Refiners still eye M&A while gathering liquidity

A sudden rush for cash across the US independent refining sector has not stopped interest in mergers and acquisitions, executives said during earnings calls this week.

US independent refiners have added billions of dollars to short-term credit and private offerings over the past month in response to a fuel demand collapse forced by efforts to contain the Covid-19 pandemic. PBF Energy today offered $1bn in senior notes and delayed its first quarter earnings report, originally scheduled for tomorrow, by a week.

But the flood of liquidity interest has only raised the bar for purchases, not fully doused consolidation efforts, executives said.

HollyFrontier has spent $1.6bn since 2016 to expand into the base oils and specialty lubricants business through acquisitions of Petro-Canada Lubricants, Red Giant Oil and Sonneborn. The company started the year still interested in "bolt-on" businesses in that space to offer more products or enter new geographic markets.

That was still the case, HollyFrontier chief executive Mike Jennings said today on a quarterly earnings call.

"We obviously are much more interested in assets when the price is lower, but we are going to be careful about it, because this is a time when capital is dear," Jennings said. "The return parameters are going to have to be that much better for us."

The $140mn CVR Energy spent to acquire an almost 15pc stake in larger US independent refiner Delek produced a $31mn return in the first quarter for the company.

Delek quickly adopted measures that would limit the takeover of the company by a stock acquisition in March in response to the investment. The company declined to comment on any talks with CVR.

CVR chief executive David Lamp said today that refinery consolidation was critical to reach the scale needed for long-term survival in the business.

"There are lots of opportunities, lots of different directions this could go," Lamp said. "Anything is an option here, and we will be pursuing all of them."

Travel restrictions and limits on the number of people on site at refineries put in place as part of the coronavirus response have slowed some of the activity necessary to complete deals, he said. Some, but not all, of that work could be done digitally, Lamp said.

"Everybody is hunkered down," Lamp said. "Nothing comes to a halt, but, definitely, a slow down that makes it more difficult to make things happen."

By Elliott Blackburn

source: Argus Media