Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Delta, Carlyle to Source Railed Bakken Crude

By

Bypassing both Brent and WTI, Delta and other new owners of East Coast refineries may opt to use Bakken.

PrintPRINT
MINYANVILLE ORIGINAL As Delta Air Lines (DAL) starts its Trainer refinery three months after its famed purchase of the then-idled 185,000 barrel-per-day (bbl/d) facility from Phillips 66 (PSX), it revealed last Thursday the possibility of jumping on the Bakken bandwagon in an attempt to source cheap crude oil from the North Dakotan shale formation.

Monroe Energy, Delta's subsidiary which acquired Trainer, currently obtains more expensive oil from Europe for the refinery – Brent crude settled on Friday at an $18.32 premium to West Texas Intermediate ("WTI") crude, which tends to trade at a price near that of Bakken crude. Both Bakken and WTI crudes are "landlocked"; as production continues to increase without corresponding growth in offtake capacity, the result is a supply glut and consequent price discount to Brent crude.

The nearby Philadelphia Girard Point refinery is currently owned by Philadelphia Energy Solutions, a joint venture of The Carlyle Group (CG) and Sunoco (SUN). In what is expected to be a paradigm of increasing reliance on domestic energy, it also plans to source Bakken crude in addition to Marcellus shale natural gas as inputs for operations.

During the Deutsche Bank Aviation and Transportation Conference last Thursday, Delta's president, Ed Bastian, provided an update on the company's third quarter financials and operations. The presentation included an announcement that its newly acquired Trainer refinery "is on track to begin jet fuel production by the end of September." Soon afterward, he mentioned that the company is "looking at options to be able to bring in Bakken crude from the Dakotas at net prices that would be equivalent to WTI or even lower," which would "lead to even larger savings."

If Delta's plan to utilize Bakken crude is ultimately carried out, it would effectively be placing a bet that the WTI / Brent spread (price difference between the two crude grades) will not converge in the near future.

Delving deeper into the company's financials, Bastian also explained that while non-fuel and crude oil costs rose 1% and 10%, respectively, over the past two years, costs related to the jet fuel crack spread (difference in price between jet fuel and crude oil) increased by 73% during the same time period. For this reason, Delta argued that purchasing the refinery was a sound investment decision, as it would provide significant savings in the way of stemming losses that were the result of directly obtaining expensive jet fuel for its fleet.
< Previous
No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

PrintPRINT
 
Featured Videos

WHAT'S POPULAR IN THE VILLE