Hollyfrontier to Acquire 97-year-old 115,000bpd Refinery for $2.6bn

As the Nigerian National Petroleum Corporation (NNPC) targets to acquire a 20 per cent stake, translating to 130,000 barrels per day (bpd) capacity from the brand new 650,000 bpd Dangote Refinery for $2.7 billion, Hollyfrontier is acquiring 97-year-old 115,000 bpd refinery from Sinclair Oil for $2.6 billion.

The deal signed by HollyFrontier and its affiliate, Holly Energy Partners (HEP), to acquire almost all of Sinclair Oil’s refining, renewable diesel, and logistics assets for $2.6 billion, is therefore, not similar to the planned acquisition of the 20 per cent stake in Dangote Refinery by the NNPC, a top official of the corporation told THISDAY Saturday night.

This is coming as the NNPC has lost roughly N9.181 billion to shutdowns, mostly as a result of host community workers and contractors’ protests in the Niger Delta, a review of reports on its activities from January to July this year, has shown.

NNPC and Dangote’s refinery deal caused outrage earlier on Saturday, especially on social media, with a section of Nigerians comparing it with HollyFrontier’s business agreement with Sinclair.

They argued that if HollyFrontier could buy the 678,000 barrels per day facility for $2.6 billion, there was no business sense in NNPC acquiring 20 per cent of Dangote refinery’s 650, 000 for $2.7 billion.

But a top NNPC source said that people were erroneously interpreting the deal to mean that HollyFrontier is buying 678, 000 bpd refining capacity from Sinclair for $2.6 billion.

The source explained that it is the combined business: HollyFrontier and Sinclair, that will have the refining capacity of 678, 000 bpd after the acquisition.

The source further disclosed that HollyFrontier already has refineries, and is only adding Sinclair’s two refineries, with a combined capacity of 115, 000 bpd to its portfolio.

Out of this 115,000 bpd capacity, the first refinery with a capacity of 85,000 bpd was built in 1924, that is 97 years ago, while the second refinery with a capacity of 30,000 bpd, was built in 1992.

“So, only two refineries are being purchased. As can be seen from Sinclair Oil’s website, one has a capacity of 85, 000 bpd and was built in 1924, the other has a capacity of 30, 000 bpd and was built in 1992,” explained the NNPC source, who spoke in confidence.

Accordingly to the source, a refinery with 50 per cent petrol yield and zero per cent Low Pour Fuel Oil (LPFO) is way more valuable than a refinery with say 30 per cent petrol and 20 per cent LPFO.

“This is simply because PMS (petrol) is way more valuable than LPFO,” it noted.

According to the NNPC top source, a new refinery with 95 per cent availability is way more valuable than an old refinery with say 85 per cent availability, noting that this is simply because the new refinery will be making money in many more days in a year.

“In addition, every manufacturing plant has fixed costs; so, a small refinery will have higher fixed costs per barrel and therefore lower profitability,” the source stressed.

The Dangote refinery, with a single crude oil distillation unit, when completed, around mid-next year will be the largest single-train refinery in the world.

Corporation Loses N9.1bn to Community, Workers’ Protests

In another development, the NNPC has lost roughly N9.181 billion to shutdowns, mostly as a result of host community workers and contractors’ protests in the Niger Delta, a review of reports on its activities from January to July this year has shown.

Public demonstrations due to alleged negligence of the host oil communities where oil companies operate have been a major cause of disruptions to the national oil company’s operations in the region, which produces Nigeria’s and gas resources.

The NNPC maintains a Joint Venture (JV) relationship with oil companies in the Niger Delta, with such shutdowns causing huge losses to both the national oil company and its partners.

In July, NNPC’s total losses hit N1.644 billion due to such disruptions, while JV cost recovery was $147 million or about N56.6 billion when converted with the Central Bank of Nigeria (CBN) exchange rate at the time.

Government priority projects cost $40.5 million, about N20 billion, while export crude oil was N4.48 billion and Nigeria LNG feedstock was N13.8 billion, whereas feedstock gas arrears stood at N1.5 billion.

For its June operations, the NNPC lost N1.109 billion in terms of lost products as a result of shutdowns, whereas export crude volume was 2.7 million barrels, valued at N69.3 billion or $181.1 million, going by the CBN’s N382.80 to a dollar exchange rate at the time.

In May, total products losses were worth N961.3 million, a huge difference of about N680 million from the succeeding month.

Still, in May, government priority projects gulped N15.8 billion while export crude oil stood at N723.8 million and export gas was N6.09 billion, as NLNG feedstock gas recorded during the month stood at N20 billion.

In the preceding month of April, product losses due to shutdowns stood at N1.639 billion, export crude was N35.7 billion and export gas was worth N10.1 billion.

Similarly, in March, product losses recorded, according to the national oil company, hit N1.618 billion, while export crude oil remained N30.9 million, an equivalent of N11.7 billion, given an exchange rate of N378.88.

In the same vein, February figures showed that the NNPC export crude oil was N9.2 billion, while Nigeria LNG feedstock gas was worth N15.904 billion and 6 million barrels of crude were lost to shutdowns, resulting in about N1.41 billion.

For its January operations, the national oil company forfeited 2 million barrels to shutdowns, due to host community issues, generator failures, maintenance, sabotage, among others, standing at a loss of about N800 million, going by the N380 exchange rate.

Most of the losses were due to the activities of disgruntled community workers and contractors who had issues to sort out with the oil companies. For instance, according to NNPC data in March, SPDC declared force majeure in January, due to the shutdown of Trans Forcados Pipeline (TFP) as a result of community issues over outstanding payments.

In April, it was reported that Addax production into Brass was curtailed due to workers strike, while Seplat shut in 43, 000 barrels of oil due to third-party interference.

Its May report indicated that Pan Ocean shut down production due to workers’ action, same with Jisike, which was abandoned as a result of industrial action by petroleum workers.

Additionally, in July, NNPC announced that Eroton production was shut down as it was vandalised, coupled with what it described as community disturbance. In the same month, Seplat Jisike’s low stock was shut in due to the Addax contract personnel strike.

In June, Batan station was shut down due to unpaid community workers’ and contractors’ salaries, the same way that Kokori station was closed due to the same problem.

Also, Aiteo shut down some flow stations due to community issues around the same time, the NNPC data stated, while Jones Creek station completely went down due to unpaid salaries of surveillance contractors.

Similarly, in April, the Egwa flow station came down due to community agitations, leading to a loss of 36, 000 barrels, while Olomoro and Uzere suffered the same fate due to agitations by community workers and unpaid contract staff salaries.

Royal Dutch Shell had recently begun massive divestment from its onshore and shallow water assets, saying its long-term business plan does not align with its activities in the area, with recent information revealing that it plans to completely sell off one of its subsidiaries, Shell Petroleum Development Company (SPDC).

 

Emmanuel Addeh in Abuja

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