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Drug War Puts Mexican Oil Industry on Defensive
email this pageprint this pageemail usRobert Campbell - Reuters
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August 04, 2010

Mexico City - State oil monopoly Pemex is struggling to sidestep mounting lawlessness in remote areas of northern Mexico, underscoring how the country's escalating drug war has touched a once relatively immune industry.

Pemex and the private firms it employs have scaled back drilling, maintenance and other activities at some isolated sites in the natural-gas-rich Burgos basin due to deteriorating security, a senior executive with a large Pemex contractor in the region said.

"There are places where we cannot go, where it is not safe for our workers to go, so for now those projects are on hold," the executive said on condition of anonymity.

Other contractors say that Pemex has occasionally called off scheduled servicing of wells, small pipelines and other equipment near drug smuggling routes south of the U.S. border.

Complete Production Services Inc, which services Pemex gas wells in Burgos, warned in a stock market filing last month that violence "has impacted our ability to safely conduct business in parts of the country" and said the problems could affect its revenues.

Mexico, the world's No. 7 oil producer, has not suffered any major output disruptions due to the violence, but the April abduction of a senior Pemex manager in southern Mexico and the kidnapping of more than a dozen workers in two incidents at a natural gas compression station in Burgos this summer has unnerved the industry.

Around 28,000 people have been killed since President Felipe Calderon launched an army-led crackdown on the drug trade in late 2006, triggering a wave of bloodshed as rival cartels battle for supremacy and clash with security forces.

The violence is closing in on Mexico's invaluable energy industry, which accounts for a third of government revenues.

Plans to hold an annual oil conference in the troubled northern city of Tampico last month provoked an outcry from the private sector, forcing organizers to relocate to Mexico City at the last minute, according to industry sources.

Pemex acknowledges security is a mounting problem in some areas, but says none of its facilities have been taken over by drug gangs. The problem, it says, is that well-armed cartels sometimes prevent them from sending staff to certain sites.


In Burgos, Pemex has long grappled with criminal gangs that hijack tanker trucks and tap pipelines to steal fuel and condensate, a gasoline-like byproduct of natural gas output, often with the help of corrupt Pemex employees.

The government accuses these increasingly sophisticated groups of collaborating with drug cartels in return for protection and help smuggling stolen fuel.

Stolen condensate, which in the past was mixed with gasoline and sold to unwitting Mexican consumers, is now being smuggled into the United States and eventually sold at full market price to giant petrochemicals manufacturers.

At times, condensate theft from Burgos has exceeded 40 percent of the basin's total production. The amount stolen since 2006 tops $300 million, Pemex says.

In response to growing anxiety among workers, Pemex has plastered public spaces in its buildings, including its Mexico City headquarters, with posters on how to avoid being kidnapped. Security has been stepped up at Pemex offices.

Some large companies that work with Pemex have prohibited staff based in Mexico City from spending the night in parts of northern Mexico. When visiting facilities there, they must fly to the United States and cross the border for the day.

Despite the violence, foreign energy firms used to working in high-risk environments like Nigeria and Angola are unlikely to be frightened away from Mexico's lucrative oil patch.

"We operate in worse places and the government is not likely to let things get bad enough to really hurt its main money maker," said the Pemex contractor.

(Editing by Missy Ryan and Kieran Murray)

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