US refiners seek shot in the arm for debt
US independent refiners are looking for more confident consumers to boost transportation demand and enable them to pay down debt amassed last year.
Hopes for stronger US gasoline and diesel demand in the second half of 2021 are rising with Covid-19 vaccination rates and falling hospitalisations. US implied diesel consumption has already returned to roughly average seasonal rates, and gasoline use is lingering about 10pc below typical winter levels. US gasoline demand fell by almost 50pc on the year last April as communities restricted business and travel to limit the spread of the pandemic.
Improved control over the virus by the new US administration would return students to classrooms, workers to commutes, drivers to roads and hope to refiners. Confident consumers could unleash pent-up travel demand. "If we can really get the government functioning appropriately on the distribution, I think we are going to be in much better shape — perhaps quicker than we all realise," Valero chief executive Joe Gorder says.
Refiners say they are waiting for demand to pull their crude processing higher, rather than ramping up rates now ahead of an uncertain summer driving season — a decision that will ripple through crude markets to the end of 2021. Their plan should see crude demand rising in the second half of the year, encouraging increased output and widening narrow crude-quality discounts to more typical levels. "Definitely better times ahead," Marathon Petroleum's Speedway retail segment president Tim Griffith says. "We just think it is going to take a little bit of time to really see that."
Refiners need the recovery after losing billions of dollars in 2020. Valero, Phillips 66 and Marathon all narrowed their quarterly losses at the close of last year compared with the third quarter. The industry quickly amassed debt to survive the spring demand shock, and the pace of the fuel demand recovery and an energy transition now supported by federal and some state officials will dictate how quickly those borrowings come off of their books, refiners say.
Companies have cut capital programs but maintained growth spending for investments in renewable diesel production. Debt-to-capital balances may not immediately return to pre-pandemic levels. "We recognise we are in a very dynamic time, which is exciting," Valero chief financial officer Jason Fraser says. "We will keep our minds open and see as things evolve."
Repayment plans
Valero hiked its debt load by over 50pc on the year in 2020, to $14.7bn. Phillips 66 grew its debt by more than a third across its consolidated businesses, to $15.9bn. Recovering refinery margins will help draw down this debt. "I think we feel pretty confident that we will be able to make some good progress — but not get all the way to where we want to get — over the next couple of years," Phillips 66 chief financial officer Kevin Mitchell says.
Marathon, consolidated with its master limited partnership MPLX, expanded its already high debt by 8pc to $31.7bn. About $11.6bn of that is attributed to its refining and marketing business, up by 26pc on the year. The firm can immediately address $2.5bn in debt, it says, in part through a $21bn sale of its Speedway retail assets that is expected to close at the end of the first quarter. A portion of those proceeds will be paid back to shareholders. The company plans to ultimately bring the refiner debt load down to $6bn. "We do want to protect our investment-grade rating, that's important to us," chief executive Mike Hennigan says. His reasoning is clear, given the uncertain pace of the demand recovery. "We want to see how the pandemic continues to play itself out."
By Elliott Blackburn
Selected US independent refiners' results | ||||||
4Q20 | 4Q19 | ±% | FY20 | FY19 | ±% | |
Profit $mn | ||||||
Phillips 66 | -539 | 736 | -173% | -3,975 | 3,076 | -229% |
Marathon Petroleum | -608 | 1,018 | -160% | -2,231 | 3,279 | -168% |
Valero | -359 | 1,060 | -176% | -1,421 | 2,422 | -178% |
Refinery runs '000 b/d | ||||||
Phillips 66* | 1,514 | 2,117 | -28% | 1,677 | 2,043 | -18% |
Marathon Petroleum | 2,335 | 2,831 | -18% | 2,418 | 2,902 | -17% |
Valero | 1,943 | 2,247 | -16% | 1,948 | 2,247 | -14% |
*throughputs for global system |
Related news posts
LNG Energy eyes sanctions-hit Venezuela oil blocks
LNG Energy eyes sanctions-hit Venezuela oil blocks
Caracas, 25 April (Argus) — A Canadian firm plans to revive two onshore oil blocks in Venezuela, but the conditional deals signed with struggling state-owned PdV come just as the US is reinstating broad sanctions on the South American country. LNG Energy Group's Venezuela unit agreed two deals with PdV to boost output in five fields in the Nipa-Nardo-Niebla and Budare-Elotes blocks, which produce about 3,000 b/d of light- to medium-grade crude, the company said on Wednesday. The Canadian company, which operates in neighboring Colombia, would receive 50-56pc of production of the blocks. Venezuela's oil ministry declined to comment. But finalizing the contracts depends on providing required investment to develop the fields within 120 days of the contract signing on 17 April, LNG Energy said. And the signing came on the same day as the US reimposed oil sanctions on Venezuela and gave most companies until 31 May to wind down business. LNG Energy Group said it intends to comply with existing and upcoming US sanctions, noting that the conditional contracts were executed within the terms of the temporary lifting of sanctions — general license 44 — but it will abide by the new license 44A. The reimposition of US sanctions on Venezuela prohibits new investment in the country's energy sector, at the threat of US criminal and economic penalties. "The company will assess in the coming days the applicability of license 44A to its intended operations in Venezuela and determine the most appropriate course of action," LNG Energy said. "The company intends to operate in full compliance with the applicable sanctions regimes." The two blocks are in the adjacent Anzoategui and Monagas states, part of the Orinoco extra heavy oil belt. Most of Venezuela's output is medium- to heavy-grade crude. Both PdV and Chevron have drilling rigs working in those two states, in separate workover and drilling campaigns. Venezuela is now producing above 800,000 b/d, after the US allowed Chevron to increase production and investment under separate waivers. By Carlos Camacho Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
