The largest potential US refining transaction in at least a decade is more likely to bolster smaller or entirely new US downstream players than the current large independent refiners.
But ongoing litigation and supply obligations may yet stymie the proposed sale of PdV subsidiary Citgo's refining and midstream assets.
Venezuelan state-run oil company PdV contracted French bank Lazard recently to assist with the sale of its US downstream subsidiary after considering offers through several investment banks.
PdV wants to find a single buyer for all of its assets, including three refineries totaling 757,000 b/d of crude capacity, 48 terminals in 22 states, three wholly-owned US pipelines and stakes in six others. The purchase would also include a long-term supply agreement for Venezuelan crude, a commitment that could unnerve some buyers concerned about PdV´s reliability. PdV said it has received offers as high as $15bn.
The largest US independent refiners have so far shown little interest in the assets publicly. Phillips 66 has focused on midstream and chemical spending and Marathon Petroleum said it was satisfied with its existing footprint. Tesoro and Valero did not rule out interest but neither appeared to be piqued during quarterly earnings discussions.
That may leave the Citgo facilities open to bolder moves by smaller companies looking to make a major change.
For HollyFrontier, the largest US independent refiner with more cash than debt at the end of the second quarter, purchasing Citgo would nearly triple its US crude processing capacity to 1.2mn b/d and lift the company to fourth largest US independent refiner.
"It's obviously a large bite if it's actually for sale," chief executive Mike Jennings said during a call to discuss quarterly results, but the company is open to such growth.
As an operator in niche positions in the US Gulf coast, midcontinent and Rocky Mountains, and a focus on regional crudes, HollyFrontier might find Citgo a challenging purchase. Any buyer of Citgo would need heavy sour crude expertise, since all three refineries run crudes similar to Venezuela's own production. And although Citgo has steadily pared its imports over the past five years, according to Energy Information Administration data, the refining system still imported more than five times the crude HollyFrontier brought into the US last year. The refiner imported just 84,000 b/d of heavy Canadian crudes in 2013.
US independent refiner PBF Energy, meanwhile, has recently gained flexibility to consider expansions after founding equity partner Blackstone exited its position in the company, chairman Tom O'Malley told analysts during an earnings conference call earlier this month.
PBF last week expanded its revolving credit line to up to $2.75bn, a move that would support a larger company but not necessarily support a purchase of Citgo assets.
"It's certainly something we would follow up on," O'Malley said, referring to Citgo. "But you can assume we follow up on absolutely everything."
Citgo's Illinois refining and terminal assets could fit with PBF's existing Ohio business. PBF also manages a wide range of crude imports and heavy processing, operating the US Atlantic coast's only coking capacity.
But PBF has more hungrily eyed California refining assets, stating repeatedly this year its interest in the state.
CVR Energy, operating 185,000 b/d of US midcontinent capacity, ruled out California and the US Atlantic coast for expansion. The company and its subsidiaries hold more cash than debt, equity of roughly $1bn and consider both US Gulf coast and midcontinent refineries attractive for expansion.
Citgo's refineries may prove the least enticing part of the offering. Midstream assets have consistently fetched more than refining in recent years, even as the purchasers keep prices close to vest.
Tesoro will not disclose split prices for its $1.1bn purchase of BP's California business last year, but it has since dropped logistics assets associated with the purchase into its master limited partnership at a value of $1.3bn. Marathon Petroleum purchased BP's Texas City, Texas refinery and associated pipeline and terminal infrastructure for $598mn in 2013. Only about $9mn of that was for the refinery itself, according to the company.
Such assets could also be of interest to relative newcomers to the refining space. Par Petroleum last year bought Tesoro's Hawaii business, including the 95,000 b/d Kapolei refinery, terminals and a retail operation, for $75mn plus up to an additional $40mn over three years if certain conditions are met. Commodities firm TrailStone purchased in June US Oil and Refining's rail- and marine-connected 43,500 b/d refinery in Tacoma, Washington, for an undisclosed sum.
Ultimately, any Citgo purchase could be hampered by potential legal entanglements related to an ongoing battle over assets Venezuela seized from ConocoPhillips and ExxonMobil in 2007.
In arbitration filings the companies say they should be compensated a total of $42bn for the seizures, claims the World Bank's International Center for Settlement of Investment Disputes (Icisd) may soon rule on. Caracas-based attorneys monitoring the proceedings estimate the final ruling will total roughly $10bn, with $7bn for ConocoPhillips and $3bn for ExxonMobil.
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