OPIS Headlines

February 13, 2017
Western Refining Yet to Finalize Voting Date for Tesoro Merger

Western Refining said that it set a record date of Feb. 10 for company stockholders who will vote on a proposal to adopt a previously announced merger plan with Tesoro during a special meeting.

A Western spokesman told OPIS on Monday that the company has yet to finalize a date for that special meeting.

Western said that Western stockholders of record at the close of business last Friday will be entitled to receive notice of the special meeting and to vote at the special meeting.

OPIS notes that the pending merger deal is subject to customary closing conditions, including approval by the shareholders of both companies and the receipt of regulatory approval.

Tesoro and Western said on Monday that the U.S. Federal Trading Commission has requested more information on the merger agreement, but both companies still expect the deal to close in the first half of 2017, subject to approvals.

On Jan. 25, Western Refining said that the integration process between Tesoro and Western is ongoing ahead of the potential closing of the deal.

Following the announcement of the acquisition, many at Tesoro and Western have been preparing for the potential closing, Western said.

Tesoro's Enterprise Integration Office comprises a team of business and functional work teams led by Keith Casey, executive vice president, Marketing and Commercial, while Mark Wilson, vice president, Enterprise Integration, manages the effort on a day-to-day basis, Western said.

In January, the joint Western and Tesoro Integration Planning team met for two days in San Antonio to kick off their work, Western said.

On Nov. 17, OPIS reported that Tesoro would acquire Western at an implied current price of $37.30 per Western share in a stock transaction, representing an equity value of $4.1 billion based on Tesoro's closing stock price of $85.74 on Nov. 16, 2016.

This represents an enterprise value of $6.4 billion, including the assumption of approximately $1.7 billion of Western's net debt and the $605 million market value of non-controlling interest in Western Refining Logistics.

Tesoro will add Western's refineries in Texas, New Mexico and Minnesota to Tesoro's existing refineries in California, Washington, Alaska, Utah and North Dakota, which will expand the combined company's operational capabilities and improve access to advantaged crude oil and extended product regions.

Combined, the company will have 10 refineries, with a refining capacity of over 1.1 million b/d.

The merger deal brings together 12 retail and convenience store brands to better serve a customer base and regional preferences and provides improved ratable supply from the entire refining system, Tesoro said. The combined retail operations will comprise over 3,000 branded retail stations operating under a variety of brands including ARCO, Shell, Exxon, Mobil, SuperAmerica, Giant and Tesoro.

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February 1, 2017
Demand for Global Fuel Additives to Grow; Mixed Impact From Regs: Kline

Consumption of global fuel additives is expected to grow at a compound annual growth rate of 1.9% from 2015 to 2020 despite mixed impact from biofuels mandates and fuel regulations, according to market research and management consulting firm Kline.

Consumption is about 820 kilotons (537,496 bbl) in 2016, according to the recently published Global Fuel Additives: Market Analysis and Opportunities report issued by Kline.

North America is the largest fuel-additive-consuming region in the world due to its high fuel consumption for transportation, as well as supported by the mandated additive usage for gasoline in the United States, Kline said.

Fuel additives are categorized into three key segments: blending, shipping and storage; performance additives; and the aftermarket.

The blending, shipping, and storage segment represents additives that are added at the refinery and is the largest segment, accounting for more than two-thirds of the total fuel additives market.

Performance additives applied by fuel marketers to differentiate themselves in the market is the second-largest segment of the market. This segment can be further divided among gasoline performance additives, diesel performance additives and other fuels.

Aftermarket additives are those bought and applied by vehicle owners. The distribution channels are also different for this segment. Gas stations, workshops and auto-parts stores are some of the channels used to sell additives in this segment.

Diesel is the most consumed fuel globally, Kline said. Therefore, additives such as cetane improvers and cold flow improvers, used for diesel, are among the most consumed fuel additives in the market.

Additive consumption depends on several factors, such as fuel consumption, treat rates, fuel grade and regulations.

The larger the share is for premium fuels sold in the market, the higher the consumption of additives is expected for that market. With the anticipated rise in sales of premium fuel in Asia as a portion of customers switch to premium fuels, consumption of additives will also increase in the region.

