Deer Park refinery would cost Pemex an additional US $ 1 billion

Petróleos Mexicanos could end up paying around US $ 1.6 billion for Royal Dutch Shell Plc’s Deer Park refinery, which would be more than double the price announced in May, despite the fact that its finances are in such bad shape that the government decided inject billions of dollars into the state oil producer.

Pemex, as the oil company is known, requested about $ 1.6 billion to acquire the Houston-area refinery, including a capitalization from Mexico’s National Infrastructure Fund and a bridge loan from commercial banks, according to Pemex documents to the accessed by Bloomberg.

Those funds will be used to pay off more than $ 1 billion of the refinery’s debt, a part of the deal that was unclear when it was first announced.

Pemex and Shell did not immediately respond to requests for comment.

The Deer Park purchase would ensure critical supplies of fuel in the United States, as Mexican President Andrés Manuel López Obrador seeks to increase state control of the country’s energy markets and expand its refinery capacity.

The agreement also comes just as Pemex, the world’s most indebted oil company, received a capital injection of US $ 3.5 billion from the government with the aim of reducing its debt load of US $ 113 billion.

Pemex announced in May that the purchase price of the refinery would be US $ 596 million. However, that amount only included Shell’s share of the joint venture’s debt to Pemex’s commercial arm, PMI, in which both partners had a 50% stake, and not the total debt of the facility.

Given the Pemex not listed on the stock exchange, it is not obliged to disclose details of its agreements. Pemex CEO Octavio Romero said in May that the refinery’s debt was around US $ 980 million, but was unclear if Pemex planned to pay it off.

The request for funds to purchase the refinery was approved by the board of directors of Pemex on November 3, according to a board meeting document, in which the amounts are drawn up.

In addition to paying the debt to complete the transaction, Pemex It will also have to pay Shell for assets such as inventory, the documents show.

In a statement issued by Pemex At the time of the announcement, the company noted that the cost of inventories, including refinery inputs and merchandise for sale, was a “additional amount” that “will be paid to the seller at closing and will be based on actual volumes and prevailing market prices”.

So far this year, Deer Park It has accumulated approximately $ 380 million in net losses, according to one of the documents.

Bloomberg previously reported that the forced closure of the Deer Park facility during the Texas frost in mid-February and market volatility during the pandemic caused the refinery to post losses of about $ 360 million through July.

The additional costs will put even more pressure on Pemex’s finances and Mexico’s coffers, as the purchase will depend largely on federal funds.

The debt of Pemex it currently exceeds US $ 113,000 million, higher than any other oil company in the world, and it lacks a clear strategy to reverse production declines in the long term.

It is probable that the acquisition of the Deer Park is completed in late 2021, as the U.S. Foreign Investment Committee continues to review the sale, Shell said in a statement on Nov. 30.