Sunoco US refineries pose risky investment for buyers – analyst

08 September 2011 21:06  [Source: ICIS news]

HOUSTON (ICIS)--US-based refiner Sunoco has put its two US east coast refineries up for sale, but environmental costs and upgrades could keep potential buyers away, an analyst said on Thursday.

“The refineries need tons of upgrades to meet the [US Environmental Protection Agency] standards, so not only do they have to buy the refineries but they have to fix them up too,” said analyst Phil Flynn with PFG Best.

In 2005, US regulators sued Sunoco, alleging that four of the company's refineries violated environmental regulations.

As part of a consent agreement, Sunoco agreed to install air-pollution-control equipment at the refineries, even though the company denied the regulators' allegations. 

Sunoco officials could not be reached immediately for comment about the refinery’s alleged environmental violations.

Earlier, Sunoco announced that it plans to exit the refining business, and it has begun the process of selling its 335,000 bbl/day Philadelphia and 178,000 bbl/day Marcus Hook refineries in Pennsylvania.

As a prospective buyer, I would submit a low ball offer  justification being the capital investments that will be needed to restore the refineries to reasonable profitability,” said Petral Worldwide analyst Dan Lippe.

If a suitable transaction cannot be met by July 2012 then Sunoco said it would idle the main processing units at the facilities.

Analysts questioned if Sunoco would go so far as to close its refineries.

Lippe said he “seriously doubts” the refineries will be permanently shut down, but Flynn doubts any company will invest in the plants.

“Nobody wants to be in this business anymore,” Flynn said.  

Recently, several companies have moved away from refining. Marathon Oil has spun off its refining business, and ConocoPhillips is also in the process of doing so.

If the refineries are shut down, needed supply will tighten on the US east coast, which could attract the attention of the US government, Flynn said.

“We’re going to get supply tightness on the east coast, prices are going to go up and politicians are going to start an investigation on why all of these refineries are shut down,” Flynn said.

The government might prompt a buyer and negotiate on the investment to bring the plants up to code and to keep the plants operating.

The shut down of these plants would not cripple supply to the region, Lippe said. It could, however, cause imports and transports from the US Gulf  the source of 70% of the north east’s total gasoline supply to increase.

By: Sheena Martin
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