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Pemex refinery deal may cost $1 billion more than announced<\/p>\n\n\n\n
F. Carter Smith \/Bloomberg
Pemex refinery deal may cost $1 billion more than announced<\/p>\n\n\n\n
– Pemex seeks about $1.6 billion of funds to close deal
– Amount is more than double the purchase price declared in May<\/p>\n\n\n\n
By Amy Stillman \/ Bloomberg News<\/p>\n\n\n\n
MEXICO CITY
Petroleumworld 12 09 2021<\/p>\n\n\n\n
Petroleos Mexicanos could end up spending about $1.6 billion to take over Royal Dutch Shell Plc\u2019s Deer Park refinery, more than twice the price announced in May, even as its finances are so dismal the government is injecting billions of dollars into the state oil producer.<\/p>\n\n\n\n
Pemex, as the company is known, has requested about $1.6 billion to acquire the Houston-area refinery, including a capitalization from Mexico\u2019s National Infrastructure Fund and a bridge loan from commercial banks, according to Pemex documents seen by Bloomberg. The funds will be used to pay off more than $1 billion of the refinery\u2019s debt, a part of the deal that wasn\u2019t clear when it was first announced.<\/p>\n\n\n\n
Pemex and Shell didn\u2019t immediately return requests for comment.<\/p>\n\n\n\n
The Deer Park purchase would secure critical U.S. fuel supplies as Mexico President Andres Manuel Lopez Obrador seeks to increase state control of the country\u2019s energy markets and expand its refining capacity. The deal also comes as Pemex, the world\u2019s most leveraged oil company, receives a $3.5 billion capital injection from the government aimed at reducing its $113 billion debt burden.<\/p>\n\n\n\n
Pemex had announced in May that the purchase price of the refinery was $596 million. However, that amount only included Shell\u2019s share of the debt of the joint-venture with Pemex\u2019s trading arm PMI, in which both partners had a 50% stake, and not the full debt of the refinery.<\/p>\n\n\n\n
Because Pemex isn\u2019t publicly traded, it\u2019s not required to disclose details of its deals. Pemex Chief Executive Officer Octavio Romero said in May the refinery\u2019s debt was about $980 million, but it wasn\u2019t clear whether Pemex was planning to pay it off.<\/p>\n\n\n\n
The decision to buy the refinery was approved by Pemex\u2019s board of directors on Nov. 3, according to a document from the board meeting, in which the amounts are redacted.<\/p>\n\n\n\n
In addition to paying off debt to complete the transaction, Pemex will also need to pay Shell for assets such as inventories, the documents show.<\/p>\n\n\n\n
In a Pemex statement at the time of the announcement, the company noted that the cost of inventories, including refinery inputs and merchandise for sale, was an \u201cadditional amount\u201d that \u201cwill be paid to the seller at closing and will be based on actual volumes and prevailing market prices.\u201d<\/p>\n\n\n\n
Deer Park has racked up almost $380 million in net losses so far this year, according to one of the documents.<\/p>\n\n\n\n
Bloomberg previously reported that Deer Park\u2019s forced shutdown during the Texas freeze in mid-February and market volatility during the pandemic led it to post losses of about $360 million through July.<\/p>\n\n\n\n
Pemex Is Buying a U.S. Refinery That Lost $360 Million This Year<\/p>\n\n\n\n
The additional costs will put even more pressure on Pemex\u2019s finances and Mexico\u2019s coffers, with the purchase relying largely on federal funds.<\/p>\n\n\n\n
Pemex\u2019s debt now tops $113 billion, more than any other oil company in the world, and it lacks a clear strategy to reverse long-term production declines.<\/p>\n\n\n\n
This week, Pemex announced that it will receive a $3.5 billion capital injection from the government as part of a transaction to pay down obligations and also embark on a series of bond buybacks and new issuance to reduce the cost to service its borrowings.<\/p>\n\n\n\n
Mexico Gives $3.5 Billion Lifeline to Pemex to Help Finances<\/p>\n\n\n\n
The Deer Park refinery acquisition is likely to close in late 2021, while the Committee on Foreign Investment in the U.S. is still reviewing the sale, Shell said in a statement on Nov. 30.<\/em><\/p>\n\n\n\n _____________
By Amy Stillman from Bloomberg News<\/p>\n\n\n\n