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Cartels Ravage Natural Gas Field|for Sale in U.S.A., Mexico Says

HOUSTON (CN) - Pemex, Mexico's national oil company, claims that violent drug cartels are stealing as much as 40 percent of the natural gas condensate from the enormous Burgos oil field in Northeast Mexico, and that the massive thefts are "encouraged and facilitated" by U.S. oil and pipeline companies that buy the gas and sell it in the United States.

Pemex Exploración y Producción (PEP) sued nine oil and pipeline companies - seven of them based in Texas - and two of their officers, in Federal Court.

Pemex claims that "in recent years" drug cartels have "hijacked at gunpoint PEP tankers" in remote areas of the oilfields of Tamaulipas, Nuevo León and Coahuila states; that "PEP officials were kidnapped and threatened with violence," and that "the cartels built tunnels and even their own pipelines to facilitate the thefts."

The thefts, which have cost Mexico at least $300 million since 2006, have been so brazen that Pemex "enlisted the assistance of the Mexican Army, which was mobilized to guard the fields," according to the 24-page complaint.

Pemex says the U.S. companies "knowingly or unwittingly" buy the stolen gas for sale in the United States.

The Burgos Field, "roughly the size of Ireland," in the three Northeast Mexico states, includes 2,827 wells, 150 collection stations and 52 transfer and delivery systems. Most of the gas goes, or is intended to go, to Pemex's central storage facility near Reynosa, Tamaulipas.

Natural gas condensate is a "mixture of hydrocarbon liquids that is produced with natural gas," according to the complaint. "Condensate is generally transported in liquid form and used as feedstock for refineries and petrochemical plants. Because condensate often contains few contaminants and is easily refined into high-value oil products, it generally competes directly with light crude oil in downstream oil markets."

Pemex brings Mexico's government about 40 percent of its annual revenue. Only the federal government is allowed to produce, export and sell Mexican oil, through Pemex. The company has been plagued with corruption for decades, but this federal complaint indicates that its problems have reached alarming levels.

"In recent years, organized crime groups within Mexico - chiefly drug cartels - have targeted the condensate PEP produces in the Burgos Field. Taking advantage of the scope and remoteness of the Burgos Field, these cartels use multiple methods to abscond with PEP's condensate," the complaint states.

The government created an anonymous hotline for people to call in tips of theft, and "installed an elaborate electronic system to detect the loss of pressure when condensate is removed from its pipelines and gathering stations. Security cameras were also installed," the complaint states. "Military and private helicopters await any electronic notification of suspicious drops in pressure or other suspicious activities, but the Burgos Field is so expansive that many times it is impossible to get to the theft locations in time to stop the criminals."

Federal prosecutors have charged 140 people with the thefts, "including two Mexican Customs agents who were jailed for allowing tanker trucks of stolen condensate to pass through Mexican customs and into the United States with fraudulent export documents. Dozens of tanker trucks involved in the scheme, some filled to capacity with stolen PEP condensate, were seized.

"But, as extensive and costly as PEP's and Mexico's efforts have been, they cannot stop the cartels' pursuit of Mexico's condensate. The cartels are relentless and well-funded. As long as there is a U.S. market for stolen Mexican condensate, the thievery will continue.

"PEP's efforts are also hampered by the proximity of the US-Mexican border to the Burgos Field. In a reversal of the classic Western movie, Mexican criminals have sought refuge with their ill-gotten gains by crossing the Rio Grande to the North, where the Mexican government has no authority to follow. Once the condensate passes the US-Mexico border, its final destination becomes inherently undiscoverable to PEP.

"PEP has lost large amounts of its condensate, at times approaching 40 percent of the production of condensate from the Burgos Field. Since 2006, more than $300 million worth of condensate has been stolen."

The complaint continues: "The stolen condensate ends up in the United States and particularly in Texas and neighboring states. There is no market for stolen condensate within Mexico. Condensate is used as a feedstock in a refinery or chemical plant. Within Mexico, only Pemex and its subsidiaries operate such facilities, and they do not repurchase their own stolen condensate. Foreign markets farther away than Texas and its neighbors are generally too distant to economically transport the condensate, particularly since its illegal nature makes large scale operations difficult.

"Thus, without a U.S. market for the stolen condensate, there would be no reason for the thefts and violence in Mexico."

Pemex says it has not sold natural gas condensate since August 2006. "Thus, any Mexican condensate which entered the United States after August 2006 was stolen and brought in without title or right."

Here are the defendants:

Big Star Gathering Ltd., an expired Texas LLP which is a fully owned subsidiary of Saint James Oil, a Nevada corporation that operates out of Sandy, Utah;

F&M Transportation, a Texas corporation operating out of Edinburg;

Joplin Energy fka Hutchison Hayes Energy, a Texas LLC operating out of Baytown;

Plains All-American Pipeline, a Delaware LP operating out of Houston;

SemCrude, a Delaware LP operating out of Oklahoma City;

Saint James Oil (see Big Star Gathering);

Superior Crude Gathering, a Texas corporation operating out of Corpus Christi;

TransMontaigne Partners, a Delaware corporation operating out of Denver;

Western Refining Co., a Delaware LP operating out of El Paso;

James Jensen, of Sandy, Utah, president of Big Star Gathering and St. James Oil;

and Jeff Kirby, president of Superior Crude Gathering.

Pemex accuses the defendants of illegal possession and use of Mexican sovereign property, conversion, unjust enrichment and conspiracy.

"Some of the defendants knew, or at least should have known, they were trading in or transporting, stolen condensate," Pemex says. "Others were ignorant that they were purchasing stolen goods. In either case, however, the defendants took possession of Mexico's sovereign property without right or title. All defendants are therefore liable for their individual usurpation of Mexico's patrimony."

Pemex is represented by Houston attorney Mark Maney.

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