"Tightening fuel economy norms globally are expected to slow down the growth in the fuel consumption, adversely affecting fuel additive demand growth. Furthermore, regulations can also have both a positive and negative impact on the consumption of fuel additives. Regulations such as the 'Total Additivation Program' in Brazil mandating minimum treat rates are expected to boost the demand for fuel additives if implemented," according to Kunal Mahajan, a project manager in Kline's energy practice.

"Regulations mandating minimum ethanol blending with gasoline and biodiesel blending with diesel could have a positive impact on additives such as corrosion inhibitors and anti-oxidants but a negative impact on additives such as lubricity improvers," he said.

Biodiesel improves lubricity, but has poor oxidative stability, Mahajan said. This will adversely impact the demand growth of lubricity improvers if the governments around the world, especially in Asia, are successful in implementing the biofuels mandate, he said.

On the other hand, such mandates will favor the growth of anti-oxidants and corrosion inhibitors, Mahajan said. Ethanol absorbs moisture, which could cause corrosion, due to which the demand for corrosion inhibitors will increase, he added.

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January 25, 2017
Zenith Energy to Develop Fuel, LPG Rail, Storage Terminals in Mexico

Zenith Energy, an international liquids and bulk terminaling company, said on Wednesday that it has signed an agreement with one of the largest companies in Mexico to market and develop existing logistics assets for oil storage and distribution in Mexico to support the growing demand for oil products.

The agreement provides for the use of certain facilities in Mexico of CEMEX, S.A.B. de C.V., a global building materials company. Zenith has been awarded the rights to develop these sites for fuel and LPG storage and distribution.

These terminals will receive fuel and LPG primarily from the Gulf Coast and Texas via rail but Zenith believes there are some marine facilities that could be available for international delivery by vessel, Jay Reynolds, chief commercial officer of Zenith, told OPIS.

This is the first time Zenith is working in Mexico, but the Zenith management team has previous Mexican experience, he said. Zenith has established a company in Mexico with an on-the-ground representative and former terminal manager for Exxon Mobil in Mexico.

CEMEX's facilities in Mexico include more than 90 storage and distribution locations, in both inland and coastal cities, most of them connected to the Mexican railroad network, many with unit train capability, and include both operational and dormant locations. The development of these sites will not interfere with CEMEX's normal business activities in Mexico.

Zenith's preliminary plans and layouts include significant development at the terminals in Mexico, Reynolds said. The work will include building tanks together with associated infrastructure such as loading and unloading facilities. "We have had a number of initial conversations with potential customers which have been very positive and the next step is to fine tune our plans. It is worth noting that we are developing these assets because of their potential and the significant market demand," he said.

"Our development time is likely to be significantly less than other competitors, primarily because we will not have to add rail tracks. Depending on the final plans, we could have a facility fully operational in 12-18 months. This is clearly dependent on permitting and customer requirements," Reynolds said.

The capacity is flexibility and location dependent with some locations having capacity of up to 1 million barrels and unit train handling and other locations being smaller with manifest rail capabilities, he said.

The total capacity will be driven by customer demand and market size, Reynolds said. If all locations are developed, Zenith could have several million barrels of storage in Mexico over the next couple of years. The pace and scale of development will necessarily depend on the evolution of related regulations and other external factors.

"Based on the advantaged locations in major metropolitan areas and the customer demand for reliable operating facilities in Mexico, we believe that this solution will be very attractive to the market, particularly those looking for alternatives to uncertain and expensive pipeline projects," said Reynolds.

Jeffrey Armstrong, CEO of Zenith, said, "we are excited to announce this initiative at this important time in Mexico's ongoing energy reform. We see a growing number of promising opportunities to invest in the country's developing midstream sector, particularly with the ability to utilize existing assets in key distribution markets inside the country." With headquarters in Houston, Zenith Energy is an international liquids and bulk terminaling company that owns and operates over 15 million barrels of crude oil and petroleum products storage in Amsterdam, Ireland and Colombia.

Zenith is pursuing opportunities to buy, build and operate terminals primarily in Latin America, Europe and Africa. The company is focused on the storage and distribution for petroleum, refined products, natural gas liquids and petrochemicals. The company also will acquire and operate logistics and distribution assets that support terminals, such as pipelines, truck racks and barges.

