OPIS Headlines

April 22, 2014
U.S. East, West Coast Refiners to Benefit from Keystone XL Delay: Bank

U.S. East and West Coast oil refiners, such as PBF and TSO, which receive all of their heavy Canadian crude by rail, are the only potential winners following the delay in approval for Keystone XL pipeline project, according to Wells Fargo.

"In our view, the East and West Coasts of the U.S. are highly unlikely to ever receive direct pipeline deliveries of Canadian crudes and thus are most likely to benefit from a significant and persistent discount to maintain competitiveness with the Mid-Continent and Gulf Coast refining regions of the U.S. via crude by rail deliveries," the bank said.

Without the Keystone XL line's new capacity, the Canadian crude pipeline delivery system is expected to remain bottlenecked with excess deliveries dependent on more expensive rail transportation and sustained price discounts, Wells Fargo said.

This is essentially the ratification of the existing market structure. The decision does not affect the bank's expectations, opinions or estimates for U.S. refiners.

Last Friday, the president via the State Department announced an indefinite extension of its review of the Keystone XL pipeline. Wells Fargo had expected a ruling by May 7 based on the prior timeline.

The main reason given for the extension is ongoing litigation in Nebraska. This litigation relates to the specific route of the pipeline and appears unlikely to be resolved for several months at least.

At a minimum, it would appear Friday's announced delay will delay approval until late 2014 at least, the bank said.

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.


April 14, 2014
Texas Dealmaker Lines Up to Buy PMI

A Texas entrepreneur and commercial real estate developer who has handled real estate for ExxonMobil, Walgreens and other Fortune 100 companies is on the cusp of buying a billion-dollar Virginia petroleum wholesaler, Petroleum Marketers Inc. (PMI), based in Roanoke, Va., OPIS has learned.

PMI is an employee-owned company, headed by CEO Ron Hare, so the decision resides with employee stockholders who are in the process of voting. A final tally comes on April 28, according to sources familiar with the deal, who added that terms of the proposed transaction include retention of all PMI employees. The prospective buyer is Joseph "Trey" Smith, the head of the Houston-based company Pinehurst Petroleum, which is making the offer to PMI. According to a business profile, Pinehurst Petroleum is a Texas limited liability company (LLC) created in July 2011.

Industry sources in Texas seem more familiar with another one of Smith's companies, Wildcat Fuels Ltd., a Houston-based multi-branded fuel distributorship created in 2008. Wildcat's website says the company wholesales fuel to "more than two dozen dealers" in Texas and "other Gulf Coast states." It boasts "competitive fuel supply terms" and rapid growth due to "repeat business and significant customer referrals." Wildcat says it does business under the Exxon, Valero, Chevron, Shell and Texaco flags.

The strength of Smith and his partner, Jay Kopfer, is in their real estate skills, which Wildcat's website describes as "unmatched among fuel jobbers." The site boasts the pair have represented multiple Fortune 100 clients and spent hundreds of millions of dollars buying, selling or building retail sites, mostly convenience stores. The site says they negotiated and placed $50 million in sale/leaseback capital on behalf of Dairy Mart Convenience Stores of Cleveland. Ray Hansen, who heads Texas fuel distributorship, Desperado Oil Co., of College Station, Texas, was once Exxon's national wholesale distributor manager. Hansen first met Smith years ago when he was still employed at Exxon and Smith was handling real estate deals for the major. Walgreens also was one of Smith's big clients, and he made frequent use of sale leasebacks wheeling and dealing for the drugstore chain, Hansen notes.

Currently, Hansen, 82, performs accounting services for Wildcat Fuels and he has worked closely with Smith on the board of trustees for Abilene Christian University in Abilene, Texas. He says Smith named Wildcat Fuels after the school's "Wildcat" athletic teams.

Hansen describes Smith as an aggressive, 54-year-old entrepreneur with his hands in several ventures. Smith "knows a lot of people" and has a knack for fundraising, he says. When ExxonMobil was divesting gas stations he says that Smith was among the top bidders for stations in Florida, though the Texan didn't win the package.

Wildcat Fuels has annual revenues of about $125 million and distributes about 35 million a year to 25 to 30 retail sites, he says.

