Lukoil will pull its oil out of Come-by-Chance, Newfoundland oil refinery, to re-sell into the open market.

[Jan van Eck + 7,558]

There is this large refinery on the South Coast of Newfoundland, Canada, at a town called Come-by-Chance, able to process 135,000 bbl/day of heavy crude into middle distillates, gasoline, and naphtha.  The refinery has passed through some seven owners since it was built "way back when."  The original idea was brilliant: a "balancing refinery" that could rapidly shift production to distill whatever shortages developed in either Europe or the East Coast of North America, as it was situated roughly half-way between the two. It is important to the economy of Newfoundland as it employs (or did employ) some 600 men at high wages, some over $100,000/yr, and produced what was planned to be cheap fuel and heating oil for the Province  (although that part did not quite work out). The refinery was shut down into "warm idle" back in April of 2020 with the collapse of consumption with the COVID outbreak, and remains so.  The owners, a hedge fund in New York City, has been attempting to sell it, including to Irving Oil, that 800-lb gorilla over in New Brunswick, but even Irving could not make a deal cheap enough  (presumably at or below scrap value).

Silverlake Partners, the NY hedge fund, then stuck it to the Province for a grant of over $16 million, just to keep it in "warm idle" so that a total cold shutdown would be avoided.  If the plant went into cold mode, then its resale value would plummet and it would likely end up as scrap metal.  The reason is that refineries are for sale all over the place, none make any money, lots are old and need expensive work, and the future is not exactly bright, given the demand destruction out there. Part of the deal is that some 200 workers will be kept on the payroll, diminishing the pain in town. 

It turns out the vast tank farm attached to the refinery is filled up with some 3 million bbls of crude sourced from the trading arm of Lukoil.  That entity still owns the crude, and was in essence storing it there without charge until some sale and re-start of the refinery could be done.  Now Lukoil has given up, and with the rise in crude pricing, has decided to go remove the crude and take it somewhere else;  where, that part is not told, but my guess is Rotterdam. So the market is about to get another three million bbls dumped on it, which is not a lot in the grand scheme of the oil markets, but still is a nice chunk that will continue to forestall and large moves in crude prices.  My guess is that other oil, stored on tankers scattered around the globe and waiting out the price contango, will also be unloaded as the owners of that oil seek to convert to cash. 

I still think Come-by-Chance has excellent prospects, if there is a deep-pocketed buyer out there.  It has a captive market for the entire Province, and while there are Irving gas and diesel stations on the Province, even those stations historically bought and re-sold C-by-C product.  And I see a big market in bunkering for trans-Atlantic freighters, assuming the crude can be sourced cheaply enough. Five years from now, when the markets recover, that refinery can make a tidy sum.  Problem is, nobody wants to hold on for that long. 

 

[Roch + 537]

1 hour ago, Jan van Eck said:

There is this large refinery on the South Coast of Newfoundland, Canada, at a town called Come-by-Chance, able to process 135,000 bbl/day of heavy crude into middle distillates, gasoline, and naphtha.  The refinery has passed through some seven owners since it was built "way back when."  The original idea was brilliant: a "balancing refinery" that could rapidly shift production to distill whatever shortages developed in either Europe or the East Coast of North America, as it was situated roughly half-way between the two. It is important to the economy of Newfoundland as it employs (or did employ) some 600 men at high wages, some over $100,000/yr, and produced what was planned to be cheap fuel and heating oil for the Province  (although that part did not quite work out). The refinery was shut down into "warm idle" back in April of 2020 with the collapse of consumption with the COVID outbreak, and remains so.  The owners, a hedge fund in New York City, has been attempting to sell it, including to Irving Oil, that 800-lb gorilla over in New Brunswick, but even Irving could not make a deal cheap enough  (presumably at or below scrap value).

Silverlake Partners, the NY hedge fund, then stuck it to the Province for a grant of over $16 million, just to keep it in "warm idle" so that a total cold shutdown would be avoided.  If the plant went into cold mode, then its resale value would plummet and it would likely end up as scrap metal.  The reason is that refineries are for sale all over the place, none make any money, lots are old and need expensive work, and the future is not exactly bright, given the demand destruction out there. Part of the deal is that some 200 workers will be kept on the payroll, diminishing the pain in town. 

It turns out the vast tank farm attached to the refinery is filled up with some 3 million bbls of crude sourced from the trading arm of Lukoil.  That entity still owns the crude, and was in essence storing it there without charge until some sale and re-start of the refinery could be done.  Now Lukoil has given up, and with the rise in crude pricing, has decided to go remove the crude and take it somewhere else;  where, that part is not told, but my guess is Rotterdam. So the market is about to get another three million bbls dumped on it, which is not a lot in the grand scheme of the oil markets, but still is a nice chunk that will continue to forestall and large moves in crude prices.  My guess is that other oil, stored on tankers scattered around the globe and waiting out the price contango, will also be unloaded as the owners of that oil seek to convert to cash. 

I still think Come-by-Chance has excellent prospects, if there is a deep-pocketed buyer out there.  It has a captive market for the entire Province, and while there are Irving gas and diesel stations on the Province, even those stations historically bought and re-sold C-by-C product.  And I see a big market in bunkering for trans-Atlantic freighters, assuming the crude can be sourced cheaply enough. Five years from now, when the markets recover, that refinery can make a tidy sum.  Problem is, nobody wants to hold on for that long. 

 

 

    and your point is .  .  .  .  ?

 

Edited February 1, 2021 by Roch