O’Malley Is Growing Another Oil Firm
Falling oil demand, rising use of ethanol and pending environmental laws could stack the deck against a third royal flush for refining guru Thomas O’Malley of Greenwich, business consultants say.
O’Malley has made billions of dollars for himself and his buyers by shopping for Tosco Corp. and Premcor Inc. transferring them to Greenwich, constructing them up with other oil corporations’ castoffs and promoting them for huge beneficial properties after the market rebounded.
He appears desirous to try his proven modus operandi a third time.
Last month, O’Malley’s latest enterprise, PBF Vitality Companions of Greenwich, agreed to purchase a 190,000-barrel-per-day oil refinery in Delaware Metropolis, Del. that he was quite familiar with for $170 million.
O’Malley is chairman and chief executive officer of PBF, whose partners are the Blackstone Group, one of many world’s largest non-public-equity firms; First Reserve Corp. an vitality personal-fairness agency with headquarters in Greenwich and workplaces in Houston and London; and Zug, Switzerland-based mostly Petroplus, Europe’s largest impartial oil refiner.
Valero Power Corp. of San Antonio, Texas, shut the Delaware City facility in November as a result of the refinery was shedding $1 million a day. The deal also would include a 218-megawatt energy plant that PBF would purchase for $50 million extra. Premcor had owned the refinery underneath O’Malley’s management.
“I would say Tom is taking an interesting threat right here,” stated John Parry, senior fairness analyst at IHS Herold, an power analysis and consulting firm with places of work in Houston and Norwalk. “He might survive and make a go of it, but he is just not going to make the pools of cash like he did when he constructed Tosco up. It will be a harder nut to crack because refineries are going through more durable environmental laws.”
As well as, the recession has dealt U.S. refiners lower revenues and profits, prompting them to trim working rates, sell refineries and quickly close some of them.
Refiners oil to petrol face one other impediment from ethanol added to motor fuels within the United States, Parry stated. Ethanol production equals about 5 percent of U.S. oil refineries’ complete capability, he mentioned, including that refineries are working at about 80 p.c of their capacity, down from 90 p.c.
The nation’s 142 operating oil refineries had a complete daily capacity of 17.7 million barrels, in contrast with 335,900 barrels of capability in 10 idle refineries, as of January 2009, based on the Energy Data Administration, an arm of the federal Division of Energy. The biggest at 596,four hundred barrels a day is the Exxon Mobil refinery in Baytown, Texas, in accordance with the Vitality Information Administration. The Delaware City refinery ranks 37th in measurement nationwide.
The refineries course of oil for gasoline, diesel gas, jet fuel, heating oil, asphalt, petrochemicals and other products. Twenty refineries nationwide closed permanently from 1990 to 2008, the Vitality Data Administration reported.
Current refinery capability most certainly will not enhance, said Peter Beutel, president of Cameron Hanover, an energy risk administration firm in New Canaan. And that would play into O’Malley’s arms.
“We haven’t built any new ones since 1967, and i don’t know of any new ones on the drawing board in the U.S,” he stated. “This is the first year we haven’t used every little bit of our refinery capacity 24/7. If I had the cash, I might purchase a refinery.”
Taking part in the chances
O’Malley has Delaware Metropolis below contract, and he can purchase more of them. PBF has a $2 billion fund with which to accumulate U.S. refineries and is contemplating the purchase of one other Valero refinery in New Jersey, in response to a Wall Avenue Journal article final month that contained an interview with O’Malley.
“I like ’em massive. I like them effectively-situated,” O’Malley stated of refineries. He declined an interview request from Hearst Connecticut Newspapers, mentioned Michael Gayda, senior vice president, secretary and common counsel for PBF. Gayda is one among seven PBF executives within the Greenwich headquarters at One Sound Shore Drive, together with O’Malley, who had worked for Tosco, Premcor or both.
Even along with his former teammates aboard, O’Malley’s present endeavor might be dangerous, oil industry experts say.
“There’s quite a lot of uncertainty about the future and investments,” mentioned Cindy Schild, refining supervisor for the Washington, D.C.-primarily based American Petroleum Institute. “Renewable fuels and environmental rules will impact the bottom line.”
The Obama administration supports greenhouse-gas laws through a tax on carbon or cap-and-commerce system that would additional disrupt the refining business, the Wall Avenue Journal reported.
Because of environmental prices, high overhead and other components that increase the cost of domestic refining, oil firms might save money by using idle refineries as transport depots for refined oil merchandise from Asia or South America, stated Clay Mahaffey, president of Louisiana-based Enterprise Research LLC, which gives unbiased analysis on micro-cap oil and fuel corporations. The company formerly was in Stamford.
“Importing consumer items from the Far East works for Wal-Mart, so importing gasoline and diesel can work for O’Malley as well,” Mahaffey said.
But importing more refined oil products from some doubtlessly volatile nations “doesn’t help me sleep at night time,” Beutel added.
Mahaffey, who used to observe Premcor as an analyst, is assured O’Malley is aware of how you can run an oil-refining company in challenging instances.
