US East Coast Refinery for Sale: Who's Buying?

Earlier in September, Sunoco had announced plans to sell its Marcus Hook and Philadelphia, PA refineries, noting that the refineries had been profitable for only two of the last 10 quarters, and stating that both refineries would be idled in July 2012 if buyers have not been found. However, in an early November conference call with analyst, Lynn Elsenhans, Sunoco's CEO and Chairman, stated that "...if at any point we believe it's in the best interest of the shareholders to either stop operating (Marcus Hook and Philadelphia) or change their utilization rate, up or down, even if that's before July, 2012, we would take the appropriate action." Sunoco Refining and Supply reported a $17 million pretax loss for 3Q 2011, the ninth quarter out of the last 11 for which Sunoco Refining and Supply lost money.

When ConocoPhillips announced that it was seeking a buyer for the Trainer refinery, Willie Chiang, then ConocoPhillips' Senior Vice President of Refining, Marketing, Transportation and Commercial, noted that their decision to sell, like Sunoco's, was based on unfavorable economics caused by a competitive and difficult market environment characterized by "...product imports, weakness in motor fuel demand, and costly regulatory requirements."

So, who will buy these refineries?

Valero has been mentioned by some as a possible buyer, but Valero exited the refining business on the US East Coast when it sold its Paulsboro, NJ and Delaware City, DE refineries in 2010. Valero has said it plans to move gasoline from its recently acquired Pembroke, UK refinery, which can process heavier sour crude, to the US East Coast.

PBF Energy was the buyer of Valero's Paulsboro refinery and eventually Valero's Delaware City refinery, after the Governor of Delaware stepped in to assist in finding a buyer and to facilitate the negotiations between the two companies. PBF also acquired Sunoco's 170,000 BPD Toledo, OH refinery in 2010. But, PBF Chairman Thomas O'Malley has stated that PBF is not interested in acquiring any of the Trainer, Marcus Hook or Philadelphia refineries, noting that US East Coast refineries that run sweet crude and produce primarily gasoline do not look to be profitable for the next few years as more restrictive sulfur specifications for refined products worldwide will continue to put upward pressure on sweet crude prices while gasoline demand in the US stagnates.

Many in the industry believe that all three east coast refineries will eventually close, although local governments are following the lead of the Governor of Delaware and are working to find a buyer(s), hopeful that a packaged sale of the refineries (two of the refinery properties are contiguous) will prove attractive enough to generate interest.

If these three refineries are idled, there will be significant changes to US East Coast supply patterns.  In the next issue of the Stillwater Newsletter we will consider those changes.

Stillwater has a wealth of experience in M&A and supports energy companies in the mergers and acquisitions process.  We leverage our industry expertise and financial modeling to screen and evaluate potential acquisitions, specializing in refining and distribution assets. In the industry, assets change hands often, and we can help find the right buyer for an underused property or assist in locating a strategic asset for a company looking to expand. Our associates have experience in developing, negotiating, and analyzing mergers, acquisitions, divestitures, and joint ventures. Stillwater is always interested to talk with potential buyers and sellers about asset acquisition and placement.