Godfather O'Malley bets big on new oil refinery era
 

http://www.commodities-now.com/reports/power-and-energy/5540-godfather-omalley-bets-big-on-new-oil-refinery-era.html   

London, 23 March 2011: Reuters

Tom O'Malley, a self-described "short, bald Irishman" who has twice transformed the American refining industry in the past 20 years, is at it again. The man described by some as the "Godfather" of independent refining has bought up three unwanted refineries in an industry others had left for dead.
His company, PBF Energy, has snatched up two refineries in the U.S. East Coast region where margins continue to struggle even as profits in other parts of the country are improving -- and he's got his eye on some others as well. O'Malley, 69, insists there's gold in the refineries others are eager to discard.
"We think refining is an industry that has good days in front of it. It's an essential industry, and the economy's not going to function without it," O'Malley told Reuters after he spoke at the annual National Petrochemical and Refiners Association meeting in San Antonio.
"The other thing that might be different for us than other people is that we're risk takers. We understand that we take risks."
Bill Klesse, CEO of the nation's largest independent refiner, Valero Energy Corp, earlier on Tuesday introduced O'Malley to the NPRA as the "godfather" of independent refining.

GROWING EMPIRE

PBF's buying mood facilitated Valero's exit from the East Coast market when O'Malley's company bought Valero's shut 182,000 barrel-per-day Delaware City refinery and its 160,000 bpd Paulsboro, New Jersey, plant for a combined $927 million.
Valero had been at odds with Delaware's state government over environmental issues that would have forced expensive work on the plant. O'Malley said Delaware Governor Jack Markell welcomed him, as did governors in other states where PBF has bought plants.
"In a conversation I said, when he asked me why it closed, I looked at him and said 'I think I'm sitting across from one of the reasons,'" O'Malley told the NPRA crowd. To O'Malley, the bet on those two acquisitions made sense because of the opportunity to run cheaper crudes at the plants.
"You have to believe that the heavy sour barrel discount is going to open up," O'Malley said. "If you don't, you shouldn't go into these two plants."
The company's most recent deal, $400 million for Sunoco Inc's 160,000 barrel-per-day (bpd) refinery in Toledo, Ohio, looks to capitalize on Midwest refiners' easy access to cheap crude from Canada and North Dakota that has swamped the region with no pipelines to ship it elsewhere.
U.S. crude has traded at a steep discount to London's Brent because of the glut at its delivery point in Cushing, Oklahoma. Analysts expect the discount to last through 2012 or longer until pipeline infrastructure is reversed, or new pipelines are built, to bring WTI crude to the refinery-heavy Gulf Coast.
"That's something that could take a while, could take a couple of years to get in order," O'Malley told reporters.

BUYING CRITERIA

O'Malley has a quick sense of humor that he often delivers with a deadpan expression. He knows he's willing to take on distressed refineries when few others will.
"Why am I doing this? Let's face it, I need a job. I'm a 69-year-old bald, short Irishman. The opportunity here is extraordinary," O'Malley told the crowd.
But he's seriously interested in building PBF's budding empire. He told Reuters that the Toledo plant fit PBF's criteria: A well-run refinery without a troubled work force which has received most needed investments and has a reliable operating record.
He said some of the four U.S. refineries currently up for sale could meet those criteria, but declined to say which due to confidentiality agreements.
Those plants are: BP Plc's 475,000 bpd Texas City, Texas, plant, and its 265,000 bpd refinery in Carson, California; and Murphy Oil's 120,000 bpd refinery in Meraux, Louisiana, and its 34,300 bpd plant in Superior, Wisconsin.
BP has invested heavily in upgrading both its plants on the block -- $1 billion for Texas City alone. That plant has a deadly history: a 2005 explosion killed 15 workers after the company deferred maintenance and upgrades for years.
In his speech, O'Malley said "We'll take a shot at them" regarding BP's two refineries. He later added about all four plants, "I'll look at them. I look at everything. Why not?"
"Everything is about price and terms." That's O'Malley's cache -- buying plants cheap that the owners no longer want, then building them into attractive assets that fetch attractive prices.
Alan Gelder, head of downstream consulting for Wood MacKenzie, told Reuters that a PBF purchase defines the bottom market price of a refinery because the company won't bite if it's not cheap.
O'Malley started with Tosco Corp, where he led growth from 1990 to 2001, selling it to Phillips Petroleum in 2001 for $7.36 billion when it was the biggest U.S. refiner.
Next, he became CEO of St. Louis, Missouri-based refiner Clark USA, which changed its name to Premcor, and again started buying up refineries, including the Delaware City plant.
In 2005, when refining hit a highly profitable cycle, O'Malley sold Premcor to Valero for $6.9 billion in cash and stock, and moved on to Europe and Swiss-based European refiner Petroplus . With the formation of PBF in 2008, O'Malley had a foot in both countries.
The Parsippany, New Jersey-based PBF, which O'Malley announced on Tuesday he would eventually take public, was formed to buy U.S. refineries and was a partnership between Petroplus and private equity groups Blackstone Group and privately held First Reserve Corp.
O'Malley is chairman of Petroplus as well, but plans to step down on May 5. Last September Petroplus agreed to sell its 33 percent stake to partners Blackstone and First Reserve for $91 million.
He told Reuters he left Europe in part because it was a conflict of interest to keep heading both companies after Petroplus sold its stake, not because he could not replicate his U.S. success.
Mark Routt, a senior consultant with KBC in Houston, said his exit coincided with the upswing for U.S. refiners. "His timing has been impeccable," Routt said. "He has freed himself up from European entanglements."
O'Malley told Reuters he has no intention of slowing down, even though he's a few months shy of his 70th birthday. "No, at this point in my life, I don't work because of financial gain. I work really because I enjoy working. I don't really intend to work any longer than Warren Buffett does, so let him retire and I'll think about it."