"If he were to continue to grow Wildcat at the rate he has it will be quite large," says Hansen. "They almost doubled the business over the last year or year and a half. And he (Smith) has other ventures."

The Wildcat website says Kopfer and Smith were "instrumental" in developing the short-term and long-term network strategy for ExxonMobil's c-store investments and operations in Texas and have worked for other majors -- Valero, ChevronTexaco, Amoco and ConocoPhillips  -- as well as McDonald's, Bank of America, Metropolitan Life and Walgreens.

Online dealer testimonials praise Wildcat for its marketing support and customer service.

Smith is tied to a maze of other companies with diverse portfolios. The oldest company, Focus Commercial Real Estate, was created in 2002. He also is linked to Zimri Holdings, Stalwart Partners LLC, Aerobic Whl LLC, Cook, Azariah Investments and Cook, Smith and Associates.

Nearly all the portfolio companies were created in the last three to five years. Most are Texas-based and set up as LLCs. Almost all are listed as using the same Houston address at 7062 Lakeview Haven Drive.

Smith is also listed as having an interest with Jeff Mallet in Sun Mart Shops, also based in Houston.

Calls to Smith to learn more about his companies and the assets he manages had not been returned as of presstime.

OPIS learned that should Smith succeed in acquiring PMI, he will relocate to PMI headquarters in Roanoke to run the company, replacing CEO Ron Hare.

PMI has been in the petroleum business since 1950 serving the wholesale, retail and terminal supply chain, along with operating a real estate and lube oil business. Annual gross sales exceed $1 billion, sources say, through subsidiary companies PM Transport, PM Terminals, PM Foods and PM Lubricants.

PMI distributes gasoline, diesel fuel and other products through branded dealers flying the Exxon, Shell, BP and CITGO brands. PMI also retails gasoline under its private Stop IN Shop brand, with 81 sites located almost exclusively throughout Virginia. The PMI Foods Division has a half-dozen locations in Virginia with the Burger King, Arby's and Subway logos.

PMI Terminals operates eight bulk plants through Virginia under the auspices of Whiting Oil, Northern Neck Oil, Lynchburg Oil, Buck Oil and Fuels Oil.

Distribution points include Richmond, Roanoke, Culpepper, Covington and Lynchburg, Va.

Founded in 1979, PMI Transport hauls fuel via a modern fleet of transport trucks operating out of Richmond and Roanoke. For most of the last 25 years, PMI has been consistently recognized by Exxon and Shell as one of their top branded distributors in the U.S.

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.


April 8, 2014
Texas Tycoon Seeks to Buy Virginia Oil Company

A Texas business tycoon who is linked to a number of investment companies in the Lone Star State is on the cusp of buying a billion-dollar Virginia petroleum wholesaler, Petroleum Marketers Inc. (PMI), based in Roanoke, Va.

PMI is an employee-owned company, headed by CEO Ron Hare, so the decision resides with employee stockholders who are in the process of voting. A final tally comes on April 28, according to OPIS sources familiar with the deal, who added that terms of the proposed transaction include retention of all PMI employees.

The prospective buyer is Joseph "Trey" Smith, the head of the Houston-based company Pinehurst Petroleum, which is making the offer to PMI. According to a business profile, Pinehurst Petroleum is a Texas limited liability company (LLC) created in July 2011.

Smith is tied to a maze of other companies with diverse portfolios. The oldest company, Focus Commercial Real Estate, was created in 2002. He also sits atop Wildcat Fuels Management, created in 2007 and is linked to Zimm Holdings, Kimber 45 LLC, Phantom 5 Partners, Stalwart Partners, Aerobic LLC, Cook, Smith & Associates and Azariah Investments.

Nearly all the portfolio companies were created in the last three to five years. Most are Texas-based and set up as LLCs. Almost all are listed as using the same Houston address at 7062 Lakeview Haven Drive.

Smith is also listed as having an interest with Jeff Mallet in Sun Mart Shops, also based in Houston. John A. Kopfer is mentioned as a business partner of Smith as well.

A call to Smith to learn more about his companies and the assets he manages had not been returned as of presstime.

OPIS learned that should Smith succeed in acquiring PMI, he will relocate to PMI headquarters in Roanoke to run the company, replacing CEO Ron Hare.

