February 22, 2011 at 12:18 pm #2371
US Refiners Holly & Frontier to Merge
Washington, 22 February 2011 (Argus) US refiners Holly and Frontier Oil have agreed to combine operations to form a single 440,000 b/d independent called HollyFrontier, which the companies said would be more effective in sourcing refinery inputs and reaching certain product markets.
The companies are taking another go at a merger, after walking away from one in 2003, at a profitable time to serve their niche areas in the midcontinent, Rocky Mountains and southwest. The midcontinent faces a glut of crude supply thanks to increased flow of Canadian oil to the region. In addition, new production is coming on line in North Dakota and Texas. The increased supply has weighed on crude prices in the midcontinent and strengthened refining margins.
I see this as a structural difference thats going to endure for a period of time, said Frontier chief executive Mike Jennings, who would become chief executive of HollyFrontier. We think the fundamentals are there, and the combined company will benefit from these for quite a long period of time.
The companies said the combination, which would focus on the midcontinent, Rocky Mountain and southwest markets, would create the most profitable independent refiner on a per barrel basis. The merger would generate value through annual cost savings of around $30mn, which the companies said was a figure split between cost reductions and operational efficiencies.
The deal marks further consolidation in the US refining industry, where companies have been shutting down and selling refineries amid poor margins accentuated by the economic downturn. The largest independents, including Valero and Sunoco, have been trimming their portfolios, while private equity firms have taken over operations at low prices. Earlier this month, BP announced plans to sell its largest US refinery, the 475,000 b/d plant in Texas City, and its 260,000 b/d refinery in Carson, California.
HollyFrontier would be the fifth-largest independent refiner, behind Valero, Tesoro, Sunoco and PBF Energy. Private equity-backed PBF is in the process of closing an acquisition of Sunocos 150,000 b/d refinery in Toledo, which would give it total refining capacity of 490,000 b/d.
HollyFrontier would be based in Dallas, where Hollys corporate offices are today. Frontiers Houston headquarters would be closed, while its Denver, Colorado, office will continue to provide certain commercial capacity, said Holly chief executive Matt Clifton, who would become the combined companys executive chairman. The merger process will require headcount reductions, Jennings said.
The rest of the savings will come from synergies related to refinery operations, and there will be a focus on feedstock efficiencies and asphalt marketing, the companies said. The combination of companies with similar crude economics will provide more flexibility with logistics capacity, Jennings said. Further, Hollys two Tulsa, Oklahoma, refineries and Frontiers El Dorado, Kansas, refinery are expected to have integration opportunities related to processing intermediates, he said.
In addition, Holly is affiliated with pipeline operator Holly Energy Partners, which could tie in to crude production along the Wyoming-Colorado border, where Frontier operates its Cheyenne refinery, Clifton said. Frontier can run up to 80,000 b/d of heavy crude at its two refineries, and Holly can run 50,000 b/d in its system.
Jennings said Hollys 62,000 b/d Unev products pipeline between Salt Lake City, Utah, and Las Vegas, Nevada, was an oil play that will supply what has been a California market with fuels made from midcontinent and Rocky Mountain crude supply. The pipeline is scheduled to start up in the third quarter of this year.
The merger will allow Frontier to increase its presence in asphalt, thanks to Hollys experience in the market through its subsidiary Holly Asphalt Company, Jennings said. HollyFrontier will have an improved ability to refine sour crude, allowing the combined company to increase asphalt output while keeping cokers full, Jennings said. Cokers run heavy components of crude that would otherwise be used to make asphalt.
The all-stock merger is expected to be completed early in the third quarter of this year. It is subject to approval by both companies’ shareholders and clearance under Hart Scott Rodino Act, which is a federal merger law. Directors at both companies have approved the deal.
February 22, 2011 at 12:19 pm #5256
Update news from Argus see below on Merger (also news story on $3B deal @ http://news.yahoo.com/s/ap/20110222/ap_on_bi_ge/us_holly_frontier_oil_3 ).
I hope new HollyFrontier merger does better than the Giant & Western merger – which immediately had begin pealing off some refineries to sell that were key reasons for merger to get out of debt. Not good for small companies at bottom market without large cash positions to absorb restructure/merger cost – the $30MM savings for $3B merger disappear quickly.
