Page 6 - NorthAmOil Week 36 2021
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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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