Engineering News

Calif. Refinery Expansion To Go Forward Despite Bankruptcy
December 23, 2008

Flying J Inc., a major oil company whose operations include the Big West refinery on Rosedale Highway, filed for reorganization bankruptcy Monday, citing a plunge in oil prices and the credit squeeze.

Plans for a $700 million expansion of the Bakersfield refinery approved in October still stand, an official said.

Whether the bankruptcy filing is in indicator of widespread industry troubles remains to be seen. Representatives of other large oil companies operating in Kern County wouldn't specify Monday whether they're also being hard hit by the drop in crude prices, which in recent months have fallen sharply from record highs in July.

Flying J Group, the refinery's parent company based in Ogden, Utah, is one of the country's 20-largest privately held companies, court filings say, with 16,000 employees and sales exceeding $16.2 billion in 2007.

"The company is operating business as usual," said Wendi Kopsick, spokeswoman for Flying J, from the New York offices of public relations firm Kekst and Co.

Initial court hearings are scheduled Tuesday in Delaware's federal district bankruptcy court, where the company will ask for routine permission to pay employees, access bank accounts and continue other day-to-day activities.

Operations included in Monday's filing cover more than 200 travel plazas, the Big West refining arm and the company's Longhorn unit, which operates 700 miles of pipeline in the Texas Gulf Coast.

Flying J travel plazas operate in 41 states and six Canadian provinces.

The plazas, familiar to many highway drivers, feature convenience stores, motels, truck stops and other roadside amenities. The company's overall operations include everything from oil exploration, production and transport to truck-driver services and the retail plazas.

The travel plazas are open and the reorganization might be completed without layoffs, the company said in a release.

The Bakersfield refinery, which operates under subsidiary Big West of California LLC, employs about 200 full time and 150 part-time staffers, Kopsick said. The facility can refine up to 70,000 barrels of crude oil a day.

Gene Cotten, Big West's vice president of refining in Bakersfield, referred calls to the corporate office.

Another spokeswoman, Lin-Hua Wu, said from Ogden the Bakersfield expansion "is integral to the long-term strategy and plans" for the local refinery.

"The company is optimistic that it will be able to generate substantial cash internally to allow it to meet its obligations going forward," Wu said, adding that Flying J "has every intention of continuing to pursue the expansion."

PRICE CRUNCH

J. Phillip Adams, Flying J's chief executive officer, said in court filings the move was necessary due to a short-term cash crunch brought on by the "recent precipitous and rapid decline in oil and gas prices" since September.

As of late last week, Adams said, oil prices had fallen about 75 percent from July's record of $147 a barrel and 60 percent from the previous year. On Monday, light crude on the New York Mercantile Exchange closed down $2.45 at $39.91 a barrel.

The Big West subsidiaries defaulted Friday on a $200 million revolving line of credit after the agent, Bank of America, called in the loan, Adams said in court filings. The loan was originally set to mature in 2010.

The bank then "swept a substantial sum of cash" from Big West's accounts, Adams said.

A Bank of America spokeswoman said Monday she would look into why the loan was called in, but the information was not available at press time.

The next day, Dec. 20, agent Merrill Lynch Capital Corp. declared a default on a $120 million revolving line of credit to the company's Longhorn group, Adams said, after Longhorn failed to pay $2.7 million due. Merrill then froze the Longhorn account.

Who now administers the Merrill line of credit wasn't immediately clear Monday. GE Capital bought much of Merrill's corporate finance unit in December 2007, while Bank of America bought the bulk of Merrill operations in September.

The Flying J subsidiaries filed for voluntary Chapter 11 protection. Under Chapter 11, companies typically try to work through debt and reemerge intact rather than liquidate altogether as in Chapter 7.

The Flying J Inc. bankruptcy filing says the company owes money to 1,000 to 5,000 companies, has assets of more than $1 billion and liabilities between $100 million to $500 million.

Big West of California LLC's filing shows 200 to 999 creditors, assets between $500 million to $1 billion and liabilities of $500 million to $1 billion.

