Summary
Holly announced today that they will acquire the 85,000 BPD Sinclair refinery in Tulsa, OK.
Analysis
The petroleum refining industry is in a down market, struggling with margins, trying to cut operating expenses, and trying to stay afloat. In the midst of this, Holly Corporation has made two acquisitions, both lowly regarded refineries in the heart of the oil patch that were struggling under their former ownership. Holly has plans to meld the two refineries together and create value through synergies and coordinated planning. The former Sun refinery is oriented towards lubes with a high percentage of diesel production. The former Sinclair refinery was a more traditional cracking refinery but was a small player in what is increasingly a very competitive area. By merging the two refiners, Holly will create a very complex refinery, albeit at a lower throughput rate, and avoid a huge amount of capital required for future environmental compliance. Further, Holly will utilize slack capacity in downstream units to avoid shipping intermediate products to the Midwest.
Holly's management is making smart moves, buying at the bottom, and creating value by rolling their sleeves up and getting their hands dirty looking at these assets in detail. They cannot change the overall margin environment, but they can operate smartly and create value in a business that is still needed to support our transportation needs. Holly is demonstrating the ability to move quickly and decisively.