But Holly/Frontier looks like better fit to me. and Holly will end up with 51% & Frontier with 49% of merged company so easy see who will be driver on this. According to article they would become 5th largest in behind Valero (who is selling off/shutting down capacity which will drop them below HollyFrontier eventually) and Tesoro.
Saw an article that says the WTI / midcontient oil glut has been caused by ~2 pipelines: Seaway 500MBD bringing WTI & Capline 1.2MM BD dumping Canadian crudes into Padd 2 Cushing area. So doubt the current glut prices are going to provide edge for any length of time.
New deliveries by Transcanada Keystone P/L of Canada crude have been identified as cause for growing separation between the WTI and Brent benchmarks – growing from Brent premium over WTI of $0.63/Bbl average in 2010 to current $15.43/Bbl
(US domestic sweets are also seeing gap Louisiana Sweet grew from premium $0.93/Bbl average 2010 to current record $20.60/Bbl). Phase 3 of Transcanada/Keystone P/L is expected to drop line from Cushing into USGulf Coast by 2013.
COP has been been opposed to reversing the 530 mile Seaway P/L which could if reversed bring 350MBD crude into the Houston area and relieve glut/pricing issues. Seaway is operated by Enterprise & has crude storage of up to 3.4MM BBL – but glut prices will back out WTI producers shipping into glut crude markets and lead to at least partial reduction anyway – so not sure see COP/Mulva’s point this exercise.
February 22, 2011 at 2:27 pm #5255
Here was link to good BusinessInsider article by Tverberg (several sections by him were posted another news agency) on the WTI vs Brent Gap (& look at some DOE Graphs/charts on Padd 2 stats that he interperts for Gap causes) that were mentioned on my comments of Holly-Frontier merger article.
A Deep Dive Into The Huge Gap Between WTI And Brent Crude
We have all heard at least a partial explanation as to why West Texas Intermediate (WTI) and Brent prices are so far apart. Business Insider – Feb 21 12:51pm See article @
<And read more on it in articles: http://www.businessinsider.com/why-are-wti-and-brent-crude-different-2011-2#ixzz1EiM1n2NQ and / or : http://www.businessinsider.com/why-are-wti-and-brent-crude-different-2011-2#ixzz1EiJSDNFV >
February 24, 2011 at 1:52 pm #5244
Washington, 23 February, 2011 (Argus) If the proposed merger between US independent refiners Holly and Frontier is completed, intermediate feedstock from Holly’s 125,000 b/d refining complex in Tulsa, Oklahoma, would be processed by spare fluid catalytic cracking (FCC) capacity at Frontier Oil’s 130,000 b/d refinery in El Dorado, Kansas.
Holly expects between 3,000-4,000 b/d of either atmospheric gasoil or vacuum gasoil could be sent to Frontier’s gasoline-making FCC at El Dorado. The connection would allow higher crude throughput in Tulsa, where Holly is integrating two refineries to form a 125,000 b/d complex.
HollyFrontier the proposed name of the combined company would need to develop a pipeline to ship the intermediate material from Tulsa to El Dorado, though the feedstock could move by truck or railroad, Holly spokesman Neale Hickerson said.
The feedstock is available early in the refining process. Atmospheric gasoil is made after crude goes through the initial distillation tower. Refiners can derive more material by running the gasoil through a vacuum unit, which continues the distillation process at a lower pressure and produces vacuum gasoil.
In Tulsa, Holly has been working to integrate an 85,000 b/d refinery acquired from Sunoco and a 70,000 b/d refinery acquired from Sinclair to remove constraints in the standalone plants. Prior to the 2009 acquisitions of those facilities, the Sunoco refinery’s crude throughput had been constrained by a lack of downstream finishing capacity. The Tulsa integration work is expected to be complete by the end of the first quarter.
Holly and Frontier announced merger plans yesterday. The combination, which would create a midcontinent-focused 440,000 b/d independent refiner, is expected to close in the third quarter of this year, pending regulatory and shareholder approval.
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