American Oil and Gas Reporter - June 2018 - 74

SpecialReport: Permian Basin Activity

New Permian Refinery In The Works
By Danny Boyd
Special Correspondent

distillation unit at Fort Stockton, Tx., in
the southern Delaware Basin.

AUSTIN, TX.-Thanks to the area's
soaring oil production-projected by many
to average 3.5 million barrels a day by
year's end and jump almost a million
barrels more in 2019-crude sold in the
Permian Basin continues to sell at a discount from posted prices for West Texas
Intermediate crude in Cushing, Ok.
Although the scenario can frustrate
operators awaiting more take-away capacity to transport their crude eastward
to the Gulf Coast refining complex, the
conditions may prove to be a refiner's
dream, especially for a facility with the
dual advantages of proximity to the burgeoning crude supply and the means to
transport products to market.
The significant need for a refinery capable of processing lighter crude from
the Permian's steady supply of available
oil and access to markets in need of
refined products are motivating Austinbased MMEX Resources Corporation to
embark on a crude processing venture
expected to lead to a full-scale Permianbased refinery.
In March, the company signed a term
sheet with an international fund to provide
as much as 80 percent of a $49 million
debt component to help build a crude

Two Phases
MMEX expresses plans to begin constructing the simplified refinery-which
allows for distillation of crude into lowoctane naphtha, diesel and residual fuels-by midsummer, says President Jack
Hanks, adding that commercial operation
is projected to start in the third quarter of
2019. Later this year, Hanks says MMEX
will file for a second refinery permit as a
separate project to culminate in a fullscale green-field refinery to produce transportation grade diesel, gasoline, liquefied
petroleum gas and jet fuel. The phase
two refinery is projected to have a capacity
as great as 100,000 barrels a day of Permian crude, Hanks says.
A Midland native whose expertise
was honed by experience developing natural gas processing, power generation
and refining infrastructure in Peru, Hanks
says readily available rail access and the
continual Permian boom are behind
MMEX's decision to plan a refinery that
can supply transportation fuel to growing
markets in western Mexico and possibly
the western United States, as well as access seaborne transportation outlets to
South American markets.
The plant also will have the flexibility

MMEX personnel break ground on the company's Pecos County, Tx., reﬁnery in
November 2017. MMEX expresses plans for the facility's ﬁrst phase to speed the date at
which it begins to generate income and is scheduled to begin commercial operations in
the second half of 2019, during which it will distill Permian Basin crude oil into lowoctane naphtha, diesel and residual fuels.

74 THE AMERICAN OIL & GAS REPORTER

to supply feedstocks to the traditional
Gulf Coast refining hub, he adds.
"The Permian Basin is the largest oil
field in the world, so why not locate a refinery there and divide development into
two phases, so we can get up and going
on phase one while we work on the permitting process for phase two?" Hanks
poses. "We can do that while not having
to build pipelines to get to market because
of the existing availability of rail."
In March, MMEX completed road construction on an easement acquired from
the state's University Lands office to gain
access to the project site in Pecos County,
Tx. The company says it has retained Interstate Treating Inc. of Odessa, Tx., as the
primary contractor for the distillation unit's
engineering, procurement and construction.
Houston-based VFuels LLC is working
from its headquarters as the subcontractor
in the process of designing, fabricating
and delivering the modular processing
equipment for the distillation unit, Hanks
says. Rail access is being designed and
constructed by by Via Rails Engineering
Inc. of Maribel, Wi., and Fort Worth.
All three firms are working with engineers from the lender-which is currently
choosing to remain publicly unknown
under a confidentiality agreement-and
owner to complete the due diligence in
order to execute a final credit agreement,
Hanks reports.
Speedier Timeline
MMEX Resources initially considered
launching the project by aiming to construct
the 50,000 bbl/d full-scale refinery capable
of producing a full range of transportation-grade fuels, and which could expand
to take in 100,000 bbl/d, Hanks says. However, discussions with the Texas Commission
on Environmental Quality and an in-depth
analysis of full-scale permitting prompted
the company to conclude it should construct
the distillation unit first to accelerate the
initiation of cash flow, he says.
Permitting approval for the full-scale
refinery likely would have required 15-18
months, with construction also likely to
take at least that long again, a time frame
that probably would have put off the facility's
first income until 2021, Hanks estimates.
In contrast, the distillation unit can be completed in about 12-15 months, he suggests.
"We hope by the third quarter of this
year to start our filing application for the
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