PBF Energy, a downstream oil investment group, has agreed to acquire Valero's 160,000 b/d refinery in Paulsboro, New Jersey, for $360mn plus turnaround costs in the second refining deal between the two companies this year.
Valero said it expects the deal with PBF to close in the fourth quarter. It is contingent upon regulatory and other customary approvals, Valero said.
In addition to the sale price, PBF and Valero will split the cost of an $80mn turnaround, Valero said.
The sale furthers a trend in ownership changes and refinery shutdowns in the US and Europe because of an overhang in refining capacity amid weak demand. Globally, there is 2.5mn b/d of refining capacity for sale or under strategic review, with another 1.5mn b/d having shut down since 2007, Klesse said this month.
The largest US independent refiner, Valero sold its 180,000 b/d refinery in Delaware City, Delaware, to PBF in June after shutting it down in November last year.
Valero is seeking “strategic alternatives” for its 280,000 b/d refinery in Aruba, which it shut in July 2009 because of poor margins. Valero is conducting a turnaround at the refinery expected to end in late December or early January, at which time the company has said it expects economic conditions to be favorable enough to restart the facility.
For PBF, owning both the Delaware City and Paulsboro refineries may hold some synergistic value. Northeastern states are tightening sulfur standards for home heating oil consumed in the region, requiring refiners to install new equipment to remove sulfur. PBF could ship refinery feedstock by water between the two refineries, both of which sit along the Delaware River.
Other recent US refining deals have involved firms acquiring refineries in close proximity and then sharing processing capacity between them to avoid investments in new equipment.
PBF chairman Thomas O'Malley is a veteran of Atlantic basin refining, having served as chairman of refiner Premcor before Valero acquired the company. Before that, he was chief executive of Tosco, an independent refiner he sold in 2001 to Phillips Petroleum, later ConocoPhillips.
O'Malley also serves as chairman of European refiner Petroplus, which holds a one-third stake in PBF along with private equity firms The Blackstone Group and First Reserve. The companies formed PBF in 2008 to invest in North American oil refineries.
Petroplus plans to sell its stake in PBF for $91mn to the remaining partners and focus on refining investment in Europe, the company said in an announcement yesterday. Petroplus said PBF's plans for “rapid” expansion would strain the European refiner's liquidity. O'Malley will remain chairman of both Petroplus and PBF, PBF president Michael Gayda told Argus.
The Petroplus decision did not affect negotiations, Valero said.
The Paulsboro refinery is of medium size and complexity, with units including two crude distillation facilities, a fluid catalytic cracker, a distillates hydrotreater, a kerosene hydrotreater, an alkylation unit and a reformer. It began operating in 1917.
The facility supplies products ranging from heating oil and gasoline to lube oils and asphalt, and serves markets along the Atlantic coast including New York and Baltimore. Crude from sources such as Saudi Arabia, Iraq, eastern Canada and Latin America arrives at docks along the Delaware River.
PBF said today the Delaware City refinery remained on track to restart in the spring following a significant turnaround, and PBF intends to install a new hydrotreater. Paulsboro also may be a candidate for additional hydrotreating capacity because the technology is needed to remove sulfur so that residential heating oil can meet the new specifications in the northeast US.
In August, New Jersey's Department of Environmental Protection announced the state would cut the sulfur content of its home heating oil to 500ppm in 2014, down from 2,000-3,000ppm currently. By 2016, it will be further reduced to 15ppm. New Jersey is the third-biggest heating oil consuming state in the US.
The state joins a broader movement in the region to lower sulfur content to the same level as ultra-low sulfur diesel (ULSD), despite concerns from refiners that the shift is taking place too quickly to allow construction of new hydrotreating capacity. New York, Connecticut and Maine have passed laws requiring similar sulfur reductions to 15ppm in the coming years.
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