Big refinery project dropped, others weighed
PBF Energy has finally abandoned plans for a $1 billion new production unit at the Delaware City Refinery but is considering a $100 million new unit to support cleaner fuel production and exploring prospects for a natural gas liquid export venture in Delaware, officials said Thursday.
The details emerged as PBF reported a fourth-straight positive quarter, with Delaware City Refinery and East Coast operations accounting for more than 50 percent of company earnings for the past 12 months.
Companywide operating income for July 1 through Sept. 30 was $284.1 million compared with a $55.6 million loss for the same period in 2013. Net income for the third quarter was $155.6 million, compared with a net loss of $46.9 million in 2013. Earnings per share for the quarter were $1.60, compared with a 48-cent per share decline last year.
"Today I can say 'Great job,' " PBF Chairman Thomas D. O'Malley said. "We built these companies four years ago from zero refineries and very few employees to what is today an independent, fully functioning refinery with an excellent balance sheet," an excellent management team and a "very bright future."
Reports on the results included disclosure that the company has dropped consideration of an estimated $1 billion, complex system of units to expand low-sulfur product output at Delaware City and written off $28 million in expenses incurred for the idea. O'Malley mentioned the project as early as October 2011, when the company marked the official restart of its first refinery.
In another revelation during a separate investor briefing late Thursday morning by PBF's new rail subsidiary, a company official mentioned "some" communications with Delaware regulators on prospects for developing a rail-supplied natural gas liquid export facility on some of the thousands of open acres around the refinery.
"We've been pursuing this for some time," said PBF Logistics GP LLC Chief Executive Officer Tom Nimbley, adding that some parties are "very interested in doing it." The Delaware refinery's large land area and access to rail "clearly" offers capabilities for the idea.
"We have a significant amount of property. We've had some discussions with the state on it. I wouldn't say they stood up and said 'This is the greatest idea we've ever heard,' " Nimbley said. "It remains an idea. It's not something that we have a clear path and runway" for.
Natural gas liquids, or NGLs, are energy-rich hydrocarbons stripped away from mostly methane natural gas, mainly in production well areas. Huge amounts have become available in the Northeast with expansion of production in the Marcellus shale region.
Efforts already are underway to expand waterborne shipments of NGLs from waterfront facilities at the former Marcus Hook Refinery in Pennsylvania, just north of the Delaware line. Delaware City, meanwhile, has long shipped gasoline and other finished products out of its own docks, and has a permit to send up to 45,000 barrels of crude oil daily to its Paulsboro, New Jersey, refinery.
Economic development and labor groups had meanwhile continued to hold out hope that the $1 billion hydro-treating project – shelved when PBF invested heavily in crude-by-rail facilities – would still go forward.
But PBF officials said the project would have involved a long and extensive permitting review in Delaware and huge investment.
Engineers achieved the same low-sulfur production result through changes at the Delaware City and Paulsboro complexes and closer coordination between the two sites, operating in some ways as a single refinery.
"Instead of taking the typical industry route of a giant investment," O'Malley said, the company "solved the problem with smart engineering, a modest investment and an innovative plant realignment" at a cost of about $50 million.
Nimbley said that the company is considering a $100 million hydrogen production unit for next year's major capital budget, a project that would have been related to the $1 billion, now abandoned, "hydrotreater" unit that had been considered at Delaware. Hydrogen is an essential ingredient and catalyst in major sulfur-removal systems, important to PBF as it works to meet lower, 10 parts per million sulfur standards for gasoline that take effect in January 2017.
Maximum production limits would remain unchanged if the new unit goes online, PBF said. Operation would help the plant meet tightened state air emission limits and also allow the shutdown of some existing equipment.
"We do believe a smaller investment, which we might do with a third party, to get additional hydrogen into the East Coast system will be a favorable project," Nimbley said. "We have not made a decision on that."
PBF officials added late Thursday that other options are under consideration, partly because of "unique" permitting requirements in Delaware that could delay or threaten its viability. Although unspecified, the Coastal Zone Act stands as the most unique rules governing additions to the riverside site.
The report capped the best running performance to date for PBF and its founding refinery at Delaware City, a site nearly scrapped when Valero Energy wrote it off and shut it down in 2009.
PBF acquired the operation at a huge discount, with state economic development support, then overhauled much of the operation just in time to take advantage of a boom in domestic and North American crude supplies.
Nimbley said the refining company's focus on the best-priced crude supplies, whether by rail or water, accounted for much of the performance. Most of Delaware City's crude now arrives by train from shale oil and oil sand fields in the upper Midwest and Canada, a reversal after decades of reliance on water-borne, imported crudes.
Third-quarter rail deliveries at Delaware City averaged 130,200 barrels daily, continuing an upward move toward a reported capacity of 210,000 barrels daily at the site's large rail-offloading terminal east of Del. 1 and north of Del. 72.
Contact Jeff Montgomery at (302) 463-3344 or jmontgomery@delawareonline.com.