NEW YORK (Reuters) - Philadelphia Energy Solutions Chief Executive Phil Rinaldi said he plans to retire in March, forcing the company to find a new leader as it responds to an industrywide downturn that has hit the U.S. East Coast the hardest.
Rinaldi, 70, disclosed his plans in a memo to employees on Tuesday that did not give a reason for his departure.
It comes after Moody’s and Standard & Poor’s downgraded the company’s debt last month amid concerns about falling profits.
Carlyle Group spokesman Christopher Ullman said the firm had already begun looking for a new CEO.
“Phil’s remarkable leadership helped save and modernize the company, as well as preserve and create more than 1,000 jobs,” Ullman said.
Rinaldi has been CEO of the privately held company since 2010, when The Carlyle Group and Sunoco formed a joint venture to rescue the nearly shuttered Philadelphia refinery. He quickly became the region’s strongest advocate for energy expansion as the refinery turned profits off cheap crude flowing out of North Dakota.
There have been several high-profile setbacks for Rinaldi in the past two years, including a failed effort to take the company public, followed by layoffs and benefit cuts amid weak margins.
“We took the company off life support with help from The Carlyle Group,” Rinaldi said in the memo to employees seen by Reuters. “We invested more than $700 million modernizing the plant, improving efficiency and hiring a net 240 people since the time of the acquisition.”
He noted that it has been a challenging year due to the rising costs of meeting U.S. renewable fuel standards and other factors, but said the refinery’s future was bright, without providing any specifics.
Moody’s and S&P downgraded the refiner’s debt last month following a Reuters story that showed how Carlyle and its partner had banked millions in profits and put the company on less solid financial footing.
“We now view the company’s business risk profile as vulnerable because its profitability has declined meaningfully from 2014 and 2015 levels,” an analyst with Standard & Poor’s said when it issued the downgrade. “We expect profitability to be very weak in 2016 and to continue to be at weak levels in 2017.”
Rinaldi, who made millions by turning around a Kansas refinery before selling it, spent the last few years pitching the idea of transforming Philadelphia into an energy hub by leveraging the natural gas and other products flowing out of the Marcellus Shale region in western and northern Pennsylvania.
However, those efforts, which included proposals to build a natural gas pipeline into Philadelphia and create an energy export terminal on one of the last undeveloped patches of land on the city’s waterfront, failed because of lack of enthusiasm.
“Phil was the one driving the vision, and now that those projects seem to be not viable, there’s really nothing left for Phil to do,” said a source who participated in those talks.
In one of his first moves, Rinaldi invested in a new crude rail terminal that would eventually allow the refinery to haul as much as 280,000 barrels per day of Bakken crude oil from North Dakota. The terminal helped PES turn losses in 2013 into $210.8 million in net income in 2014, filings showed.
But the boom turned to bust by the end of 2015, as a Bakken discount to the U.S. benchmark crude price disappeared, production dropped and more pipeline capacity came online. Meanwhile, refiner margins dropped under the weight of high inventories built up during the good times.
The timing of the downturn was poor for Carlyle, which was preparing to take PES public in August 2015. In the end, PES could not get the price it wanted and abandoned the plan to go public in September. [L2N1BQ0RC]
Weeks later, PES laid off about 100 non-union employees and slashed some retirement and health benefits. [L1N1CG0U7]
Despite the downturn, Carlyle Group and its partner, Sunoco parent Energy Transfer Partners, have done well. The partnership banked hundreds of millions from the refinery in dividend-style payouts that were funded in part from a loan that continues to weigh on the company, Reuters reported last month. [L1N1D8040]
In total, between 2013 and 2015 payouts and tax advances to the partnership reached $480.9 million, all but guaranteeing Carlyle’s venture would be profitable.
Mark Routt, chief economist for the Americas at KBC Advanced Technology, said of Rinaldi’s retirement, “It’s indicative of the pressures that the Atlantic refiners from the East Coast Canada to the U.S. are facing.”
Reporting by Jarrett Renshaw; Writing by Jessica Resnick-Ault; Editing by Marguerita Choy, Leslie Adler, Jim Finkle