April 8, 2006 at 1:37 pm #4218
Lyondell, CITGO could bring in about $3 billion
By NANCY SARNOFFCopyright 2006 Houston Chronicle
The refinery jointly owned by Lyondell Chemical Co. and CITGO Petroleum Corp. appears headed for the sales block.
The partnership, Lyondell-Citgo Refining, said Thursday it has signed “a letter of intent to jointly explore the sale” of the refinery in Houston capable of refining 268,000 barrels a day of crude, which an analyst said could fetch around $3 billion.
“We believe the markets for refined products have been tight for many months, and perhaps there’s been no better time for a sale of an asset like this,” Lyondell spokesman David Harpole said.
The companies also said they had settled legal disputes over crude oil supplies between Lyondell and Houston-based Citgo, which is owned by Venezuelan national oil company, Petróleos de Venezuela, or PDVSA. The cash settlement amount was not disclosed.
Shares of Houston-based Lyondell moved up 8.6 percent Thursday after the announcement.
Lyondell holds a 58.75 percent interest in the property, the only refinery in which it has an ownership stake, and it has the option of buying out its partner.
Citgo also said that while it is moving toward selling its stake in this partnership, it plans to hold on to its other U.S. refineries.
The refinery would hit the market at an opportune time, with fuel prices and refining profits running high.
The partnership noted the Houston refinery has the advantage of being able to refine very heavy high-sulfur crude oil into transportation fuels, including low-sulfur diesel.
“We believe that it is a facility unlike any other in the U.S. refining industry or perhaps the world,” said Harpole, adding that its Gulf Coast location at the Houston Ship Channel gives it access to several interstate pipelines that can transport finished products to major markets across the country.
“We expect to see broad interest in this asset.”
Hefty price tag?
The refinery could fetch in the neighborhood of $3 billion, said George Morris, an energy expert at investment bank Petrie Parkman & Co. in Houston.
“It’ll be a well sought-after refinery because it can handle the heavies, and it’s world-class in size and scale,” he said.
“The big trend over the long haul is there’s less intermediate and light and more heavy crude in the world market.”
But such a hefty price tag could limit the number of potential buyers.
Companies like Valero, ConocoPhillips, Petrobras, Marathon or Sunoco could be on the shortlist, according to Morris. Canadian producers of heavy crude and big investment companies, like Goldman
Sachs, may also show interest.
The obvious buyer is Lyondell to take out Citgo’s stake, Morris said. But that will concern possible buyers that don’t want to be used as stalking horse bidders to ensure PDVSA gets top dollar.
Lyondell, which is the third-largest U.S. chemical maker, said a number of options exist.
“The first option is to see how the market values the refinery,” Harpole said, adding that if it is sold, the proceeds will be used to pay down debt.
Partners since 1993
The Citgo-Lyondell partnership was formed in 1993, and the refinery was upgraded in 1997 to better handle heavy crude. Some industry observers have been anticipating a move by Citgo to divest some of its U.S. assets.
Venezuelan President Hugo Chavez has hinted that he might liquidate assets in the north, including refineries, and rumors have spread that Citgo could be sold off entirely.
Still, Citgo president and CEO Felix Rodriguez said Thursday the company is committed to the U.S. energy marketplace. He said the move to sell its only refinery joint venture does not mean it is selling its wholly owned refineries or other key assets.
The refinery’s 900 employees were being notified of the potential sale on Thursday.
“It took me by surprise,” said Jim Lefton, international representative for the United Steelworkers Union, which represents about 475 employees at the refinery.
He said the union had just a few minutes’ advance warning before the company put out the news. Lefton said if the refinery is sold, the union would continue to represent the employees because of a successorship agreement in its contract.
email@example.com L.M. Sixel contributed to this report.
Charles E. Randall
April 8, 2006 at 1:40 pm #7613
Lyondell / CITGO “weigh” sale of Lyondell refinery – Potentially $3B
It appears that Lyondell may be ready to take their money (potentially $3Billion) from the sale of its only refinery = Lyondell-Citgo JV while market is at the top & run. Its been in the process ever since PDVSA/Citgo showed up uninvited with Petrobras in toe to buy a portion of the refinery (which would have opened its long term crude supply contract for re-negotiation) and Lyondell wasn’t interested at that time, and of course the ongoing disputes over the crude supply contract – which seem to be settled for now.
I have mentioned in the past that PDVSA via its US Citgo arm will likely try to sell both Lyondell & Citgo Lemont refineries on its first round of liquidating US assets because of the low priced crude contract with Lyondell & the low amount of Venezuelan crude that Lemont is able to process due to its remote location from Gulf. But both PDVSA and Citgo have been quick to deny any intention to selling off U.S. assets, but it is clear that if Chavez & Pdvsa are to continue the tough approach on investments and Venezuelan JV assets the exposure from seizure of US assets needs to be minimized, and of course the proceeds reinvested into PDVSA projects since they are driving off their past potential investors with tariffs, taxes and minimized ownership postions on future projects.
The short list of buyers for Citgo (PDVSA) portion (31.25%) are Lyondell (58.75%) of course, ConocoPhillips, Valero, Marathon & Sunoco but the article mentions there might be some concern over Lyondell being used as lever to optimize the sale price. <Should also be some concern for what happens to price of Venezuelan crude supply once sale happens and contract is opened – the low price has been one reason the 265MBD refinery earnings have done so well>. Todays market with volatile Nat Gas prices seems suited to a returned integration between chemical plants and refineries where they have opposite market cycles that offset and compliment each other – it might be a sale that Lyonell the 3rd largest chemical maker could regret in the future.
The lack of the refinery industry to gain permits to build new refineries this presents a windfall (albeit expensive one) opportunity for the larger companies to get production now and reap profits on an undersupplied market until some of the expansions begin coming online in 2008-2010.
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