May 4, 2007 at 12:14 pm #4023
May 2 (Bloomberg) — Husky Energy Inc., a Canadian oil company controlled by Hong Kong billionaire Li Ka-shing, agreed to buy Valero Energy Corp.’s 165,000 barrel a day refinery in Lima, Ohio, for about $1.9 billion to process oil-sands crude.
The 120-year-old plant processes mostly light sweet crude oil, produces gasoline and diesel fuels and also has the capability to process heavy crude oil, Calgary-based Husky said today in a statement. The final purchase price will include an additional $200 million of net working capital, San Antonio-based Valero said in a separate statement.
Husky plans to review options for reconfiguring and expanding the Lima refinery to process heavy oil and bitumen, the company said. Husky is securing a home for its growing output of oil-sands in the world’s largest oil-consuming market, the U.S., according to Natexis Bleichroeder Inc. analyst Roger Read.
“We’re in the golden age of refining here,” he said in an interview from Houston today. “I don’t think there is any obvious end to it.”
The refinery sold for about $11,500 per barrel of capacity, below the record of $20,000 paid last year when Lyondell Chemical Co. bought out a 41 percent stake in a Houston refinery owned by Venezuela’s state oil company, Read said.
Refining margins may average $15.65 per barrel this year, 6.3 percent higher than 2006, according to an April report by Eitan Bernstein, an analyst at Friedman, Billings Ramsey & Co.
“Husky has told us they’re going to spend another $2 billion on refinery improvements above and beyond the $1.9 billion purchase price,” Steve Cleaves, city of Lima finance director, said today in a phone interview. “Obviously, they’ll have to do something to improve the refinery’s coking capacity.”
Husky spokeswoman Tanis Thacker said it’s “too premature” to talk about any dollar amounts.
Husky needs refining capacity to process crude from its oil- sands and heavy oil developments in western Canada where it plans to start producing from its Sunrise project in 2010 at the earliest. Chief Executive Officer John Lau said on April 19 that buying a U.S. refinery was an option.
Output from another Husky oil-sands development called Tucker started in 2006 and is expected to reach 30,000 barrels a day over the next 20 months. The company is also developing the Saleski and Caribou oil-sands projects.
“All of the Canadian oil sands producers are looking for refining capacity,” said Ann Kohler, an analyst at Caris & Co. in New York.
Canada’s EnCana Corp. on Oct. 5 said it will form a joint venture with ConocoPhillips to spend more than $10 billion to boost oil-sands output eightfold and expand ConocoPhillips refineries in Illinois and Texas. Europe’s BP Plc on Sept. 20 said it will spend $3 billion to upgrade its Whiting, Indiana, refinery to process more Canadian crude.
Alberta‘s oil-sands deposits, located about 750 kilometers (466 miles) north of Calgary, contain an estimated 175 billion barrels of recoverable oil, second only to Saudi Arabia’s 259 billion barrels, according to the Canadian Association of Petroleum Producers.
Husky will acquire the Valero plant through the purchase of all the outstanding shares of Lima Refining Company, the Canadian company said. The sale is expected to close by the end of the second quarter, pending regulatory approval.
Lima would be Husky’s biggest acquisition since its 2000 purchase of Renaissance Energy Ltd., according to Bloomberg data, and its first refinery in the U.S. Husky also owns a light oil refinery in Prince George, British Columbia, with the capacity to process 12,000 barrels a day.
Valero, the biggest refiner in the U.S., will use proceeds from the refinery sale to buy back more of its own shares later this year, the company also said.
Valero said on March 21 it had attracted 10 bids from prospective buyers of its Lima plant.
Bill Klesse, chief executive officer of Valero, in February told investors on a conference call that the company may sell the Lima refinery. Another alternative, a multibillion-dollar upgrade, may not yield the financial returns Valero wants, the company has said.
The sale was announced after the close of trading on regular North American stock markets. Husky shares rose C$1.31, or 1.6 percent, to C$85.56 on the Toronto Stock Exchange. Valero gained $1.75, or 2.5 percent, to $72.90 in New York Stock Exchange composite trading.
To contact the reporter responsible for this story: Sonja Franklin in Calgary at email@example.com Last Updated: May 2, 2007 19:30 EDT
May 4, 2007 at 12:17 pm #7414
Looks like the Valero Lima Coker Expansion (and potential supply for a petcoke IGCC) may move ahead – but it will be as Husky Lima expansion.
Husky outbid nine other companies (but at low cost of $11.5k/MBD capacity cost vs. Lyondell’s $20k/MBD) in its successful purchase of the120 year old Lima Refining facility, from the U.S.’s biggest refiner, Valero. Valero plans to use proceeds from the refinery sale to buy back shares of its stock.
Husky, meanwhile, needed additional refining capacity, like many Canadian oil sands producers, as it taps into Western Canada’s largely untouched oil sands reserves. Husky has bitumen crude coming from its 2006 Tucker (~30MBD) and 2010 Sunrise (~200 MBD) production to place into US refining to maintain growth. Husky also has plans to expand its 77 MBD Lloydminster upgrader & coker to take in some of the Sunrise production.
Husky plans to put another $2 billion of improvements into the plant – especially the coking facility which has mainly processed sweet crude resid until now.
December 5, 2007 at 1:15 pm #7144
Also see Update news on Dec 2007 – Husky & BP JV for Toldeo Refinery & Sunrise Upgrader asset utilization that postphoned Llyodminster Expansion again but could ~add platform for Husky Lima expansion support.
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