New York: A closely held partnership controlled by refining investor Thomas O'Malley agreed to buy Valero Energy Corp.'s Delaware City, Delaware, refinery for $220 million (Dh807 million) as fuel-makers struggle with high costs and falling demand for their fuel.
Valero said in a statement it will sell the plant to O'Malley's PBF Energy Partners LP, a venture created for the purchase.
The sale marks a return to the US and to the Delaware City plant for O'Malley, the chairman of European refiner Petroplus Holdings AG. The former Salomon Brothers trader previously ran two US refining companies, Tosco Corp. and Premcor Inc.
He said last month he was interested in buying US fuel-making assets, taking advantage of cheap prices.
O'Malley said PBF was able to pick and choose from among many refineries that are currently for sale, and selected the Delaware City plant in part due to contributions made by the state. Delaware will be helping O'Malley finance a new gas-oil hydrotreating unit, and has asked the company to make certain environmental concessions.
Deal
The deal will help Valero endure a period of narrow profit margins for refiners, said Philip Weiss, an analyst with Argus Research Corp. in New York.
"It's big for Valero, because it provides some additional cash," Weiss said. Weiss has a "buy" rating on the refiner with a target price of $35 a share and doesn't own any shares.
O'Malley said on the conference call that he aims to restart production at the refinery in April 2011.Bringing the plant back into service will increase excess fuel supply, leading to lower prices at the pump for drivers and smaller profits for refiners, Weiss said.
Valero shut the Delaware City refinery in November, citing losses of as much as $1 million a day. Refining profit margins were squeezed as the recession cut demand for gasoline, diesel and other fuels.
O'Malley owned the 182,200 barrel-a-day Delaware City refinery when it was part of Premcor. He plans to spend about $125 million to $150 million to improve the plant. PBF has scheduled maintenance to begin this summer to refurbish the refinery fully before it restarts.
O'Malley also has said he plans to bid on Valero's Paulsboro, New Jersey, refinery and that his acquisition plans aren't limited to the East Coast. Most of the stored fuel produced by the refinery was previously sold, and Valero will retain the remaining inventories.
O'Malley's PBF Investments LLC, based in Greenwich, Connecticut, is backed by Petroplus, Blackstone Group LP and First Reserve Corp.
O'Malley has said he expects the outlook for US refineries to improve with lower crude prices and as more refineries around the world shut down or reduce production.
O'Malley expects crude oil supply to outpace demand growth, which would increase oil inventories and reduce prices, according to his comments at a Deutsche Bank conference for investors in January, reported in a note to clients by Paul Sankey, a Deutsche Bank analyst.
In addition to the Delaware City refinery, Valero has shuttered its refinery in Aruba. Philadelphia-based Sunoco Inc. has shuttered its Eagle Point plant in Westville, New Jersey, and Western Refining Inc. has closed a refinery in Bloomfield, New Mexico.
O'Malley was quoted by Sankey as saying he expects more refinery shutdowns globally.
