(Adds PBF plans for operating refinery in paragraph 7; adds PBF plans in paragraphs 8-11; adds PBF plans for synergies between Paulsboro and Delaware City in paragraphs 12-14; Adds PBF comments on Petroplus exit in paragraph 17.)
PBF Energy, a downstream oil investment group, has agreed to acquire Valero's 160,000 b/d refinery in Paulsboro, New Jersey, for $360mn plus turnaround and inventory costs in the second refining deal between the two companies this year.
Valero said it expects the deal with PBF to close in the fourth quarter. It is contingent upon regulatory and other customary approvals, Valero said.
The sale furthers a trend in ownership changes and refinery shutdowns in the US and Europe because of an overhang in refining capacity amid weak demand. Globally, there is 2.5mn b/d of refining capacity for sale or under strategic review, with another 1.5mn b/d having shut down since 2007, Valero chief executive Bill Klesse said this month.
Valero decided to explore its strategic options for Paulsboro in the third quarter of last year as part of an ongoing evaluation of its portfolio.
“The sale brings Valero a fair value for the operation and will allow us to achieve our stated strategic goal to exit refining in the US east coast and focus on other opportunities,” Klesse said today.
The largest US independent refiner, Valero sold its 180,000 b/d refinery in Delaware City, Delaware, to PBF in June after shutting it down in November last year. Valero is seeking “strategic alternatives” for its 280,000 b/d refinery in Aruba, which it shut in July 2009 because of poor margins. Valero is conducting a turnaround at the refinery expected to end in late December or early January, at which time the company has said it expects economic conditions to be favorable enough to restart the facility.
PBF plans to operate the Paulsboro refinery “essentially the way it's being operated now,” PBF president Michael Gayda told Argus. The Paulsboro refinery is of medium size and complexity, with units including two crude distillation facilities, a fluid catalytic cracker, a distillates hydrotreater, a kerosene hydrotreater, an alkylation unit and a reformer. It began operating in 1917.
“This is a well-run refinery. It has a good work force, it's being operated efficiently,” Gayda said, adding that PBF projects stronger margins for the plant going forward. “We're not going to make any radical changes coming out of the box or anything like that.”
PBF “will continue to look for opportunities that may come up” anywhere in North America and is not necessarily looking for another Atlantic coast refinery, Gayda said.
In addition to the $360mn Paulsboro refinery sale price — to be paid half in cash and half through a note issued by Valero — PBF will pay an estimated $275mn for net working capital and inventories. Valero and PBF will split the cost of an $80mn turnaround, Valero said.
The refinery's 55,000 b/d gasoline-making fluid catalytic cracker and associated units were scheduled for maintenance in February, and PBF will proceed with that plan, Gayda said. The turnaround will last several weeks, he said.
The facility supplies products ranging from heating oil and gasoline to lube oils and asphalt, and serves markets along the Atlantic coast including New York and Baltimore. Crude from sources such as Saudi Arabia, Iraq, eastern Canada and Latin America arrives at docks along the Delaware River.
For PBF, owning the Delaware City and Paulsboro refineries holds synergistic value, Gayda said. Both refineries are located along the Delaware River 35 miles apart, and PBF sees potential in sharing crude cargoes to lower oil costs and having product streams going back and forth between the refineries to optimize equipment, he said. PBF said today the Delaware City refinery remained on track to restart in the spring following a major turnaround.
“You essentially have 375,000 b/d of the most complex refining assets in Padd 1, which is a product-short market in the United States,” he said. “We think together that is a very powerful facility.”
Other recent US refining deals have involved firms acquiring refineries in close proximity and then sharing processing capacity between them to avoid investments in new equipment. In the northeastern states are tightening sulfur standards for home heating oil consumed in the region, requiring refiners to install new units to remove sulfur. PBF plans to install the so-called hydrotreating capacity at Delaware City and has not decided whether or not to do the same at Paulsboro, Gayda said.
PBF chairman Thomas O'Malley is a veteran of Atlantic basin refining, having served as chairman of refiner Premcor before Valero acquired the company. Before that, he was chief executive of Tosco, an independent refiner he sold in 2001 to Phillips Petroleum, later ConocoPhillips.
O'Malley also serves as chairman of European refiner Petroplus, which holds a one-third stake in PBF along with private equity firms The Blackstone Group and First Reserve. The companies formed PBF in 2008 to invest in North American oil refineries.
Petroplus plans to sell its stake in PBF for $91mn to the remaining partners and focus on refining investment in Europe, the company said in an announcement yesterday. Petroplus said PBF's plans for “rapid” expansion would strain the European refiner's liquidity. O'Malley will remain chairman of both Petroplus and PBF, Gayda told Argus.
The Petroplus decision did not affect negotiations, Valero and PBF said. “They were supportive of this acquisition. They thought it was a good purchase,” Gayda said. “But in the end they decided to go their own way and deploy their resources in a different manner.”
Send comments to feedback@argusmedia.com
zw/mgb 2.0
If you would like to review other ArgusMedia.com content options, request more information about Argus' energy news, data and analysis services.
Copyright © 2010 Argus Media Ltd - www.ArgusMedia.com - All rights reserved.
