Pemex Tax Burden Bloated by Water Content in Oil Barrels

Petroleos Mexicanos, the crude producer that accounts for about a third of state revenue in Mexico, said it pays taxes on oil production volume that’s inflated by water and other measurement inaccuracies.

Under existing law, the company known as Pemex pays some taxes based on reported volume at the wellhead, it said by e-mail yesterday. In the statement, Pemex cut its year-to-date production to 2.34 million barrels a day from a previously reported 2.47 million. Output was overstated because of water content and inefficient measuring and separation systems.

“The water content and measurement distortions have increased the fiscal burden on Pemex,” the Mexico City-based company said in the statement.

Facing a 10th straight year of production declines, Pemex said output at the end of the year would be about 2.35 million barrels a day. That’s the second revision in a month after Exploration and Production Director Gustavo Hernandez cut the forecast to 2.44 million barrels from 2.5 million on July 25 and comes as Pemex negotiates partnerships with private producers for the first time in seven decades.

“This is something that had been rumored for a long time, so the announcement is welcome news,” Marcelo Mereles, a former Pemex executive who’s now a partner at energy consulting firm EnergeA, said in an interview in Mexico City. “It’s good that Pemex is announcing this in a direct way and being very transparent about it. Further explanation will be required.”

Bond Rally

Pemex’s $2.1 billion of bonds due 2023 rose yesterday for the ninth time in 10 days, pushing down the yield to 3.8 percent, according to data compiled by Bloomberg.

Production through June was reported as 2.48 million barrels a day, while the volume the state-owned company processed was 2.32 million barrels a day, according to the National Hydrocarbons Commission.

That record gap is partly explained by measuring systems at older fields that are unable to differentiate water-heavy oil from actual crude, a company official briefed on the matter said last week. Some wells at the Cantarell field are producing as much as 25 percent water, Hernandez said Aug. 13.

Pemex said today that 14,000 barrels a day this year were lost to evaporation, 9,000 to product segregation and 6,000 to inventory losses.

The company is working to improve equipment calibration to reduce miscalculations and installing sedimentary tanks to accelerate dehydration and stabilize crude, in accordance with international specifications.

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