By OGJ editors
HOUSTON, Apr. 21 -- Old Greenwich, Conn.-based Premcor Inc. reported Monday that it has entered into a memorandum of understanding to sell its 70,000 b/d Hartford, Ill., refinery and some of the refinery's related assets to ConocoPhillips for $40 million.
Premcor, one of the largest independent refiners in the US, said the sale would result in a pretax charge of $16.6 million in the first quarter. Premcor Chairman and CEO Thomas D. O'Malley said that the restructuring charge includes $9 million to reduce the refining assets from their $49 million carrying value to the $40 million sales price. The charge also includes $4.6 million for the value of certain terminal assets and $3 million in ancillary costs.
Premcor closed its Hartford facility in September due to the lack of an economically viable solution to reconfiguring the plant in order to meet federally mandated environmental standards (OGJ Online, Sept. 24, 2002). O'Malley called the decision to cease operations at the refinery a "difficult, but necessary" one, adding that the sale of the refinery to ConocoPhillips would help to "preserve jobs and refining capacity in the Midwest."
O'Malley added that Premcor plans to continue to own and operate the Hartford terminal facility "to accommodate our wholesale petroleum product distribution business." The company also will carry the remaining Hartford terminal assets on its books, O'Malley said.
Reaction
The sale, which will require regulatory approval, is expected to close as early as the end of the first quarter, due to the refinery being shut down since late last year, said Andrew F. Rosenfeld, analyst with Prudential Securities Inc., in a research note.
"Although no potential uses for the sale proceeds were given, we expect (Premcor) will either use the proceeds to partially fund future acquisitions or fund its significant capital expenditure requirements regarding the upcoming clean fuels standards mandated by the federal government," Rosenfeld said. The analyst pegged this clean fuel spending by Premcor to top $725-775 million over the next 7 years.
On refining in general, Rosenfeld said, "We believe excellent fundamentals will bode well for refining margins to remain above normal this year. The fact that the current margin environment exists against a backdrop of very high crude oil prices is further evidence that the underlying economics of the business have improved substantially.
"Elevated refining margins should lead to excellent earnings and high free cash flows, resulting in debt reduction across the industry as well as the removal of some uncertainty surrounding how refiners will fund the capital expenditure programs for low-sulfur gasoline and diesel, and the New Source Review legislation."
