Biggest US east coast oil refinery files for bankruptcy

Bloomberg

Philadelphia Energy Solutions LLC, owner of the largest oil refinery serving the New York Harbor gasoline and diesel market, filed for Chapter 11 bankruptcy protection.
The company, a joint-venture between The Carlyle Group LP and a subsidiary of Energy Transfer Partners LP, filed a petition in US Bankruptcy Court in Delaware. Chief Executive Greg Gatta said in a memo obtained by Bloomberg News that the company had a prepackaged reorganization plan and cited the more than $800 million it paid since 2012 to comply with the US government’s Renewable Fuel Standard as a key factor for the decision.
The company’s debt is between $1 billion and $10 billion, it said in its filing, without providing further details in its initial petition.
Independent US refiners that lack the infrastructure to blend biofuel into gasoline and diesel have been hit hard by surging costs for the credits they must buy to meet Environmental Protection Agency quotas for ethanol and biodiesel. The Trump Administration in late November rejected a bid by fuel-makers including Valero Energy Corp. to relieve refiners of the obligation. Billionaire Carl Icahn, the majority owner of CVR Energy Inc., has complained that the program structure is “rigged.”
Formed in 2012 as a result of a partnership between Carlyle and Energy Transfer subsidiary Sunoco Inc., PES drew government aid and was hailed by state, city and union leaders as it worked to save the plant, which accounts for more than one-quarter of operable capacity on the US East Coast and faced shutdown due to dwindling margins. The company was able to ride the back of the US shale boom, building a terminal to take in train cargoes of cheap oil from North Dakota that couldn’t be sold elsewhere.
The end of the US crude export ban in late 2015 and the start of the Dakota Access pipeline last year, among other things, have made the rail shipments less attractive and forced East Coast refiners to turn back to more expensive imports. North Dakota’s Bakken crude was about $5 a barrel cheaper than spot prices for global benchmark Brent. It was more than $30 cheaper in late 2013. Last year, plants along the Atlantic Coast imported the most crude since 2011.
Meanwhile, the company faced rising costs to comply with renewable fuel regulations. It spent $218 million to do so in 2017, its second-largest expenditure after crude oil purchases and more than double its payroll, Gatta said in the memo.
The company also said in the memo that the bankruptcy is part of a restructuring support agreement that will give it access to $260 million in new financing. The refinery will keep operating and there will be no impact on jobs, salaries and benefits of the company’s 1,100 employees, it said, adding that it expects to complete the recapitalisation process in the first quarter. PES split the refineries into separate business units and now operates them as two plants — Girard Point and Point Breeze — with a combined processing capacity of 335,000 barrels a day of crude oil.