Are Financial Firms Looking at Becoming Oil Refiners? (SU, DAL, COP, JPM)

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Sunoco Inc. (NYSE: SU) has been shopping its two Pennsylvania refineries since late last summer with not a lot of interest from prospective buyers. That could be about to change.

Last week we noted that a deal between Delta Air Lines Co. (NYSE: DAL) and ConocoPhillips (NYSE: COP) might be getting closer to being done. The interesting thing about that deal is that JPMorgan & Co. (NYSE: JPM) would provide the crude oil for a Delta-owned refinery. Delta gets the jet fuel, JP Morgan trades the crude and the other refined products.

The Wall Street Journal reports that Sunoco is currently in discussions with soon-to-be-public Carlyle Group to form a joint venture to keep Sunoco’s 330,000 barrel/day Philadelphia refinery in operation. The reported deal between Sunoco and Carlyle appears to be very similar to the Delta-JPMorgan deal. Sunoco would contribute the Philadelphia refinery to the joint venture in exchange for a non-operating minority stake. The company would have no obligations to support the refining operations. Carlyle would adopt a role similar to Morgan’s proposed role with Delta.

The refined products that will be coming out of either refinery are almost incidental to this story. If the deals go through JPMorgan and Carlyle become commercial traders of crude and refined products, lowering their margin requirements, and potentially raising their returns from the sale and hedging of the refined products.

We’ll have to wait for the details if and when one of these deals gets done, but we could be seeing the start of something new in the refining business in the US.

Paul Ausick

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