Premcor to buy Williams's Memphis refinery for $465 million

By OGJ editors
HOUSTON, Dec. 3 -- Williams Cos. Inc. reported late last month signing a definitive agreement to sell its Memphis refinery and other related operations to Old Greenwich, Conn.-based independent refiner Premcor Inc. for $465 million in cash. The Tulsa-based energy company put the 190,000 b/d Memphis plant as well as its Alaska refinery up for sale earlier this year in a move that would divest all of its US refining capacity (OGJ Online, June 24, 2002).

Over the last several months, refinery sales have been "dormant" despite 10 refineries that are currently on the market in the US, according to a recently released report by Fitch Ratings.

Refinery sale
In addition to the refinery, Premcor will acquire two associated truck-loading racks, three petroleum terminals in West Memphis, Ark., Collierville, Tenn., and Memphis, supporting crude and refined product pipeline systems, and crude oil tankage at St. James, La.

Terms of the agreement call for Premcor to pay $315 million at closing for the refinery and related fixed assets. Premcor also will purchase petroleum inventories valued at $150 million.

In addition, the agreement contains an earn-out provision—to be paid annually, depending on refining margins—that would allow Williams to receive potentially as much as an additional $75 million over the next 7 years.

For Williams, the sale of its Memphis refinery "represents another critical step" in its restructuring plan, said Steve Malcolm, Williams chairman, president, and CEO.

The sale is expected to close before the end of first quarter 2003.

Fitch report
In light of Premcor's planned refinery acquisition, Fitch said, ". . .the disparity between the high expectations of sellers and the low expectations of buyers makes it unlikely that another sale will be announced this year."

The sale price for refineries and their associated infrastructure has skyrocketed over the last few years, which has helped to fuel "already high seller expectations," noted Bryan Caviness, Fitch Ratings director. "Also increasing expectations is the predicted rebound in refining margins, which suffered a downturn of four successive quarters immediately following the events of Sept. 11, (2001)," he said.

Buyer expectations, meanwhile, "have deteriorated due to a low margin environment that has seen significant consolidation and fewer, weaker buyers of refining assets," Caviness said. "Also exacerbating the situation is increasing environmental costs, which buyers have incorporated into their bids, effectively reducing the prices they are willing to pay," he said.

"Given the current market environment and the desire of the interested parties to complete transactions, Fitch expects that several of the assets currently on the market will sell," Caviness said, adding, "The major and supermajor players may also look at shedding more downstream assets once margins return."

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