Engineering News

Lyondell seen buying Citgo refinery interest
Thu Jul 20, 2006 03:54 PM ET

NEW YORK, July 20 (Reuters) - Chemical shipments on U.S. railroads rose last week, according to data from the Association of American Railroads published on Thursday.

HOUSTON, July 20 (Reuters) - Lyondell Chemical Co. is expected to cut a deal by the end of July to buy Citgo Petroleum Corp.'s interest in a joint-venture refinery the companies own in Houston, sources familiar with the talks said on Thursday.

Lyondell shares fell 4 percent after the company killed a sale of the 270,000 barrel per day (bpd) refinery to a third party on Thursday despite offers above $5 billion from at least four would-be buyers.

"A lot of people are saying the Lyondell-Citgo sign doesn't mean Lyondell and Citgo but Lyondell minus Citgo," a source said.

A Lyondell spokesman declined to specify a date for a buyout of Citgo's 41.25 percent stake in the partnership operating the refinery or an agreement between the two companies to continue the partnership.

"VERY NEAR"

"I would be comfortable in saying in the very near future," said Lyondell spokesman David Harpole.

"What's in question is does that go forward as a joint- venture or as a sole ownership," Harpole said. Lyondell owns 58.75 percent of the partnership.

The aborted sale of the refinery gave Lyondell and Citgo a chance to determine the fair market value of the refinery, he said.

The refinery is attractive because it converts cheaper high-density, high-sulfur crude into gasoline that meets stringent U.S. environmental regulations.

A Citgo spokesman declined to comment citing the on-going negotiations.

A source familiar with the sale talks said Citgo was likely to sell.

"Citgo wants out regardless of anything else," the source said.

Citgo is realigning its operations to focus on three wholly-owned U.S. motor fuels refineries.

Harpole said sole ownership of the refinery was attractive to Lyondell because its cash flow increases the company's ability to pay down debt.

The refinery produced $6.7 billion in revenue for Lyondell in 2005, according to Lyondell's fourth quarter earnings report.

PROFITABLE BUSINESS

U.S. refiners are expected to enjoy near-record profit margins as tight U.S. refining capacity and robust motor fuel demand keep prices for gasoline and diesel zipping along near their peaks until at least 2010, analysts have said.

Lyondell confirmed that offers for the refinery, expected to fetch between $4 billion and $5 billion when put on the auction block in April, were over $5 billion when the bidding was cancelled.

In the statement calling off the sale, Lyondell said the offers "were insufficient to overcome the significant benefit of retaining an ownership position."

Lyondell executives have long said they did not want to sell the refinery because, in addition to the income it generates, it provides petrochemicals for the company's chemical plants.

The decision to sell was an effort by Lyondell and Citgo to end a troubled 14-year relationship that was often likened to a bad marriage, with the partners trading accusations of abuse and infidelity.

The partnership was formed in 1992 when Citgo agreed to finance an upgrade of the refinery to create a market crude supplied by Citgo's parent company, Petroleos de Venezuela S.A. (PDVSA), Venezuela's national oil company.

Shares of Lyondell were down $1.05, or 4.6 percent, to $21.47, in late afternoon trading on the New York Stock Exchange. (Additional reporting by Deepa Babington)

Source: Reuters

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