Delta Air Lines Inc. will buy a Pennsylvania oil refinery from ConocoPhillips for $150-million (U.S.), the most audacious move yet by an airline trying to save money on fuel costs.
Delta said the first-ever purchase of a refinery by an airline would allow it to cut jet-fuel costs – which reached $12-billion last year – by $300-million. It said production at the refinery along with other agreements to exchange refined products for jet fuel would provide 80 per cent of the carrier’s fuel needs in the United States.
Delta will bring in a management team and outsource the trading operations at the 185,000 barrel-per-day Trainer, Pa., refinery. In the weeks leading up to the deal, analysts wondered how an airline could succeed at running a refinery that experienced energy companies have shunned.
The deal will ease fears that the closure of several major East Coast refineries would cause a shortfall in gasoline or diesel supplies this summer. The governor of Pennsylvania has scheduled a news conference for Tuesday at Trainer, which has been idled since last September pending a sale.
Oil major BP will supply crude oil to be refined at the plant under a three-year agreement, Delta said. BP and former refinery owner Phillips 66 will get a share of the gasoline, diesel and refined fuel to sell, in exchange for supplying Delta with jet fuel in other locations.
Delta said it expects to purchase to add to its earnings and expand margins in the first year of operations as it recovers its investment. In addition to the $150-million purchase cost, Delta will also spend $100-million to re-tool the refinery to expand jet fuel output, it said.
The refinery would be run by a leadership team headed by Jeffrey Warmann, who last ran Murphy Oil USA ’s Meraux, La., refinery.
Atlanta-based Delta said the deal will include pipelines and other assets that will provide access to the delivery network for jet fuel reaching its Northeast operations, including hubs at New York’s LaGuardia and JFK airports.
Delta said its Monroe Energy LLC unit expects to close the purchase in the first half.
Follow us on Twitter: