Falling oil demand, rising use of ethanol and pending environmental legal guidelines could stack the deck against a 3rd royal flush for refining guru Thomas O’Malley of Greenwich, trade consultants say.
O’Malley has made billions of dollars for himself and his investors by buying Tosco Corp. and Premcor Inc., transferring them to Greenwich, constructing them up with other oil companies’ castoffs and selling them for enormous features after the market rebounded.
He seems desperate to try his proven modus operandi a 3rd time.
Last month, O’Malley’s newest venture, PBF Energy Companions of Greenwich, agreed to purchase a 190,000-barrel-per-day oil refinery in Delaware Metropolis, Del., that he was quite acquainted with for $170 million.
O’Malley is chairman and chief govt officer of PBF, whose partners are the Blackstone Group, one of many world’s largest private-equity corporations; First Reserve Corp., an power personal-equity agency with headquarters in Greenwich and workplaces in Houston and London; and Zug, Switzerland-primarily based Petroplus, Europe’s largest impartial oil refiner.
Valero Energy Corp. of San Antonio, Texas, shut the Delaware Metropolis facility in November as a result of the refinery was losing $1 million a day. The deal also would include a 218-megawatt energy plant that PBF would buy for $50 million more. Premcor had owned the refinery under O’Malley’s leadership.
“I’d say Tom is taking an interesting threat right here,” said John Parry, senior fairness analyst at IHS Herold, an power research and consulting agency with places of work in Houston and Norwalk. “He may survive and make a go of it, but he will not be going to make the pools of cash like he did when he built Tosco up. It should be a harder nut to crack as a result of refineries are facing tougher environmental laws.”
In addition, the recession has dealt U.S. refiners decrease revenues and profits, prompting them to trim operating rates, promote refineries and quickly shut some of them.
Refiners face one other obstacle from ethanol added to motor fuels in the United States, Parry stated. Ethanol manufacturing equals about 5 p.c of U.S. oil refineries’ total capability, he said, adding that refineries are working at about 80 percent of their capability, down from 90 p.c.
The nation’s 142 working oil refineries had a total each day capacity of 17.7 million barrels, in contrast with 335,900 barrels of capability in 10 idle refineries, as of January 2009, in accordance with the Vitality Data Administration, an arm of the federal Department of Vitality. The biggest at 596,400 barrels a day is the Exxon Mobil refinery in Baytown, Texas, based on the Vitality Information Administration. The Delaware City refinery ranks 37th in measurement nationwide.
The refineries course of oil for gasoline, diesel gasoline, jet fuel, heating oil, asphalt, petrochemicals and different products. Twenty refineries nationwide closed completely from 1990 to 2008, the Power Data Administration reported.
Current refinery capacity almost definitely will not enhance, mentioned Peter Beutel, president of Cameron Hanover, an vitality danger administration agency in New Canaan. And that would play into O’Malley’s fingers.
“We haven’t built any new ones since 1967, and i don’t know of any new ones on the drawing board in the U.S,” he said. “That is the first 12 months we haven’t used each little bit of our refinery capability 24/7. If I had the cash, I’d purchase a refinery.”
Taking part in the percentages
O’Malley has Delaware Metropolis below contract, and he should buy extra of them. PBF has a $2 billion fund with which to acquire U.S. refineries and is considering the purchase of another Valero refinery in New Jersey, according to a Wall Road Journal article last month that contained an interview with O’Malley.
“I like ’em massive. I like them well-located,” O’Malley said of refineries. He declined an interview request from Hearst Connecticut Newspapers, mentioned Michael Gayda, senior vice president, secretary and basic counsel for PBF. Gayda is one among seven PBF executives in the Greenwich headquarters at One Sound Shore Drive, including O’Malley, who had worked for Tosco, Premcor or both.
Even together with his former teammates aboard, O’Malley’s current endeavor could possibly be risky, oil industry consultants say.
“There’s lots of uncertainty about the long run and investments,” stated Cindy Schild, refining manager for the Washington, D.C.-primarily based American Petroleum Institute. “Renewable fuels and environmental rules will impact the underside line.”
The Obama administration supports greenhouse-fuel laws by a tax on carbon or cap-and-commerce system that would further disrupt the refining business, the Wall Road Journal reported.
Due to environmental costs, excessive overhead and different components that boost the cost of domestic refining, oil corporations may save money by utilizing idle refineries as transport depots for refined oil products from Asia or South America, said Clay Mahaffey, president of Louisiana-based Venture Analysis LLC, which offers independent analysis on micro-cap oil and gas firms. The company formerly was in Stamford.