In August 2014, Warburg Pincus, a leading global private equity firm focused on growth investing, led a line-of-equity commitment in Zenith of up to $600 million.

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January 23, 2017
Major Retailer Buys Jones Act Barge to Feed Rapid Florida Fuel Expansion

The booming Florida retail fuel market has prompted a major retailer to make the extraordinary move to buy a U.S. Jones Act oil products tank barge for Gulf Coast-Florida and coastal Florida deliveries.

Wawa Inc., a large East Coast convenience store chain, will spend an estimated $80 million to take delivery of an articulated tug barge (ATB) from Fincantieri Bay Shipbuilding at Sturgeon Bay, Wis., in the third quarter of 2017. This ocean-going tank barge has a storage capacity of about 185,000 bbl.

The initiative could provide a big competitive edge for Wawa, which already has caused a stir in Florida with its below-market street prices. The move also demonstrates the advantage size affords for an exclusive group of super retailers.

Only a handful of high-volume retailers are large enough to make waterborne deliveries. Besides RaceTrac and Wawa, Marathon Petroleum delivers waterborne fuel cargoes for its Speedway retail fuel chain.

While other fuel retailers have chartered a U.S. Jones Act tanker or ATB for U.S. coastal fuel deliveries to achieve economies of scale, this could be the first time a c-store chain has purchased an ocean-going vessel. An ATB is a tank barge propelled at the stern by a tugboat. ATBs compete with tankers in the Jones Act market.

Going Waterborne

Wawa is expected to use this ATB to deliver fuel from the Gulf Coast to Florida, which is not served by pipelines or fuel deliveries via rail. Also, the new ATB is to deliver fuel along the Florida coast, including Port Everglades and Tampa.

The ATB is expected to optimize Wawa's fuel supply strategy for Florida, providing options for waterborne and rack supplies. Wawa dabbles in the waterborne fuel deliveries via Jones Act ships, but it is not considered a regular market participant in the U.S.-flagged shipping market. Following the delivery of the new ATB, Wawa will have guaranteed, stable waterborne fuel delivery to Florida. With increasing waterborne delivery, Wawa is expected to cut back on its fuel volumes purchased at Florida racks.

The c-store chain had ordered the barge to facilitate the company's rapid expansion in the Sunshine State. Strong growth in Florida has helped Wawa's barge purchase in the long run, even though the Jones Act market has been softening due to weak crude prices and a slowdown in U.S. coastal crude deliveries.

It may be more economical to charter spot Jones Act ships for coastal deliveries right now than to buy due to the soft market, but Wawa could save on chartering cost in the long run if it owns the vessel. The cost of operating a Jones Act ship is pegged at about $23,000 per day, significantly lower than the spot charter rate of about $40,000 per day.

RaceTrac, another major retailer in the Southeast, chartered the 330,000-bbl capacity Jones Act tanker, Independence, for two years, at around $40,000 per day for Gulf Coast-Florida and Florida coastal deliveries. Independence made its maiden voyage from General Dynamics NASSCO's San Diego Shipyard in December 2015.

Besides savings on chartering rates, vessel ownership could ensure stable operational costs for Wawa in the long term. Wawa could be shielded from potential Jones Act rate hikes in the future. The Jones Act market could rebound and ship supply may tighten if U.S. oil prices bounce from the lows in the coming years.

Sunshine Beckons

Florida has become a key market for large retailers in recent years. Between Wawa and RaceTrac, both companies own more than 300 c-stores in in the state. Florida currently has more than 10,000 c-stores, over 6,000 of them selling gasoline, according to the Florida Retail Federation.

The fuel market is expected to grow, backed by a strong local economy and rising population. The larger presence of retailers like Wawa and RaceTrac could increase pressure on the state's many mom-and-pop gas stations.

Wawa said on Jan. 17 that it plans to open 25-30 new stores per year throughout the state of Florida for the next several years. It opened its first store in the Sunshine State in 2012 and its 100th store late last year. Wawa sells fuel at 500 of its more than 730 stores across its six-state operating area of Pennsylvania, New Jersey, Delaware, Maryland, Virginia and Florida.

