Delaware Refinery is Sold

abarrelfull wrote on 14 Apr 2010 06:55
Tags: delaware pbf refinery valero

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The deal has been talked about for a while, and it has finally been done.

Valero Energy Corporation announced today it has reached an agreement to sell the assets of its terminal operation and discontinued operations in Delaware City to the Delaware City Refining Company LLC and Delaware Pipeline Company LLC, wholly owned subsidiaries of PBF Energy Partners LP.

So one of the few refineries that was actually shut down, is going to arise from the ashes.

The sale price is $220 million for the assets.

It gets Valero of the hook for the potential liabilities which would come with the shutting down and breaking up of the refinery, as well as cash, albeit not a lot. However, not everyone is convinced that they did the right thing.

The refining industry has been hit hard by the recession. Some capacity needs to be shut down permanently. The opportunity to buy distressed assets at rock bottom prices and put them back into operation will delay the industry's return to significant profitability.

This is true. The silver lining that we expected from the cloud of terrible margins was that poor quality assets would be taken out of production. However, with the likes of Tom O-Malley jumping at the opportunity to buy cut priced assets, this may not happen to the extent that it should.

Given that we all know that a rationalisation is necessary, one also has to question the logic of the buyer. Assuming that he wants to cash out at some point in the future, who does he think will buy, before significant capacity is closed, and with the example set by this deal, who will do the closing?

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