“Importing shopper items from the Far East works for Wal-Mart, so importing gasoline and diesel can work for O’Malley as effectively,” Mahaffey mentioned.
However importing more refined oil products from some potentially unstable international locations “would not assist me sleep at night time,” Beutel added.
Mahaffey, who used to comply with Premcor as an analyst, is confident O’Malley is aware of find out how to run an oil-refining company in difficult occasions.
“Up to now, (O’Malley) had the courage to see the trend and act on it,” Mahaffey said. “He’s a tough-nosed operator and price-cutter. He has a superb monitor document.”
In reality, O’Malley’s observe document is legendary.
During an eleven-yr span, he built the former Tosco from a one-refinery company with $1.8 billion in sales to $24 billion in sales. When Phillips Petroleum, now Conoco Phillips, purchased it in 2001 for $7.36 billion, Tosco was the nation’s largest unbiased refiner and operated greater than 4,500 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 also had relocated Tosco’s government workplaces. Valero bought Premcor for $6.9 billion in 2005.
But will an economic restoration bring O’Malley’s new company yet another bonanza?
PBF’s equity companion, Petroplus, of which O’Malley is chairman, has hit some snags.
The company reported a internet loss from persevering with operations of $26.4 million, or 31 cents per share, on revenues of $four.97 billion in this 12 months’s first quarter, compared with internet earnings from persevering with operations of $3.6 million, or 5 cents per share, on revenues of $2.97 billion in the same interval final year. Petroplus is publicly traded on the Swiss Trade.
Petroplus has closed refineries in Europe. This month, Petroplus mentioned a “major” shutdown will occur at its 110,000-barrel-a-day BRC refinery in Antwerp, Belgium, in the center of the present quarter.
Early this quarter, Petroplus shut its Cressier refinery refinery in Switzerland for 35 to 40 days of maintenance.
Extra closures are looming. Petroplus mentioned in its earnings statement it will decide by early August whether to keep running the Reichstett refinery in France, for which it’s in search of a buyer.
However, “We believe better days are forward,” O’Malley said within the earnings statement.
O’Malley mentioned final 12 months was “a perfect storm, which negatively affected the world’s refining business. Storms do not final without end and it seems to have handed.”
He might be right. The Vitality Data Administration projects U.S. real gross domestic product will develop by three p.c and world actual oil-consumption-weighted GDP will enhance by 3.6 % this yr. The 2011 forecast for real GDP progress is at 2.9 percent and 3.7 p.c for the United States and the world, respectively, the group reported.
The more optimistic financial progress forecasts lead to a rise of about $2 per barrel in the Vitality Information Administration’s projections for West Texas Intermediate crude oil spot prices. The Power Information Administration expects West Texas Intermediate prices to common about $84 per barrel through the second half of this yr, rising to $87 by the tip of subsequent 12 months.
However last week instructed a distinct story. As the financial world worried concerning the crash of the euro, oil additionally took a plunge on fears of a spreading financial slowdown in Europe. From its lofty perch close to $80 per barrel two weeks ago, crude slipped practically 15 p.c to $70.04 at the shut on Friday.
Alternatively, to date, 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 Vitality Info Administration stated. The energy group forecasts that regular-grade motor gasoline retail costs will common $2.Ninety four per gallon during this summer time’s driving season, the period from April 1 to Sept. 30, up from $2.44 per gallon final summer.
World oil consumption is projected to grow 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 Middle East areas, in accordance with the Vitality Information Administration.
If not oil, golf?
If O’Malley ever retires from the oil-refining enterprise, he might have a future in golf course improvement.
In March, the Palm Beach Submit stated O’Malley purchased the Ironhorse Nation Membership in West Palm Seashore, Fla., at federal bankruptcy auction for $2.Eighty five million. Palm Seashore County property records listed the 2009 market worth of the 113-acre golf course and nation club at $5.86 million.
O’Malley owns a Value Avenue condo in Palm Beach and recently bought two Palm Metropolis golf courses, the Post reported. His waterfront dwelling in Greenwich was assessed at greater than $16 million on the 2009 Grand Record.
He was not born into wealth. Raised in New York Metropolis, O’Malley paid for his training at Manhattan College within the Bronx, N.Y., by driving a taxi on weekends and a college bus for a personal college on weekdays, in line with a 2001 article in the brand new York Instances.
After he graduated in 1963, a pal’s uncle helped him get a job working in the mailroom of Philipp Brothers, a commodities-buying and selling firm. After 10 years in the company’s European operations, he was working the corporate’s energy business.
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 founded Argus Funding, in keeping with the Encyclopedia of Business. The 1987 stock market crash allowed him and his Argus companions to buy 26 p.c of Tosco, which had headquarters on the West Coast.