Pemex Seeks Investors for Its Refineries, but Who's Buying?

Reuters

NEW YORK/MEXICO CITY, May 5 (Reuters) - Sweeping energy reforms have turned Mexico into one of the world's most attractive offshore prospects, but one segment is getting no love from U.S. investors: the nation's aging refineries.

Efforts by Mexico's state-owned oil company Pemex to attract about $5 billion in capital to help modernize its two largest refineries so far have proved futile, according to two people familiar with the process who declined to be named because they were not authorized to speak publicly.

The company is seeking a joint venture partner for its Salina Cruz refinery on the West Coast. It's also looking for an investor to complete construction of a coking unit to process heavy crude at its Tula refinery just north of Mexico's capital.

Among those to rebuff overtures from Pemex over the past year are U.S. refining giants Valero Energy Corp and Tesoro Corp, the people said.

Valero and Tesoro declined to comment. Those and other companies were deterred by operational, political and market concerns, the people said.

Pemex officials said they "categorically reject" the notion that they are struggling to find investors.

"There has been interest," a company spokesman said Thursday. "We've had talks with many companies whose names we can't reveal."

Pemex has said publicly it's seeking investment from Korean, Japanese and Chinese firms. The company hired Bank of America last year to seek potential partners.

The refining sector has contributed buckets of red ink to Pemex's bottom line. Its six domestic refineries have accumulated annual operating losses of about $5 billion in recent years. Government-set fuel prices, a spate of accidents and other non-scheduled stoppages have cut deeply into margins.

For years, Pemex prioritized investment in profitable drilling projects, neglecting other areas. As a result, refineries built decades ago to process light, sweet crude from Mexico's shallower waters can't efficiently process heavy oil from fields currently in production.

The upshot: Today Mexico imports more than 60 percent of its refined gasoline and diesel from the United States, while its own refineries operate at about half capacity.

The mismatch would seem a prime business opportunity. Instead Pemex’s refineries have become a virtual third rail for investors.

Some potential partners are leery of the sums needed to bring the aging facilities up to standard, people familiar with the situation said. Then there's the bloated refinery workforce whose jobs are protected by a strong union. On average, Pemex uses about 3,000 full-time workers to operate each refinery. That's triple the number found at U.S. facilities with similar sized operations, according to figures from Pemex and U.S. refiners.

"The refineries aren't competitive. Their product slate doesn't meet the demand of the country," said Dave Hackett, an energy consultant at Stillwater Associates in California.


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