Note: This story originally appeared in the Feb. 28, 2019 print and e-edition of The Pioneer.
Other than the grading of roads along the easements leading into the planned MMEX oil refinery in Pecos County, not much has changed on the 120-acre site since a November 2017 groundbreaking ceremony.
But Jack W. Hanks knows much has happened away from the site and that the start of construction is looming for the first new refinery in the United States in more than 40 years.
“We're down to the final 30 to 45 days of finalizing EPC (engineering, procurement and construction) contracts,” Hanks said Tuesday, Feb. 26 during an interview at the site with The Pioneer. “Parallel to that, we're moving toward finalizing the debt and equity structure. We're 60 to 90 days out on that. Once those are in place, then everything can start.”
Actual construction will take 12-15 months, with a target of the second quarter of 2020 for the refinery to be operational, Hank said, noting that the project is nine to 12 months behind where he would like to be.
“The public should understand that there will be surface work going when we are starting out,” Hanks said. “They just won't see a tower jumping up. Fabrication of parts will be done in Houston and other places. Typically, it can take 10 months to build those. Fabrication is done at steel shops and other places. All these components will be, by and large, built in other locations.
“I don't want people to expect that once we start, it will all just spring up,” he said. “We're building from the ground up.”
The site for the $93 million project is located about 20 miles northeast of Fort Stockton off FM 1053 near the Sulfur Junction spur of the Texas Pacifico railroad. Dirt roads wind the remaining 8 miles to the site.
For Pecos County, the refinery has the potential to mean a new influx of tax revenue.
According to Pecos County Chief Appraiser Sam Calderon, the county, Buena Vista Independent School District, Middle Pecos Groundwater Conservation District and the Midland College-WRTTC District are taxing entities that stand to benefit from the new revenue stream.
Hanks said that a special purpose vehicle company, Pecos Refining and Transport LLC, was established to operate as a privately held entity for investors. MMEX is the largest equity owner of in the LLC, so a share of the profits from that entity will go to MMEX and its shareholders.
The financing will be 80 percent debt and 20 percent equity. Investors are awaiting the “take-off agreements” – signed deals to purchase products produced at the refinery – and for the final costs under the EPC before finalizing financing.
“The investors need to see the rest of the pieces fall into place,” Hanks said. “... they need a wrap and a guarantee of what prices are and the performance bonds. It's 'Project Financing 101', it's simple, but complex.”
The key hurdle was obtaining air emission permit from the Texas Commission on Environmental Quality (TCEQ). The TCEQ is empowered by the federal Environment Protection Agency to grant such permits in the state.
“Once you have that, you can start start construction,” Hanks said. “There will be some local permits once construction starts, but the big ticket is getting TCEQ.”
Building in the United States, where a new refinery has not been built in 40 years, also poised challenges.
“We know about construction, development, and financing,” Hanks said. “We didn't know all the steps it would take – that was a learning curve for us. This is not a complicated project. But no one has done it before (in the U.S.) that is really just like it. There's a lot of noise from people sitting on the sidelines – 'how do you know it will work', 'why isn't it built yet', 'why don't you have the financing yet?'.
“Look, we did this in the middle of jungle in Peru. We can do it here.”
Hanks said that the Peru refinery was built on time and on budget in 18 months, but that it took two years the get everything to the point that construction could start.
Blanchard Industrial, LLC will be the EPC contractor for its planned refinery project.
The initial phase of the project is for a 10,000 barrel-a-day refinery to produce produce mid-range diesel for non-transportation purposes, naphtha and residual oils.
The second phase will be a 50,000 to 100,000 barrel-a-day full-scale refinery.
Hanks mentioned that there could be another phase between the Phase 1 – the front of the refinery – and the full-scale refinery.
“We've been approached by a large airline about producing jet fuel,” Hanks said. “You take your diesel off-take to kerosene and then to jet fuel. We did it in Peru. So, the second phase could become another crude distillation plant and the full-scale refinery could become the third phase.
Hanks stressed that the TECQ permit is only for the first phase and that any additions would require additional permits.
Hanks also said that the Pecos County project is the only project he is working on at present – and will continue to be until the plant opens.
Hanks said that Pecos County is the perfect spot for the refinery for a number of reasons: existing and upcoming infrastructure, access to rail lines and highways, abundance of oil wells near the site and the potential to use solar power to fire the plant.
“The economics will be better if we can gather the crude supply in this area and bring it here by truck or even a gathering line system,” Hanks said.
He also said that he is working with solar energy groups in the area about leasing land for a solar panel field that could provide the 20 to 25 megawatts of power needed for the plant.
“We would rather lease land and bring transmission lines onto the site than to build the solar panels here in case we need to use more of the site for storage later. We don't want to tear something out.”
Hanks said that Texas Pacifico-South Orient Railroad line that runs through the site will have about 9 miles upgraded by the railroad. He also said MMEX will add a spur to the site as part of the project's cost.
The railroad access allows connections to prime ports along the Gulf of Mexico and also affords transit to the Dallas-Fort Worth area and Mexico via the Presidio border crossing. That will open the door to both domestic and export distribution.