Big West refinery draws $40 million bid
| Tuesday, Feb 02 2010 03:51 PM
Last Updated Tuesday, Feb 02 2010 09:35 PM
Images
The Big West of California refinery on Rosedale Highway.
Lee Patrick is an employee of the Big West refinery.
Jeff Frank is an employee of the Big West refinery.
An Israeli company announced Tuesday that it has offered $40 million for Big West refinery, a move that raised more questions than it answered even as it inspired hope in the mothballed plant’s creditors, former suppliers and employees past and present.
Utah-based owner Flying J Inc. reportedly paid Shell $130 million for the refinery in 2005.
The bid by Alon Israel Oil Co. Ltd.’s U.S. subsidiary suggests that the plant will not undergo a pricey and controversial upgrade sought by Flying J.
Attention now turns to an upcoming auction at which other companies will be invited to top Alon’s bid. Any sale would be subject to the bankruptcy court approval and regulatory hurdles.
Bankruptcy court records filed Tuesday indicate that any further bids are due March 16. The auction is to take place three days later, and the successful bidder is to be declared March 23.
The very existence of a bid — and the implication that Big West will reopen as a refinery — has strong implications for creditors of its Utah parent company, many of them local, as well as Kern oil producers looking for a buyer for their crude, and consumers who could see gasoline prices drop if Alon resumes refining at the plant along Rosedale Highway.
Reaction
Big West workers saw only good news in the announcement.
“We certainly welcome anything (Alon) has, that’s for sure,” said Lee Patrick, a Big West mechanical supervisor whose team of 10 shrank to two when layoffs claimed about 175 workers about a year ago, leaving behind only maintenance staff.
Added Jeff Frank, another refinery supervisor: “When you come from a spot of unknown, now we’re moving forward.”
An executive at Bakersfield-based oil producer E&B Natural Resources Management, which is still owed more than $3 million as part of Flying J’s December 2008 Chapter 11 bankruptcy filing, said Alon’s bid would be welcomed by many Kern oil companies. Many of these lost a well-paying customer when Big West stopped buying crude more than a year ago.
“My take on it,” E&B President Steve Layton said, “would be, somebody who is already in the business of refining oil in California being the buyer of that asset is probably a good thing. Somebody that’s coming in from outside the state might not be as familiar with the regulatory environment could lead to some unpleasant surprises for them.”
Alon owns four refineries in the United States, including one in Paramount. It operates more than 300 U.S. convenience stores and markets motor fuel under the FINA brand.
Good economic sense?
Many had speculated that tight profit margins in the refining industry meant that Big West would elicit a bid as low as half of what Alon submitted. Some have said the plant would most likely be converted into a depot for fuel refined up north, and that the rest of the property would become industrial space for sale, with the refinery equipment being sold for scrap or going to competitors.
That scenario could yet come to pass, said Nelson Castro, a former chemical engineer at Big West who now works for Kern County. He said Alon’s stated plan to build a pipeline linking Big West to a refinery it owns in Los Angeles County in order to move certain unrefined product to Bakersfield could cost hundreds of millions of dollars, and therefore seems economically “unfeasible.”
Castro wrote off Alon’s bid — which does not include Big West’s on-site product inventory — as “an embarrassingly low” price. He said the refinery equipment could raise more than $40 million if sold piecemeal.
The best outcome, he said, would be for a large oil producer such as Chevron to buy Big West and proceed with a $600 million upgrade that would greatly increase the refinery’s profitability. Instead, Alon proposes to move “most” of the equipment already purchased for that upgrade to its other refineries.
Big West’s owner, Flying J Inc., said Tuesday that some of that equipment was excluded from Alon’s bid, as were about 250 acres that serve as a buffer on the property. The company did not elaborate.
Unresolved issues
Any new owner of the refinery would be left to deal with the plant’s environmental remediation work, land-use permits and two lawsuits challenging the upgrade Flying J had proposed for Big West, said the division chief of the county’s Planning Department, Lorelei Oviatt.
The lawsuits targeting the proposed upgrade’s environmental impact review were put on hold pending a purchase agreement, she said.
Although site remediation work is ongoing, Oviatt said any new buyer will have to sit down with the county to discuss cleanup yet to be done.
Labor considerations
Union official Ed Huhn said his people are also waiting for a final sale. Among issues to be addressed, he said, are how many former plant workers would be recalled. He noted that some of the 175 or so who were laid off were hired for upgrade work that might not be done.
“They won’t have to necessarily recall them all,” Huhn said. “It depends on how much of the plant they intend to run.”
He added that Alon appears to be an experienced refinery operator, based on its other operations, and that it works well with unions.
“We’re encouraged that they’re aware of what needs to be done,” he said.
