July 3, 2012:

ABUJA, Nigeria –  A $4.5 billion deal to build six refineries in Nigeria is set to make Africa's top oil producer less reliant on exports for oil products, authorities say. Yemi Kolajo, a spokeswoman for Nigeria's trade ministry, said in a statement late Monday that U.S.-based Vulcan Petroleum Resources Ltd. and Nigerian-based Petroleum Refining and Strategic Reserve Ltd. signed the memorandum of understanding with the government in the capital, Abuja. Two of the six refineries are to be built within the next year, Kolajo said.

Nigeria, despite producing about 2.4 million barrels of oil a day, has decrepit refineries unable to meet the nation's growing demand for gasoline due to years of mismanagement and sabotage. The six new refineries will refine a total of 180,000 of barrels of oil per day in a bid to address that need, the statement said. Edozie Njoku, chairman of the Nigerian partner, said Tuesday that all the funding for the project would come from outside the country. He said they opted for modular refineries because there are many local challenges to building a refinery from scratch. Each refinery will be built in the U.S., disassembled for shipping and reassembled in Nigeria, he said.

"Our job as the local partner is to make sure that the government does all we asked of them," Njoku said, "that they approve all the permits, etc." He said the U.S. partner company was a venture capitalist that would be bringing investors as well as technical know-how. The company could not immediately be reached for comment. The government has shown a lot of will to make this happen, Njoku said. "They really want to start refineries in this country, they are committed to it." The deal comes six months after the Nigerian government tried to end a cherished fuel subsidy program that had kept Nigeria's largely imported fuel cheap for more than two decades. President Goodluck Jonathan said the country could no longer afford it. The move meant that prices at the pump jumped from 45 cents per liter ($1.70 per gallon) to at least 94 cents per liter ($3.50 per gallon) on Jan. 1. Jonathan later announced a new, partially subsidized price of 60 cents a liter ($2.27 a gallon) to stop a six-day national strike.

Nigerians consider cheap fuel one of the only benefits they reap from living in an oil-rich but impoverished nation. The subsidies, in theory, keep prices artificially low for Nigerian consumers. Because of the country's reliance on exports, fuel actually comes into the country at global prices. Functioning refineries will reduce the bill of the subsidy which Nigeria's finance minister, Ngozi Okonjo-Iweala, recently put at $8 billion for 2011. But, this bill also includes the heavy price of corruption, authorities say. Top officials, including Okonjo-Iweala and Nigeria's respected Central Bank Governor Lamido Sanusi, have said corruption inflates the cost of the subsidy program. A recent probe by lawmakers said billions of dollars have been wasted in the program. The head of that probe, House of Representatives member Farouk Lawan, is now being accused of accepting a $620,000 bribe from an oil company that had been under investigation during the probe. Lawan has denied any wrongdoing.

By FoxNews.com

July 3, 2012

PITTSBURGH - Local 10-1 Members Ratify New Contract  When Sunoco Inc. announced last September it would shut down the company's Philadelphia refinery if a buyer was not found, United Steelworkers (USW) Local 10-1 leaders and members were given little hope of keeping their refinery alive. Ten months later, after a hard-fought campaign waged by the local and international union, Local 10-1 members ratified a new contract with a new owner, Philadelphia Energy Solutions, which is a joint partnership between The Carlyle Group and Sunoco.  "I am extremely proud of the local union leadership and members who refused to believe there was no hope," said USW International President Leo W. Gerard. "I don't think this refinery would have been sold if there hadn't been a union to fight for this facility and to fight for the survival of the surrounding communities."

USW Locals 10-1, 10-901 and 10-234 led the campaign to find buyers for the two Sunoco facilities in Philadelphia and Marcus Hook and the former ConocoPhillips refinery. Last fall they contacted local, state and national elected leaders and persuaded them to help find buyers and keep the refineries operating. They researched industry trends and discussed financial strategies while writing thousands of letters, obtaining signatures for petitions, and holding rallies and demonstrations. They also involved the Building Trades and other union and community groups in the campaign. Meanwhile the international union searched for buyers for the three refineries and reached out for assistance from the Obama Administration. Top USW officials contacted The Carlyle Group, a private equity firm with which it had a prior relationship.

