NEW YORK (Reuters) - Philadelphia Energy Solutions, the Carlyle Group-backed company that breathed new life into a “zombie” refinery complex on the East Coast is now trying to shed the investment in the face of market headwinds, according to people familiar with the efforts. PES has circulated detailed financial statements within the past two weeks to several potential buyers, including other refiners and at least one company that would be a new entrant to the business, according to two people familiar with the process.
The company has offered prospective buyers the potential to break up the two plants, which together make up the largest U.S. East Coast refinery, with the capacity to convert 330,000 barrels of crude a day into products like gasoline, diesel and jet fuel.
“PES has not heard these rumors and we have no idea where they come from,” spokeswoman Cherice Corley said in an email. “It is public knowledge that the Company has registration statements on file with the SEC regarding the possibility of executing one or more public offerings when the capital markets for such becomes appealing.” The renewed interest in selling comes after an attempt to take PES public was indefinitely postponed last year and after millions of dollars in public investment. The planned IPO valued the refinery at $1.3 billion. Buyers who have engaged in talks over the past year have valued the complex at less than half that amount, according to two people familiar with previous talks.
Talks in 2015 with companies including Carl Icahn-backed CVR Energy floundered because the parties could not agree on a valuation for the plant, according to one of the sources familiar with the talks.
The chief executive of PES, Phil Rinaldi, told Reuters in September that the IPO had been postponed after potential investors were looking for discounts. The Girard Point section of the complex is able to handle about 200,000 bpd and is able to process a wider variety of sludgy crudes from different regions, which require special equipment. The smaller Point Breeze section of the refinery, by contrast, runs light sweet crude, like that from the Bakken shale of North Dakota and from the North Sea. Data on the plant has been offered or sent to at least three companies including Silverpeak Strategic Partners, which operates a refinery in Newfoundland, a second refiner, and a company that does not currently operate any refineries, according to people familiar with the discussions. If the plants were broken up for separate operation, commercial agreements would need to be struck between the two operators, as equipment for producing gasoline that complies with environmental regulations is located at only one of the two plants. Such agreements do exist elsewhere in U.S. refining.
ZOMBIE REFINERIES East Coast refineries were shuttered in the wake of the 2008 financial crisis, as nearly five years of demand growth evaporated overnight, leaving a tepid market for the gasoline that came pouring out of refineries that dotted the Atlantic Coast of Delaware, Pennsylvania and New Jersey. Two years later, the market changed abruptly with the availability of light sweet crude from shale. As the shale revolution resulted in oil with no marketplace, some of the “zombie refineries” rumbled back to life. Private-equity-backed PBF Energy bought plants in Delaware and New Jersey from Valero Energy Corp, Delta Air Lines bought a refinery in Trainer, Pennsylvania, and Philadelphia Energy Solutions emerged as the savior of the Philadelphia complex. Rinaldi and others on the East Coast built large rail terminals to accommodate the Bakken flowing from North Dakota. In recent months, the Bakken discount has disappeared, and so have the trains. The loss of cheaper domestic crude contributed to the worst quarter by U.S. independent refiners since 2012 earlier this year.
Reporting by Jessica Resnick-Ault and Jarrett Renshaw; Editing by Leslie Adler