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Delta board signs off on deal to buy Trainer refinery
Posted on 4/19/12 at 3:32 pm
Posted on 4/19/12 at 3:32 pm
On the surface, this seems like a smart move. Will this enhance Delta's industry position ? How does this color their investment potential ?
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Posted on 4/19/12 at 3:41 pm to OldTigahFot
First look sounds like JP Morgan is taking on the most risk.
Posted on 4/19/12 at 4:14 pm to lynxcat
How's that? I haven't seen their connection to the story anywhere. I think its a stupid move on Delta's part.
Posted on 4/19/12 at 5:00 pm to kfizzle85
A report I saw earlier this week had JP Morgan footing a bill of between $100-200 million, helping with the refining process, and then selling that jet fuel back to Delta.
I saw it during a quick lunch and didn't catch many details. Maybe it was all speculation at that point.
I saw it during a quick lunch and didn't catch many details. Maybe it was all speculation at that point.
Posted on 4/19/12 at 5:05 pm to kfizzle85
It's a dumb move for Delta. They have no expertise in the business. It won't substantially cut their costs. Seems like a losing proposition.
Posted on 4/20/12 at 12:03 pm to OldTigahFot
I'm not a refinery guy, but they should be able to make jet fuel in the amounts they want versus overall market percentages. Theoretically, refiners as a whole could drive down the cost of one of the distillates at the expense of raising the price of others.
Posted on 4/20/12 at 12:21 pm to Tigah in the ATL
Dude its 185,000 b/d facility, there's no way that's even remotely covering the quantities of jet fuel they need, even under the presumption that they plow more money into it and make it a jet fuel only refinery. Some serious corporate hubris going on there with a god damn airliner thinking they can somehow profitably operate a refinery that a highly successful energy company couldn't. Talk about not streamlining your funding and focus, frick. Then again, its an airliner, so they're equity is effectively a long-dated option since its almost assured they'll declare bk in any given economic cycle.
Posted on 4/20/12 at 12:45 pm to kfizzle85
Well Delta isn't exactly a model company for good decisions...so this is nothing new.
Posted on 4/20/12 at 1:20 pm to Golfer
quote:well, the expertise here seems to be pretty much based on that.
Well Delta isn't exactly a model company for good decisions...so this is nothing new.
We need an Exxon accountant up in here.
Posted on 4/20/12 at 3:12 pm to OldTigahFot
I work in refineries doing design work, economic analysis, troubleshooting, start-up/shutdowns etc.
As a refinery guy I think this will be a disaster for Delta if they don't hire a refinery management team with lots of experience. From plant managers to crude purchasers, if Delta tries to run the the refinery by itself it will be an economic and safety disaster.
As a refinery guy I think this will be a disaster for Delta if they don't hire a refinery management team with lots of experience. From plant managers to crude purchasers, if Delta tries to run the the refinery by itself it will be an economic and safety disaster.
Posted on 4/20/12 at 3:16 pm to LSU0358
quote:
if they don't hire a refinery management team with lots of experience.
I don't expect them to send down a bunch of pilots and flight attendants with a stack of Refining Jet Fuel for Dummies books.
This post was edited on 4/20/12 at 3:16 pm
Posted on 4/20/12 at 4:08 pm to Waffle House
Over the past several years, Delta has been a first mover which has allowed them to be in a position where they can take risks. The other legacy carriers have their hands full with mergers and/or bankruptcy. At the end of the day if they lose a couple hundred million, its not a ton of money. The gain could be substantial if you lower your overall fuel costs by a few cents.
Posted on 4/20/12 at 4:19 pm to LSU0358
quote:so can you refine cheaper by targeting your output to jet fuel distillates? Maybe running "lower" grade crude?
a refinery guy
I actually think that Delta would probably be pretty good at fuel costs. At the minimum, this looks like another way to hedge fuel costs.
Posted on 4/20/12 at 4:51 pm to Tigah in the ATL
You can push production towards more jet fuel to an extent. They could also trade other refinery products for jet fuel. it could be a good deal of managed properly.
Posted on 4/20/12 at 5:53 pm to Waffle House
You would think it would be obvious but I've been in refineries owned by VCs and upper management had no clue about things such as preventative maintenance, shut down planning, etc.
Posted on 4/20/12 at 8:57 pm to LSU0358
There is a guy going up there to manage the refinery that has a history of going into poorly run refineries and making them profitable again. I think it will be a good move for Delta.
Posted on 4/20/12 at 9:08 pm to LSU0358
You've been to refineries owned by venture capitalists? Where the f are these.
Posted on 4/20/12 at 9:40 pm to LSU0358
quote:
He will say anything to keep the idiots focused on everything except what really matters.
This.
Obviously, you still have to have a market for the rest of your products or the operation is a losing proposition.
I would think that Delta/JP Morgan/whoever would retain a certain percentage of heritage employees since they are already trained to run the refinery. Still don't know if the advantage of cheaper jet fuel will outweigh the costs/headaches of running such a high-risk operation though. There are lots of factors that come into play from a safety/health/environmental standpoint.
like I said in my OP, it seems like a good idea on the surface but they may be biting off more than they can chew.
Posted on 4/20/12 at 10:05 pm to OldTigahFot
I just don't know why people assume that because they are buying one step up the ladder that it will somehow lower their fuel costs. Delta with no refinery = exposed to fuel costs, by way of oil prices. Delta with refinery = exposed to fuel costs, still by way of oil prices. So instead of getting hedged at the company level and hedging jet fuel prices, they now get to hedge at the company level and then again at the refinery level by hedging directly against oil prices. If anything, they're just opening themselves up to more commodity exposure, not less, and making it more complicated to manage that exposure, not less. Its not like they're buying a midstream asset to go with it, so they're still going to have to pay moving costs, assuming they're going to use the production straight to their own planes, which I would imagine is probably extremely confined on a geographic basis to even be remotely feasible. Coupled with the fact that refining is incredibly capital intensive and generally has terrible, terrible margins, it seems like a giant waste of resources on their part.
I disagree with the other poster, the upside potential is extremely limited. The downside potential, however, is extremely high: drag on ops because its completely outside of their core competency (hiring outsiders to run the plant still falls under this, of course they're not going to try and run it themselves), open them up to more commodity exposure (while ironically attempting to lessen it, it seems), weigh on their balance sheet and liquidity given the capital intensive nature of running a refinery, possibly require a speculative and expensive conversion to jet fuel-only production, as well as any regulatory or environmental issues that could arise.
I disagree with the other poster, the upside potential is extremely limited. The downside potential, however, is extremely high: drag on ops because its completely outside of their core competency (hiring outsiders to run the plant still falls under this, of course they're not going to try and run it themselves), open them up to more commodity exposure (while ironically attempting to lessen it, it seems), weigh on their balance sheet and liquidity given the capital intensive nature of running a refinery, possibly require a speculative and expensive conversion to jet fuel-only production, as well as any regulatory or environmental issues that could arise.
Posted on 4/20/12 at 11:48 pm to kfizzle85
I would love to see the business case they made supporting the acquisition.
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