gary.gentile@spglobal.com