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Pemex reports first quarterly production gain in 14 years

Denver — Mexico's state-owned Pemex on Monday announced its first quarterly production increase in 14 years, an outcome executives attributed to the strategy of a new business plan announced in July.

In the third quarter, Pemex produced a gross 4.86 Bcf/d of gas, equivalent to a 96 MMcf/d, or 2%, increase in output compared to the second quarter, company data showed.

Crude oil production rose by 21,000 b/d over the same period to 1.694 million b/d.

ANALYSIS: Pemex trades HSFO woes for sweet-sour volatility

On Monday's third-quarter earnings call, executives also touted the company's quarterly improvements in processing and refining, along with gains in refined products output.

Processing of wet gas, which accounts for most of Pemex's gas production, climbed about 5% from the second to third quarter, rising to nearly 2.9 Bcf/d. Dry gas output also edged up 6.8% to 2.37 Bcf/d.

Natural gas liquids production, though, fell by 5,000 b/d to 218,000 b/d.

Higher nitrogen content in Pemex's production mix saw the company's natural gas use decline to about 94% -- down from levels closer to 95% in the first and second quarters. Elevated nitrogen levels prompted a nearly 20% increase in flaring, which rose to an average 310 MMcf/d during the quarter.

Recent investments in Pemex's processing and refining business also showed results in the third quarter.

Refining throughput climbed 10% from Q2 while production of gasoline and diesel rose about 3% and 1%, respectively, over the same period.

BUSINESS PLAN

Chief Financial Officer Alberto Velazquez said, "Pemex is on the right path," emphasizing the company's commitment to a new business strategy, first announced by Mexican President Andres Manuel Lopez Obrador in December.

That five-year business plan has called for Pemex to increase oil production to 2.7 million b/d 2024 and balance the company's budget by 2021. When the strategy was first announced, it also included an ambitious goal to grow natural gas production at Pemex to nearly 6.5 Bcf/d by 2024.

The new strategy has seen Pemex increase investment in the shallow water fields of the Gulf of Mexico this year, while simultaneously slashing the company's costs for administration, fuel distribution and fuel theft.

In the fourth quarter, the company expects to continue growing production thanks to the startup of 11 new development wells and 10 exploration wells expected to come online in November and December.

The company's new strategy, though, has also been accompanied by a decline in bottom line profitability.

In the third quarter, Pemex reported a net loss of nearly 88 billion pesos ($4.6 billion), significantly more than the 53 billion peso ($2.7 billion) net loss in Q2. In the third quarter last year, Pemex reported net positive income of 27 billion pesos ($1.4 billion).

-- J. Robinson, jrobinson@spglobal.com

-- Edited by Gail Roberts, newsdesk@spglobal.com