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RE: Record Glut Oil Refineries Sell 80% Discount Real M&A value

Home Forums Refining Community Refinery News Record Glut Oil Refineries Sell 80% Discount Real M&A value RE: Record Glut Oil Refineries Sell 80% Discount Real M&A value


Charles Randall

Here is good recap by Bloomberg on current stampede of majors selling refineries at some record discounts to value. Past growth of todays Valero & other independents (ie. PBF & Tesoro) were done at range of 20-60% M &A values but current group is at bottom of that value due lack of complexity for majority of the plants for sale. The US market these values are a huge windfall as brownfield development because a new refinery (greenfield development) hasn’t been built since 1975 (MRO Garyville) because government allows Environmentalist to control the EPA and permitting even though average age for most US refining plants is somewhere between 80-100 years old. Current attempts to get 2 new refineries (S. Dakota & Arizona) built are now in their 6th year trying get permits even though everyone (people/location/state/Ect) has been strongly behind them.
It’s just prelude to exodus coming from larger global refining consolidation which will start in wake of battle for export product markets from overbuilt China, India & Mideast government owned refineries. There will also be some return to diesel based worldwide economy for refiners as US gasoline demand shut’s its door to imports due to the combination impact from large number of USGC refineries doubling in size from several of todays largest (300-450MBD) to become tomorrow’s largest (450-650MBD) and the US continuing to increase amount of ETOH blended from 7-10% up to 15-20% by 2020 leading to 15% reduction refined gasoline demand. The three countries mentioned are somewhat exempted from naphtha/gasoline glut because they have alternate integrated chemical plants which also help flatten out price volatility – but Mideast will become the winner because it has largest domestic crude supply (even though several of the China & India new world-class refineries are joint ventures with them), but that will last only until China decides to develop its own Heavy Bitumen crudes which exist at 9 of its 14 major fields (it is quickly learning how thru its JV operation with both Venezuela & Canada upgrader operations).   
It is also apparent that most majors making this early exodus are being led by upstream dominant management who seem to have forgotten past lessons that without downstream assets as alternate for crude sales they are just another trader on the block who has take worst of value swings when market turns down. BP, Shell & Exxon have always been in the do away with refineries camp and now COP and MRO seem to be joining them. When everyone in Vegas bets on black you know its time to bet on red.

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