Pemex, Mitsui-led Tula Refinery Deal Delayed on AMLO Team Review

(Bloomberg) -- Pemex’s crown jewel of refinery deals has been delayed as it comes under the microscope of Mexico’s incoming presidential administration.

President-Elect Andres Manuel Lopez Obrador’s transition team, which will enter office on December 1, is reviewing the contract for a $2.6 billion joint venture between Petroleos Mexicanos and Mitsui & Co. Ltd.-led consortium to construct and operate a delayed coker unit in the Tula refinery, Carlos Trevino, Pemex’s Chief Executive Officer, said in an interview on Thursday in Acapulco.

“We are communicating with the transition team, we have had three or four meetings about this issue in particular, and we have given them the financials,” Trevino said. “I believe that it will be signed before 1 December, it’s ready to be signed.”

The deal is delayed at least several months, boding poorly for Pemex after it failed to attract more than a handful of private refinery deals since Mexico opened up the energy sector to private investment in 2014.

Under the conditions of the agreement, Japan’s Mitsui and Cosmo Oil Co. Ltd., Spain’s Compania Espanola de Petroleos SA and a joint venture between Mexico’s Empresas ICA SAB de CV and Fluor Corp. in the U.S. will help Pemex increase the amount of fuels produced at its Tula refinery by about 40 percent.

While the project was intended to reduce Mexico’s reliance on fuel imports, the opposite is happening. Mexico will probably begin importing light crude next month to its Salina Cruz refinery to make up for shortfalls resulting from problems at its shallow-water Xanab field in the state of Tabasco.

Production at Xanab, which was shut in July and August, has been affected by well damages resulting in an overflow of water in place of oil. The gap will likely be filled by imported crude, most likely from the U.S. due to more competitive pricing because of its proximity to Mexico, and development of new fields, Trevino said.

“We have to initiate the development of new fields to substitute Xanab, and this will come from our pipeline,” said Trevino. “We are constructing infrastructure for the development” of additional fields.

This includes Esah and Xikin and Ixachi oil fields, said Jose Antonio Escalera, Pemex’s exploration chief, in the interview. Three more wells are being drilled at Ixachi. “We have more clarity on the discovery,” Escalera said.

Pemex’s 2019 oil hedge is underway and the Mexican state oil firm will “probably” issue more bonds this year, Trevino said. “We have quite large credit lines available.”

Pemex will fall considerably below its 2018 oil production target of 1.95 million barrels a day due to problems at Xanab and vandalism of its facilities in the southeast, Trevino. He said it would be premature to give a new production target.

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