Bakersfield Refinery to Be in Flying J’s Hands Next Week
The Bakersfield refinery once doomed to closure by Shell Oil Co. will be turned over next week to Flying J Inc., a Utah truck-stop operator that plans to double the plant’s gasoline production.
Flying J, which runs one of the nation’s largest truck-stop chains and had estimated revenue of $7.5 billion in 2004, plunked down a reported $130 million for the refinery. Its output represents only a small slice of the California market, but it’s a profitable one, given high gasoline and diesel prices.
Fred Greener, executive vice president of Big West Oil, a Flying J subsidiary that owns a small refinery in Utah, said the company was looking forward to adding Bakersfield to its holdings.
“It’s going very well,” he said. “Everywhere we went, people really expressed their appreciation for us taking on this project.”
The refinery’s future looked dim in late 2003, when Shell said it would shutter the facility by the following October. The Houston-based unit of Royal Dutch/Shell Group cited as one reason a dwindling supply of oil in the San Joaquin Valley.
Shell’s announcement alarmed politicians and state officials, who worried that losing the refinery would exacerbate California’s fuel supply troubles and boost the state’s chronically high gasoline prices. The Bakersfield plant makes 2% of California’s gasoline and 6% of its diesel.
At the time, Shell said it would make no effort to sell the facility. No one would want the refinery, the oil giant said, because it was too old, too small and too inefficient. What’s more, the company said, it would be too difficult to find available crude oil. But public pressure and looming antitrust investigations persuaded Shell to solicit bids for the plant.
Privately owned Flying J, which is the largest supplier of diesel in the U.S., reached a deal to make the acquisition in early January, after the refinery had just wrapped up a solid financial year.
In 2004, the refinery had $89 million in operating profit, according to an internal report obtained by the Los Angeles Times. After taxes and more than $18 million in severance and other special charges, the plant netted $37.3 million. That was a record profit, not the $5.7-million loss Shell had projected for the year.
The refinery “benefited from the sharp rise in refining margins” in 2004, Shell spokesman Stan Mays said in a statement.
Since January, managers of Ogden, Utah-based Flying J have spent time in Bakersfield, meeting with air quality officials, lining up oil supplies and drawing up plans for immediate maintenance work and an expansion that one executive said would cost “several hundred million dollars.”
The maintenance, which began Thursday and is set to end March 20, includes repairs and other jobs postponed by Shell because of the planned closure. The plant has been shut down for the duration.
Flying J, which is footing the bill, scheduled the work to coincide with a Pacific Gas & Electric Co. project that will cut the plant’s power for several days.
Greener also said the company was having no trouble finding crude in the San Joaquin Valley for the plant to refine.
“We’ve been acquiring oil all over ... there have been a number of people who’ve come forward wanting to do business,” Greener said. “We certainly believe there’s enough crude for that plant into the future or else we wouldn’t buy it.”
Shell spokesman Mays said the company was “pleased that Flying J has a crude supply plan that works for them. Consistent with our previous statements, our plans call for running the limited economic San Joaquin heavy [oil] we have at our much larger Martinez refinery.”
Despite all the preparations, the hand-over could still encounter obstacles.
Flying J has said its purchase assumes that it will receive a variance from the San Joaquin Valley Air Pollution Control District giving the company until June 2006 to comply with an emission rule affecting refinery heaters. Certain aspects of that rule kick in this June, a deadline Shell ignored as moot for a plant it expected to close.
Without that variance, the company “will not be in a position to take ownership of the facility, and it is likely the facility will close,” Flying J said in its application to the air district.
Jon Adams, an air quality compliance manager for the air district, said Flying J wouldn’t have enough time to do the work needed for compliance, and that a one-year variance wouldn’t be out of the ordinary. A hearing on the matter is set for Wednesday.
The company also will face a difficult road for its expansion plans, since adding equipment would increase the refinery’s air emissions in a region struggling to keep its skies clear.
Flying J wants to add two major processing units at the Bakersfield refinery to nearly double its current gasoline output of 630,000 gallons a day, and also increase the daily production of 840,000 gallons of diesel. Experts say such an expansion could take two years to complete.
“Our regulations would allow the Bakersfield refinery to expand, but there would be very, very strict requirements,” said Dave Warner, the air district’s director of permit services. But, he added, “all of the possible issues that would affect the financial viability of the purchase were discussed with them [Flying J], at least from an air quality standpoint ... so they are going into this with their eyes wide open.”
Greener at Flying J agreed. “We know we have to comply with the rules, and we’re doing the engineering to ensure that we can,” he said. “We’re certainly going to go ahead with our plans [to expand]
