September 6, 2018 / 9:39 PM / 16 days ago

Delta Air Lines targets motor fuels buyers in refinery deal: sources

NEW YORK (Reuters) - Delta Air Lines’ (DAL.N) decision to offer a stake in its Monroe Energy oil-refining subsidiary is aimed at attracting a partner interested in snapping up Monroe’s gasoline and diesel output, two sources familiar with the matter said on Thursday.

FILE PHOTO: A Delta Air Lines Boeing 737-800 plane arrives in Salt Lake City, Utah, U.S., January 12, 2018. REUTERS/Mike Blake/File Photo

The airline no longer wants to be involved in marketing the motor fuels, which are a major part of the refinery’s output, but does want retain Monroe’s jet fuel production for its own uses, sources familiar with recent discussions between managers and employees said.

Delta said late on Wednesday it had hired investment banks Barclays and Jefferies to pursue the sale of a undisclosed stake in Monroe Energy LLC, the subsidiary that runs the 185,000 barrel-per-day refinery in Trainer, Pennsylvania.

Possible investors could include gasoline retailers that would take on the motor fuels business but are less interested in Monroe’s jet fuel production, company managers told employees, according to the sources.

The sources requested anonymity because the matter has not been made public. Delta declined to comment for this story.

The company’s move to unload a stake in Monroe Energy could represent the first step in unwinding a bet that owning a refinery would lower its jet fuel costs, among an airline’s highest expense. The 2012 deal was criticized by some investors who saw the airline’s $150 million purchase as drifting from its core business.

The East Coast plant relies largely on imported crude, lacking access to less expensive shale and Canadian crude that benefits U.S. Midwest and Gulf Coast refineries. That means any Monroe sale would need to be at a deep discount to other recent refinery-related transactions, analysts said.

One possible scenario would be to allow a buyer to finance any purchase using the plant as collateral, reducing the initial capital required, analysts say.

“I think a trading company or private equity firm are the two ... most likely (bidders),” said Neil Earnest, president of energy consultancy Muse, Stancil & Co. “I don’t see an existing refiner or producer or retail guy that stands out as wanting that asset or needing that asset.”

Delta’s desire to retain a stake in the plant also means energy traders may be reluctant to bid on a plant they cannot fully control, he added.

While some gasoline retailers have bought refineries, the Trainer plant’s lack of an existing distribution network reduces the number of potential buyers, Earnest said. When Canadian retailer Parkland Fuel Corp (PKI.TO) acquired Chevron Corp’s (CVX.N) refinery in Burnaby, British Columbia, last year, the main draw was the affiliated retail assets, and not the plant itself, he said.

Reporting By Jarrett Renshaw and Jessica Resnick-Ault

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