Mexico Buys Houston Refinery as It Pledges Energy Independence
(Bloomberg) -- Mexico is on a nationalistic campaign for energy independence and needs more fuel. To that end, its state-owned oil company Petroleos Mexicanos has struck a deal for full control of a Houston-area refinery it shares with Royal Dutch Shell Plc.
Pemex, as the Mexican explorer is known, made an unsolicited bid for Shell’s 50% stake in the facility in Deer Park, Texas, and agreed to pay $596 million, according to a statement Monday. The transaction will be fully financed by the Mexican government and is scheduled to close during the fourth quarter. Shell will retain control of an adjacent chemical plant.
Mexican President Andres Manuel Lopez Obrador, known as AMLO, needs to fulfill campaign promises to restore the country’s self-sufficiency in energy. He’s risen to power partly through his criticism of free-market economic policies that he says ransacked the country’s oil riches. AMLO has placed Pemex at the heart of Mexico’s energy revival, and has promised no gas price hikes for consumers in the meantime.
“This decision is part of Pemex’s new business policy, proposed by the president of Mexico, which consists of achieving in the short term the production of all the fuels that the country requires,” the company said.
Pemex has six other troubled refineries that have been ramping up output, though they were only operating at about half of capacity as recently as March. Critics argue that the refineries have low profit margins, siphon off resources needed for Pemex’s core job of drilling oil fields and are highly polluting.
Deer Park could make a difference. It “has the scale and complexity that can help Pemex improve its performance,” which makes it a good asset, Felipe Perez, IHS Markit Americas refining and marketing research director, said by phone. “The difficulty comes in when you consider the status of Pemex’s six other refineries, and how it will manage all of that.”
The 28-year partnership for Deer Park began in 1993, when Pemex bought half of the refinery from Shell to absorb its rising production of crude oil. It paid over $200 million for the stake and its inventories, according to a document seen by Bloomberg.
The refinery netted dividends close to $2 billion each between 1993 and 2018, but in recent years, profits fell amid the higher costs for Mexican oil processed at the facility. Deer Park’s purchases of Maya, Pemex’s flagship crude, has declined almost 60% in nearly three years, to 70,000 barrels a day.
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