PMI has been in the petroleum business since 1950 serving the wholesale, retail and terminal supply chain, along with operating a real estate and lube oil business. Annual gross sales exceed $1 billion, sources tell OPIS, through subsidiary companies PM Transport, PM Terminals, PM Foods and PM Lubricants.

PMI distributes gasoline, diesel fuel and other products through branded dealers flying the Exxon, Shell, BP and CITGO brands. PMI also retails gasoline under its private Stop IN Shop brand, with 81 sites located almost exclusively throughout Virginia.

The PMI Foods Division has a half dozen locations in Virginia with the Burger King, Arby's and Subway logos.

PMI Terminals operates eight bulk plants through Virginia under the auspices of Whiting Oil, Northern Neck Oil, Lynchburg Oil, Buck Oil and Fuels Oil.

Distribution points include Richmond, Roanoke, Culpepper, Covington and Lynchburg, Va.

Founded in 1979, PMI Transport hauls fuel via a modern fleet of transport trucks operating out of Richmond and Roanoke.

For most of the last 25 years, PMI has been consistently recognized by Exxon and Shell as one of their top branded distributors in the U.S.

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.


April 2, 2014
Prices Oblivious to U.S. Stock Plunge

Nationwide U.S. jet supplies dropped to 35.6 million barrels in the latest count from the Department of Energy, induced by the disappearance of 900,000 barrels of inventory from the West Coast, where regional stocks hit a 13-week low.
Overall U.S. barrels plunged to 35.6 million barrels, the lowest stock level in almost 10 years, dating back to May 14, 2004, when supplies were 35.5 million barrels.

Despite the nature of U.S. stocks, bulk prices are oblivious to the shifting supply picture. Prices trended lower on the day and have been falling most of the week, shoved lower by weaker underlying ULSD futures prices. The freshly minted May ULSD contract reached a contract low today for 2014. Front-month prices have lost almost a dime in the last three trading sessions.

We did see cash discounts on the West Coast narrow, a trend that has been dominant for three weeks, a span that has seen discounts shrink from 18cts/gal to 6cts/gal. Ironically, L.A. flat prices are the same now (around $2.80/gal) as they were in early March when the discounts reached 18cts/gal.

East Coast jet production shrank 13% to 67,000 b/d, a six-week low. That caused stocks to decline despite a very high East Coast import figure. Regional imports at 106,000 b/d are the highest since August, the last time imports surpassed the
100,000 b/d level.

East Coast jet supplies stand at 7.8 million barrels, meaning that supplies have not grown at all this year despite reports of heavy import volumes scheduled into the region. New York prices dropped below $3/gal a month ago and have stayed there consistently. They did rise to $3.05/gal three days ago, but they are now a dime cheaper.

OPIS Gulf Coast spot jet values are on the precipice of falling below $2.80/gal for the first time in four months, dating back to November. Regional stocks have expanded almost a million barrels in the last month, and based on the latest export data, it appears as though exports of fuel slowed.

Meanwhile, Chicago jet prices remain exorbitantly priced at 50cts/gal over the NYMEX and some 56cts/gal more expensive than the U.S. Gulf Coast.

Midwest jet stocks have dropped in the last month, but they currently stand at 18% of national supplies. When cash differentials were a more reasonable 6cts/gal over the NYMEX a month ago, regional stocks were 19% of national supplies.

It is hard to make a correlation between the radically high Chicago jet differential and the current stock picture.

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.


March 20, 2014
Doubts Persist over U.K. Refinery Future Despite Talk of Buyer

Murco still faces an uncertain future and could be broken up if Murphy Oil manages to sell its loss-making U.K. business, analysts and market participants told OPIS Thursday.  

Stories have circulated this week that a private equity fund, Greybull Capital, is in talks to buy Murco, which includes the 135,000-b/d Milford Haven refinery, three terminals and some 450 retail stations in the U.K. Greybull was founded by brothers Nathaniel Meyohas in 2010 to specialize in buying battered or underperforming business. The firm came to attention two years ago when it backed the abortive buyout of Comet, one of the U.K.'s largest electrical goods chain, for just 2 U.K. pounds.