"Our members worked hard to ensure there would be good, family-supporting jobs in their communities," said USW International Vice President Tom Conway. "Most important, they clearly communicated how consumers and their local communities would be negatively impacted by the refinery shutdowns. Once the elected officials and the public understood this, positive change began." Conway and Gary Beevers, the USW International Vice President who heads the union's national oil bargaining program, sat down with Phil Rinaldi, who will serve as the CEO of Philadelphia Energy Solutions, to discuss the parameters of an agreement. "This new three-year agreement enables the company to make large investments that will result in hundreds of new jobs," Beevers said. "It gives the company more flexibility, while providing industry-standard wages, benefits, and health and safety protections."

USW Local 10-1 President Jim Savage said: "We are pleased to announce the ratification of our labor agreement with Philadelphia Energy Solutions. It passed overwhelmingly by 98 percent. The terms of the agreement meet the standards consistent with the national pattern and represent the culmination of very hard work by our negotiating committee, with tremendous support from the international union. We are both proud and thankful of the efforts of so many people who worked so hard on our behalf. Nothing is impossible." The USW represents 600 hourly employees at the Philadelphia refinery. To see the timeline of the Philadelphia-area refineries campaign, click HERE.

To see the narrative about the campaign, click HERE. USW represents 850,000 members in the energy, steel, paper, glass, rubber, service, and public sectors throughout the United States, Canada and the Caribbean.

By MarketWatch

By July 2, 2012:

NEW YORK— Energy stocks ended flat-to-lower on Monday after big gains in the previous session, as Carlyle Group said it’ll form a joint venture to keep Sunoco Inc.’s Philadelphia refinery in operation. While a downgrade weighed on WPX Energy shares, Phillips 66 and Marathon Petroleum climbed on bullish analyst comments. In a headwind for energy stocks, crude for August delivery (US:CLQ2) fell $1.21, or 1.4%, to settle at $83.75 per barrel on the New York Mercantile Exchange. Commodity prices fell on lackluster manufacturing data in the U.S. and China, despite sanctions by the European Union against Iran’s oil output taking hold.  Among sector benchmarks, the NYSE Arca Oil Index (XX:XOI) rose 0.1%, while the NYSE Arca Natural Gas Index (XX:XNG) dropped 0.3% and the Philadelphia Oil Service Index (US:OSX) slipped 0.1%.

The Energy Select Sector SPDR Fund (US:XLE), which tracks energy stocks in the S&P 500 index, ended fractionally higher after losses earlier in the day.

Deutsche Bank upgrades refiners

Among stocks on the move, Phillips 66 (US:PSX) rose 2.3% after Deutsche Bank upgraded the refiner to buy from hold. Analyst Paul Sankey described Phillips 66 as “the premium unconventional oil play.” Sankey also listed HollyFrontier (US:HFC) as a top pick and upgraded Marathon Petroleum Corp. (US:MPC) to buy from hold.  Shares of HollyFrontier rose 0.7% and Marathon Petroleum moved up by 2.6%. “The primary beneficiary of the secular long term boom in U.S. oil and gas production will be export-oriented processing manufacturers, of which the single biggest, most under-valued sector is refining,” analyst Sankey said in a note to clients.

Also on the move, WPX Energy (US:WPX) fell 1.7%, pulling back after Barclays downgraded the natural-gas producer to equal weight from overweight and cut its price target to $19 a share from $24. ATP Oil & Gas Corp. (US:ATPG) rallied 19% after the Houston company said its Shimson well in the Levant Basin off the coast of Israel encountered more than 62 feet of natural gas pay. ATP said it’ll provide more information in its third-quarter profit update. Chesapeake, Encana subject of federal probe: report

Chesapeake Energy Corp.(US:CHK) and Encana Corp.(US:ECA)  [(CA:ECA) are the targets of an investigation by the U.S. Justice Department in connection with prospective land deals in Michigan in 2010, according to a report by Reuters. The news agency initially published internal emails between executives at the companies about avoiding a bidding war in an apparent violation of rules against collusion in the marketplace. An unnamed source told Reuters the government’s investigation could take months. Last week, state regulators in Michigan opened up investigations, Reuters reported.

