Marathon Petroleum’s $15.8 billion deal to expand its rapidly-growing pipeline network highlights one of the most surprising developments in the shale era: after being written off a few years ago, refiners are printing money.
Since June 2011, when Marathon Oil spun off what some thought would be low-margin refining and pipeline units, the top four energy performers on the Standard & Poor’s 500 Index were fuel processors Tesoro Valero Energy, Marathon and Phillips 66. Tesoro more than quadrupled.
Read that again: the best energy stocks in the last four years were the assets that many thought were either doomed or not worth owning as a US energy renaissance took hold.
The producers that drove the shale revolution have suffered as crude prices fell by more than half in the worst oil crash in a generation.
Why? The main reason is that refiners have access to cheaper crude. The tremendous amount of new oil produced in shale regions is essentially landlocked, because most US exports are banned. That means refiners pay less in the US than competitors in other regions.
Another key reason is that refiners have invested billions to build, expand and update their pipelines and logistics businesses, as Marathon did Monday. Along with Marathon, Tesoro, Valero and Phillips 66 have all created or expanded their pipeline units, helping minimize the inherit volatility in the refining business.
via Refiners lead major US energy stocks in shale era | Hydrocarbon Processing | July 2015.
NEW YORK, Oct 9 – Independent U.S. refiners are taking back control of their crude supplies just a few years after outsourcing trading to Wall Street banks and bigger companies, hoping to capture more profit from a global market in flux.After the financial crisis of 2007-2009, a number of ailing U.S. refineries were sold to investors such as Carlyle Group and Delta Air Lines Inc, which lacked the credit agreements or oil trading expertise to efficiently supply their new plants. So they struck deals with the likes of Morgan Stanley and BP to find and purchase crude on their behalf.But the unexpected U.S. shale oil boom has upended the industry, leaving refiners looking inward for crude from places such as North Dakota and Wyoming instead of scouting for barrels in Africa or Europe. It has also caused dramatic flux in domestic prices and a vast expansion of infrastructure, opening up opportunities for nimble traders.So now, many independent refiners are taking their trading arrangements in-house, shedding old deals, hiring new traders and adding new competition for the middlemen and logistics firms that have profited from the shale boom.On Tuesday, Philadelphia Energy Solutions LLC, the biggest refinery on the East Coast, became the latest to join the trend, severing a two-year-old supply and logistics agreement with JPMorgan Chase & Co in favor of a pure inventory and capital finance arrangement with Bank of America Corp.The switch was initially triggered by JPMorgan’s decision to quit physical trading, making it the latest bank to bow out of commodity markets amid regulatory pressure. That trend is another reason refiners are looking to trade for themselves.But PES, which is backed by Carlyle, was also seeking greater flexibility in its trading and logistics operations, as well as a financial partner that would not compete with it in markets, according to a source. With the deal, PES will take control of its own logistics, previously handled by JPMorgan.“These refiners are seeing a lot of profit for the middle man, and they are saying to themselves ‘why shouldn’t we capture that profit,’” said Houston University professor Edward Hirs, an expert in energy finance.“So, they are hiring bright people, with MBAs and experience, to do it.”Others have already done so.This past summer, PBF Energy – run by Thomas O’Malley, a legendary refinery investor who once ran energy trader Phibro – ended the last part of a deal with Morgan Stanley.Even Delta Air Lines’ Monroe Energy division, which runs a refinery in Trainer, Pennsylvania, has sought to improve its supply options, scotching a supply deal with BP and chartering its own U.S.-flagged tanker. It also hired Hugo Zagaria, a senior trader at Plains All American for the past decade, to run its refinery supply operations.
via U.S. merchant refiners take oil trading back in-house | eaglefordtexas.com.
Quantum Energy Inc. has entered into a strategic alliance with Bilfinger Westcon Inc. to build multiple diesel refineries throughout the Bakken region. The facilities will also include a natural gas liquids stripping capacity of 100,000 barrels per day.“This Strategic Alliance was created by the signing of a joint development agreement that will see to develop up to five 21st Century clean energy centers that will each include a 20,000 barrel per day diesel refinery,” said Andrew Kacic, Quantum CEO. “Our design plan includes the latest clean technology to capture the CO2 released from our facilities for use in Enhanced Oil Recovery EOR throughout the Bakken. We welcome Bilfinger Westcon’s decision to join us as Bilfinger Westcon has been a key part of the development of the first greenfield refinery in the U.S. since 1976.”According to Dennis Chismar, Bilfinger Westcon VP of business development, the initial phase of this development will involve studies to support site evaluations, site selections, environmental permitting plans and refinery market studies.Construction will begin soon after the capital is raised.“There’s a lot of interest,” said Russell Smith, executive vice president of public affairs for Quantum Energy. “The ROI on these types of projects are very attractive to the market and they’re pretty far down the road with a number of potential capital sources.”
via The Bakken magazine – Quantum Energy partners to develop refineries in the Bakken.