Exclusive: Murphy Oil nears $500 million sale of UK refining assets

LONDON Thu Mar 27, 2014 8:05am EDT

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LONDON (Reuters) - Murphy Oil (MUR.N) is ready to exit British refining next month with the sale of its Milford Haven plant and retail assets to private equity fund Greybull Capital for over $500 million, sources close to the talks told Reuters.

Murco, a Murphy Oil subsidiary, is expected to sell its 135,000 barrels-per-day (bpd) refinery in Wales, oil inventories, storage facilities and hundreds of petrol stations across Britain, the sources said.

European refiners have struggled in recent years with shrinking domestic demand and increased overseas competition, which have forced a number of painful closures.

The deal, which is expected to be signed in mid-April, could ensure Milford Haven's short-term survival despite its recent low profit margins.

Also Arkansas-based Murphy Oil, which bought its initial stake in Milford Haven in 1981, would be exiting British refining after a four-year search for a buyer.

Crude oil and oil product inventories held by Murco were expected to account for more than half of the $500 million price tag, while the 400 service stations would account for most of the remainder, a source familiar with the deal said.

The price put on the plant would represent a small fraction of the cost of the deal.

One of the sources said Greybull planned to keep the refinery in operation despite weak and often negative profit margins. Last year, its refining margin averaged 75 cents per barrel of crude processed, according to Murphy Oil's annual presentation.

London-based Greybull Capital has mostly avoided the limelight since the family capital investment fund was created in 2008 by brothers Nathaniel and Marc Meyohas and Richard Perlhagen.

It specializes in long-term investments in companies and has invested in the retail, biotech, energy and manufacturing sectors in Europe, Israel and the United States.

The fund has agreed to back the refinery's existing management and committed to maintaining the refinery's current work force of around 450 people, the sources said.

Greybull, identified as a potential buyer earlier this month, intends to carry out routine maintenance that was already planned for Milford Haven in 2015 on schedule at an estimated cost of less than $75 million, sources have said.

A spokesman for Greybull Capital declined to comment.

Greybull is expected to partner with a trading house to raise capital for the transaction and to sell the refined products.

Murco spokeswoman Emma Murphy confirmed that talks for the sale of the company's assets "are ongoing and are at an advanced stage", but would not comment on the price or expected completion day.

REFINING CRISIS

A deal that keeps Milford Haven operating would be welcomed by workers, who have worried about their jobs since the closure of Coryton in the east of England in 2012.

Last year, PetroIneos was at the brink of closing its Grangemouth plant in Scotland after a bitter industrial dispute. It survived after workers agreed to cuts in terms and conditions, the British government made a pledge to provide a loan guarantee, and the Scottish government promised a grant.

The deal comes at the height of one of the biggest crises faced by Europe's refining industry.

Another 2 million bpd of capacity, more than 10 percent of Europe's total, is expected to shut over the next five years, analysts at Vienna-based JBC Energy said.

Milford Haven was the smallest and among the least complex of Britain's seven refineries in 2012, according to a report produced by Purvin & Gertz for the UK Petroleum Industry Association.

The refinery has undergone upgrades in recent years to increase its high-value diesel yield. The site also has deep water births that allow large tankers to be loaded and discharged.

"Like all refineries, Murco has its advantages and disadvantages, but it is a well invested refinery and comprises irreplaceable assets for the location," an industry source said.

"The sector is challenged, but if you can finance, trade and manage it properly, these are viable assets," the source added.

(Additional reporting by Claire Milhench Editing by Veronica Brown and Jane Baird)

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