Mexico's Pemex weighs beginning crude swaps later this year -CEO

HOUSTON (Reuters) - Mexico’s state-run oil company Pemex could start swapping domestic heavy crudes for foreign light oil in the second half of the year to raise the quality of its fuels production, Chief Executive Carlos Trevino said.

FILE PHOTO: The Pemex logo is pictured during the 80th anniversary of the expropriation of Mexico's oil industry in Mexico City, Mexico March 16, 2018. REUTERS/Edgard Garrido/File Photo

The company, whose crude output fell 3 percent to 1.89 million barrels per day (bpd) in the first quarter, is looking for lighter crude grades for its refining network, which is currently operating at 48 percent of its 1.54 million bpd capacity.

“(The swap) continues on the table, we probably will be doing tests in the short term,” Trevino told Reuters in an interview on the sidelines of the Offshore Technology Conference. “We will bring crude from where it is convenient.”

Exchanges, which would allow Pemex to access foreign crudes from West Africa and Colombia, would be temporary as new domestic barrels from ventures with foreign and local firms are expected to reach up to 50,000 bpd in 2019.

A larger offer of Mexican oil in the market could help address regional shortages of heavy crude because of lower exports from suppliers, especially Venezuela, and transportation problems in Canada. The heavy oil likely would be grabbed by U.S. Gulf Coast refiners.

Lower refining runs has allowed Pemex to export slightly more crude in recent months, but to increase both oil exports and fuel production it must reverse a 14-year-long decline in output. Pemex sees production gaining by mid-year.

“We had a slip in the scheduled timing for some projects ... (but) our expectation is to be over 1.971 million bpd at the end of the year,” Trevino said.

Growth next year would come largely from onshore joint ventures formed by Pemex and partners through farm-outs organized by Mexico’s oil regulator.

After some farm-out attempts for offshore areas failed in 2017, Pemex has refocused on finding partners for seven onshore oilfields clusters. They are producing 43,000 bpd of crude and 230 million cubic feet per day of gas.

Farm-out interest is coming from Germany’s DEA Deutsche Erdoel, one of the largest winners of previous oil auctions in Mexico, and Egypt’s Cheiron Petroleum Corp, Trevino said.

Onshore farm-outs are expected to appeal to small and medium companies, Trevino said.

“We have had an excellent and extraordinary feedback (from interested companies)... We believe these farm-outs are more attractive,” Trevino said.

If the partnerships continue moving on, Pemex could start participating in foreign fields operated by others or offering oil service abroad, he said.

Reporting by Marianna Parraga; Editing by Chizu Nomiyama and Susan Thomas