Swiss trading company Mercuria Energy Group has purchased about $800mn of US bank JP Morgan Chase's physical commodities business, reining in an earlier plan to buy the entire operation for $3.5bn.
Mercuria has acquired assets to expand its physical power, gas and oil operations in North America. But the trading house opted not to take on some of JP Morgan's oil supply contracts.
JP Morgan said it has reached agreements with other buyers to sell the remaining commodity assets that originally had been part of the Mercuria transaction. The bank said it expects to sell of liquidate "substantially all" of the asset that were part of the original $3.5bn deal.
Mercuria did not take over a JP Morgan contract to supply the Philadelphia Energy Solutions (PES) refinery in Philadelphia with crude and credit in exchange for refined products. A joint venture of the Carlyle Group and Sunoco, PES operates the US Atlantic coast's largest refinery. The 330,000 b/d facility has increased its capacity for offloading crude railed from the Bakken, and is one of the biggest users of Bakken supply.
Bank of America is close to entering into a financing arrangement with PES. Bank of America declined to comment, and PES could not be reached for comment.
In September, Northern Tier Energy announced that its St. Paul Park Refining and JP Morgan would terminate their crude supply agreement in advance of the Mercuria deal.
Mercuria said the final purchase is "what we expected." Besides not taking a number of oil supply contracts, "we did not purchase the same inventory," the company said. "Some transactions were structured as inventory financing deals.
"We are not a bank, and given our cost of capital it does not make sense for us to keep that level of inventory," the company said.
As part of the deal, Mercuria has acquired Henry Bath, a metals warehousing, storage, and handling business. The company said it will operate Henry Bath as a stand-alone subsidiary, independent from its trading operations.
JP Morgan moved prominently into the physical commodities business in 2008, when during the financial crisis it acquired a slate of power generation facilities as part of the assets of Bear Stearns. In 2010 it bought the energy and metals trading division of RBS Sempra.
JP Morgan has joined a list of banks divesting their physical commodity assets. Banks began to exit the physical commodities markets last year after the US Federal Reserve signaled that it may reverse a decade-old rule allowing banks to trade in physical commodities. The Fed has cited the potential for an event like the 2010 Deepwater Horizon oil spill to create a significant financial liability.
JP Morgan said it will continue to actively participate in the commodities market, providing traditional banking services such as financing, derivatives, metals warrant trading, liquidity and risk management, while continuing to vault and trade precious metals.
JP Morgan employees transferring to Mercuria will work in the company's trading hubs in Houston; London; Calgary; Greenwich, Connecticut; and Singapore.
di/dcb -
Send comments to feedback@argusmedia.com
If you would like to review other ArgusMedia.com content options, request more information about Argus' energy news, data and analysis services.
Copyright © 2014 Argus Media Ltd - www.ArgusMedia.com - All rights reserved.
