Philadelphia Refinery Files for Chapter 11 Protection
The largest oil refinery on the East Coast will file for Chapter 11 bankruptcy protection, according to an exclusive report at Reuters. The 335,000-barrel-per-day Philadelphia Energy Solutions (PES) refineries at Girard Point and Point Breeze employ about 1,100 people.
Carlyle Group L.P. (NYSE: CG) and the Sunoco unit of Energy Transfer Partners L.P. (NYSE: ETP) acquired the company six years ago in a deal that included tax breaks and grants. PES filed a prepackaged reorganization plan with the U.S. Bankruptcy Court in Delaware on Sunday.
According to Reuters, the company has secured $260 million in new financing, which includes $120 million of debtor-in-possession and exit financing, $75 million in additional capital from Sunoco Logistics and a $65 million equity investment led by Carlyle and PES management.
The company has spent some $800 million in the past five years to comply with the U.S. Renewable Fuels Standard, a cost that critics say weighs on all refiners. For PES, the cost of the compliance with the standard was second only to crude oil costs on its expense sheet.
The standard requires refiners to blend renewable fuels into the nation’s fuel supply or purchase credits from those companies that do. Because the blending requirement is rising faster than the supply of renewable fuels, the cost of the credits continues to rise.
PES also faces a problem with supply. Most of its crude oil comes from West Africa and is priced against the Brent benchmark. That benchmark has exceeded the U.S. benchmark West Texas Intermediate (WTI) by as much as $8 a barrel on occasion. Absent a steady pipeline supply from the oilfields of Texas and North Dakota, PES and other East Coast refiners relied on rail supplies.
That worked fine until 2016, when WTI prices tumbled and the East Coast refiners were left out of the game of musical chairs to determine where cheap U.S. crude would go.
Reuters reported that PES plans to restructure more than $100 million of its existing debt, which company reported to be between $1 billion and $10 billion in its bankruptcy filing. PES expects the recapitalization process to be completed in the first quarter of this year.