Italy's Saipem Wins Two Refinery Contracts in Mexico

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Researched by Industrial Info Resources (Sugar Land, Texas)--Italian turnkey contracting company Saipem SpA (BIT:SPM) (Milan) has announced that it has won two contracts from Mexico's state-owned petroleum company Petroleos Mexicanos (PEMEX) (Mexico City, Mexico) worth a total of $800 million (585.8 million euros).

The contracts cover the engineering, procurement and construction, as well as commissioning and testing, of two desulphurization units and two amine-regeneration units, along with the associated auxiliary systems at two of PEMEX's refineries.

Under Mexican environmental regulations, PEMEX, which holds a monopoly on the supply of petroleum products in Mexico, is required to lower the sulphur content of its motor fuels to reduce pollution and has already issued contracts for similar work at several of its refineries.

The Saipem contracts cover work to be carried out at the Miguel Hidalgo and Antonio M. Amor refineries, both of which are situated in high and difficult terrain. The Miguel Hidalgo refinery is located near the town of Tula de Allende, 150 kilometers north of Mexico City, at an altitude of 2,000 meters above sea level. The refinery has a production capacity of 320,000 barrels per day (BBL/d). The Antonio M. Amor refinery is 300 kilometers northwest of Mexico City, near the town of Salamanca, and at an altitude of 1,700 meters above sea level. This refinery has a production capacity of 236,000 BBL/d.

Among the key factors governing the award of the contracts were Saipem's strategies for maximizing local content and the logistics planned for the transportation and assembly of the large and heavy equipment needed over the difficult terrain. According to Saipem, the work will be completed in 38 months.

Tenders for the contracts were rejected by PEMEX in May last year, and the company requested bidders to submit new offers. Saipem won the contracts despite close competition from Samsung Engineering Company Limited (SEO:028050) (Seoul, South Korea), as well as a consortium consisting of Mexican construction company Empresas ICA SA (NYSE:ICA) (ICA) (Mexico City) and Fluor Corporation (NYSE:FLR) (Irving, Texas).

In February this year, PEMEX announced that it had awarded contracts worth $620 million (454.4 million euros) for similar work to be carried out at its Salina Cruz refinery, which has a production capacity of 320,000 BBL/d and at its Minatitlan refinery, which has a production capacity of 170,000 BBL/d. Although Saipem was also involved in the bidding process for these contracts, the work in this case was awarded to the Fluor-ICA consortium.

Mexico is a major oil producer but lacks sufficient refining capacity and has to import about 40% of its gasoline to meet domestic demand. PEMEX is planning to address the problem by building a new refinery in Tula, in the state of Hidalgo, and upgrading the Antonio M. Amor refinery.

The Tula refinery--the first to be built in Mexico in three decades--is scheduled to be completed in 2015, while the upgrade at Antonio M. Amor is expected to be completed by the end of 2014. In total, PEMEX intends to invest about $12 billion to build and upgrade the refineries.

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