Refinery Sale Suddenly In Jeopardy (PSX, COP, DAL, SUN, ETP, CG, CVX, VLO, XOM, BP, CVI)

Energy

Published: June 7, 2012 1:24 pm

Last Updated: June 7, 2012 1:48 pm

In December 2011, before the spin-off of Phillips 66 (NYSE: PSX) from ConocoPhillips (NYSE: COP), Conoco was believed to be trying to sell its 247,000 barrel/day Belle Chase, Louisiana, refinery for $700 million to $1 billion. Selling refineries was all the rage in the second half of last year and so far this year. But that may be about to change.

Phillips 66 did sell a 147,000 barrel/day Pennsylvania refinery to Delta Air Lines Inc. (NYSE: DAL) last month. Sunoco Inc. (NYSE: SUN) did not sell its refineries to Energy Transfer Partners L.P. (NYSE: ETP) when the two companies merged, hoping instead for a deal for the refineries with The Carlyle Group LP (NASDAQ: CG). Chevron Corp. (NYSE: CVX) sold its 220,000 barrel/day UK Pembroke refinery to Valero Energy Corp. (NYSE: VLO) for about $1.7 billion, and Exxon Mobil Corp. (NYSE: XOM) sold virtually all of its Japanese refining assets for $3.9 billion in January. BP plc (NYSE: BP) and CVR Energy Inc. (NYSE: CVI) are also trying to sell refineries.

The Belle Chase refinery may be coming off the sale table, though, according to a report in The Wall Street Journal, which says that the company will decide this summer whether or not to try to sell the refinery. The WSJ suggests that there are few buyers for the plants because US gasoline consumption is falling and that lower crude prices are making the economics of refining attractive again.

Refining is, and always has been, a cyclical business and profitability depends largely on the cost of crude. Louisiana Light Sweet crude prices (LLS) have tracked Brent prices, making the feedstock for the Belle Chase refinery anywhere from about $14/barrel to $25/barrel higher than other domestic crudes based on WTI pricing.

In order for Phillips 66 — or anyone else — to make money on refining either the price spread between WTI and Brent must narrow significantly, or the refiner must develop an export market. Phillips 66 has little control over the price spread, but it could find an export market by the end of the summer for its refined products that would make the refinery worth keeping. It could happen.

Shares of Phillips 66 are up 1.65% today at $32.05 in a post-IPO range of $28.75-$37.45.

Paul Ausick

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