Sunoco (US:SUN) will become minority owner of Philadelphia Energy Solutions, a joint venture with Carlyle Group established to run the 330,000 barrel-a-day refinery. Shares of Sunoco rose 0.3%. “The joint venture is expected to save 850 jobs, secure the region’s fuel supply by continuing the daily flow of 10 million gallons of various fuels, and create 100 to 200 new, permanent jobs as well as thousands of construction jobs,” the companies said. Financial terms of the deal with Carlyle weren’t disclosed. J.P. Morgan is providing financing, while commodities arm J.P. Morgan Ventures Energy Corp. will supply the refinery with crude and purchase refined products from it. In April, Sunoco disclosed exclusive talks with Carlyle about entering into a venture for the refinery. Sunoco had said it would be forced to idle the facility if no deal was reached.

Instead of shutting down the Philadelphia facility — which is what happened to another Sunoco refinery in Marcus Hook, Pa. — Carlyle said it’ll invest in it. Plans include an upgrade of the catalytic cracker, a move that’ll create more than 1,000 contracting jobs. Other improvements include a high-speed train unloading facility at to provide access to greater quantities of crude oil from North America such as the Bakken region in North Dakota. “The joint venture is also exploring other significant capital projects, including the creation of new businesses based on the availability and abundant levels of natural gas from the Marcellus Shale,” Carlyle said. Chesapeake, Encana subject of federal probe: report Chesapeake Energy Corp.(US:CHK)  and Encana Corp.(US:ECA)  [(CA:ECA) are the targets of an investigation by the U.S. Justice Department in connection with prospective land deals in Michigan in 2010, according to a report by Reuters. The news agency initially published internal emails between executives at the companies about avoiding a bidding war in an apparent violation of rules against collusion in the marketplace. An unnamed source told Reuters the government’s investigation could take months. Last week, state regulators in Michigan opened up investigations, Reuters said.

By MarketWatch

July 2, 2012:

Carlyle Group, the Washington-based private-equity firm that went public this year, is taking over operations of a Sunoco Inc. (SUN) (SUN) refinery on a bet that revived U.S. oil and natural-gas output can restore to profit the oldest continually operating refinery on the U.S. East Coast. Carlyle will invest an undisclosed amount in Sunoco’s 330,000-barrel-a-day Philadelphia refinery as part of a joint venture, the companies said today in a statement. Sunoco will retain a minority stake. Carlyle plans to process oil delivered by rail from North Dakota’s Bakken formation where production has risen fourfold in the last three years. It will also use gas from the Marcellus Shale in Pennsylvania, where output doubled last year, to run the refinery.

Oil from the Bakken and the Eagle Ford deposit in Texas will displace almost half the more costly imported oil used by the refinery by early next year, Phil Rinaldi, chief executive officer of the venture, Philadelphia Energy Solutions, said today on a conference call. “This refinery could be profitable if it were running on Bakken crude instead of Nigerian crude,” said Bradley Olsen, a Houston-based analyst at Tudor Pickering Holt & Co. who rates Sunoco a buy and doesn’t rate Carlyle. “The rest of it is just trying to make it a sufficiently efficient operation.” Bakken crude, constrained by limited pipeline capacity, has sold for an average $88.51 a barrel this year, compared with $113.47 a barrel for Brent, the global benchmark that sets the price for oil Sunoco has been refining, according to data complied by Bloomberg.

State’s Aid Package

The agreement means that two of three Pennsylvania refineries that faced shutdown will keep operating. The Carlyle joint venture follows Delta Air Lines Inc.’s decision to buy a ConocoPhillips refinery south of Philadelphia in April for $150 million. Pennsylvania lawmakers have opposed plans to close the three refineries, saying the shutdowns would reduce jobs and raise gasoline prices. The state will contribute $10 million toward the rail terminal, capable of unloading 140,000 barrels per day by early 2013. That’s part of a $25 million package that includes $15 million to overhaul the plant. The refinery will also be eligible for tax abatements and tax-free bond sales, Governor Tom Corbett, a Republican, said on the conference call. “Pennsylvania is going to be the energy capital of the country,” Corbett said in an interview outside the United Steelworkers Local 10-1 union hall in Trainer, Pennsylvania. “I saw the steel mills go away because there wasn’t that kind of cooperation between business and labor and government.”

