Holly Corp. Enters Mid-Continent

Holly Corp.’s $65 million purchase of the 85,000 barrel-per-day Sun Refinery gives it a foothold in the higher-margin U.S. Midwest market.
Dallas-based Holly Corp., a company that flies below the radar with most of its refining and marketing in the Rocky Mountain niche, bought the nearly 100-year-old refinery, the inventory, Sunoco specialty lubricant product trademarks in North America and a license to use the same in Central and South America.
Holly Corp. looked at numerous refineries over the last decade but always took a pass until this deal, said Tom Kloza, chief oil analyst for the Oil Price Information Service — a widely accepted fuel price benchmark for supply contracts and competitive positioning.
“This is not your run-of-the-mill refinery. It’s primarily a lubes’ refinery, and it is tough to get good, historical data on how profitable lubes have been or will be in the next few years,” Kloza said. “I’m sure that lubes’ demand has been hammered by the miserable conditions in the commercial economy, but very little light of day ever shines on lubes’ prices.”
The acquisition increases Holly’s overall refining capacity by more than 60 percent to 216,000 bpd while adding the U.S. Mid-Continent to the company’s existing Rocky Mountain and Southwest markets.
The Tulsa refinery is in the Midwest’s Group Three oil products market and enjoys margins higher above the Gulf Coast refinery row historically, said Holly Corp. CEO Matt Clifton.
Another advantage is the refinery’s close proximity to Cushing and the NYMEX crude delivery point.
“The Tulsa acquisition, at its attractive purchase price, adds a significant potential income-producing contributor to our profitable and recently-upgraded refineries while maintaining our strong balance sheet,” Clifton said.
Holly Jolly Desulfurizer
Holly plans to construct a new 25,000 barrel-per-day diesel desulfurizer at the Tulsa refinery by the end of 2011 at the cost of about $150 million, after completing similar projects at its refineries in Artesia, N.M., and Woods Cross, Utah.
The Tulsa plant fits the Holly Corp. niche for a refinery, Clifton said, providing high distillate yield, low gasoline yield, and an anchor of specialty products that bolster gross margins. Clifton referred to beefy distillate fuel profits last year — for products like kerosene, motor oil, cutting oils and the base oils for many greases — compared to gasoline’s thin margins.
The desulfurizer addition will allow the facility to produce all its diesel fuel as ultra-low sulfur diesel, similar to the Sinclair Refinery. The ultra-low diesel is environmentally friendly and more profitable. The chief executive also said the acquisition will not impact 2009 capital expenditure, adding Holly will continue with existing projects at Utah and New Mexico.
No Cheap Imports Here
Kloza said there is some irony to the purchase.
“The most challenged ?≠— I hate that word — area of the country right now for refining is the U.S. East Coast,” Kloza said. “Runs are about 56 percent of capacity, an unheard of level.”
Cheap foreign imports, mostly from Europe, have displaced a lot of home-grown refined products in the region. That’s something that can’t readily happen in Tulsa or the Heartland, Kloza said.
“Good news for Tulsa workers I hope. I also had a feeling that the only way the plant would sell would be if the EPA recognized that it would have to bend a bit on desulfurization timetables in order to keep the refinery open,” he said.
The EPA did not respond to a request to comment.
Chamber’s Involvement
Holly has identified several potential projects to improve the facilities, said Jim Fram, senior vice president of economic development for the Tulsa Metro Chamber.
“This is the best outcome we could have hoped for,” Fram said. “Tulsa retains 400 jobs and Holly Corp. will make a significant investment to bring the facility up-to-date.”
“We appreciate the interest Tulsa and Oklahoma officials have expressed to date in Holly’s acquisition of the refinery,” said George Damiris, vice president of Holly Corp. “We look forward to their continued support as we finalize plans to ensure the long-term viability of the refinery and protect approximately 400 jobs.”
Tulsa Metro Chamber and the Oklahoma Department of Commerce worked closely with Holly officials during negotiations to facilitate state incentives for this acquisition, Fram said. Economic development incentives include the Oklahoma Quality Jobs Act and the Investment Tax Credit. Chamber officials provided state legislators with information necessary to procure a one-time approval to combine the state incentive packages, leveraging some of the financing to facilitate the sale of the Tulsa Sunoco refinery.
“There can be no stronger demonstration of support from our state legislature to retain these high-paying, existing 400 jobs than by providing these incentive resources,” Fram said. “We need to do all we can to support Holly’s plan to invest in one of our targeted sectors.”
Existing incentives are responsible for the creation of thousands of new jobs in the state.
“Through this request, we are simply asking the legislature to combine two components to ensure Tulsa can retain these valuable existing jobs and the capital investment planned by the Holly Corp.,” Fram said. He did not offer specific figures.
The Chamber continues to work with Senate and House leadership to expedite the approval of the combined incentive package during this legislative session.

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