Equilon Enterprises LLC d/b/a Shell Oil Products US, Shell Oil Company, and Shell Chemical LP, subsidiaries of Royal Dutch Shell plc (Shell), have recently reached an agreement for the sale of the Mobile Chemical LP Refinery in Mobile, Alabama (AL), to Vertex Energy Operating LLC (Vertex Energy), a US-owned, Texas-based specialty refiner of alternative feedstocks and marketer of high purity petroleum products.
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Located near the US Gulf Coast, at the north end of Mobile Bay in Alabama (AL), the refinery is designed to process approximately 90 000 barrels per day of crude oil and products that include LPG, diesel fuel, jet fuel, and gasoline.
It also produces low-sulfur VGO/Heavy Olefin Feed and Benzene. It has the optionality to run as a stand-alone refinery, produce base oils or chemicals feedstock.
The agreement covers the sale of the Mobile refinery and associated co-located logistics infrastructure, including product racks, an associated dock, and the Blakeley Island Terminal.
The consideration for this transaction is US$75 million in cash plus the value of the hydrocarbon inventory which will be valued at closing based on actual volumes and prevailing market prices.
Divestment part of refinery reduction strategy
The transaction is expected to close in Q4 2021, subject to regulatory approvals. Vertex expects to fund this transaction and the related renewable diesel capital project through a US$125 million debt facility and cash generated through potential asset divestitures, with the balance coming through the sale of common equity if required.
According to Shell, the divestment is part of Shell’s strategy to reduce its global refinery footprint to core sites integrated with the company’s trading hubs, chemicals plants, and marketing businesses. These high-value Energy and Chemicals parks will produce more low-carbon fuels and specialty chemicals for Shell’s customers.
The sale of the Mobile refinery shows that we are making good progress delivering on our manufacturing strategy. We’re becoming better positioned to deliver resilient returns and meet the increasingly diverse needs of our customers, said Robin Mooldijk, Shell’s EVP for Manufacturing.
As part of this deal, Shell and Vertex Energy will have crude supply and product offtake agreements to support Shell’s customers in the region. All employees providing dedicated support to the Mobile Refinery will be offered employment with Vertex Energy.
Revamp to renewable fuel flagship
Subject to regulatory approvals, Vertex Energy will become the sole owner and operator of the Mobile refinery upon closing. The refinery, which has a long track record of safe, reliable operations and consistent financial performance, will become Vertex’s flagship refining asset upon the close of the transaction, positioning the company to become a pure-play producer of renewable and conventional products.
Upon completion of the transaction, Vertex expects to initiate a US$85 million capital project designed to modify the Mobile refinery’s hydrocracking unit to produce renewable diesel fuel on a standalone basis.
The addition of renewable fuel production associated with the refinery will accelerate Vertex’s strategic focus on “clean” refining.
The acquisition of the Mobile refinery will be the largest, most significant transaction ever completed by Vertex, one that positions us to become a leading regional supplier of both renewable and conventional products, said Benjamin P. Cowart, President, and CEO of Vertex Energy.
Upon completion of the project, which is expected to conclude by year-end 2022, the refinery will commence production of approximately 10 000 barrels per day of renewable diesel, increasing to 14 000 bpd by mid-year 2023, while continuing to supply conventional fuels to the regional market at the current rates.
While California remains the primary market for domestically produced renewable diesel, given the economic benefits for its use under the state’s Low Carbon Fuel Standard, other states are expected to follow suit, creating significant, incremental demand during the next decade.
Upon completion of the renewable diesel fuel project by year-end 2022, we anticipate the Mobile refinery will have the potential to generate at least US$3 billion in revenue and US$400 million of gross profit in the full-year 2023, given current project economics. Not only will this project fundamentally transform the profitability profile of the Mobile refinery, it also positions Vertex to further its objective of developing high-purity refined products and alternative feedstocks that support the global transition toward low-carbon energy alternatives, Cowart said.
Feedstock supply and product distribution
Vertex intends to enter into a crude oil supply agreement with Shell for an initial term of five years upon closing. Under the terms of the agreement, Shell will obtain all crude oil feedstock required by the Mobile refinery at a negotiated price to crude oil indices.
Once operable, the Mobile refinery’s converted hydrocracking unit will be capable of processing a wide range of organic, pre-treated feedstocks, including soybean and corn oil, meat tallow, and waste vegetable oils, among others.
Vertex expects to source renewable feedstock through a multi-year agreement with Synergy Supply and Trading, a subsidiary of Bunker Holding Group, and potentially from the company’s planned Myrtle Grove pretreatment facility in Belle Chasse, Louisiana (LA).
Vertex intends to enter into a multi-year product off-take agreement with Shell while continuing to supply Bunker Holding (Bunker One) under an existing 10-year agreement.
Under the agreements, Shell and Bunker One will purchase 100 percent of the Mobile refinery’s conventional fuels production. Concurrent with this arrangement, Vertex will enter into a separate, long-term agreement under which Idemitsu Apollo Corporation, a wholly-owned California-based subsidiary of Idemitsu Kosan, will purchase 100 percent of the Mobile refinery’s renewable diesel fuel production.
The sale of all conventional and unconventional fuels will be priced against spot market index prices.
We will acquire an exceptional refining and logistics asset of scale, one equipped with significant feedstock optionality, together with a high-value, distillate-weighted product slate. As part of this transaction, Vertex will assume ownership of more than 3 million barrels of crude oil and product storage, together with other valuable logistics assets. Our vision for this site is that of diversification. We will seek to lead the southeast region in marketing next-generation fuels and products that are not currently produced by the refinery today. Our entry into these new markets is expected to generate significant, long-term value for our shareholders while adding new jobs and economic stimulus to the regional market, ended Benjamin P. Cowart.
Vertex engaged Donovan Ventures as investment banking counsel and Vallum Advisors as financial communications counsel on the transaction.