Low-Sulfur Diesel

Carlyle will add jobs and invest at least $140 million in plant improvements, Steve Kratz, a spokesman for Pennsylvania’s Department of Community and Economic Development, said in an interview. Carlyle declined to comment on how much it would spend. “This was a no-brainer for us,” Kratz said. “It saves jobs directly and indirectly, because with the plant construction and improvements there will be construction jobs.” After the overhaul, the plant will produce more and higher quality low-sulfur diesel, for which demand is growing, and less high-sulfur heating oil, Carlyle Managing Director David Marchick said on the call.

“Demand in the Northeast for heating oil continues to decline,” Andy Lipow, president of Lipow Oil Associates LLC, said today in a telephone interview. “New York state is going to require an ultra-low-sulfur heating oil.” Within two years, Carlyle hopes to be fueling the plant with abundant natural gas from Pennsylvania’s Marcellus Shale formation instead of imported oil, Marchick said.

Marcus Hook

Sunoco rose 18 cents to $47.68 at 2:32 p.m. in New York. Carlyle, which began trading publicly on May 3, rose 1.9 percent to $22.85. Carlyle joins private-equity firms Blackstone Group LP and TPG Capital, which made refinery deals in the past two years to expand natural resources investments. Unlike public companies, which have to answer to shareholders every quarter, private- equity funds can make longer-term bets on a business or an industry because their capital is usually locked up for 10 years. Sunoco, based in Philadelphia, had said it would close the refinery this month unless it found a buyer. Sunoco shut another refinery in the state, Marcus Hook, after it got no bids for it. The company, which is being purchased by Energy Transfer Partners LP (ETP) (ETP) for $5.3 billion, has sold or closed all its other refineries.

‘Christmas’ for Union

Keeping the Philadelphia refinery running will save 850 jobs and “secure the region’s fuel supply,” according to the statement. “If Sunoco’s Philadelphia refinery, which alone accounted for nearly a quarter of refinery capacity on the East Coast in 2011, were to shut down in July 2012, petroleum product markets in the Northeast could be significantly impacted,” the Energy Information Administration said in a February report. Delta announced plans to buy the 185,000 barrel-a-day Trainer refinery and spend $100 million to make it capable of supplying 80 percent of the airline’s U.S. jet fuel needs. Workers are voting today on a tentative contract with Carlyle, Jim Savage, president of Steelworkers Union Local 10-1, said in an interview. The agreement will be approved overwhelmingly, United Steel Workers President Leo Gerard said on today’s call.

“The young guys will have a chance to retire,” said John Read, a retired United Steelworker union member who worked in the Philadelphia refinery for 40 years. “It’s a load off everyone’s shoulders. It’s like Christmas.” Carlyle Group got legal advice from Vinson & Elkins and Buchanan Ingersoll & Rooney. Sunoco received financial advice from Credit Suisse AG and legal advice from Kirkland & Ellis LLP.

By Bloomberg

July 1, 2012:

By Ibrahim Kasita

Uganda’s progress in transforming the oil assets and the plan to build refinery project has attracted criticism, skepticism and resistance, a challenge that will test government’s stamina to make independent decision for the benefit of its citizens. This is after protracted efforts to search for oil and gas in the Lake Albert basin confirmed 2.5 billion barrel of crude oil in reserves meaning that at least one billion barrels oil equivalent can be recovered.

