Pemex set to take over Deer Park refinery

For the Houston area, energy transition in 2022 will come when Shell hands over the Deer Park refinery to its long-time partner, the Mexican national oil company, Pemex.

On December 21, a Treasury Department official informed Pemex’s legal representative that there were no unresolved national security issues associated with the planned purchase of Shell Oil’s controlling interest. The next day, Mexico’s president, Andrés Manuel López Obrador (aka, AMLO) thanked President Biden for the approval of the deal, interpreting it as his trust in Pemex’s ability to operate the refinery safely.

The Greater Houston’s regional economic, environmental and public-safety outlook will be compromised by the deal. Shell is dumping the refinery in the lap of an unprepared and unqualified buyer.

Shell has insisted that the refinery will operate the same as before because refinery workers will continue in their jobs. But Shell managers won’t. They’ll be moved to other jobs at Shell — which court documents confirm — leaving leadership posts to be filled by Pemex.

But you’ll find little proof that Pemex is ready to run the refinery. Missing is evidence of multi-year preparations by Pemex and its workers to learn and understand the peculiarities of the American environmental, safety, and labor codes. Pemex’s three decades as the limited partner in the refinery provided few learning opportunities; it was, by Shell policy, excluded from operational roles and denied access to Shell patents, trade secrets and technical know-how.

Pemex cannot operate as a market-driven business when its de facto, activist chair is the president of Mexico. Once under AMLO’s control, expect the executive and managerial staff of the Deer Park refinery to expand with new appointees from Mexico whose credentials are reducible to presidential loyalty.

AMLO appointees would have the opportunity to steer contracts to firms with invisible connections to the President. Consider the contracting for the new Dos Bocas refinery in the Mexican state of Tabasco. It is being done by private, restricted tenders to selected firms. The word you are looking for is “cronyism.”

Pemex will have little accountability should bad things happen. The legal buyer, P.M.I. Services North America, Inc, is a Delaware shell company that is two corporate layers removed from Pemex. If things go wrong, Pemex would likely be insulated from liability and costs of an environmental cleanup. Besides, as an arm of the Mexican state, Pemex might be untouchable in court, protected by the Foreign Sovereign Immunity Act.

Pemex, meanwhile, is already burdened by more than $100 billion in debt, and the Deer Park refinery is unlikely to improve Pemex’s financial capacity. Under Shell’s control, the Deer Park refinery has reported financial losses since 2018.

Bizarre lawsuit

On January 6, a hearing was held in federal court in Houston on a last-minute lawsuit seeking a temporary restraining order against the sale and the expedited discovery of documents, to include the confidential Shell-Pemex agreement. The plaintiffs’ lawyers did not represent Deer Park homeowners who feared a loss of property values, but two laundromat operators in the state of New York.

Shell’s lawyers asked that the petition be dismissed, arguing lack of standing of the plaintiffs and lack of evidence of imminent harm. Further, two federal agencies had reviewed the acquisition without objections, the lawyers argued.

Delay, they added, would cause harm to Shell and Pemex, as a labor contract needed to be worked out prior to January 31st, when the current agreement expires, Shell argued. Judge Lee Rosenthal ruled in favor of the companies and rejected the temporary restraining order and request for expedited discovery. The case is still pending.

See no evil

The deal for Deer Park was negotiated in hermetic secrecy over eight months by a tiny group of presidential insiders. Pemex’s refinery division was not consulted. Ditto, Energy Minister Rocío Nahle, a political rival of Pemex CEO Octavio Romero

When it became public, community, political and business leaders largely stayed quiet as the deal went through the regulatory process. Regardless, Pemex will never be a qualified buyer. Team Biden, city elders of Deer Park, and the Houston business community may come to regret their decisions to see no evil in the deal.

Baker writes on energy. He is Houston editor of Mexico Energy Intelligence, an industry newsletter. twitter.com/energia_com