HoustonCanada’s
integrated Husky Energy has agreed to pay $1.9bn plus about $200mn for working
capital to acquire Valero’s 165,000 b/d Lima,
Ohio refinery.
Valero, the
largest independent refiner in North America, has been trying to sell the Lima refinery for months,
saying that the relatively low complexity refinery did not match the company’s
strategy of using deep conversion units to achieve wide margins from processing
heavy crude. Valero has said it wants to focus its efforts on improving
efficiency in its existing system and cutting costs rather than doing a major
upgrade of Lima
at a time when refinery construction is encountering high costs. The company
said it plans to use proceeds from the sale of the Lima refinery to repurchase its own shares.
Husky, which
is a growing producer of heavy bitumen from western Canadian oil sands, is
looking at plans to upgrade the Lima
refinery to run Canadian crude.
Valero
acquired the Lima
refinery as part of its takeover of independent refiner Premcor in 2005.
Premcor had entered into a preliminary agreement with Canadian upstream
independent EnCana to spend $1bn to upgrade the Lima refinery to run some of
EnCana’s expected oil sands output. But Valero pulled the plug on that project,
saying it did not optimise return on investment for
its shareholders. EnCana has since entered a refining joint venture with
ConocoPhillips under which its crude will be processed at expanded refineries
at Wood River, Illinois
and Borger, Texas.
Husky has
begun oil sands production from its Tucker
Lake project in western Canada,
with output set to rise to 30,000 b/d. The company has also received regulatory
approval to move ahead with its Sunrise
oil sands project, which is to begin production in 2011. The company holds more
than 500,000 acres of land in the Cold
Lake and Athabasca
oil sands areas.
Husky
officials confirmed this afternoon that they have had discussions with
operators of the Enbridge, Express/Platte and the proposed Keystone crude oil
pipeline systems to set aside space on those lines for western Canadian crude
to move toward Lima.
“The
acquisition of the Lima
refinery represents a significant step in Husky's ongoing strategic move of
expanding our downstream business and supports Husky's objective as a fully
integrated energy and energy related company,” said Husky chief executive John
CS Lau. "This transaction is expected to have an immediately positive
financial contribution to Husky's earnings and cash flow.”
“Integration
of the Lima
refinery with future growth of heavy crude oil and oil sands production is part
of Husky's long term strategy to enhance returns to shareholders by capturing
the complete value chain,” Lau said.
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