Page 6 - NorthAmOil Week 36 2021

NorthAmOil COMMENTARY NorthAmOil

Trouble in Deer Park

Pemex is pursuing a refinery takeover deal that is

likely to put further strain on its shaky finances –

and draw unwelcome attention from US legislators

US-MEXICO MEXICO’S national oil company (NOC) Pemex
is pursuing a deal that will make it the sole owner
WHAT: of a 170,000 barrel per day (bpd) refinery in
The Deer Park refinery, Deer Park, Texas. The proposed transaction
majority-owned by is designed to support the Mexican govern-
Shell, reportedly racked ment’s effort to reduce the country’s reliance on
up losses of $360mn imported fuels, but it may be more notable for
between January and July. the strain that it puts on the NOC’s finances.
Pemex is currently a minority shareholder
WHY: in the refinery, with a 49.99% stake. Earlier
The plant is the target of this year, though, it revealed that it was willing
a takeover bid by Pemex, to buy out its partner Royal Dutch Shell (UK/
which is already under Netherlands), which owned the remaining
considerable financial 50.01% of equity.
strain. Although the bid was unsolicited, it did draw
a positive response. Shell agreed in May to sell
WHAT NEXT: its stake in the Deer Park plant to Pemex for
The deal, which has yet $596mn. At the time, the NOC said it would use
to be finalised, has also federal funds to buy the stake.
drawn criticism from a
US legislator because of More financial pressure for Pemex the 340,000 bpd refinery is unlikely to come on
safety concerns. This is a problematic strategy, not least because stream in mid-2022 as scheduled.)
the Mexican company’s finances are already
under considerable pressure. Deer Park’s balance sheet
As Bloomberg noted recently, Pemex’s debt Under these conditions, a $596mn acquisition
portfolio is currently larger than that of any will not be easy for Pemex to swing.
other oil company. The NOC owes more than But the problems don’t end there, as the
$115bn to all of its creditors, and its debt portfo- Deer Park refinery is carrying its own financial
lio is likely to grow even more in the near term, burdens. Bloomberg reported in late August
given that it has seen two prominent credit rat- that the plant had racked up a net loss of about
ings agencies, Fitch Ratings and Moody’s Inves- $360mn – equivalent to more than 60% of the
tors Service, downgrade its securities to “junk” price Pemex agreed to pay for Shell’s 50.01%
level since mid-2019. stake – in the first seven months of this year.
Mexican government officials, including This slip into the red is relatively unusual for
President Andres Manuel Lopez Obrador, have the refinery, but it is not entirely unexpected.
said they believe Pemex can improve its finan- Sources familiar with the matter but not author-
cial standing if it can raise production levels and ised to speak to media told Bloomberg that the
slash fuel import bills by refining more crude. loss stemmed from the refinery’s forced shut-
However, the company’s oil output has been down in February, when freezing tempera-
slipping for more than a decade and is not likely tures disrupted energy operations in Texas and
to recover without extensive (and expensive) beyond.
investments. Nevertheless, Deer Park’s challenges extend
At the same time, Pemex’s six existing refin- beyond the seven-month loss. The plant has also
eries are operating at less than 50% of their total struggled with market volatility since the advent
design capacity of 1.5mn bpd. Lopez Obrador of the coronavirus (COVID-19) pandemic, and
and his supporters have pinned their down- its debt load has risen above $1bn in recent
stream hopes on the massive new oil-processing months, the sources added.
plant now under construction at Dos Bocas in Pemex is hardly unaware of these challenges.
Tabasco State, but the projected cost of the pro- In May, the Mexican company’s CEO, Octavio
ject keeps swelling and may now top $12bn, 50% Romero Oropeza, noted that while Deer Park
above previous estimates of $8bn. (Additionally, traditionally posted a profit, it had incurred a

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