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Welcome to Delta Air Lines to change game in Downstream

While Phillips 66 sells Trainer refinery to Delta Air Lines, BP will supply the crude.

Phillips 66, the newly created company to take over the ConocoPhillips Downstream activities is going to sell its Trainer Refinery, close to Philadelphia, Pennsylvania,USA, to Delta Air Lines for $150 million.

This refinery has a capacity of 185,000b/d of light crude oil. It has been shut down for six months, but Delta received $30 million from the Pennsylvania state to create jobs and will spend $100 million capital expenditure to revamp it and start it up.

For Delta the target is to increase jet fuel production and thus to save $300 million per year on its jet fuel bill. In 2011, Delta had spend $12 billion in purchasing jet fuel.

By comparison those savings represent the same amount as the energy efficiency provided by 60 new generation Boing 737 planes which would have costed $2.5 billion capital expenditure.

To sustain the profitability of this acquisition, Delta has in parallel closed a contract with BP for the supply of crude oil to the Trainer refinery for the next three years.

After revamping, the Trainer refinery will produce 32% jet fuel instead of actual 14% and will be able to cover 80% of Delta‘s fleet jet fuel consumption in USA.

For Delta running a refinery is a challenge as considered as a non-profitable business, especially a light crude oil refinery, but the comparison must be done with the costs to hedge jet fuel prices.

With light crude prices cruising constantly above $100 per barrel, those jet fuel costs, including hedging, represent 40% of Delta running costs. Having settled a 3 years agreement with BP, Delta has secured its costs better than hedging.

Four winners in this Trainer refinery deal

This deal is not only unique because an Air Lines Company put its fingers in the Oil&Gas industry, but because it makes four winners:

 – Phillips 66 spins off assets which were not on its priority and had been left on hold as now profitable

 – Delta reduces significantly its running costs

 – BP finds a new and sustainable customer

 – The Trainer refinery itself which will go back to operations and restore jobs

Fast track planning for completion

The acquisition should be completed by half 2012.

The $100 million revamping is expected on fast track completion by the end of third quarter 2012.

This fresh air provided by Delta Air lines in the Downstream sector shows how a new business model can be game-changing to restore Market Leadership for all the companies involved (Delta, ConocoPhillips, Phillips 66, BP, Trainer refinery) especially in the refining businesss. 


For more information and data about oil and gas and petrochemical projects go to Project Smart Explorer

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