Company News - Premcor to buy Motiva's Delaware refinery

Jan. 26, 2004
Premcor to buy Motiva's Delaware refinery Premcor Inc., Old Greenwich, Conn., agreed to buy Motiva Enterprises LLC's Delaware City refining complex—Delaware's only refinery—for $800 million, plus the value of petroleum inventories at closing.

Premcor Inc., Old Greenwich, Conn., agreed to buy Motiva Enterprises LLC's Delaware City refining complex—Delaware's only refinery—for $800 million, plus the value of petroleum inventories at closing.

The purchase price was $435 million and the assumption of $365 million of tax-exempt bonds from the Delaware Economic Development Authority. Petroleum inventories are estimated to be worth $100 million.

The 175,000 b/cd refinery, 15 miles south of Wilmington, is capable of meeting US Environmental Protection Agency low-sulfur fuel specifications with a modest investment, Premcor said, and also is capable of processing heavy-sour and high-acid crude.

Premcor already owns three refineries: a 237,500 b/cd plant at Port Arthur, Tex., a 190,000 b/cd refinery in Memphis, Tenn., and a 165,000 b/cd refinery in Lima, Ohio.

The Delaware City refinery will enable Premcor to increase its total crude oil processing capability by 30%, Premcor said.

Subject to regulatory approvals and the transaction's finalization, closing is expected during the second quarter.

Motiva is a joint venture owned 50-50 by Shell Oil Products US and Saudi Refining Inc. The Delaware City refinery began production in 1957 as part of the Tidewater Oil Co.'s refining system.

The sale marks Shell's latest divestment of US assets. Last year, Shell sold crude pipelines and storage to Enbridge Energy Partners LP for $131 million (OGJ Online, Dec. 29, 2003) and to Plains All-American Pipeline LP for $4.4 million (OGJ Online, Dec. 18, 2003).

Deal details

The Delaware City complex includes a fluid coking unit, a fluid catalytic cracking unit, a hydrocracking unit with a hydrogen plant, a continuous catalytic reformer, an alkylation unit, and several hydrotreating units. The refinery's petroleum coke production is gasified to fuel the cogeneration facility, which supplies electricity and steam to the refinery and third parties.

Besides the refinery, the transaction includes a coke gasification plant that produces 2,400 tons/day and a 160 Mw cogeneration facility on a nearby, separate complex. Premcor will evaluate whether to sell these facilities, Premcor Chairman and CEO Thomas D. O'Malley told analysts and reporters in a conference call Jan. 15.

The transaction's terms also include a contingency purchase provision that could add another $125 million total to the value of the deal depending upon industry refining margins for 3 years and gasifier performance for 2 years.

Houston-based Sanders Morris Harris Group issued a research statement saying that its analysts "applaud the diversification of Premcor's refining base into the East Coast markets with a fourth refinery. Yet, we are troubled by the complexity of the deal and the magnitude of all the moving parts of the financing, which amounts to nearly $1 billion in equity, debt assumptions, payouts, and inventory purchases."

Moody's Investors Service said the A1 long-term debt and Prime-1 ratings of Motiva Enterprises LLC remain under review for possible downgrade.