In 2019, global refiners engaged in a series of transactions to reorganize their businesses. While some shed assets to downsize and consolidate operations, others expanded their holdings. By yearend, one major US refinery had halted operations completely.
This article examines notable refining mergers, acquisitions, and closures heading into 2020.
North America
Early in 2019, Par Pacific Holdings Inc. completed its previously announced deal to purchase privately held US Oil & Refining Co.’s downstream assets, including the 42,000-b/sd refinery near Tacoma, Wash. (OGJ Online, Jan. 14, 2019).
Par Pacific finalized the transaction—which was financed with proceeds from a $250-million Term Loan B issuance, a $45-million Par Pacific term loan funded by Bank of Hawaii, the issuance of about 2.4 million shares of Par Pacific common stock to the seller of US Oil, and available liquidity—for total consideration of $358 million plus net working capital on Jan. 14.
Alongside the Tacoma refinery—which can optimize its crude slate (over 95% of which currently consists of discounted Bakken and Cold Lake crudes) based on market conditions—the acquisition included the following US Oil logistics assets connecting to Bakken, Canadian, and Alaskan crude, as well as to Pacific, West Coast, Pacific Northwest, and Rockies product markets:
- 2.9 million bbl of refined product and crude oil storage capacity.
- A proprietary 14-mile jet fuel pipeline.
- A marine terminal with 15 acres of waterfront property.
- A unit train rail-loading terminal with 107 unloading spots.
- A truck rack with six truck lanes and 10 loading arms.
As part of the operator’s more than 3-year strategic growth plan to expand its US mainland refining and logistics presence, Par Pacific had previously said the proposed transaction would connect its existing assets in Hawaii—including the 94,000-b/sd Ewa Beach refinery on Kapolei, a logistics system supplying the major islands of the state, and 91 retail outlet locations—the Pacific Northwest, and Rockies to create an integrated downstream network with enhanced scale and diversification.
The acquisition also intended to leave Par Pacific geographically and logistically well-positioned to further source discounted Western Canadian and Bakken crudes.
Closing of the US Oil transaction followed Par Pacific’s December 2018 completion of its purchase of select now-idled Kapolei refinery assets from Island Energy Services LLC, which announced it would cease processing operations in August 2018 (OGJ Online, Aug. 31, 2018).
In June, PBF Energy Inc. subsidiary PBF Holding Co. LLC entered an agreement with Royal Dutch Shell PLC to purchase Shell subsidiary Equilon Enterprises LLC’s (dba Shell Oil Products US) 157,000-b/d dual-coking refinery and integrated logistics assets at Martinez, Calif., for $0.9-1 billion plus the value of hydrocarbon inventory, crude oil supply, and product offtake agreements, and other adjustments.
As part of the proposed deal, PBF was to take ownership of the refinery as well as an associated deepwater marine facility, product truck distribution terminals, and crude-product storage installations with about 8 million bbl of shell capacity.
Deal terms also stipulated that Shell would fund direct and indirect costs of an upcoming first-quarter 2020 turnaround at the facility, as well as other unidentified additional future capital expenses.
Shell’s associated branded fuel businesses, aviation terminal, and catalysts business in the area are not included in the proposed sale. Due to close by yearend 2019 subject to customary closing conditions and regulatory approvals, the companies have yet to confirm finalizing the deal.
PBF Energy said the purchase of the refinery came as part of the independent refiner’s plan to expand its existing US West Coast operations, which include the existing 155,000-b/d Torrance, Calif., refinery and related logistics assets purchased from ExxonMobil Corp. in 2016 (OGJ Online, July 7, 2017).
Upon finalizing the deal, PBF Energy said total throughput capacity of its US refining system will increase to more than 1 million b/d.
As for Shell, divestment of the Martinez refinery aligns with the operator’s strategy to reshape refining efforts towards a smaller, smarter portfolio focused on further integration with Shell Trading hubs, chemicals, and marketing to “drive resilient returns.”
The planned Martinez sale follows a series of global downstream divestment initiatives by Shell during the last several years as part of the operator’s plan to concentrate its downstream footprint on a smaller number of assets and markets where it can be most competitive (OGJ Online, Apr. 22, 2019).
PBF Energy and Shell also agreed to jointly move forward with reviewing the feasibility of building a proposed renewable diesel project that would involve repurposing of idled equipment at the Martinez refinery to produce renewable fuels at the site. The companies said they expect detailed feasibility review and planning for this project to occur after closing of the Martinez transaction.
Late in the year, Husky Energy Inc. closed the sale of its 12,000-b/d refinery in Prince George, BC, to Tidewater Midstream & Infrastructure Ltd. for $215 million (Can.) in cash, plus a closing adjustment of about $53.5 million (OGJ Online, Nov. 1, 2019).
