March 21, 2017 / 7:05 PM / 3 years ago

Ex-oil traders seek buyer for Canadian refinery after bet fails

NEW YORK (Reuters) - The former crude oil traders who bought a struggling, remote Canadian refinery in 2014 as a turnaround bet are quietly trying to unload the asset after facing weak margins and high regulatory costs, according to two people familiar with the efforts.

SilverPeak Financial Partners was once seen as a buyer of refineries - not a seller. The former traders running the commodity venture had planned to build a merchant refiner with trading capabilities, using their purchase of a Newfoundland refinery as a beachhead into the industry. Though the company looked at refineries in Europe, South America and Africa, the deals never materialized, and the stand-alone Canadian plant floundered.

If they ultimately find a willing buyer, the refinery in Come-By-Chance would be the latest along North America’s Atlantic coast to be sold, another example of an east coast-based refiner pushed out of the market by slim margins and more sophisticated competition on the Gulf Coast. Four U.S. East Coast refineries have been shuttered in the past decade.

The pool of potential bidders for the refinery and associated gasoline stations is small, said the people, who spoke on condition of anonymity because the discussions are preliminary and private.

The refiner’s remote location off Canada’s east coast in the province of Newfoundland and Labrador is seen as a drawback for U.S. Gulf refiners with infrastructure closer to the refining-rich Gulf and Midcontinent.

New York-based SilverPeak Financial Partners bought the 115,000-barrel-per-day refinery in Come-by-Chance from South Korea’s oil company, Korea National Oil Corp, for an undisclosed price in November 2014.

The buyers were a team of veteran commodity traders looking for a new venture: Neal Shear, who helped build oil trading at Morgan Stanley; Kaushik Amin, former chief executive officer of RBS Sempra Commodities and global head of liquid markets for Lehman Brothers; and Harsh Rameshwar from Merrill Lynch Commodities.

Despite their experience, a global oil supply glut weighed on the refinery’s earnings potential. Discounts for processing domestic crude evaporated. North Atlantic Refining Ltd (NARL), the division of SilverPeak that operates the plant, told employees late last year of plans to lay off 130 workers, including about 100 of 330 union jobs, due to weak margins and regulatory costs.

The plant must comply with Canadian regulations and also must meet U.S. specifications for the fuel it exports, including the purchase of renewable fuel credits.

Privately held Irving Oil is seen as the most likely candidate to bid on the refinery, because it operates a large plant in the province’s capital of St. John’s, and also has a fuel distribution network in the region, the people said.

Neither Irving Oil nor NARL responded to requests for comment.

A lawsuit by crude supplier BP Plc, filed in 2015, may also make selling Come-by-Chance more difficult, the people said. In its lawsuit, BP demanded $110 million from NARL, alleging the company had not properly managed the refinery, hurting profits. NARL argued that BP had provided types of crude that benefited its trading book but hurt the refinery’s equipment and profits.

The dispute is in arbitration, and a ruling on outstanding issues is expected in the fall. Legal fights can be a deterrent for potential buyers in refining transactions.

SilverPeak believed the refinery’s location would be advantageous for delivering crude along the coast, from Massachusetts to Argentina. But it is seen as a drawback for refiners focused on the U.S. Midwest or Gulf Coast, where access to crude and distribution networks for products are better established.

(This version of the story has been refiled to correct dateline to March 21 from March 20)

Reporting By Jessica Resnick-Ault and additional reporting from Jarrett Renshaw

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