A filing covering all of the bankrupt subsidiaries shows the largest unsecured creditor is Zion Bank in Utah, owed $85.8 million.

Debts to so-called "unsecured" creditors aren't backed up by land, buildings or other collateral.

Most of the 30 other largest firms owed money are oil companies, court filings show.

Berry Petroleum Co., which moved headquarters from Bakersfield to Denver in June, is the third largest unsecured creditor, owed $26 million. Officials did not returns calls for comment Monday.

Berry's stock, which trades on the New York Stock Exchange under the symbol BRY, has suffered of late. On Monday, shares closed down 64 cents at $7.22 -- off 88 percent from a 52-week high of $62.15

Two smaller Bakersfield companies are also on the list of companies owed the most by Flying J.

E&B Resources Management Corp. is owed $3 million, while San Joaquin Refining Co. is owed nearly $2.5 million.

A receptionist at San Joaquin Refining said late Monday morning the company had no comment about the bankruptcy filing.

Not all of Flying J Group's subsidiaries are seeking bankruptcy protection. The units involved were focused mostly on refining, supply and distribution, the court filings say.

SPREAD OR CONTAINED?

Whether the recent decline in oil prices will impact other companies with Bakersfield operations remains to be seen.

Prices for Kern's local brew, Midway-Sunset heavy crude, closed up $6.05 a barrel Monday at $26.20.

But that's a drop of about 80 percent since early July, when prices reached a record $131.15 a barrel.

Local oil companies say they can typically make a profit as long as prices stay above $20-$30 a barrel.

Some firms say they're doing fine.

An Aera Energy LLC spokeswoman said the company takes a long-term view of operations.

"We try not to overreact one way or the other when the prices go up or down," said spokeswoman Susan Hersberger. Aera, a California company, is jointly owned by affiliates of Shell and Exxon Mobil.

"We're in a wait and see mode," Hersberger said. "We'll monitor the situation and see what happens, but again, it's a long-term perspective."

Others won't say.

Susie Geiger, spokeswoman for Occidental of Elk Hills Inc., a Kern County subsidiary of Occidental Petroleum Corp. in Los Angeles, said the company declined to comment on Flying J's bankruptcy or low oil prices.

Some don't yet know impacts.

Chad Hathaway, owner of Hathaway LLC, a small oil producer based in Bakersfield, said Flying J is his only customer.

Hathaway said he learned Friday he wasn't going to receive a scheduled payment from Flying J, which cited "short-term liquidity issues."

He nevertheless expects to continue selling to Flying J.

"Obviously they have to keep receiving crude to stay in business," he said.

Ameripride Uniform Services in Bakersfield has supplied fire-retardant garments to Big West refinery.

Andrea Azlin, local office manager, said the Chapter 11 filing could be an encouraging sign.

"They're just going to restructure and come out stronger," she said.

Les Clark, executive vice president of the Independent Oil Producers Agency, a Bakersfield-based trade group, said the bankruptcy could well ripple across the industry.

Local independents who sell to Flying J might end up waiting longer than they planned to get paid for delivered supplies. "When you get down in an area where there's a timeline before you get a paycheck, of course it's going to cause you problems," Clark said.

CONTROVERSIAL EXPANSION

The Big West refinery on Rosedale Highway has been a huge newsmaker here this year.

After a long and contentious public debate, the Kern County Board of Supervisors in October approved a $700 million expansion of the facility expected to nearly double its gasoline and diesel output.

The expansion was expected to get under way in 2009. Approval came after environmental groups and neighbors objected to the facility's proposal to use a potentially dangerous chemical called hydrofluoric acid.

Big West ultimately agreed not to use what's called "HF" and to a series of new conditions to ensure safe operations at the refinery.

Still, a local air quality advocacy group filed a lawsuit against the county of Kern earlier this month saying it did not correctly account for and mitigate the expansion's impact on air quality.

The Association of Irritated Residents, represented by the Center on Race, Poverty and the Environment, sought an injunction against the project's construction pending revisions of its environmental impact report.

Source: The Bakersfield Californian

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