Lyondell's Houston Refinery Draws Bids from Aramco, Valero, and Suncor

Reuters, October 24, 2016

At least three firms including Saudi Arabian state oil giant Saudi Aramco have bid over $1 billion for LyondellBasell's refinery in Houston, according to four people familiar with the process. The Saudi firm was initially seen as the front-runner among bidders that also included Valero Energy Corp and Suncor Inc., sources said, but added it is unclear if that is still the case. Aramco has bid $1.5 billion for the plant, after an initial bid of $1.2 billion, three sources said. Aramco may be looking to boost its U.S. refining capability to compensate for capacity that it is losing as it breaks up a joint venture with Royal Dutch Shell. Canadian crude producer Suncor also bid around $1.2 billion, and San Antonio-based refiner Valero bid $900 million, three of the people said.

Lyondell has not stated publicly what it considers the plant to be worth, but a source familiar with negotiations said that the refinery could fetch $2 billion. "As we stated on August 25, we are continuing to explore all options," said Michael Waldron, vice president of corporate communications for LyondellBasell. He said the company would not "comment further on market rumors or speculation." Aramco did not respond to requests for comment. Suncor, Valero and Motiva Enterprises, the Gulf Coast refining joint venture between Saudi Aramco and Shell, declined to comment, citing company policies not to comment on speculation.

Recent U.S. refinery sales have fetched about $5,000 per barrel of capacity, which would value the plant at about $1.3 billion. Variables such as a plant's operating income and its ability to process heavy grades of crude help determine its value. The cost of renewable fuel credits may affect the price of the plant, because Lyondell will need to spend about $200 million this year on the credits, known as RINs, said Matthew Blair, an equity analyst with Tudor, Pickering and Holt. That could cap the price bidders are willing to pay, he added.

In August, Reuters reported that Lyondell retained Bank of America Merrill Lynch to advise on the potential sale of the 264,000 barrel a day refinery. The plant imports South American and Mexican grades of crude oil, so it could offer Saudi Arabia a new outlet for its crude. The U.S. currently imports about 1 million barrels of Saudi crude a day. Motiva processed 162,000 bpd of Saudi crude in July, the most recent month for which data is available. The Motiva joint venture is currently being dissolved. After the split, Aramco may seek additional outlets for its crude besides the one Motiva plant it will retain in Port Arthur, Texas. Valero operates refineries close to the Lyondell plant in Houston and Texas City. Suncor, which produces crude in Alberta's oil sands, could also be seeking additional outlets for its crude.

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