- Spending cuts needed, CEO Rinaldi says in e-mail to workers
- Company delays capital projects, cites $250 million RIN costs
Philadelphia Energy Solutions, operator of the largest oil refinery on the East Coast, said its finances are “significantly stressed” and it’s looking to cut workers, reduce benefits and delay capital projects.
Company pension contributions will be frozen, healthcare benefits will be cut and buyouts will be offered to salaried employees, Chief Executive Officer Phil Rinaldi said in an e-mail to workers Wednesday obtained by Bloomberg. The company, owned by Carlyle Group LP and Energy Transfer Partners LP, said about $250 million in costs for government-backed ethanol blending credits this year and low fuel prices along with high East Coast inventories are forcing it to reduce spending in all areas.
Maintenance planned at the 335,000 barrels-a-day Philadelphia refinery will move to 2017. Independent refiners are facing the “mother of all short squeezes" because of a surge in renewable fuel credit prices, billionaire investor Carl Icahn said in an Aug. 9 letter to the Environmental Protection Agency. The surge in prices of the credits, known as RINs, may bankrupt some refiners because the marketplace is “rigged,” Icahn wrote.
“It is draining our capital resources,” Rinaldi said in the e-mail. The company is looking “for solutions to enhance our operating economics and liquidity position.”
Icahn holds an 82 percent stake in refiner CVR Energy Inc.
Cherice Corley, a spokeswoman for the Philadelphia-based Philadelphia Energy Solutions, said in an e-mail today that the company doesn’t discuss business matters with the media.
Refiners and importers need to meet biofuel quotas set by the government, either through blending fuel with ethanol or buying Renewable Identification Numbers, or RINs. Companies that don’t operate retail gasoline stations are unable to generate the credits by blending biofuels with the petroleum-based fuels they produce. Integrated refiners can generate the credits organically.
The cost of renewable fuel RINs fell 2.875 cents to 88.125 cents between Aug. 18 and Sept. 7, according to Progressive Fuels Ltd. and data compiled by Bloomberg.
East Coast gasoline stockpiles of the motor fuel are at a record seasonal high, according to the latest weekly data from the Energy Information Administration, the U.S. Energy Department’s statistical arm.
“East Coast refining margins are under pressure due to seasonally high inventory levels of gasoline,” Andy Lipow, president of Lipow Oil Associates in Houston, said in an interview.
The front-month gasoline crack spread on the New York Mercantile Exchange, a rough measure of refining profit, is the lowest for this time of the year since 2013.
RINS aren’t the real problem for the Philadelphia refinery, Robert Campbell,
head of oil products research for London-based Energy Aspects, said in a telephone interview today.
“East Coast refiners are not particularly competitive in this low-margin environment for refining because there is no advantaged crude for them anymore,” Campbell said. “U.S. production is down and there is more infrastructure to move the stuff from the Bakken to the Gulf Coast instead of the East Coast.”
Philadelphia Energy Solutions is a joint venture of The Carlyle Group and Sunoco, a unit of Energy Transfer Partners LP.