Falling oil demand, growing use of ethanol and pending environmental laws might stack the deck towards a 3rd royal flush for refining guru Thomas O’Malley of Greenwich, trade specialists say.
O’Malley has made billions of dollars for himself and his investors by shopping for Tosco Corp. and Premcor Inc., shifting them to Greenwich, building them up with different oil corporations’ castoffs and promoting them for enormous features after the market rebounded.
He appears eager to strive his proven modus operandi a 3rd time.
Last month, O’Malley’s newest enterprise, PBF Energy Companions of Greenwich, agreed to purchase a 190,000-barrel-per-day oil refinery in Delaware Metropolis, Del., that he was fairly accustomed to for $170 million.
O’Malley is chairman and chief executive officer of PBF, whose companions are the Blackstone Group, one of many world’s largest private-equity companies; First Reserve Corp., an energy personal-fairness agency with headquarters in Greenwich and workplaces in Houston and London; and Zug, Switzerland-primarily based Petroplus, Europe’s largest impartial oil refiner.
Valero Vitality Corp. of San Antonio, Texas, shut the Delaware City facility in November as a result of the refinery was losing $1 million a day. The deal additionally would include a 218-megawatt power plant that PBF would buy for $50 million extra. Premcor had owned the refinery below O’Malley’s management.
“I would say Tom is taking an attention-grabbing danger right here,” stated John Parry, senior fairness analyst at IHS Herold, an energy analysis and consulting firm with workplaces in Houston and Norwalk. “He might survive and make a go of it, but he just isn’t going to make the pools of money like he did when he constructed Tosco up. It may be a tougher nut to crack because refineries are dealing with tougher environmental legal guidelines.”
As well as, the recession has dealt U.S. refiners lower revenues and income, prompting them to trim working rates, sell refineries and temporarily shut a few of them.
Refiners face another obstacle from ethanol added to motor fuels in the United States, Parry stated. Ethanol production equals about 5 % of U.S. oil refineries’ whole capacity, he stated, adding that refineries are operating at about eighty percent of their capacity, down from 90 %.
The nation’s 142 working oil refineries had a total day by day capability of 17.7 million barrels, in contrast with 335,900 barrels of capability in 10 idle refineries, as of January 2009, according to the Power Info Administration, an arm of the federal Department of Power. The biggest at 596,four hundred barrels a day is the Exxon Mobil refinery in Baytown, Texas, in keeping with the Energy Data Administration. The Delaware City refinery ranks 37th in measurement nationwide.
The refineries process oil for gasoline, diesel fuel, jet gas, heating oil, asphalt, petrochemicals and other products. Twenty refineries nationwide closed completely from 1990 to 2008, the Vitality Information Administration reported.
Current refinery capability more than likely won’t increase, said Peter Beutel, president of Cameron Hanover, an vitality danger management agency in New Canaan. And that would play into O’Malley’s arms.
“We have not constructed any new ones since 1967, and i do not know of any new ones on the drawing board within the U.S,” he stated. “This is the primary yr we haven’t used each little bit of our refinery capacity 24/7. If I had the cash, I would purchase a refinery.”
Playing the chances
O’Malley has Delaware Metropolis below contract, and he can buy more of them. PBF has a $2 billion fund with which to accumulate U.S. refineries and is contemplating the acquisition of one other Valero refinery in New Jersey, in response to a Wall Road Journal article last month that contained an interview with O’Malley.
“I like ’em massive. I like them effectively-located,” O’Malley said of refineries. He declined an interview request from Hearst Connecticut Newspapers, said Michael Gayda, senior vice president, secretary and basic counsel for PBF. Gayda is certainly one of seven PBF executives within the Greenwich headquarters at One Sound Shore Drive, together with O’Malley, who had labored for Tosco, Premcor or both.
Even together with his former teammates aboard, O’Malley’s current endeavor could be risky, oil industry consultants say.
“There’s numerous uncertainty about the future and investments,” stated Cindy Schild, refining supervisor for the Washington, D.C.-based American Petroleum Institute. “Renewable fuels and environmental guidelines will affect the underside line.”
The Obama administration helps greenhouse-gas laws by way of a tax on carbon or cap-and-trade system that would additional disrupt the refining business, the Wall Street Journal reported.
Due to environmental prices, excessive overhead and different components that enhance the cost of domestic refining, oil firms may save money through the use of idle refineries as transport depots for refined oil merchandise from Asia or South America, said Clay Mahaffey, president of Louisiana-based mostly Enterprise Research LLC, which supplies unbiased analysis on micro-cap oil and gas companies. The corporate formerly was in Stamford.
“Importing client items from the Far East works for Wal-Mart, so importing gasoline and diesel can work for O’Malley as well,” Mahaffey mentioned.
But importing extra refined oil products from some doubtlessly risky international locations “would not help me sleep at night time,” Beutel added.
Mahaffey, who used to follow Premcor as an analyst, is confident O’Malley is aware of the way to run an oil-refining company in difficult occasions.
