August 8, 2008 at 12:29 pm #3492
Refinery in Virginia may be sold off to reduce Western Refining debt
By Vic Kolenc / El Paso Times
Article Launched: 08/08/2008 12:00:00 AM MDT
EL PASO — Western Refining is looking at the possibility of selling its Yorktown, Va., refinery to help reduce its $1.5 billion debt, which has bogged down the company for months. Some Wall Street analysts doubt there’s much of a market for such a sale.
“We don’t want to get rid of Yorktown, but we are committed to our lenders, shareholders, analysts and everybody else; that we’re going to get our balance sheet shored up, and a transaction involving Yorktown is probably the best way to get a lot of that done,” Western CEO Paul Foster told analysts Thursday in a conference call. “It’s not a certainty we will sell Yorktown. we have other assets and we are looking at other alternatives to raise capital and reduce debt.”
Another possibility is to find a partner to help run the refinery as a joint venture, Foster said. The El Paso company acquired the Yorktown refinery and two in New Mexico last year as part of its $1.4 billion acquisition of Giant Industries. It also operates an El Paso refinery.
Western has hired Goldman Sachs & Co., and Banc of America Securities to help it evaluate options.
Ann Kohler, an analyst for Caris & Co., a New York investment bank, said this is a very difficult time to sell a refinery. Valero Energy Corp. of San Antonio recently “declined to sell a couple of refineries (which were on the market) because it was not getting appropriate valuations,” she said. Delek US Holdings Inc., an oil refiner based in Tennessee, has “announced it no longer is pursuing (refinery) acquisitions, and it will wait for valuation levels to go down further,” Kohler said.
Michael Tian, an analyst for Morningstar, a Chicago investment research firm, said he also sees this as a difficult time to sell a refinery at a decent price, and a difficult time for a company to get money to buy a refinery. “There’s no telling what they can get for this refinery, especially if they are being forced to sell it to raise cash,” Tian said.
Foster told analysts that no price has been set for the refinery, and no deadline has been set for a sale. “We don’t feel any pressure to get it (sale) done by a certain time,” Foster said. “We’re going to do this analysis and go through the process and make a determination on what is best for shareholders. We’re not going to give it (Yorktown) away.”
Vic Kolenc may be reached at firstname.lastname@example.org; 546-6126.
August 8, 2008 at 12:32 pm #6662
Here is update on Western Refining & appears they may have to sell Yorktown Coking Refinery to pay down debt that has been dragging them down for months. They are in bad position with the timing on refinery margins, demand, & the economy all down. The target debt level $1.5 B and low liquidity level for mergers/acquisitions may override goal of not “giving the refinery away”.
The Yorktown Refinery has been making a low sulfur petcoke for the calcining industry and has been at risk of becoming fuel grade since 2005 (like all sweet crude refineries they need improve economics by expanding ability process heavy sour crudes). The refinery currently does process a lot of heavy sweet crudes, however.
As stated in the news item Western purchased Giant for a total $1.4 B in 2007 (which matches with debt level they want to retire). The capacity of 3 refineries was 106.5MBD (Yorktown 62.5, Bloomfield 18.5 & Ciniza/Gallup 26 MBD) would make the average purchase rate of ~$13,145/BD capacity relative low by todays replacement rates of $24k/BD (~56%). But then Giant originally purchased Yorktown from BP in 2002 for $170 Million (~$127.5+$42) which would only be $2720/BD capacity.
Before Yorktown was sold Giant was looking at an expansion there to run Canadian OS crude in 2005 but with cost doubling ended up selling its only coking refinery to Western (initial agreement was in Aug 2006 & ammended price/agreement for fires at Ciniza Mid 2006 & Yorktown Feb 2007).
Anyway you look at it this refinery located on US East Coast will be a good buy either as JV or purchase given price ranges it is likely to sell for – the only drawback will be that (like all refineries below 150 MBD it becomes a shutdown candidate) unless it can be expanded for both size, complexity and ability to purchase some Heavy Sour crudes. And expansions like that in today’s high labor & materials cost push value back to level of replacement cost…..given the long and often blocked progress that two US grassroots refineries have had the last 3 years, that is still the only way to get new capacity on the ground in the US.
The EPA & Environmentalist for some reason are still able to escape blame for each supply crisis by blaming big oil …… but their creditability has taken a lot of hits as more people in industry get the truth out to the public and past politicians & liberal press funnels.
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