As part of the deal—which also included a contingent payment to Husky of up to $60 million over 2 years—Husky entered into a 5-year offtake agreement with Tidewater for refined products from the refinery, including 90% of its nameplate capacity of diesel and gasoline production.
The Prince George refinery processes light oil into low-sulfur gasoline and ultralow-sulfur diesel, along with other products.
The refinery sale follows Husky’s announced plan to consider selling Prince George refinery as part of a strategy to focus on its core assets involving upstream thermal crude production, storage, committed pipeline capacity, and refineries (OGJ Online, Jan. 11, 2019).
In November, Calumet Specialty Products Partners LP completed the sale of its 21,000-b/d San Antonio refinery and related assets—including a crude oil terminal and pipeline—to Startlight Relativity Acquisition Co. LLC (OGJ Online, Nov. 11, 2019).
As part of the transaction—finalized on Nov. 11 but with an effective date of Nov. 1—Starlight agreed to pay $63 million in cash for the refinery, property, and equipment, plus adjustments for net working capital, inventories, and post-closing amounts.
“The divestment of the San Antonio refinery represents another step forward in Calumet’s strategic transformation,” said Tim Go, Calumet’s chief executive officer. “This transaction further de-levers Calumet’s balance sheet, reduces earnings volatility by lowering our exposure to fuels refining, and allows the partnership to focus its time and capital more intently on our higher-return core specialty products business.”
The San Antonio refinery, which processes crude oil and condensate primarily from Eagle Ford shale, currently produces LPG, naphtha, regular and premium gasoline, commercial and military jet fuel, ultralow-sulfur diesel, and atmospheric tower bottoms.
The refinery hosts about 250,000 bbl of storage and includes 200,000 bbl of additional crude oil storage at a crude terminal in Elmendorf, Tex.
Under Starlight’s ownership, the refinery has been renamed San Antonio Refinery LLC and will be operated by Lazarus Energy Holdings LLC, which also operates a Blue Dolphin Energy Co.-owned 15,000-b/d crude distillation plant with about 1.2 million bbl of storage .
In late June, Philadelphia Energy Solutions LLC (PES) shuttered its 335,000-b/d refining complex in Philadelphia following a massive explosion and ensuring fire at the site earlier in the month (OGJ Online, June 26; June 21, 2019).
In July, PES and its subsidiaries—including its principal operating subsidiary Philadelphia Energy Solutions Refining & Marketing LLC—filed for Chapter 11 federal bankruptcy protection. PES also entered into a proposed debtor-in-possession financing agreement for up to $100 million of new funding with holders of its outstanding term-loan debt (OGJ Online, July 22, 2019).
“This proposed financing provides the company with a strong financial foundation to support existing operations, undertake the work necessary to ensure the refinery complex is safely positioned for rebuilding, and restart and complete its reorganization process,” PES said.
With the proposed financing agreement, PES said it will work with stakeholders toward restructuring under Chapter 11. In the meantime, US Bankruptcy Court set a Nov. 22 deadline for interested parties to support documents expressing interest in the buying the refinery, including a purchase price. At least 15 parties responded.
Different agencies began formal investigations on June 24 into the cause of the explosion and fire that broke out early on June 21 at the Philadelphia refining complex. After the fire was extinguished on June 23, a gas valve fueling the fire was shut off and the tank involved in the explosion and fire was isolated.
With 335,000-b/d of crude processing capacity, the Philadelphia refinery is a major supplier of gasoline and diesel into US East Coast markets, yielding approximately 125,000 b/d of gasoline and 110,000 b/d of diesel.
South America, Caribbean
In July, Petroleo Brasileiro SA (Petrobras) initiated the nonbinding phase related to the first leg of its previously announced plan to divest its downstream Brazilian assets and associated logistics (OGJ Online, July 16, 2019; June 12, 2019).
As part of the nonbinding phase—which includes Refinaria Abreu e Lima (RNEST) in Pernambuco, Refinaria Landulpho Alves (RLAM) in Bahia, Refinaria Presidente Getulio Vargas (REPAR) in Parana, and Refinaria Alberto Pasqualini (REFAP) in Rio Grande do Sul, as well as their corresponding integrated logistics assets—qualified potential buyers were to receive a descriptive memorandum with more detailed information about the assets, as well as instructions on the divestment process, including guidelines for preparing and submitting nonbinding proposals.
Teasers for the second phase of the downstream divestment plan—which will include Refinaria Gabriel Passos (REGAP), Refinaria Isaac Sabba, Unidade de Industrializacao do Xisto (SIX), and Refinaria Lubrificantes e Derivados do Nordeste (Lubnor), as well as their corresponding logistics assets—were to be released by yearend.
Alongside repositioning the company’s portfolio to higher-yielding assets, the refineries’ divestment projects also will allow for a more competitive and transparent downstream business in Brazil in line with the National Petroleum, Natural Gas, and Biofuels Agency of Brazil’s position and recommendations of the country’s Administrative Council for Economic Defense (OGJ Online, May 2, 2019).
