Page 5 - LatAmOil Week 36 2021

LatAmOil COMMENTARY LatAmOil

Lopez Obrador and his supporters have pinned that the purchase would not make business
their downstream hopes on the massive new sense for Pemex. “It’s a purchase that makes
oil-processing plant now under construction sense in terms of the objectives of Pemex
at Dos Bocas in Tabasco State, but the projected increasing ‘Mexican’ fuel production, and with
cost of the project keeps swelling and may now it, achieving the political objective of the pres-
top $12bn, 50% above previous estimates of ident,” Gonzalo Monroy, the CEO of Mexico’s
$8bn. (Additionally, the 340,000 bpd refinery GMEC energy consultancy, told BNamericas in
is unlikely to come on stream in mid-2022 as late August. “However, as a business, it’s a terri-
scheduled.) ble strategy to expand position in a market that’s
closing,” he said.
Deer Park’s balance sheet Likewise, George Baker, the managing
Under these conditions, a $596mn acquisition director of the Baker & Associates energy con-
will not be easy for Pemex to swing. sultancy, wrote in a recent edition of the Mexico
But the problems don’t end there, as the Deer Energy Intelligence newsletter that the acquisi-
Park refinery is carrying its own financial bur- tion of Deer Park was likely to flunk strategic,
dens. Bloomberg reported in late August that the economic and commercial tests, even if it was
plant had racked up a net loss of about $360mn – in line with Lopez Obrador’s political and ide-
equivalent to more than 60% of the price Pemex ological goals.
agreed to pay for Shell’s 50.01% stake – in the Pointing to a study by Barclays investment
first seven months of this year. bank that put the refinery’s asset value at zero, he
This slip into the red is relatively unusual for remarked: “Pemex would be buying the cement
the refinery, but it is not entirely unexpected. and steel of a business that has been unprofitable
Sources familiar with the matter but not author- for three years.” Mexico’s
ised to speak to media told Bloomberg that government
the loss stemmed from the refinery’s forced Attack from another angle
shutdown in February, when freezing temper- Meanwhile, finances are not the only source of appears to be
atures disrupted energy operations in Texas and concern.
beyond. In June of this year, US Representative Brian shrugging off
Nevertheless, Deer Park’s challenges extend Babin, a Republican from Texas whose dis-
beyond the seven-month loss. The plant has also trict includes Deer Park, raised the alarm over concerns about
struggled with market volatility since the advent Pemex’s planned takeover of Deer Park on safety Deer Park’s
of the coronavirus (COVID-19) pandemic, and grounds. In a letter to the Committee on For-
its debt load has risen above $1bn in recent eign Investment in the United States (CFIUS), financial
months, the sources added. the division of the US Treasury Department that
Pemex is hardly unaware of these challenges. has the authority to approve the sale, Babin came position
In May, the Mexican company’s CEO, Octavio out strongly against the deal.
Romero Oropeza, noted that while Deer Park “Simply put, Pemex does not have the execu-
traditionally posted a profit, it had incurred a tive, managerial or technical expertise to oper-
loss in 2020 because of the pandemic. As of May ate this state-of-the-art facility safely,” he wrote.
2021, the refinery was carrying $980mn in debt, “This proposed sale greatly increases the risks
he said. of an industrial accident, serious local environ-
Shell, for its part, has not confirmed any esti- mental degradation, and damage to our local
mates of the Deer Park refinery’s debts. When economy thanks to poor corporate manage-
contacted by Bloomberg in late August, the ment. Unfortunately, Pemex has a problematic
super-major said it would not disclose the finan- track record when dealing with US businesses
cial performance of individual assets. and has a history of backing out of contracts,
soliciting bribes, and playing dirty in corporate
Nahle defends Pemex’s plan disputes.”
Mexico’s government appears to be shrug- He added: “Our energy companies are
ging off concerns about Deer Park’s financial required to follow the most stringent regulations
position. ensuring the protection of Americans and the
Energy Minister Rocio Nahle recently indi- security of this vital industry, and I lack the con-
cated that she was not concerned about the fidence that Pemex can or even desires to meet
refinery. “No, it’s not losing” money, she told these high expectations.”
Bloomberg recently. “Pemex did an internal Thus far, CFIUS has not commented on the
and external business analysis with an external matter, and Shell is still expecting to proceed
company and the results they presented are very with the sale of its stake in the Deer Park refin-
good.” ery to Pemex. Even so, Babin’s comments may
Other observers have suggested, however, become another source of trouble for Pemex. ™

(File Photo)

Week 36 09•September•2021 www. NEWSBASE .com P5