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PES refinery to continue to run in bankruptcy: Update

22 Jan 2018, 10.17 pm GMT

PES refinery to continue to run in bankruptcy: Update

Adds context throughout.

Houston, 22 January (Argus) — Philadelphia Energy Solutions (PES) will continue to operate its 330,000 b/d Philadelphia, Pennsylvania, refinery as it seeks to shed at least $200mn in federal compliance costs under a Chapter 11 bankruptcy.

The Carlyle Group and Energy Transfer Partners subsidiary joint venture expected to restructure the debt in the first quarter and to tap $260mn in new financing. The US Atlantic coast's largest refinery blamed federal biofuel blending mandates, called the Renewable Fuel Standard (RFS), in a statement disclosing the refinancing. The company was seeking approval of the plan within a month to swiftly decide whether to sell off $27.5mn in renewable identification numbers (RINs) used to comply with the program or to go on a buying spree.

"Such a ruling will determine whether the debtors continue to purchase $200mn of RINs in the open market during the chapter 11 cases or instead begin to liquidate their RIN assets," a bankruptcy filing said.

US independent refiners have repeatedly warned that the mandates would ultimately bankrupt a refinery. RFS requires refiners, importers and other businesses adding to the US transportation fuel supply to each year ensure the pool includes federally-set minimum volumes of renewable fuels.

Restructuring at PES, which employees 1,100 workers — including 650 United Steelworkers — and received government support to stay open in 2012 will ratchet up political pressure in the ongoing debate over the mandates.

"It is long past time for policymakers to provide both immediate RFS relief and a long-term solution that protects US motorists and workers," trade group American Fuel and Petrochemical Manufacturers said.

The Environmental Protection Agency, which administers the program, declined to comment.

Prices for the basket of renewable fuels and biofuels required under the RFS fell from 2016 to 2017, the first year-to-year decrease in the program, based on Argus assessments. Uncertainty over the future of the program under the new Trump administration sent RIN prices plummeting early last year, only to recover late in the summer as it became clear the mandates would stay in place.

The blending requirements added strain to a refinery operating in one of the toughest US regions for downstream margins. US Atlantic coast refiners lack cheaper access to North American crudes enjoyed by midcontinent and US Gulf coast competitors. PES lacks the pipeline access to take full advantage of cheap natural gas production in the nearby Marcellus shale fields. And US Atlantic coast refiners face increasing pressure from midcontinent operations in addition to the torrent of cheaper fuels moving into the region from the US Gulf coast.

But at least those involved business competition, said Ryan O'Callaghan, president of the United Steelworkers Local 10-1 representing union workers at the refinery.

A federal bureaucracy was dragging down PES and thousands of workers, he said.

"It would be a terrible thing that, because of a government regulation, we would all have to lose our jobs, or part of our salary," O'Callaghan said.

The refiner "entered into an intermediation agreement to ensure continued access to crude oil supply throughout the Chapter 11 process," PES said in a statement. The Philadelphia refinery has been a regular importer of Nigerian crude since July 2015, along with other West African, Canadian and European imports, according to the Energy Information Administration. Employees and vendors would continue to be paid, and union agreements remain in place during the bankruptcy process.

PES proposed giving its creditors equity in a new refining company and leaving the RIN liabilities behind.

PES will convert $107mn in loans into equity and restructure another $417mn, according to the statement. Energy Transfer Partners subsidiary Sunoco Logistics Partners will provide $75mn in additional capital, investors led by Carlyle Group will provide another $65mn and senior debt holders under the bankruptcy process another $120mn.

The Carlyle Group's share of the joint venture will drop from about 67pc to about 17pc. Sunoco Logistics Partners' 33pc share would fall to 8pc.


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