Mexican state oil company Petróleos Mexicanos (Pemex) had restored 71,000 b/d of the roughly 421,000 b/d of oil production knocked offline by a fatal offshore platform fire as of Tuesday evening, according to CEO Octavio Romero Oropeza.

Mexico offshore platform

In a video message posted late Tuesday night, Romero said Pemex expected to restore an additional 110,000 b/d over the subsequent 36 hours, and all of the lost production by Monday, Aug. 30. 

The accident occured Sunday afternoon on the E-Ku-A2 platform in the Ku-Maloob-Zaap megafield when a natural gas leak ignited during routine maintenance, Romero said. 

Five deaths were confirmed as of Wednesday morning, comprising one Pemex worker and four employees of oilfield services firm Cotemar S.A. de C.V. Two more workers from a separate contracting firm called Bufete de Monitoreo de Condiciones e Integridad remained missing, Romero said.

Authorities were set to conduct DNA tests on remains found in a control room on the platform where the fire reached temperatures near 2,000 degrees C, Romero said.

Oil prices strengthened on the supply disruption and remained buoyant as of midday Wednesday, with Nymex West Texas Intermediate crude oil futures trading at $67.65/bbl. This was up from Friday’s settlement of $62.32 before the accident.

“Bottom pickers jumped into the void on the open on Sunday night, and then rode the Pemex 421,000 b/d platform fire for a two day gain of around 8% following a slide of 8.94% last week,” Mizuho Securities USA LLC’s Robert Yawger, director of energy futures said in a note to clients Tuesday regarding WTI prices.

The fire at the Pemex platform is also a negative for Gulf Coast refiners, Yawger said.  

“U.S. refiners run Mexican crude oil for size, and several refineries are configured to maximize yields from Mexican crude oil.” Ultimately, he said, “refiners will have to pay more for feedstock, affecting the bottom line negatively.”

Gulf Coast refiners rely on Mexico’s heavy crude oil for around 38% of the imported crude they process. According to Bloomberg data, Valero Energy Corp., Phillips 66 and Chevron Corp. are among the largest U.S. buyers of Mexican crude so far this year.

The three large KMZ offshore fields together are considered Mexico’s main oil area. In June, total production at KMZ was 617,311 b/d, or 37% of the country’s total production, according to data from upstream regulator Comisión Nacional de Hidrocarburos (CNH).

The fields also produce 694 MMcf/d of associated natural gas, or about 18% of Mexico’s total gas output. The 421,000 b/d taken offline correspond to 125 wells, as the accident reportedly disrupted the supply of natural gas needed for reinjection to stimulate production.

Wood Mackenzie’s Ricardo Falcón, senior research analyst for Mexico gas, told NGI’s Mexico GPI that between gas days Monday and Tuesday (Aug. 23-24), he and his colleagues noticed a 0.36 Bcf/d drop in Mexican dry gas output to around 2.3 Bcf/d.

The timing “somewhat coincides with the incident at Pemex’s Ku-A complex,” he said, adding that production had only increased slightly as of Wednesday afternoon in Wood Mackenzie’s preliminary assessment.

He cautioned, however, that, “we should also factor in the demand downside that has lately impacted Mexico’s Gulf corridor. So, for now, it is hard to make a direct attribution.”

In a note on Tuesday, analysts at Fitch Ratings said the incident could make it “very difficult” for Pemex to reach its production goal “given the large amount of production that is currently offline.” During the first half of 2021, Pemex’s crude oil production averaged 1.726 million b/d. The goal was to reach 1.802 million b/d by the end of the year.

“An acceleration of the company’s production decline rate in mature fields will make it difficult to achieve its production targets and add more pressure to its already negative free cash flow,” Fitch analysts said.

Pemex said the fire was under control about an hour and a half after it started on Sunday afternoon.

Pemex reported monthly oil production of 1.701 million b/d for July, up by 106,000 b/d from the same month a year ago, while total liquids production rose by 90 million b/d to 1.944 million b/d.

Tudor, Pickering, Holt & Co. analysts said Wednesday they expect Pemex liquids production to average 1.921 million b/d, “with potential risk to the downside” depending on the extent of supply impacts due to the fire. 

The fire was the second major accident to afflict Pemex offshore operations in the KMZ field in as many months. In early July, images of an eye-shaped fire went viral on social media after electrical storms and a natural gas leak from a pipeline used to stimulate oil production ignited an undersea blaze. Unlike Sunday’s blaze, no one was killed or seriously injured.

Pemex has suffered tragedies on multiple fronts during President Andrés Manuel López Obrador’s administration. 

As of Aug. 17, the company had reported 3,302 Covid-19 deaths among employees, retirees, family members and external contractors. Of that total, 587 people were actively employed at the time of diagnosis.

In 2019, a leak and subsequent explosion at a Pemex gasoline pipeline in Hidalgo state also left 137 dead. 

Pemex also is facing growing scrutiny for its poor performance on environmental, social and governance metrics, namely natural gas flaring and production of high-sulfur fuel oil.

With additional reporting by Christopher Lenton