US economic growth slows to 1.6pc in 1Q
US economic growth slows to 1.6pc in 1Q
Houston, 25 April (Argus) — The US economy in the first quarter grew at a 1.6pc annual pace, slower than expected, while a key measure of inflation accelerated. Growth in gross domestic product (GDP) slowed from a 3.4pc annual rate in the fourth quarter, the Bureau of Economic Analysis (BEA) reported on Thursday. The first-quarter growth number, the first of three estimates for the period, compares with analyst forecasts of about a 2.5pc gain. Personal consumption slowed to a 2.5pc annual rate in the first quarter from a 3.3pc pace in the fourth quarter, partly reflecting lower spending on motor vehicles and gasoline and other energy goods. Gross private domestic investment rose by 3.2pc, with residential spending up 13.9pc after a 2.8pc expansion in the fourth quarter. Government spending growth slowed to 1.2pc from 4.6pc. Private inventories fell and imports rose, weighing on growth. The core personal consumption expenditures (PCE) price index, which the Federal Reserve closely follows, rose by 3.7pc following 2pc annual growth in the fourth quarter, although consultancy Pantheon Macroeconomics said revisions to the data should pull the index lower in coming months. The Federal Reserve is widely expected to begin cutting its target lending rate in September following sharp increases in 2022 and early 2023 to fight inflation that surged to a high of 9.1pc in June 2022. By Bob Willis Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
Indonesia's Pertamina to complete gasoline unit in Aug
Indonesia's Pertamina to complete gasoline unit in Aug
Singapore, 25 April (Argus) — Indonesian state-controlled refiner Pertamina aims to finish building its new 90,000 b/d residual fluid catalytic cracker (RFCC) in the Balikpapan refinery in August, the firm said. The RFCC is a gasoline production unit, which typically uses residual fuel as a feedstock. The unit will be able to produce propylene, LPG and 92R gasoline that will meet the Euro V specifications, said Pertamina last week, without disclosing further details such as the start-up date. The newly built RFCC unit will be the largest in Indonesia, with the second-largest being the 83,000 b/d RFCC in Balongan and the third-largest the 54,000 b/d RFCC in Cilacap. The new RFCC will also help reduce Indonesia's reliance on gasoline imports. Indonesia currently imports around 9mn-11mn bl/month of gasoline, making it the largest gasoline buyer in the Asia-Pacific. The new RFCC will increase Pertamina's gasoline production by a conservative estimate of 45,000 b/d or 1.3mn bl, or around 10pc of Pertamina's current import demand, according to estimates from an oil analyst. The installation of the new RFCC is part of Pertamina's Refinery Development Master Plan (RDMP), which will take place in two phases. The first phase includes revamping existing units at the Balikpapan refinery, such as the crude distillation unit, vacuum distillation unit, and hydrocracking unit. It also involves building new units, such as the aforementioned RFCC, a gasoline hydrotreater, diesel hydrotreater, and naphtha hydrotreater. The second phase includes building a new residue desulphurisation unit. The RDMP also includes expanding the capacity of the Balikpapan refinery from 260,000 b/d to 350,000 b/d, said Pertamina's chief executive officer Nicke Widyawati. The Balikpapan expansion is expected to be completed in May. By Aldric Chew Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
Barge delays at Algiers lock near New Orleans
Barge delays at Algiers lock near New Orleans
Houston, 24 April (Argus) — Barges are facing lengthy delays at the Algiers lock near New Orleans as vessels reroute around closures at the Port Allen lock and the Algiers Canal. Delays at the Algiers Lock —at the interconnection of the Mississippi River and the Gulf Intracoastal Waterway— have reached around 37 hours in the past day, according to the US Army Corps of Engineers' lock report. Around 50 vessels are waiting to cross the Algiers lock. Another 70 vessels were waiting at the nearby Harvey lock with a six-hour wait in the past day. The closure at Port Allen lock has spurred the delays, causing vessels to reroute through the Algiers lock. The Port Allen lock is expected to reopen on 28 April, which should relieve pressure on the Algiers lock. Some traffic has been rerouted through the nearby Harvey lock since the Algiers Canal was closed by a collapsed powerline, the US Coast Guard said. The powerline fell on two barges, but no injuries or damages were reported. The wire is being removed by energy company Entergy. The canal is anticipated to reopen at midnight on 25 April. By Meghan Yoyotte Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
Business intelligence reports
Get concise, trustworthy and unbiased analysis of the latest trends and developments in oil and energy markets. These reports are specially created for decision makers who don’t have time to track markets day-by-day, minute-by-minute.
Learn more