January 29, 2022 [Reuters] – Mexican state oil company Petroleos Mexicanos (PEMX.UL) on Thursday signed a long-term crude supply contract with Royal Dutch Shell Plc (RDSa.L) as part of its acquisition of the Deer Park refinery in Texas.
Pemex and Shell in May announced the transaction, which is worth almost $600 million and will make the Mexican firm the sole owner of the refinery near Houston. The facility has capacity to process 340,000 barrels per day (bpd).
Shell will supply about 200,000 bpd of foreign and U.S. crude to the plant for at least 15 years, according to a source and a July document seen by Reuters.
A Pemex unit expects to supply up to 115,000 bpd of Mexican crude to the refinery and receive about 230,000 bpd of refined products that could go to Mexico. The transfer secures for Mexico a greater supply of fuel produced by the plant while reducing sales to gasoline retailers in the United States.
Pemex separately agreed to supply the adjacent Shell Chemical plant with feedstocks, and made two-year job offers to the plant’s salaried workforce, two sources said.
Pemex Chief Executive Officer Octavio Romero in a statement pledged to operate the plant safely and protect its staff and the environment. The refinery’s new board of directors held its first meeting on Thursday, he said.
Shell confirmed it had reached crude supply and product agreements and said employees were offered Pemex employment. It did not comment on other terms of the agreements.
If Pemex suspends or reduces the volumes that are part of its supply contract, it would have to pay Shell between $50 million and $190 million depending on the year it does so, according to the July document.
The purchase aids Mexico’s drive to become more self-sufficient in gasoline and diesel, Romero said.
Pemex’s fuel production declined by almost half between 2016 and 2020 and its refineries ran at less than 50% of their capacity in 2020. In contrast, Deer Park ran at 78% of capacity in 2020.
Mexico carried out the transaction as agreed: $596 million for the refinery’s assets – equivalent to Shell’s 50% stake in the joint venture’s debt – as well as the liquidation of the $596 million that made up Pemex’s stake in the refinery.
Reporting by Adriana Barrera and Ana Isabel Martinez in Mexico City; Additional reporting by Gary McWilliams and Marianna Parraga in Houston; Editing by Leslie Adler Editing by Daniel Wallis and Matthew Lewis
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