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Delta subsidiary buying Pa. oil refinery | Business

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Delta subsidiary buying Pa. oil refinery

ATLANTA -- Delta Air Lines subsidiary Monroe Energy LLC will buy an oil refinery in Pennsylvania from Phillips 66 for $150 million in an attempt to save money on rising fuel costs.

Atlanta-based Delta will spend another $100 million to convert the existing refinery infrastructure to maximize jet fuel production. Monroe got a $30 million job creation and infrastructure improvement incentive package from Pennsylvania, Delta noted. The deal should close in the first half of 2012.

The acquisition includes the Trainer refinery complex south of Philadelphia, which produces more than 185,000 barrels a day, plus pipelines and transportation assets that reach Delta's operations throughout the Northeast, where it hubs at LaGuardia and JFK.

Monroe will come to strategic sourcing and marketing agreements with BP and Phillips 66, Delta said.

Production at the refinery combined with multi-year agreements to exchange gasoline, diesel, and other refined products from the refinery for jet fuel will provide 80 percent of Delta's jet fuel needs (210,000 barrels a day) in the United States. Delta said it expects the refinery to produce more than 52,000 barrels of jet fuel per day.

Jet fuel production is expected to begin during the third quarter and Delta expects more than $100 million in fuel savings in 2012.

Delta's profit in 2011 spiked 44 percent to $854 million, but fuel costs spiked 28 percent to $9.7 billion. In the first quarter of 2012, Delta's fuel costs rose 3 percent to $2.2 billion as the airline swung to a $124 million profit.

"Acquiring the Trainer refinery is an innovative approach to managing our largest expense," said Richard Anderson, Delta CEO, in a statement. "This modest investment, the equivalent of the list price of a new widebody aircraft, will allow Delta to reduce its fuel expense by $300 million annually and ensure jet fuel availability in the Northeast."

Monroe is partnering with energy companies to supply crude oil and receive jet fuel in exchange for Trainer's non-jet fuel outputs. In a related three-year deal, BP will supply the crude oil to be refined at the facility. Monroe Energy will exchange gasoline and other refined products from Trainer for jet fuel from Phillips 66 and BP elsewhere in the country through multi-year agreements.

"By working with world class partners like BP and Phillips 66, we can benefit from their expertise in energy sourcing and product distribution," said Ed Bastian, Delta president, in a statement.

Monroe Energy hired 25-year refinery veteran Jeffrey Warmann. He recently was refinery manager for Murphy Oil USA Inc.'s Meraux, La. refinery.