“In the past, (O’Malley) had the courage to see the pattern and act on it,” Mahaffey said. “He’s a tough-nosed operator and value-cutter. He has a very good observe file.”
In truth, O’Malley’s observe document is legendary.
During an eleven-year span, he constructed the previous Tosco from a one-refinery firm with $1.8 billion in gross sales to $24 billion in gross sales. When Phillips Petroleum, now Conoco Phillips, purchased it in 2001 for $7.36 billion, Tosco was the nation’s largest unbiased refiner and operated more than 4,500 gasoline stations and comfort shops nationwide.
In 2002, O’Malley took over Premcor and moved the refiner’s headquarters from St. Louis to 1700 E. Putnam Ave. Greenwich, the place he additionally had relocated Tosco’s executive offices. Valero purchased Premcor for $6.9 billion in 2005.
But will an financial restoration convey O’Malley’s new company another bonanza
PBF’s equity associate, Petroplus, of which O’Malley is chairman, has hit some snags.
The corporate reported a internet loss from continuing operations of $26.4 million, or 31 cents per share, on revenues of $four.Ninety seven billion on this 12 months’s first quarter, in contrast with internet income from persevering with operations of $3.6 million, or 5 cents per share, on revenues of $2.Ninety seven billion in the identical interval last 12 months. Petroplus is publicly traded on the Swiss Change.
Petroplus has closed refineries in Europe. This month, Petroplus stated a “main” shutdown will happen at its one hundred ten,000-barrel-a-day BRC refinery in Antwerp, Belgium, in the middle of the current quarter.
Early this quarter, Petroplus shut its Cressier refinery refinery in Switzerland for 35 to 40 days of upkeep.
Extra closures are looming. Petroplus mentioned in its earnings assertion it will determine by early August whether or not to keep running the Reichstett refinery in France, for which it is searching for a purchaser.
However, “We believe better days are forward,” O’Malley mentioned in the earnings assertion.
O’Malley mentioned final year was “a perfect storm, which negatively affected the world’s refining industry. Storms don’t final endlessly and it appears to have handed.”
He may be right. The Energy Information Administration initiatives U.S. real gross domestic product will develop by three % and world actual oil-consumption-weighted GDP will increase by 3.6 p.c this yr. The 2011 forecast for actual GDP development is at 2.9 p.c and three.7 p.c for the United States and the world, respectively, the group reported.
The extra optimistic financial progress forecasts result in a rise of about $2 per barrel in the Vitality Info Administration’s projections for West Texas Intermediate crude oil spot costs. The Vitality Info Administration expects West Texas Intermediate costs to common about $eighty four per barrel during the second half of this year, rising to $87 by the end of next 12 months.
However final week advised a unique story. As the financial world anxious about the crash of the euro, oil additionally took a plunge on fears of a spreading economic slowdown in Europe. From its lofty perch close to $80 per barrel two weeks ago, crude slipped almost 15 percent to $70.04 at the close on Friday.
Alternatively, to this point, energy production, shipments, and prices haven’t been considerably affected by the oil spill after the April 20 explosion aboard the Deepwater Horizon drilling rig and its subsequent loss in the Gulf of Mexico, 50 miles off the Louisiana coast, the Energy Information Administration said. The vitality group forecasts that common-grade motor gasoline retail prices will average $2.Ninety four per gallon throughout this summer time’s driving season, the period from April 1 to Sept. 30, up from $2.44 per gallon last summer time.
World oil consumption is projected to grow by 1.6 million barrels per day in 2010 and next 12 months. The expansion in oil consumption is predicted to be largely concentrated in the Asia-Pacific and Center East areas, according to the Power Data Administration.
If not oil, golf
If O’Malley ever retires from the oil-refining business, he might have a future in golf course development.
In March, the Palm Beach Publish mentioned O’Malley purchased the Ironhorse Country Membership in West Palm Seaside, Fla. at federal bankruptcy public sale for $2.Eighty five million. Palm Seaside County property records listed the 2009 market worth of the 113-acre golf course and country club at $5.86 million.
O’Malley owns a Value Avenue condo in Palm Seaside and not too long ago bought two Palm City golf programs, the Submit reported. His waterfront dwelling in Greenwich was assessed at greater than $sixteen million on the 2009 Grand Checklist.
He was not born into wealth. Raised in New York City, O’Malley paid for his education at Manhattan College in the Bronx, N.Y. by driving a taxi on weekends and a faculty bus for a private school on weekdays, in response to a 2001 article in the brand new York Times.
After he graduated in 1963, a friend’s uncle helped him get a job working within the mailroom of Philipp Brothers, a commodities-trading company. oil to petrol After 10 years in the corporate’s European operations, he was working the company’s vitality enterprise.
In 1981, Philipp Brothers engineered a merger with Salomon Brothers, the funding-banking firm, and O’Malley served as vice chairman and chief executive of the Salomon’s oil-buying and selling division. O’Malley left Salomon in 1986 and founded Argus Funding, in response to the Encyclopedia of Enterprise. The 1987 inventory market crash allowed him and his Argus partners to purchase 26 p.c of Tosco, which had headquarters on the West Coast.