Delay in Deer Park handover to Pemex seen as potentially tied to US national security

The hold-up in Shell’s planned handover Wednesday of the Deer Park Refinery in Texas to the PMI subsidiary of Pemex is spurring speculation over US foreign investment agency CFIUS’s cause for the delay.

One expert consulted by BNamericas does not rule out US national security concerns due to politically motivated appointments at Mexico’s national oil company.

Shell spokesperson Curtis Smith, responding to the delay, said in a statement, “While we were hopeful we could conclude the sale of the Deer Park refinery earlier in the CFIUS review process, we’re still targeting late 2021 as a closing date for the transfer of Shell’s interest in the refinery.”

A vocal critic of the deal since first announced in May, George Baker, a Houston-based energy consultant and author of numerous works on Pemex and Mexican energy policy, told BNamericas that while the real reason for the delay is still unclear, CFIUS has reason for concern. 

Citing media reports Wednesday on the delay at the agency, Baker said: “They’re guessing that CFIUS has discovered that there’s something amiss, but another source of mine says this is merely a two-week delay.”

“We really don’t know what’s going on, whether this is some form that Pemex was supposed to fill out, or lacks a signature, … or whether there’s some substantive objection to this going forward,” he said. 

That objection, however, may be over national security, according to the consultant.

Baker pointed to a number of high-level appointments made by Mexican President Andrés Manuel López Obrador (AMLO) of people who possessed little to no background in the oil and gas industry before taking key posts at Pemex.

“If [CFIUS] were to … get six inches into the soil and look at the appointments that have been made, they would realize that the top appointments in Pemex are of AMLO loyalists,” he said.

“[AMLO] is an activist in making political appointments in Pemex,” Baker said. “Would you then conclude, if Pemex were to become the proprietor of Deer Park that that pattern would cease? You’d have to say there’s a risk for national security, that it would not cease.” 

“Therefore, the president of a foreign country, a foreign sovereign, would have effective operational influence in an industrial facility in the US,” said Baker. “For good or for bad, the fact you would have it at all is a national security risk." 

OTHER CONCERNS 

Going into the US$596mn deal for Pemex to take Shell’s remaining interest in the refinery, Baker said problems already existed.

“Pemex has said they’ve been a partner for 27 years, everything is fine,” he said. “The truth is the opposite.”

“Shell has been very careful to guard its patents, so there’s been no technology transfer from Deer Park to Mexico as Pemex had expected, but it didn’t happen, the Pemex people were kept at a distance,” said Baker.

“Pemex itself regarded Deer Park as an adventure, a strategy of PMI – I think – to place a Mexican crew in a US refinery, said Baker. “Pemex’s operational people in refining were never involved in Deer Park. There’s no preparation at all, no on-the-job training, no shadow managers, nothing like that.” 

GROWING SPAT

The delay comes amid a growing stack of letters to President Joe Biden from US lawmakers and other officials expressing concerns over Mexican domestic energy policy and perceived persecution of US firms operating in Mexico. 

These include a November 3 letter signed by 40 US legislators calling for a “timely and clear response” to reports that the AMLO administration was taking action to limit US companies’ access to the electric power sector, including the recently postponed effort to change the constitution to restore dominance in the sector to state-owned utility CFE – potentially in violation of the USMCA free trade agreement. 

Texas governor Greg Abbott, in a November 17 letter, urged Biden “to take action to protect American assets from seizure by the Mexican government.” The letter cited reports that Mexico’s national guard was used to shut down fuel storage facilities owned by Texas-based Monterra Energy. 

Similar raids took place at facilities owned by Valero and Bulkmatic, and according to Mexican daily Reforma, energy regulator CRE seized 480,000b of fuel earmarked for sale at ExxonMobil and Marathon gasoline stations, during the latter action.