Pemex hints at downstream divestment

OREANDA-NEWS. May 21, 2015. Mexico's state-run Pemex is considering winding down its refining and petrochemical activities if its downstream operations remain unprofitable, chief financial officer Mario Beauregard said.

The company?s six aging domestic refineries are considered inefficient alongside their counterparts on the US Gulf Coast, where refineries have access to abundant crude and natural gas from shale deposits.

Pemex says it wants to focus on more profitable upstream areas.

The company?s proposed shift away from downstream operations comes on the eve of the opening of the refined products market under a sweeping energy reform passed last year.

Pemex is already facing upstream competition in a series of tenders for acreage that began in December 2014.

Earlier this year Pemex shelved a \\$2.8bn plan to upgrade five of its six refineries, including 190,000 b/d Madero, 200,000 b/d Minatitlan, 245,000 b/d Salamanca, 330,000 b/d Salina Cruz and 320,000 b/d Tula. The company is hoping to line up partners to invest in the refineries before restarting the upgrade projects.

"The first thing we?re going to do is find partners that can give us new tools, which we don?t have, to turn around all of these activities," Beauregard said.

Among the companies that were awarded the contracts before they were suspended are ICA Fluor, Tecnicas Reunidas, Samsung, Foster Wheeler and Mexican consortium ACS, Dragados and Cobra.

A sharp decline in oil prices since mid-2014 and a government-imposed \\$4.1bn cut in Pemex spending this year have increased financial pressure on the firm, even as production and exports decline.

Pemex could have a hard time trying to sell its domestic refineries in light of their operational inefficiency, bloated staff and allegations of corruption and fuel theft.

Mexican crude has grown heavier and most of its domestic refineries lack coking units.

The idea of divesting downstream assets is an about-face for Pemex, which until recently had sustained a proposal to build a new 300,000 b/d refinery in Tula. Outside of Mexico, Pemex owns part of the 340,000 b/d Deer Park refinery in Texas with partner Shell.

Pemex processed 1.058mn b/d of crude in first quarter 2015, down by 9.3pc from a year earlier, with a negative refining margin of \\$0.15/bl.

Pemex produced 2.319mn b/d of crude in March, down by 6.1pc compared to a year ago, and by 0.55pc from the previous month of February, according to the latest available data.