Amongst oil producers

Such asset base propels Uganda in the league of countries like Peru, Trinidad & Tobago, Denmark, Italy and Romania in Europe and Latin America. In Africa, Uganda is in the rank of Chad, Congo Brazavile, Equatoria Ginea and Tunisia. While in Asia, the discovered oil base puts Uganda in the group of Brunei and Thailand. But Uganda is still a long way from the tens of billion in Nigeria, Libya and the United States or the hundreds of billions of barrels in Iran, Iraq, Kuwait, Venezuela or Saudi-Arabia. Moreover, Uganda boasts of over 90% of success discovery rate meaning that from the total of 72 drilled oil wells only 4 wells did not encounter oil or gas. Interestingly the cost of finding oil in Uganda is far cheaper compared to global trends. Finding oil in Uganda is less than a dollar per barrel. In the global scale the finding cost ranges between $5 and $20 per barrel.

Value addition

With the established asset base of 2.5 billion barrels in place, Uganda intends to deliver natural gas as the initial feestock to supply a 50 Megawatt dual power station to increase electricity supply. In addition to gas, heavy fuel oil from extended well tests will be used for the power station. This is also aimed at to increase capacity and life the power station to 25 years. Most important is that a detailed feasibility study for the development of refinery in Uganda confirmed economically feasible and beneficial compared to export of crude oil. The Net Present Value for a Ugandan refinery project to process 60,000 barrels of oil per day at an initial investment of $3.2b has post tax rate of 33% Plans are underway to execute the project under the private public partnership.

Skepticism and resistance           

However, such good intentioned plans are facing criticism and resistance mainly from donors, civil society groups and international oil companies. Donors argue that a world class refinery in a landlocked country like Uganda with undiversified crude supply undoubtedly will face severe commercial challenges.  That even a small-scale refinery tailored to Uganda’s domestic fuel needs will diminish the scale economies of export infrastructure without necessarily reducing domestic fuel prices and that there will be a temptation to embed hidden fuel subsidies within a domestic refining entity.  Reducing the price of crude oil feedstock to improve the profitability of the refinery would reduce the value of the upstream oil production ventures where large resource rents are set to be captured.

However, the greater risk for Uganda is that protracted debate over domestic refining strategy will delay important export infrastructure decisions. NGOs with negative perception and propaganda And the mushrooming civil society groups backed by externally and wealthy agencies have complicated matters. Their capacity and skills are weak in research, advocacy, negotiations and engagements.  They have failed to come up with policy-evident research and augments or alternatives and it is difficult to take them seriously. The amateurish NGOs forget that accountability can be addressed through Constitutional provisions like separation of powers (Cabinet, Parliament and Judiciary), legislative investigative commissions, fiscal such as formal accounting and auditing systems. Accountability can also be addressed in form of administrative such as hierarchical reporting, norms of public sector probity, public service codes of conducts, rules and procedures of transparency, public oversight and legal such as anticorruption agencies, ombudsmen and judiciary.

International Oil Companies are using the discovery of oil in Kenya to put government in a panic mode and de-campaign the refinery project. They are blaming government for delaying in approving their field development plans claiming that “Uganda has no clarity and vision towards oil development.” The companies prefer exporting the crude oil through pipeline to Port Mombasa to the global market. Then there are those miscalculated elites with their academically crippled minds what think they know better what is good for Ugandans and they will use whatever it takes to talk bad about the oil projects.

Road to value addition

But delays in approving plans are strategic because it has helped government understand the available oil and gas reserves. For example in 2006 know reserves in place were 300 million barrels today it known that over 2.5 billion barrels of oil is in place and over billion barrels are recoverable. Secondly the national petroleum data repository systems are under establishment and creation of new institutions (Petroleum Authority, National Oil Company, directorate of petroleum) once the bills are passed into law. East African Community has only one refinery at Port Mombasa. The refinery is suffering from inefficiency that it cannot refine the commodity to full capacity. For now Uganda is not interested to know Kenya, Rwanda, Burundi or Tanzania discovered oil/gas.  Uganda is concerned about its goal of using the country’s oil and gas resources to contribute to early achievement of poverty eradication and create lasting value to society.

In fact building a second refinery in Uganda will make EAC a big producer and stronger like the Gulf region. And the more discoveries in Kenya, Tanzania, Burundi and Rwanda will provide feedstock to both Hoima and Mombasa refinery making them competitive. Parliament need to pass the various petroleum bills to enable the effective and efficient management of the nascent oil and gas sector.

By NewVision