Carlyle saves big Sunoco refinery with shale boom, JPMorgan

Mon Jul 2, 2012 4:26pm EDT
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By Janet McGurty

NEW YORK (Reuters) - Sunoco Inc (SUN.N: Quote) and private equity firm Carlyle Group LP (CG.O: Quote) reached a deal on Monday to save and expand the largest U.S. East Coast refinery, capitalizing on the nation's shale boom to reinvent the economics of refining in the region.

Sunoco will retain a minority stake in the 330,000 barrel per day Philadelphia, Pennsylvania refinery and Carlyle will be in charge of daily operations under the terms of the deal. Traders for Wall Street titan JPMorgan Chase & Co (JPM.N: Quote) will handle crude supplies and fuel sales.

Carlyle and Sunoco plan to construct a high-speed unloading rail facility to feed the plant with cheap domestic crude, reducing the huge costs associated with importing oil that wrecked margins and forced the U.S. refiner to decide to look for buyers or shutdown the longest running refinery on the East Coast this summer. The private equity firm had been in exclusive talks since April, and a deal had been generally expected.

In addition to saving the region from a potential shortfall of fuel and heralding a stronger connection between East Coast refiners and the dramatic growth in Midwest shale oil production, the venture plans to exploit the low cost and abundant supply of natural gas from the nearby Marcellus Shale deposit to reduce the costs of powering the plant.

"We believe the changing nature of the energy paradigm in the U.S., coupled with a redefined operating model, could truly benefit this refinery," said Rodney Cohen, managing director of the Carlyle Group told reporters during a conference call.

"The refinery's exceptional location and infrastructure will enable the joint venture to create new business opportunities related to Marcellus Shale natural gas fields."

The joint venture, to be called the Philadelphia Energy Solutions, was expected to close in the third quarter, saving 850 existing jobs and creating 100 to 200 permanent new ones.

Terms of the deal were not disclosed, but some $25 million in state and local support spoke volumes to the political importance of saving jobs in a teetering economy and securing domestic fuel supply to prevent a potential spike in prices this summer.   Continued...

A general view of the lobby outside of the Carlyle Group offices in Washington, May 3, 2012. REUTERS/Jonathan Ernst