Photo: Moody’s Analytics

By KELIN DILLON

Following Mexico’s state-owned oil company Petróleos Mexicanos (Pemex) acquisition of the Deer Park refinery in Texas, Moody’s Analytics, one of Big Three financial ratings agencies, downgraded the refinery’s evaluation to “junk” status.

Moody’s devalued Deer Park from Ba3 to Baa2, meaning it is “in the lower ranking of its generic category,” with the potential to further downgrade the refining plant in the future.

The new rating will make it difficult to secure financing for the refinery, said Jorge Sánchez Tello, director of Applied Research at the Financial Studies Foundation (Fundef).

“The issue of the refinery’s rating may affect you because that would limit your credit. Deer Park has an important problem to solve on the issue of debt,” said Sánchez Tello.

While Moody’s will reevaluate its ranking of the refinery in six months, experts in the oil industry agree across the board that it is highly likely that Deer Park will remain categorized at a Baa3 rating upon its next appraisal.

Moody’s analyst Nymia Almeida recommended for Mexico and Pemex to stop investing its money in refining processes, which systematically generate losses, and instead divert its attention to more profitable businesses like exploration and production.

“Refineries have a very small business margin, so the cost management issue of a refinery is extremely important because you have no control over anything. Oil costs what it costs and you can’t decide the price,” she said.

“So, how are you going to pay for Deer Park? You would have to pay for it by selling gasoline and diesel at an acceptable price, but if your product is going to have less value, future income is not going to be enough. It’s hard to think that it would be enough to pay for investments not only in Deer Park, but also in Dos Bocas.”

Almeida explained that larger economies have been moving toward sustainable energy choices, dragging down the price of refined oil and making the refinement business considerably less profitable over time.

“We have been saying since 2018 that the best use of resources for Pemex is exploration and production because it has very low operating costs and could make better use of its investments,” she said.

 

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