“Prior to now, (O’Malley) had the courage to see the pattern and act on it,” Mahaffey stated. “He’s a hard-nosed operator and cost-cutter. He has a great observe file.”
Actually, O’Malley’s track record is legendary.
During an 11-yr span, he constructed the previous Tosco from a one-refinery firm with $1.8 billion in sales to $24 billion in sales. When Phillips Petroleum, now Conoco Phillips, bought it in 2001 for $7.36 billion, Tosco was the nation’s largest unbiased refiner and operated greater than four,500 gasoline stations and convenience shops nationwide.
In 2002, O’Malley took over Premcor and moved the refiner’s headquarters from St. Louis to 1700 E. Putnam Ave., Greenwich, where he additionally had relocated Tosco’s govt offices. Valero purchased Premcor for $6.9 billion in 2005.
But will an financial recovery convey O’Malley’s new firm yet one more bonanza?
PBF’s fairness accomplice, Petroplus, of which O’Malley is chairman, has hit some snags.
The company reported a web loss from continuing operations of $26.Four million, or 31 cents per share, on revenues of $four.Ninety seven billion on this year’s first quarter, in contrast with web earnings from continuing operations of $3.6 million, or 5 cents per share, on revenues of $2.Ninety seven billion in the identical period final 12 months. Petroplus is publicly traded on the Swiss Trade.
Petroplus has closed refineries in Europe. This month, Petroplus said a “major” shutdown will occur at its 110,000-barrel-a-day BRC refinery in Antwerp, Belgium, within the middle of the current quarter.
Early this quarter, Petroplus shut its Cressier refinery refinery in Switzerland for 35 to forty days of upkeep.
Extra closures are looming. Petroplus mentioned in its earnings assertion it’ll determine by early August whether or not to keep working the Reichstett refinery in France, for which it is looking for a buyer.
However, “We consider higher days are ahead,” O’Malley stated in the earnings statement.
O’Malley stated final year was “an ideal storm, which negatively affected the world’s refining industry. Storms don’t last perpetually and it seems to have passed.”
He might be proper. The Power Info Administration tasks U.S. real gross home product will develop by three p.c and world real oil-consumption-weighted GDP will improve by three.6 p.c this year. The 2011 forecast for real GDP progress is at 2.9 p.c and 3.7 p.c for the United States and the world, respectively, the group reported.
The more optimistic economic growth forecasts result in a rise of about $2 per barrel in the Vitality Info Administration’s projections for West Texas Intermediate crude oil spot costs. The Vitality Data Administration expects West Texas Intermediate prices to average about $84 per barrel during the second half of this yr, rising to $87 by the tip of subsequent yr.
But last week instructed a distinct story. As the financial world frightened in regards to the crash of the euro, oil additionally took a plunge on fears of a spreading economic slowdown in Europe. From its lofty perch near $eighty per barrel two weeks in the past, crude slipped almost 15 p.c to $70.04 on the shut on Friday.
Alternatively, so far, vitality production, shipments, and costs haven’t been significantly affected by the oil spill after the April 20 explosion aboard the Deepwater Horizon drilling rig and its subsequent loss in the Gulf of Mexico, 50 miles off the Louisiana coast, the Energy Information Administration mentioned. The energy group forecasts that regular-grade motor gasoline retail prices will average $2.Ninety four per gallon during this summer season’s driving season, the period from April 1 to Sept. 30, up from $2.Forty four per gallon last summer time.
World oil consumption is projected to develop by 1.6 million barrels per day in 2010 and next yr. The expansion in oil consumption is predicted to be largely concentrated within the Asia-Pacific and Center East regions, in keeping with the Vitality Data Administration.
If not oil, golf?
If O’Malley ever retires from the oil-refining business, he might have a future in golf course improvement.
In March, the Palm Beach Submit mentioned O’Malley bought the Ironhorse Country Membership in West Palm Seaside, Fla., at federal bankruptcy public sale for $2.Eighty five million. Palm Seaside County property information listed the 2009 market value of the 113-acre golf course and nation club at $5.86 million.
O’Malley owns a Value Avenue condo in Palm Seashore and not too long ago bought two Palm City golf programs, the Put up reported. His waterfront dwelling in Greenwich was assessed at greater than $sixteen million on the 2009 Grand Listing.
He was not born into wealth. Raised in New York City, O’Malley paid for his education at Manhattan Faculty in the Bronx, N.Y., by driving a taxi on weekends and a school bus for a private school on weekdays, in line with a 2001 article in the new York Instances.
After he graduated in 1963, a pal’s uncle helped him get a job working within the mailroom of Philipp Brothers, a commodities-trading firm. After 10 years in the corporate’s European operations, he was running the company’s vitality enterprise.
In 1981, Philipp Brothers engineered a merger with Salomon Brothers, the investment-banking firm, and O’Malley served as vice chairman and chief govt of the Salomon’s oil-buying and selling division. O’Malley left Salomon in 1986 and based Argus Funding, based on the Encyclopedia of Enterprise. The 1987 stock market crash allowed him and his Argus partners to purchase 26 percent of Tosco, which had headquarters on the West Coast.