Murphy first hung a for sale sign around the Milford Haven refinery four years ago, but suitors have been thin on the ground amid a gloomy outlook for the European refinery sector.

However, impetus to sell sharpened this year when Murphy classed its U.K. business as "discontinued operations" after they booked a $105.1 million loss in the fourth quarter.

Some $73 million of the loss reflected a write down of value, but Murco still made a $40 million operating loss in the last three months of 2013.

"Murco would probably benefit from a dedicated management team, etc rather than being run from afar as an unwanted asset of an E&P-focused U.S. firm," said Robert Campbell, an oil analyst at Energy Aspects.

"But I gather Murphy has been so anxious to unload this thing in the past that they've been offering to pay people to take it."

Most of the speculation to date has focused on Milford Haven refinery, but Murco assets also stretch to a network of 450 retail stations, of which around 230 are company-owned.

However, another half of the company-owned sites are leased rather than owned outright by the company.

Murco's portfolio of retailers are generally small, usually selling around 1.5 million to 3 million liters of fuel a year, and running cost-cutter branded shops rather than the bigger supermarket brands.

Tight margins, running around 4 U.K. pence a liter, and rising commercial property prices will lead to further closures in the U.K. retail sector this year, noted Brain Madderson, chairman of the RMI Petrol Retailers Association.

"The fact is that a station with land values worth 2 million pounds in the south east could be worth 4 million if there is planning permission to build a block of flats," said Madderson.

Over the last decade, the number of U.K. fuel retail stations has dropped from 13,000 to around 7,000 today, of which only around 1,400 are now run by oil companies.

Murco also owns three terminals, all of which receive product by rail and handle around two million tons of product a year.

Meanwhile, The future of U.K. refining, like the rest of Europe, looks bleak, creaking from a legacy of post-war development that has failed to keep pace with demand, creating a surplus of cheap gasoline and a chronic shortage of valuable diesel and jet fuel.

European refiners have seen their margins often crushed into breakeven or negative territory as the imbalance in production is exploited by U.S. refiners, fueled by cheap shale, as well as a fast modernizing Russian sector and new capacity in the Middle East and Asia.

But the pace of rationalization has still been slow with inefficient plants sometimes protected by national interest.

Declining U.K. refining profitability has already seen the closure of the 210,000-b/d Coryton refinery in 2012, after its owner Petroplus went bankrupt, and more recently in the hostile takeover battle for Essar Energy, which owns the 296,000-b/d Stanlow refinery in the U.K. as well as Indian oil assets.

Essar Global, controlled by the Ruia brothers, has made a 70 U.K. pence share offer for Essar Energy, in which it already controls a 77% stake. The shares were sold for 420p a piece in 2010.

In February, Essar Energy decided to operate the Stanlow refinery at sub-optimum levels, idling one of its crude distillation units until the third quarter because of poor margins.

The measure was part of a $100 million revamp in an effort to save the plant, which supplies about 15% of Britain's transport fuels, after it posted a loss of $287 million last year.

Each barrel of crude the company processed in the fourth quarter lost an average of $2.61, compared with an average profit of $7.22 a barrel in the same quarter of 2012.

Apart from global competition, U.K. refiners have to contend with strict new environmental laws.

Assuming a level playing field, U.K. refineries are generally competitive at the moment, noted Purvin & Gertz in a report for the U.K. Petroleum Industry Association last July.

To keep pace with changing demand trends, they need investment of 1.5 to 2.3 billion pounds over the next 20 years.

But to comply with new U.K. and EU laws on emissions, they need another 5.5 billion pounds between 2015 and 2020, which will return a hefty loss rather than a profit.  

"4.6 billion [pounds] of which would have zero return (the costs passed through to the consumer) and 900 million [pounds] of which would have a negative return (no potential cost pass through to the consumer)," according to Purvin & Gertz.

Sources at Milford Haven remain confident of the immediate future.

"There has been a lot of effort over the last few years to make the plant attractive," one insider told OPIS.

"When you are looking to sell the plant, makes sense to try and sell as a going concern."

But analysts see little uptick for the U.K. or European refining sector and forecast more refineries will start to mothball capacity, rationalize or close.

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.