NEW YORK (Reuters) - Sunoco Inc and Carlyle Group moved closer to a deal to prevent the shutdown of Sunoco’s Philadelphia refinery, the biggest on the East Coast, after a tentative labor agreement was reached, sources familiar with the situation said.
Details of the agreement between the United Steelworkers and Sunoco (SUN.N) -- reached late Tuesday -- were not released, but sources said a union ratification vote was planned for Monday.
Sunoco is aiming to form a joint venture with Carlyle (CG.O) to keep the 335,000-barrel-per-day refinery -- the nation’s longest continuously operating plant -- from shutting. Threats of a closure have stirred fears of a potential fuel shortfall on the East Coast.
The labor deal -- a necessary step toward keeping the refinery running -- affects about 650 hourly workers at the plant, which employs 1,000 other workers. The refinery also can employ as many as 1,000 independent contractors during times of peak maintenance.
“In my opinion, the labor deal was probably a ‘must have’ for Carlyle, but probably one of the lower hurdles,” said John Auers, a refinery specialist with Houston-based Turner Mason.
“In reality, the union really doesn’t have a lot of leverage and pretty much had to have a contract that was satisfactory to Carlyle.”
Major environmental issues centered on increasing air quality credits for the plant have been resolved, sources said. One remaining hurdle centers on the extent of financial aid offered by Pennsylvania Governor Tom Corbett, sources added.
Joint-venture talks between Sunoco and Carlyle began in April after Sunoco signaled its intent to exit the refining business.
Sunoco initially said it would idle the plant’s main processing units in July if it did not find a buyer, and then later extended the deadline until August.
Oil markets are closely watching the fate of the refinery, one of three in a 12-mile radius near Philadelphia that had been threatened with closure as the high cost of imported crude the plants traditionally run on and weak regional demand battered profits. Concerns about the loss of refining capacity stirred worries the East Coast could face a shortfall of gasoline during the summer driving season which would drive up prices.
But with the shutdown of European and Caribbean plants for similar reasons, the outlook for refineries on the East Coast has improved slightly. Just last week, Delta Air Lines (DAL.N) inked a deal to buy another plant in the Philadelphia area -- the 185,000 bpd Phillips 66 (PSX.N) Trainer refinery -- that had been threatened with shutdown.
The third regional refinery -- Sunoco’s 178,000-bpd shuttered plant in Marcus Hook -- is not expected to be sold as a refinery. A study on use of the site by a regional planning group is expected to be released later on Wednesday.
Under the deal discussed with Carlyle, Sunoco would put the refinery assets into the joint venture in exchange for a non-operating minority interest in the venture, with the private equity firm holding the majority interest and overseeing day-to-day operations.
Sunoco has not disclosed financial terms, and officials were still in talks with government entities on terms before sealing a deal, the sources said.
Recently, Shell (RDSa.L) was offered up to $1.7 billion in tax breaks to build an ethane cracker in the center of the state to process local Marcellus shale oil and natural gas.
Sunoco shares rose 1.6 percent to $48.16, while Carlyle was up 0.5 percent at $21.71.
Reporting by Janet McGurty; editing by Jason Neely, Jeffrey Benkoe and Bernard Orr