Delta to acquire oil refinery

Delta Air Lines has confirmed plans to acquire an oil refinery south of Philadelphia, after rumours of the purchase first surfaced earlier this month.

The SkyTeam carrier says today it has reached agreement with Phillips 66 to acquire the refinery in Trainer, Pennsylvania through its wholly-owned subsidiary Monroe Energy at a cost of $150 million.

This excludes $30 million in state government financing from the Commonwealth of Pennsylvania for job creation and infrastructure development, says Delta. Monroe will also spend $100 million to convert the refinery to "maximise jet fuel production", it adds.

Delta expects to close on the acquisition in the first half of 2012, with jet fuel production at the facility expected to start in the third quarter. Changes to the refinery will be completed by the end of the third quarter, and are expected to create 2012 fuel savings of more than $100 million, says Delta.

"Production at the refinery combined with multi-year agreements to exchange gasoline, diesel, and other refined products from the refinery for jet fuel will provide 80% of Delta's jet fuel needs in the United States," says the carrier.

Calling the acquisition a "modest investment", Delta's chief executive Richard Anderson says in a statement that it will help Delta reduce its fuel expense by $300 million annually.

The refinery, which could produce 185,000 barrels a day, was idled in late 2011 due to weak demand, Flightglobal's sister publication ICIS has reported. According to the US Energy Information Administration, it was the 37th largest refinery in the country.

Delta's acquisition will include pipelines and transportation assets that will provide access to the delivery network for jet fuel to reach the airline's operations in the Northeast, including the airline's hubs at New York John F. Kennedy and LaGuardia airports.

Delta's subsidiary Monroe will also enter into sourcing and marketing agreements with BP and Phillips 66 as part of the transaction.

BP will supply the crude oil that will be refined at the facility under a three-year agreement. Monroe will exchange gasoline and other refined products from the refinery for jet fuel from Phillips 66 and BP in other parts of the country through multi-year agreements, says Delta.

The carrier's chief financial officer Paul Jacobson says the airline expects to fully recover its investment in the refinery in the first year of operations.

The refinery will be headed by Jeffrey Warmann, formerly refinery manager for Murphy Oil USA's refinery in Meraux, Louisiana.