The proposed refinery divestments follow Petrobras’s completed sale of its Pasadena Refining System Inc.—including the 110,000-b/d refinery in Pasadena, Tex.—and PRSI Trading LLC businesses to Chevron USA Inc. in May (OGJ Online, May 2, 2019). As part of the deal, Chevron acquired the 110,000-b/d Pasadena refinery, direct pipeline connections to industry and equity crude oil production, connections to major product pipelines, and waterborne access to receive and ship crude oil and refined products. The 466-acre Pasadena refining complex includes the 323-acre refinery, 5.1 million bbl of oil and products storage, an associated marine terminal and logistics system, and 143 acres of additional land along the Houston Ship Channel usable for potential future expansion.
Elsewhere in the region, the Aruban government in October reached an agreement with Citgo Petroleum Corp. to take back control of former Valero Energy Corp.’s 235,000-b/d refinery and terminal in San Nicolas, Aruba, which Citgo Aruba Refinery NV previously intended to restart (OGJ Online, Oct. 11, 2019; June 13, 2016). Following the signing of an Oct. 9 memorandum of understanding, Aruba now retains rights to seek other interested parties for operation of the refinery, dock, and terminal.
Upon announcing the MOU, Aruba said it planned to start discussions with more than 25 companies with which the government previously had been unable to negotiate that had expressed interest in taking over the refining and terminal operations.
Specifically, the government said it is seeking partners that:
- Have funds to immediately invest in the refinery.
- Will upgrade the refinery into a state-of-the art operation.
- Will abide with environmental laws and regulations.
- Are willing to pay their fair share to the Aruban government.
- Will treat prospective employees well and fairly.
The starting point of negotiations with potential operating partners for the refinery, terminal, and tank farm will be retention of as many existing employees as possible. Under its earlier agreement to restart operations at the site, Citgo had promised it would take care of employees’ wages plus active-service years until a new operator was in place.
Following US sanctions placed on Citgo’s parent company Petroleos de Venezuela SA in early 2019, however, Citgo announced that it had no funds to cover these costs, which included the operator paying all its debts with employees, contractors, and other vendors (OGJ Online, Feb. 26, 2019; Jan. 29, 2019).
The government disclosed no further details regarding any progress Citgo made on its initial plan to restart the refinery and terminal operations, nor did it reveal a timeframe for the selection of a new operating partner. The government did acknowledge, however, that—despite a lack of maintenance—it believed tanks at the tank farm were still in good condition.
Asia Pacific
On April 1, Idemitsu Kosan Co. Ltd. completed its long-planned takeover of Japanese refiner and marketer Showa Shell Sekiyu KK (OGJ Online, Apr. 4, 2019).
Under the business integration plan, Showa Shell Sekiyu has become a wholly owned subsidiary of Idemitsu Kosan. Based on the latest capacity data available from the Petroleum Association of Japan, the newly integrated company now controls six of the country’s 22 official refineries, with a combined capacity of 945,000 b/d, including:
- Idemitsu Kosan’s 160,000-b/d refinery in Chita, Aichi prefecture.
- Idemitsu Kosan’s 190,000-b/d refinery and petrochemical complex in Ichihara, Chiba prefecture.
- Idemitsu Kosan’s 150,000-b/d refinery in Tomakomai, Hokkaido prefecture.
- The Showa Shell Sekiyu-held Toa Oil Co. Ltd.’s 70,000-b/d Keihin refinery, in Kawasaki, Kanagawa prefecture.
- The Showa Shell Sekiyu-held Showa Yokkaichi Sekiyu Co. Ltd.’s 255,000-b/d Yokkaichi refinery, in Yokkaichi, Mie prefecture.
- The Showa Shell Sekiyu-held Seibu Oil Co. Ltd.’s 120,000-b/d Yamaguchi refinery, in Ube, Yamaguchi prefecture.
Idemitsu Kosan also operates the Tokuyama petrochemical complex in Shunan, Yamaguchi prefecture.
Middle East
In mid-September, Saudi Aramco completed a deal to acquire Royal Dutch Shell PLC’s share of the companies’ 50-50 joint venture Saudi Aramco Shell Refinery Co. (Sasref), which operates the 305,000-b/d refinery at Jubail, Saudi Arabia (OGJ Online, Sep. 18, 2019). Aramco purchased Shell’s 50% interest in the JV for $631 million in a transaction that closed Sept. 18.
The acquisition supports Aramco’s plan to increase the complexity and capacity of its refineries as part of its long-term downstream growth strategy. For Shell, the Sasref sale came as part of an ongoing effort to focus its refining portfolio to further integrate with its chemical production sites and Shell Trading hubs.