Possible US Sunoco, Carlyle JV may change industry – consultant

25 April 2012 17:13  [Source: ICIS news]

HOUSTON (ICIS)--A possible joint venture between Sunoco and The Carlyle Group could lead US refiners to study partnerships with investment companies, changing the structure of the industry, an analyst said on Wednesday.

“[This] would possibly result in a dramatic change in the operation of an oil refinery and could open doors for similar arrangements for other refineries,” said consultant Patrick DeHaan with GasBuddy.

“This is a very interesting arrangement, if it is solidified, and could represent a change in the industry, whereas an oil company keeps a stake, while a financially backed group buys, sells and maintains the facility,” he said.

On Monday, US-based Sunoco extended the deadline for shutting down its 330,000 bbl/day Philadelphia refinery in Pennsylvania until August because of ongoing discussions of a joint venture with The Carlyle Group.

“Carlyle is attempting to negotiate a deal that will be profitable in the medium to long term, based upon their perceptions of future returns for the refining sector and for assets on the US east coast, in particular,” said Susan Starr, a principal with Muse Stancil, an energy consulting firm.

The Carlyle Group is a private-equity firm with 33 offices around the world.

Starr said Carlyle has expertise in the energy industry with management of other energy investments.

If the deal between Sunoco and The Carlyle Group is completed, Sunoco would contribute the assets of the Philadelphia refinery in exchange for a non-operating minority interest in the joint venture.

“Carlyle would contribute cash to the joint venture, hold the majority interest and oversee day-to-day operations of the joint venture and the facility,” Sunoco said.

Starr said the joint venture would likely maintain much of the existing and experienced management, with the support of outside consultants or labour, as necessary, “to provide a safe and efficient operation of the facilities going forward”.

The Philadelphia refinery requires maintenance to meet US Environmental Protection Agency and Occupational Safety and Health Administration standards, in addition to a burden of cost for imported oil.

Sunoco said offers of support by federal, state, local and labour officials have been encouraging.

“To enhance profitability, [The Carlyle Group] will likely do extensive refining economics reviews and planning, including assessments of crude supply alternatives, operating costs and potential capital investments,” Starr said.

Purvin & Gertz analyst Blake Eskew said there was not enough information to make any conclusions about the success or failure of the joint venture.

“Sunoco [is] hard-pressed to find buyers, taking virtually any offer that is acceptable,” DeHaan said.

Sunoco had previously set a deadline of July 2012 to shut down the Philadelphia refinery if no buyers were found.

The company already shut down its 178,000 bbl/day Marcus Hook refinery in Pennsylvania as the company did not expect it would find a buyer.

By: Sheena Martin
+1 713 525 2653

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