October 8, 2009 at 12:28 pm #2946
2nd UPDATE:Sunoco First To Close Major US Refinery In Downturn
(Updates with 3Q refining-sector outlook and Sunoco’s biofuel prospects)
By Susan Daker and Naureen Malik Tuesday Oct 7, 2009
Of DOW JONES NEWSWIRES
Sunoco Inc. (SUN) on Tuesday became the first major oil refiner to announce the shutdown of a big U.S. refinery during the sector’s most recent downturn – and it isn’t expected to be the last.
Sunoco, the second-largest U.S. independent oil refiner by volume after Valero Energy Corp. (VLO), also cut its dividend in half. Both actions, taken because ” the operating environment continues to be very poor,” are expected to save the big oil refiner a total of $320 million a year.
The move to mothball the Eagle Point refinery in Westville, N.J. comes months after speculation that some East Coast refineries would have to shut down, as the region’s facilities suffer from poor refining margins and strong competition from Europe. The U.S. refining sector as a whole has been struggling as fuel demand wanes while the federal government tightens regulation of the industry. Last month, Valero drastically cut back operations in its Delaware refinery, and extended the shutdown of its Aruba refinery for an undetermined period.
“Sunoco, like every other refiner, is facing serious challenges,” Lynn Elsenhans, the company’s chief executive, said in a evening conference call with analysts. “The near-term outlook remains challenging.”
Mark Flannery, an analyst with Credit Suisse, said the closure is a step toward improving the financial health of the company and the whole sector.
“Only the permanent removal of surplus capacity from the U.S is likely to restore refining margins to health,” Flannery wrote in a note to clients.
The economic downturn is expected to result in the closure of up to 10% of the U.S. refining capacity.
During the recession Sunoco has been cutting costs and is trying to sell its chemicals operations.
About 400 workers will be furloughed while the Eagle Point refinery is closed, but they may return to work should the company decide to reopen the plant. Sunoco will continue to pay its contribution to medical benefits as well as offer job placement assistance and retraining.
Closing the plant will boost utilization at two nearby refineries, saving the company about $250 million a year. Sunoco doesn’t plan to sell the plant and may turn it into a biofuels facility. The company didn’t provide many details on what sort of renewable fuels it wants to produce and is thinking about the idea more “broadly,” Elsenhans said.
The Eagle Point facility was significantly less competitive than Sunoco’s two other plants – in Philadelphia, Pa. and Marcus Hook, Pa. – which are connected via pipelines to each other, said Neal Earnest, an industry consultant and vice president of Muse Stancil in Dallas.
“It was a aged facility. It likely needed some significant capital,” Earnest said.
Valero said that it is still considering closing its Delaware City, Del. refinery despite the fact that Sunoco’s move could ease the refining market tension on the East Coast.
Valero spokesman Bill Day said the San Antonio-based company has been expecting other refiners to begin closing or shedding units.
“I wouldn’t be surprised to see more of this type of action take place,” Day said.
Sunoco’s quarterly dividend will be lowered to 15 cents starting in the first quarter to preserve capital, add flexibility and bring Sunoco’s yield more in line with its peers. The cut is expected to save the company $70.1 million a year.
The entire refining sector is expected to report a poor third quarter, analysts said.
“The earnings outlook for refiners is still dismal, albeit less dire than in 2Q09. I think 2010 is very shaky and although it looks a lot better than 2009, things could deteriorate rapidly if the global economy does not improve meaningfully. The news just released by Sunoco confirms our conclusion,” said Fadel Gheit, managing director at Oppenheimer & Co.
In the second quarter, Sunoco swung to a loss as higher prices for crude oil and weak demand ate into margins and revenue.
Sunoco’s shares fell 2.8% to $27.10 in after-hours trading. The stock has lost more than a third of its value this year but is flat with a year ago.
-By Susan Daker, Naureen S. Malik and Kathy Shwiff, Dow Jones Newswires; 713- 547-9208; email@example.com
October 8, 2009 at 12:43 pm #5967
Here is another take on Sunoco NJ Refinery S/D which frames it as example US Refinery closures to come. This is fairly large (150MBD) independent refinery – I would have thought they would have been better shape than other small refineries….but Sunoco has become a weak company in Refining sector (Canceled coker expansion & sale Tulsa Refinery, and other refineries up for sale).
During the last round of closures in 1980’s of the 150 Shutdown refineries – only 3 had cokers & all were below 75MBD. This cycle of consolidation will likely be half that amount of closures and focus on capacites less than 100-150MBD, small
simple – complex independent refineries usually without cokers. Those refineries with coking units may close for time but are often acquired and reopened with different label.
Since the US has over 23 states now without refineries & another 13 states with less than 3 small refineries (often just enough for 1 large town – not the states demand) – it isnt hard to see where the closures are likely to happen. It isnt likely to be the large very complex refineries located in the 7 states that still support MFG/Oil industry and are located in the USWC/USGC & USEC regions.
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