Sunoco refinery to stay open in Philadelphia

[July 03, 2012]  PHILADELPHIA (AP) -- The oldest and largest refinery on the East Coast will stay open thanks to a deal between Sunoco and the private equity firm The Carlyle Group, with the groups announcing Monday that they have agreed to terms on a joint venture at the facility.

The new venture also will make a substantial investment in the facility to help it import lower-cost oil from North Dakota's Bakken formation, shift to refining a higher proportion of ultra-low-sulfur diesel and use natural gas from the booming Marcellus Shale formation that lies below much of Pennsylvania, Carlyle officials said.

The Philadelphia refinery, which had struggled to make money as the price of imported crude oil rose, was scheduled to close in August. In April, Sunoco announced that it had entered into "exclusive discussions" with Carlyle about a possible joint venture involving the 330,000-barrels-per-day facility, which has about 850 workers.

On Monday, the groups announced they had agreed to form Philadelphia Energy Solutions, a joint venture that will enable the facility to continue operating with the help of millions of dollars in state taxpayer subsidies. In a statement, the companies said the agreement will save all of the current refining jobs and create up to 200 more as the refinery is updated and expanded. The deal is expected to close in the third quarter. Financial terms weren't disclosed.

"This is the best possible outcome for everyone involved," Brian P. MacDonald, Sunoco's chairman and chief executive officer, said in a statement. "Existing jobs will be saved, new jobs will be created and new business opportunities will be given the chance to develop."

Federal energy officials had warned that the refinery's closure could lead to gas price spikes in some parts of the northeastern United States. Labor unions pushed to keep the facility open, and all levels of government got involved, from White House economic adviser Gene Sperling to Philadelphia Mayor Michael Nutter, to cut red tape and speed up approvals.

"This is a big fill-in-the-blank deal," said U.S. Rep. Bob Brady, D-Pa.

Union leaders praised the agreement, and local members voted 98 percent in favor of ratifying a reworked contract with the joint venture Monday night, said Nancy Minor, vice president of the United Steelworkers Local 10-1.

"This wouldn't have happened were there not a union there willing to fight for this facility," United Steelworkers president Leo Gerard said.

A key thrust of the new venture will be to improve refining efficiency, reduce waste and emissions and cut down on the reliance on more expensive foreign oil. Carlyle Managing Director Rodney Cohen said the company planned $200 million worth of capital improvements and would bring in a new leadership team.

"We are going to explore a range of new energy and chemical businesses," Cohen said on a conference call.

One challenge will be to expand the facility's connection to domestic oil and gas pipelines.

The plans include building a high-speed train unloading facility to bring in up to 140,000 barrels a day of domestic oil, particularly high-quality, low sulfur crude from the Bakken, Carlyle officials said.

Carlyle said it also wants to expand the use of Marcellus Shale natural gas as a lower-cost, lower-emission fuel for its refinery while exploring the possibilities of producing natural gas liquids or other natural gas byproducts. A number of parties are looking at getting involved in transporting the gas to the refinery, Carlyle officials said.

Under terms of the agreement, Sunoco will contribute its refinery assets to the joint venture in exchange for a non-operating minority interest. Carlyle will have the majority interest and oversee day-to-day operations, officials said.

Gov. Tom Corbett lauded the announcement of the project, which is getting state support. A tax-free zone is possible for the site, while the state is offering up to $25 million in grants and the opportunity to issue tax-exempt bonds, Corbett said.

[Associated Press; By PATRICK WALTERS]

Associated Press writer Marc Levy contributed to this report from Harrisburg, Pa.

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