* Delta to receive Bakken crude at Trainer in Q1
* Airliner lost $63 million at Trainer in Q4, 2012
* Delta expects plant to make modest profits in Q1
By Selam Gebrekidan and David Sheppard
NEW YORK, Jan 22 Delta Air Lines Inc
plans to run cheaper domestic crude at its newly-acquired
Trainer, Pennsylvania refinery to improve profits at the plant,
becoming the latest U.S. company to cash in on the burgeoning
shale oil boom.
After losing $63 million at the refinery in the fourth
quarter, the Atlanta-based airline will receive its first crude
shipments there from North Dakota's Bakken shale in the first
quarter, the company said during its earnings call Tuesday.
Delta's subsidiary, Monroe Energy LLC, was forced to slow
production at the 185,000 barrels-per-day plant in November and
December after Hurricane Sandy damaged regional pipelines and
terminals, leading to the losses, Paul Jacobson, the company's
senior vice president and chief financial officer said during
However, the Trainer refinery will bounce back to a modest
profit in the first quarter, Jacobson added.
East Coast refiners are eyeing to cut their costs of
importing foreign crude, which is significantly more expensive
than oil from the recently booming North Dakotan fields. It is
much cheaper to rail crude from the Midwest shale play, at an
added $12 to $16 a barrel in transportation costs, than to buy
oil priced against European Brent, according to
Delta declined to say how much Bakken crude the refinery
will run, a figure it said will be determined once initial tests
were done running the crude.
"As we run this first shipment this quarter, we'll have more
color as to what the total potential is, but it is pretty
significant," Jacobson said.
Delta has a multiple-years contract with BP plc for
crude supply at Trainer.
With its latest move, the airliner joins other East Coast
refiners like Phillips 66, which in early January made
an estimated $1 billion commitment to ship 50,000 bpd of Bakken
crude oil to its 238,000 bpd Bayway refinery in Linden, New
The Bakken shale produced just under 670,000 bpd in
November, more than OPEC member Ecuador, according to North
Dakota regulators' data.
The airline bought the Trainer plant in spring last year
from Phillips 66, the refining company that was spun off
from ConocoPhillips, thereby emerging as the first air
carrier to attempt to control its fuel costs this way.
It also made $70 million of capital investments in the
refinery during the fourth quarter as it attempted to boost jet
fuel production at the expense of other fuels like gasoline.
Trainer was one of three refineries on the East Coast that
was threatened with closure since 2011 as the high cost of
imported crude that the plants process hit margins, raising the
threat of a fuel squeeze in the region.
Before Sandy hit, Delta predicted the Trainer refinery would
contribute up to $25 million to the airline's bottom line. But
the company's average jet fuel price was $3.24 per gallon in the
fourth quarter, including losses of 7 cents a gallon from the
Trainer refinery against 5 cents per gallon in hedging gains,
according to the results it filed.
Still, the company stood by its purchase in the earnings
"If you take Sandy and its effects out of it, everything has
gone as planned," Delta's CEO Richard Anderson said.
"Actually, after we've closed the deal on the refinery and
spent a lot of time on turnarounds, we're more certain of how
prudent that acquisitions was," he added.