Analysis of US Refinery M&A Stalls as Buyers Shun Aging Assets, Uncertain Future
The U.S. Oil Industry in 2022
The U.S. oil industry experienced nearly $200 billion in upstream deals last year, but the refining sector missed out despite plenty of willing sellers. The energy transition away from fossil fuels has accelerated, casting doubt over the long-term value of aging U.S. refineries. The growing number of operators looking to sell assets reflects the hope that a post-pandemic surge in margins— which for some products nearly quadrupled in 2022—might have opened up a rare window to exit assets profitably.
Challenges Faced by Refiners
Key industry metrics show that plant valuations are down a third since the global financial crisis of 2008 and have not recovered. A U.S. refinery has not changed hands since independent refiner Par Pacific completed its $310 million acquisition of Exxon Mobil’s 63,000 barrels per day (bpd) Billings, Montana, plant last year. The rising cost of maintenance and workloads to keep aging plants online have deterred potential refinery buyers, particularly as companies focus on shareholder returns.
Impact of Energy Transition
The U.S. is the world’s top gasoline market, and its refineries are mainly geared towards producing motor fuel. Gasoline consumption likely peaked in 2018 at over 9.3 million bpd and is expected to decline from next year onwards. Refiners are expected to face new headwinds with the wider adoption of electric vehicles and policies intended to phase out fossil fuels.
Costly Maintenance and Plant Closures
Valero, Marathon, and Phillips 66 together had the equivalent of 280,000 bpd of capacity offline in 2023 due to planned and unplanned outages, a more than 20% increase from 2019, according to IIR Research. The rising cost of maintenance and the bill to repair these facilities can be enormous. Shell has already closed its 240,000-bpd Convent, Louisiana, refinery, after failing to find a buyer during the pandemic. Seven other North American refineries have shuttered since capacity peaked at 19 million bpd in 2020, removing about 1 million bpd of capacity.
Refiners are learning that if they don’t invest in their facilities before they put their plants up for sale, interest will dwindle.
