COMPANY NEWS: Lyondell to buy Citgo’s stake in Houston refinery

Sept. 4, 2006
Lyondell Chemical Co. will acquire Citgo Petroleum Corp.’s 41.25% interest in Lyondell-Citgo Refining LP for $2.1 billion, including the refining company’s debt.

Lyondell Chemical Co. will acquire Citgo Petroleum Corp.’s 41.25% interest in Lyondell-Citgo Refining LP for $2.1 billion, including the refining company’s debt.

In other recent downstream company news:

  • Harvest Energy Trust, Calgary, plans to acquire the 105,000 b/cd North Atlantic Refining Ltd. refinery and related businesses from Vitol Refining Group BV for $1.6 billion (Can.).
  • Western Refining Inc. plans to acquire Giant Industries Inc., Scottsdale, Ariz., for $1.5 billion, including $275 million in debt.
  • Tenaska Energy Inc. of Omaha, Neb., formed a biofuels company, Tenaska BioFuels LLC, to provide marketing, physical delivery, and financial services to the ethanol and biodiesel industries.
  • Kinder Morgan Inc. (KMI) senior managers and investors have offered $22 billion total to buy the pipeline company and take it private, saying they will pay $107.50/share compared with an earlier offer of $100/share.

Lyondell-Citgo deal

The 282,600 b/cd refinery in Houston processes very heavy high-sulfur crude oil. Concurrently, Lyondell negotiated a 5-year, 230,000 b/d oil contract with state-owned Petroleos de Venezuela SA.

The new contract is based on market prices, Lyondell said, adding that since late 2004, the refinery paid above-market prices for PDVSA oil based upon a 1993 contract.

The refinery was one of the original Lyondell assets at the company’s formation and became part of a joint venture of Lyondell and Citgo in 1993.

If Lyondell owned 100% of the refinery during the first half of 2006, assuming the new crude contract was in place, Lyondell calculates its pro forma net income would have increased to $640 million from $450 million.

Corresponding data for 2005 indicate that pro forma net income would have increased to $772 million from $531 million. Lyondell filed its unaudited pro forma financial statements with the US Securities and Exchange Commission.

Harvest-North Atlantic

Closing of the transaction is anticipated by mid-October, subject to regulatory and other approvals. North Atlantic is a medium-gravity, sour crude refinery in Come by Chance, Newf.

The acquisition also includes a marketing division in Newfoundland with 69 retail outlets, a residential and commercial home heating business, the supply of products to commercial and wholesale customers, and the bunkering of petroleum products.

Harvest said it is buying the refinery to create a more fully integrated operation, combining the downstream assets with the company’s existing upstream assets. This transaction would position Harvest as the only integrated Canadian energy royalty trust.

Western-Giant

The boards of both companies announced on Aug. 28 that they unanimously approved a definitive merger agreement under which Western of El Paso, Tex., plans to acquire all of Giant’s outstanding stock for $83/share.

Subject to customary conditions and regulatory approvals, the transaction is expected to close during the fourth quarter. The new combined independent refiner and marketer will have the capacity to handle 193,500 b/d from four refineries (OGJ, Dec. 19, 2005, p. 63).

In addition to its 90,000 b/cd refinery in El Paso, the Giant acquisition will give Western an East Coast presence with Giant’s 58,900 b/d refinery in Yorktown, Va.

Western also is acquiring Giant’s two northern New Mexico refineries: a 18,600 b/cd refinery in Bloomfield and a 26,000 b/cd refinery in Gallup.

In addition to the four refineries, Western’s assets will include products terminals in Flagstaff, Ariz., and Albuquerque, NM, and asphalt terminals in Arizona, New Mexico, and Texas.

Western’s asset base also will include 159 retail outlets and convenience stores in Arizona, Colorado, and New Mexico, and two wholesale products distributors.

Tenaska BioFuels

The new company, to be based in Omaha, is expected to begin operating during the third quarter. Tenaska BioFuels is being formed to help customers develop relationships with alternate fuels producers, marketers, blenders, and retailers across the US.

The private parent company, Tenaska, develops and operates nonutility generation and cogeneration plants. It also markets natural gas and electricity.

KMI to go private

KMI and affiliates own 40,000 miles of gas and oil pipelines and 150 terminals in the US and Canada.

Chairman and Chief Executive Officer Richard Kinder said May 29 that he and other senior managers have the backing of an investor group including Goldman Sachs Capital Partners and its affiliates, American International Group Inc., the Carlyle Group, and Riverstone Holdings LLC (OGJ, June 12, 2006, p. 34).

The latest offer involves $15 billion for the stock purchase, plus the assumption of $7 billion in debt. KMI’s board approved the agreement and will recommend that stockholders do the same, the company said in an Aug. 28 statement.

Subject to stockholder and regulatory approvals, the transaction is expected to close by early 2007. Kinder plans to reinvest all of his 24 million shares into the private company, and he would continue as chairman and chief executive officer .

The proposed transaction is in the form of a merger of the company with a new acquisition vehicle to be formed.