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Altering ownership of US refineries

Hydrocarbon Engineering,

Since 2000, US refining capacity has increased as additions outpaced the loss of capacity from three major refinery closures. Yet the number of refineries and companies both declined over the same period, as the concentration of refining among the top five companies increased from 38% in 2000 to 44% last year.

Ownership of US refinery capacity changed substantially in recent years, notwithstanding relatively slow changes in refinery capacity and the number of companies involved in the refining sector. An examination of company level information and transactional data since 2000 shows both consolidation and dispersion. Almost 40% of large refiners in 2000 had exited the industry by mid year 2013.

Key themes of change

  • Specialisation. Several large oil and gas producers with refining operations, including Marathon Oil Corporation and ConocoPhillips, transferred their refining assets to stand alone refining companies.
  • Refocus away from refining. Some companies demonstrated a lessened commitment to refining. BP and Chevron reduced their refining capacity, but stopped well short of exiting refining. Total, ExxonMobil, and Access Industries had slight reductions in US refining capacity.
  • Refocus on refining. Other companies had noticeable increases in capacity. Valero and the joint ventures Motiva and Deer Park increased refining capacity by 277%, 23% and 20% respectively. Valero grew through acquiring companies and assets, while Motiva grew through investing in its assets, chiefly the expansion of the Port Arthur, Texas refinery which is now the largest refinery in the US.
  • Vertical integration. Delta Air Lines, which owned no refining assets, purchased a refinery from ConocoPhillips and now produces jet fuel for its aircraft along with other petroleum products that it does not consume.

The past and the present
In the past, integrated companies divested refining assets because their profitability was volatile and relatively low, particularly compared with oil and gas exploration and production. Purchasers were willing to acquire the divested refining assets at discounted prices. Other companies viewed the potential profitability of the refining sector more favourably, leading them to acquire other companies or assets.

Refinery ownership today reflects multiple changes since 2000. For example, January 2000 Tosco, Conoco, and Phillips were all separate companies, and Surcor had no US refining operations.

Subsequently, Phillips acquired Tosco in 2001, merged with Conoco in 2002, sold its Denver refinery to Suncor in 2003, spun off two of its refineries to create WRB Refining in 2006, sold its metro Philadelphia refinery to Delta Air Lines in April 2012, and subsequently spun off all of its remaining refineries, creating Phillips 66 in May 2012.

Adapted from press release by Claira Lloyd

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