Gasoline soars on supply concerns, refinery sale

Who Wants to Buy a Refinery?

RBOB futures soared and rocked to the highest level since last September as concern about tight supply in a New York harbor is causing a bit of panic. And as I expected, it seemed to get an extra shot of enthusiasm when Hess announced they were exiting the refining business and selling some terminals. If refining is such a great business, why does it seem like so many want to get out of it?

Mid-Atlantic stocks are 15% below the five year average and there has been a scramble. Still, after yesterday’s epic pop and considering the market has posted gains almost seven days in a row, beware of a pullback.

Reuters News reported that Hess Corp on Monday announced plans to sell its oil storage terminal network and exit the oil refining business, after activist hedge fund Elliott Associates said it was considering nominating directors to the Hess board. Hess' decision to become predominantly an exploration and production company is similar to the strategy employed by others such as ConocoPhillips and Marathon Oil, both spun off their refining operations in recent years. "Hess is now facing some activist shareholder interest. In order to deflect or preempt pressure from Elliot, Hess announced it will be becoming a pure E&P company," said Pavel Molchanov, an oil analyst for Raymond James. Molchanov said the move to simplify Hess' asset base should be appreciated by investors. Hess shares rose 6% in afternoon trading.

Hess has been shifting away from refining since early last year, when the HOVENSA refinery, a joint venture between Hess and Venezuela's PDVSA, was closed. Chief Executive John Hess has said the company's strategy is to focus on lower-risk, higher-return assets like its position in the Bakken oil shale in North Dakota.

Hess said in a statement on Monday that it received a letter from Elliott late last week saying the hedge fund might buy more than $800 million of Hess shares, or a roughly 4% stake. Such a purchase would make Elliott one of the top three shareholders in Hess, according to Thomson Reuter’s data.

The Wall Street Journal says that the oil storage terminals Hess has put on the block as it looks to exit the refining business could fetch between $1.5 billion and $2 billion by Barclay’s analysts estimate. The terminals' location has a lot to do with their value, the analysts say. More than half of Hess's storage space is located on high-priced real estate along New York Harbor, while the remainder of the facilities are spread along the East Coast. All told Hess is selling storage for 28 million barrels of oil, with room for 15 million barrels at New York Harbor. The New York space is worth between $65 to $85 per barrel, or as much as about $1.3 million, Barclays says. The rest will likely go for $40 to $60 per barrel, or up to about $780 million.

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