PBF Eyes California Refineries as Valero Calls Them Weakest

Apr 30, 2014 2:31 pm ET

(Updates crack spread in 11th paragraph. Run BMAP NEWS 5287<GO> for California’s refineries.)

April 30 (Bloomberg) -- A day after Valero Energy Corp. described its California operations as “our weakest group,” PBF Energy Inc.’s chairman said he’s interested in buying a plant in the Golden State.

PBF executives have the experience necessary to run refineries there, Chairman Tom O’Malley said on a conference call with analysts today. O’Malley was chief executive officer of Tosco Corp., which operated what is now Tesoro Corp.’s Golden Eagle plant near San Francisco.

“There are opportunities out there, and I think everybody knows that a certain number of people want to reduce their exposure in California,” O’Malley said. “We know the marketplace out there, we know how to operate refineries out there, we’ve done it before, and certainly it’s an area where we have an interest.”

O’Malley is considering a purchase in California, the world’s ninth-largest economy, as refinery margins on the U.S. West Coast hover at the highest seasonal level in seven years, boosted by plant repairs and fuel exports to Latin America. The state’s refiners are also pulling in a record volume of oil by rail from North American shale plays, allowing them to displace costly imports from abroad.

Tesoro bought the 246,000-barrel-a-day Carson refinery in Southern California from BP in June with plans to integrate the complex with its adjacent Wilmington plant. The company said the combination will improve its distillate yields, shrink distribution costs and cut emissions regulated by the state as part of its carbon cap-and-trade program.

Valero Assessment

Valero’s chief executive officer, Bill Klesse, told analysts on a conference call yesterday that the financial performance of the San Antonio-based company’s California refineries is “not that great.”

“It’s our weakest group of assets now, financially,” Klesse said. “Operationally, though, it’s excellent,”

Demand has yet to recover from the 2008 global recession, he said.

“Although we’re starting to see some improving economy and some uptick in demand, the focus that we have is to work on our crude costs and to continue to work on the operating costs and, of course, adjusting our yields to fit the market,” Klesse said.

Valero runs the 132,000-barrel-a-day Benicia refinery near San Francisco as well as the 78,000-barrel-a-day Wilmington complex near Los Angeles.

California Refineries

California’s refineries, which have traditionally run on oil from the state’s San Joaquin Valley, Alaska’s North Slope and the Middle East, brought in a record 1.18 million barrels by rail in December from places including Canada, Wyoming and North Dakota, according to the most recent data available from the state Energy Commission.

The 3-2-1 crack spread on the West Coast, a rough indicator of refining profitability, widened $1.69 to $24.12 a barrel today at 2 p.m. New York time, the biggest margin for the time of year since 2007, data compiled by Bloomberg show.

The region exported the most refined product last year since 1992, according to the Energy Information Administration, the Energy Department’s statistical arm.

At least eight tankers have been chartered to load fuel off the West Coast for export in the past month, with six of them scheduled to deliver to ports in Latin and South America, ship- fixture data compiled by Bloomberg show.