The company sells over 2% of all the fuel sold in the country, Wawa said. Wawa sells diesel in over 400 of its fuel stores and earlier in 2016 opened its first store to sell compressed natural gas as a motor fuel, it said.

RaceTrac, with big building and remodeling plans for Florida, said it intends to open nearly 50 more new stores in the Sunshine State over the next two years. In 2016, RaceTrac cut the ribbon on 24 new stores in Florida, putting its total count there at 207, the company said. Its Florida stores make up nearly half of RaceTrac's entire 435-plus network, which spans Georgia, Florida, Louisiana and Texas.

"Florida is an important market for RaceTrac," said Robby Posener, vice president of marketing, merchandising, construction and architecture and design at RaceTrac. "By the start of 2017, we will have in excess of 200 stores throughout the state, many of which are strategically positioned along commuting routes and interstates, leaving us ever more confident of our ability to double our store count in Florida in the coming years."

Become a better fuel buyer without ever leaving your desk – sign up now for the OPIS Basics of Fuel Buying eLearning course. Taught by 30+ year industry veteran Scott Berhang, this 11-module online training program will guide you through everything you need to know about purchasing physical fuel. Visit www.opisnet.com/events/fuel-buying-online.aspx or call our eLearning team toll-free at 888-301-2645 for more details and to get started. Also available en español.

January 19, 2017
Mexican Election Outcome in 2018 May Impact Energy Markets, Rules

Mexican energy reform is well underway, opening up opportunities for foreign companies to invest in building up the Mexican energy infrastructure and to trade fuel freely across the Mexican-U.S. border.

Market participants and industry watchers in Mexico are monitoring closely the ongoing buildup to the looming Mexican presidential election in 2018, which could have implications on the domestic energy industry and regulations. One leading candidate on the Mexican presidential election radar could present a risk to the fruits of the ongoing energy reform.

Andres Manuel Lopez Obrador is seen in Mexico as a nationalist and a follower of ex-President Lazaro Cardenas, who was credited for nationalizing the Mexican oil industry in 1938.

Sources in Mexico said that Lopez Obrador, an ex-mayor of Mexico City, is seen as a leading candidate for the 2018 presidential election, and he has gained some momentum in recent months following the election of President-elect Donald Trump in the U.S. Both Lopez Obrador and Trump are seen as anti-establishment in the political circles and are nationalists.

"If Lopez Obrador comes into (Mexican presidential) office, there is a chance that he may try to nationalize energy assets in Mexico again," a source said. In 1938, the national oil and gas company in Mexico, Pemex, was founded, and Mexico expropriated all reserves, facilities and foreign oil companies in Mexico.

The source was responding to a query from OPIS about the possibility of the Mexican government taking back control of domestic fuel pricing down the road in an event of sharp price volatility, and heightened social and political pressure.

However, some sources played down the potential impact of a pullback on energy reform in the future.

"There is a risk (that nationalization) could happen, but it is unlikely," a second source said. "Everything is easier said than done. A president would need to secure 66% of the votes to change the constitution, which will not happen."

Lopez Obrador had run unsuccessfully for the 2006 and 2012 presidential elections.

Meanwhile, President Enrique Pena Nieto is facing plunging approval ratings following the sharp fuel price hike in early January. The fuel price increase, coupled with the weakening peso against the greenback, has sparked concerns of rising inflation. Some areas in Mexico are continuing to face protests against the fuel price hikes.

Mexico is scheduled to implement free-floating fuel prices across the country in a staggered timetable in 2017. This would free Mexico from financial burdens stemming from fuel price subsidies. Some sources said that the country is going through some short-term pains but the reform will be a long-term gain for Mexico.

Become a better fuel buyer without ever leaving your desk – sign up now for the OPIS Basics of Fuel Buying eLearning course. Taught by 30+ year industry veteran Scott Berhang, this 11-module online training program will guide you through everything you need to know about purchasing physical fuel. Visit www.opisnet.com/events/fuel-buying-online.aspx or call our eLearning team toll-free at 888-301-2645 for more details and to get started. Also available en español.

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