(Adds details on Mexico's perspective on the deal as well as comments on
potential challenges Pemex might face with the acquisition.)

Shell Oil Co. has inked an agreement to sell its 50% share of the Deer Park,
Texas, refinery to its joint-venture partner Mexico state oil company Pemex for
$596 million, parent company Royal Dutch Shell said Monday.

The Anglo-Dutch oil major hadn't planned on shopping the 340,000-b/d refinery
located along the Houston Ship Channel, it said in a statement, but it received
an unsolicited offer from Pemex. Shell will continue to work with Pemex "in an
integrated way" including operation of the on-site chemicals facility at Deer
Park, the statement added.

The Deer Park refinery's crude slate includes grades from Mexico, Canada, the
U.S., Africa and South America, and its products include gasoline, aviation
fuels, diesel, ship fuel and petroleum coke.

The transaction is expected to close in the fourth quarter of this year. Pemex
in statement said the transaction will be financed via savings and taking on
existing debt from the joint venture. As part of the transaction, Pemex will
take on nearly $300 million in crude and fuel stocks.

"As part of the negotiation, (Pemex) will maintain the integration and close
relationship with Shell's petrochemical complex with the objective of capturing
synergies and economies of scale," Pemex said

Mexico's Fuel Self-Sufficiency Plan

Mexican President Andres Manuel Lopez Obrador said Monday that the purchase of
Deer Park will allow Mexico to be fuel-self-sufficient. Further information on
the purchase will be given on Wednesday during the president's daily morning
press conference. Lopez Obrador said buying Deer Park is a key element in its
plans to ensure Pemex produces all the fuel Mexico requires using domestic
crude oil.

The announcement was given after Lopez Obrador criticized the joint venture on
May 6. "Since it was built, there have been no benefits for Mexico, barely the
processing of Mexican crude," the president said at the time.A source aware of
refinery operations said Deer Park has become a key piece to enable the ramp-up
of Mexican refineries. The Houston refinery has been processing Pemex's excess
high-sulfur fuel oil output, the source added. The refinery is also a focal
point of Pemex's crude oil marketing strategy, locking in demand from one of
the largest refineries in the U.S. Gulf Coast for its Maya heavy crude oil
blend. According to Pemex data, the company exported nearly 110,000 b/d of fuel
oil in 2020 abroad. (Data doesn't show to which country it exported the fuel
oil).

According to Pemex, Deer Park is currently producing 110,000 b/d of gasoline,
90,000 b/d of diesel, and 25,000 b/d of jet fuel. Historically, Deer Park has
been operated with a utilization rate above 80%, the state company added.

As part of its fuel self-sufficiency plan, Pemex is planning to finish the
construction of a coking plant at its 315,000-b/d Tula refinery. The facility
will allow Pemex to also process excess fuel oil from its 215,000-b/d Salamanca
refinery, which is 227 kilometers (about 142 miles) away.

Pemex said it will be a priority to maintain competitive salaries at the
refinery as well as to actively support the local community. President Lopez
Obrador as part of his austerity program capped all government employees'
salaries, including Pemex, to be under the president's salary, which was
161,560 pesos (USD 8,128) per month in 2020.

The refinery is connected to a rail fuel loading terminal in Deer Park. The
facility will allow Pemex to ship product from the facility into northern
Mexico and the Bajio region.

Moving Against the Trend

This is a surprising and interesting announcement, said Felipe Perez, refining
and marketing director for the Americas with IHS Markit. While majors are
downsizing their downstream portfolios amid the energy transition, Pemex will
have full control of Deer Park while building its new 340,000-b/d Dos Bocas
refinery, he added.

Pemex will have full operational control of one of the U.S. Gulf Coast's
largest and most complex refineries. "The years of partnership with Shell gives
Pemex a great operational model and maintenance best practices," Perez said.

However, Pemex faces the challenges of how to integrate Deer Park with the rest
of its refining portfolio as well as whether Pemex will be able to maintain
operational levels at the facility considering the struggles it has with its
refineries in Mexico, said Perez.

"Although Deer Park is a very healthy and smart kid, it is a new mouth to
feed," said Perez, adding there is a concern that Pemex won't have enough
resources for all its refining ambitions.

A source close to Pemex said it is concerned about the long-term crude supply
prospect Pemex has for its growing refining portfolio.

Lopez Obrador has said Mexico won't import crude oil and it will produce only
the crude Mexico requires to satisfy its fuel demand.

With the addition of both the under-construction Dos Bocas refinery and Deer
Park, Pemex will have total refining capacity of nearly 2.3 million b/d.
However, Pemex produced 1.66 million b/d of crude oil in 2020 of which 1.04
million b/d was heavy crude oil.

Shell Downsizes Refining Footprint

Shell has been divesting its oil refineries over the last several years, aiming
by 2025 to have just six refineries worldwide integrated with its chemical
facilities. The energy and chemical "parks" are focused on production on the
U.S. Gulf Coast, northwest Europe and Singapore, the company said in October
2020. At the time, Shell was operating 14 refineries globally.

In 2016, Royal Dutch Shell and Saudi Refining Inc. divided the assets of their
Motiva Enterprises joint venture. More recently, Shell has let go of its plants
in Martinez, California (158,000 b/d, to PBF Energy) and Anacortes, Washington
(149,000 b/d, to HollyFrontier) and has been searching for buyers for its
refineries in Mobile, Alabama (90,600 b/d) and in Sarnia, Ontario (77,000 b/d).

The 260,000-b/d Shell Convent, Louisiana, refinery -- put on the sales block in
July 2020 -- was idled by the end of the year due to lack of a buyer, although
sources tell OPIS expectations are that the plant will sell when industry
conditions improve. In February, the company's Danish subsidiary announced the
sale of its downstream business, including the 68,000-b/d Fredericia refinery.

Today's statement says the U.S. will remain a "key manufacturing hub globally
for Shell" through its facilities in Texas and Louisiana; Gulf of Mexico
operations; midstream infrastructure and branded retail presence. It will
continue to invest in its Pennsylvania chemicals project.

Shell will maintain its marketing presence and honor branded wholesale
agreements within the Gulf Coast region, the company said.

--Reporting by Beth Heinsohn, bheinsohn@opisnet.com, Daniel Rodriguez,
drodriguez@opisnet.com; Editing by Michael Kelly, michael.kelly3@ihsmarkit.com



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