By Jessica Resnick-Ault
Nov. 25 (Bloomberg) -- Reliance Industries Ltd.’s bid for bankrupt LyondellBasell Industries AF would give India’s biggest company a low-priced U.S. refinery, mimicking successful strategies by Valero Energy Corp. and the former Tosco Corp.
The Mumbai-based refiner and energy explorer led by billionaire Mukesh Ambani offered about $12 billion on Nov. 21 to buy a controlling stake in the Rotterdam-based chemicals and fuels maker, said two people familiar with the matter. The purchase would include LyondellBasell’s Houston refinery.
Refinery values tumbled after the worst global recession since the Great Depression cut gasoline and diesel demand in the world’s largest fuel market, creating circumstances similar to the late 1980s and early 1990s when Tom O’Malley built Tosco by buying lower-priced plants. Bill Greehey also made opportunistic acquisitions, helping Valero become the biggest U.S. refiner.
“It’s a buyer’s market, and that’s the same market O’Malley and Greehey used when they created Tosco and Valero,” said Ann Kohler, an analyst at Caris & Co. in New York.
San Antonio-based Valero, Sunoco Inc. of Philadelphia and Western Refining Inc. are closing unprofitable plants to stem losses. Holly Corp. agreed last month to buy Sinclair Oil Corp.’s Tulsa, Oklahoma, refinery for $128.5 million, less than half the total Sinclair spent to upgrade the plant.
Greehey, now chairman of San Antonio-based asphalt maker NuStar LP, continued to acquire refineries at Valero even after slumping demand led to a 1998 loss. He found willing sellers among the oil majors, such as Exxon Mobil Corp.
‘Big Shakeup’
“Majors are selling again, and I think we’re going to get new entrants,” said John Paisie, a partner at consulting firm PFC Energy Inc. in Washington. “I think we’re going to have a big shakeup in the downstream with consolidation, assets being spun off, trying to be sold.”
China Petroleum & Chemical Corp., the nation’s biggest refiner, and buyout firm TPG have weighed a bid that could challenge Reliance’s offer for LyondellBasell, according to the two people familiar with the matter.
Reliance has surged 78 percent in Mumbai trading this year, matching the gain in the benchmark Sensitive Index. The stock rise 0.9 percent 2,197.20 rupees at 2:54 p.m. local time.
LyondellBasell’s 270,000 barrels-a-day Houston plant would cost at least $5 billion to build today, according to John Parry, Vice President at Norwich, Connecticut-based consulting firm IHS Herold Inc. He assumes a cost of $20,000 per barrel of crude oil processing capacity.
‘Bargain-Basement Price’
Lyondell Chemical Co., which was later sold to Basell Holdings NV, bought Petroleos de Venezuela SA’s 41 percent stake in the plant in 2006. The $2.1 billion price valued the stake at $19,000 per barrel of processing capacity, a U.S. record.
“Costs remain very high,” said Victor Shum, a senior principal at energy consultants Purvin & Gertz Inc. in Singapore. Reliance’s offer “would just be a bargain-basement price,” he said today. “The $12 billion is very attractive. It’s impossible to build a new refinery in the U.S.”
Regulatory hurdles such as environmental permits have discouraged building of new refineries in the U.S. The last “significant” plant built in the country was Marathon Oil Co.’s Garyville, Louisiana, refinery that was finished in 1976 and began operating in 1977 with a processing capacity of 256,000 barrels a day, according to the Department of Energy.
“It’s probably a good time to be buying refineries, if you’ve got the stomach for it,” said David Hackett, president of consulting firm Stillwater Associates in Irvine, California.
Ambani, Greehey, O’Malley
Like O’Malley and Greehey, Reliance’s Ambani, 52, is comfortable with counter-cyclical moves, said Mike Leger, president of consulting firm Turner, Mason & Co. in Dallas. “Those are the kind of guys that look good when things turn around,” Leger said.
Ambani created the world’s largest refinery with a $6.1 billion project that doubled capacity at Reliance’s flagship plant in India. With a net worth estimated at $32 billion, he’s the richest of India’s 52 billionaires, according to a ranking by Forbes magazine.
Valero’s network of plants spanned from California to New Jersey by the time Greehey retired as chief executive officer at the end of 2005. He remained chairman until January 2007. The company netted more than $14 billion combined from 2005 through 2007 after Greehey built the largest U.S. capacity to process cheap, heavy grades of crude.
O’Malley sold Tosco to the former Phillips Petroleum Co. for $8.37 billion in 2001 and Premcor Inc. to Valero for $6.9 billion in 2005. He’s chairman of Switzerland’s Petroplus Holdings AG, the largest independent refiner in Europe.
Overseas Push
Thakur Sharma, president of Reliance’s U.S. operations, declined to comment on the company’s strategy with the proposed LyondellBasell deal. The company didn’t disclose how much it offered to pay for the controlling interest.
Reliance, which has $4.2 billion in cash, said this month overseas acquisitions are key to increasing revenue.
The company, which has 97 percent of its assets in India, has said it wants to diversify it risks by expanding overseas. In India, Reliance is also battling a lawsuit over gas supplies with a company owned by Ambani’s estranged brother, Anil Ambani.
With the LyondellBasell acquisition, Reliance could sell fuels refined in Houston, Rotterdam or India, or purchased through the company’s network of trading offices.
“That would give them quite a bit of leverage in marketing into the U.S. and into Europe,” said Kohler of Caris & Co.
To contact the reporter on this story: Jessica Resnick-Ault in New York at jresnickault@bloomberg.net.
Posts
No comments:
Post a Comment