Airline buys area refinery

    98
    Advertisement

    A story that once sounded like a wild rumor was confirmed on Monday when  a unit of Delaware Airlines announced a plan to purchase a Philadelphia-are refinery for what the company noted was about the price of a large jet aircraft. The company believes the deal will $300 million a year in fuel costs.

    Delta  subsidiary, Monroe Energy LLC, Monday announced an  agreement with Phillips  to acquire the Trainer refinery complex south of Philadelphia. Initial reports of the deal left some perplexed, but as word of the advantages of buying a refinery became public, analysts saw some positives.

    Delta took pains to explain the rationale behind the deal,  which comes not that long after emerging from bankruptcy proceedings.

    The deal comes after the shutdown of the Sunoco Refinery in Marcus Hook, Pa. and the threatened closing of Sunoco’s Philadelphia refinery later this year unless a buyer can be found. 

    Monroe will enter into strategic sourcing and marketing agreements with BP and Phillips 66.  The acquisition includes pipelines and transportation assets that will provide access to the delivery network for jet fuel reaching Delta’s operations throughout the northeast, including its hubs at LaGuardia and JFK.

    Advertisement

    After receipt of $30 million in state government assistance for job creation and infrastructure improvement from the Commonwealth of Pennsylvania, Monroe’s investment to acquire the refinery will be $150 million, and Monroe will spend $100 million to convert the site to  to maximize jet fuel production.

    In neighboring Delaware, a financial package from the state helped PBF Energy reopen the Delaware City Refinery after it was closed by former owner Valero.

    Production at the refinery combined with multi-year agreements to exchange gasoline, diesel, and other refined products from the refinery for jet fuel will supply  80 percent of Delta’s jet fuel needs in the United States.

    “Acquiring the Trainer refinery is an innovative approach to managing our largest expense,” said Richard Anderson, Delta’s CEO. “This modest investment, the equivalent of the list price of a new widebody aircraft, will allow Delta to reduce its fuel expense by $300 million annually and ensure jet fuel availability in the Northeast.  This strategy is aligned with the moves we have made to build a stronger airline for our shareholders, employees and customers.”

    Under a three-year agreement, BP will supply the crude oil to be refined at the facility.  Monroe Energy will exchange gasoline and other refined products from Trainer for jet fuel from Phillips 66 and BP elsewhere in the country through multi-year agreements.

    The Commonwealth of Pennsylvania and Delaware County have agreed to give assistance to ensure the refinery continues its economic contribution to the region.

    Trainer will be run by a seasoned leadership team headed by 25-year refinery veteran Jeffrey Warmann.  In his last position as refinery manager for Murphy Oil USA, Inc.’s Meraux, La. refinery, Warmann led Meraux’s restructuring efforts, increasing refinery output by more than 30 percent and significantly improving Meraux’s profitability.

    Monroe expects to close on the acquisition in the first half of 2012.  Jet fuel production is expected to begin during the third quarter, and changes to the refinery  to increase jet fuel production would be complete by the end of the third quarter, resulting in expected 2012 fuel savings of more than $100 million.

    “We expect the Trainer acquisition to be accretive to Delta’s earnings, expand our margins, and to fully recover our investment in the first year of operations,” said Paul Jacobson, Delta’s chief financial officer.  “We look forward to closing this transaction and moving quickly to begin capturing its benefits.”

     

    Advertisement
    Advertisement