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Delta Air Lines subsidiary buying refinery for $150M; 80% of Delta’s US jet fuel needs via direct production and exchange

1 May 2012

Delta Air Lines‘ wholly-owned subsidiary Monroe Energy LLC has reached agreement with Phillips 66 to acquire the Trainer refinery complex south of Philadelphia. As part of the transaction, Monroe will enter into strategic sourcing and marketing agreements with BP and Phillips 66. The acquisition includes pipelines and transportation assets that will provide access to the delivery network for jet fuel reaching Delta’s operations throughout the Northeast, including its hubs at LaGuardia and JFK.

Located on the Delaware River in Trainer, Pa., about 10 miles southwest of downtown Philadelphia, the Trainer complex has a crude oil processing capacity of 185,000 barrels per day and processes mainly light, low-sulfur crude oil.

Trainer received crude oil by tanker from West and North Africa and Canada. The refinery facilities include fluid catalytic cracking, hydrodesulfurization units, a reformer and a hydrocracker that enable it to produce a high percentage of transportation fuels, such as gasoline, diesel fuel and jet fuel. Other products include home heating oil and low-sulfur fuel oil.

ConocoPhillips had announced in September 2011 that it was seeking a buyer for the refinery and associated pipelines and terminals.

After receipt of $30 million in state government assistance for job creation and infrastructure improvement from the Commonwealth of Pennsylvania, Monroe’s investment to acquire the refinery will be $150 million, and Monroe will spend $100 million to convert the existing infrastructure to maximize jet fuel production. Production at the refinery combined with multi-year agreements to exchange gasoline, diesel, and other refined products from the refinery for jet fuel will provide 80% of Delta’s jet fuel needs in the United States.

Acquiring the Trainer refinery is an innovative approach to managing our largest expense. This modest investment, the equivalent of the list price of a new widebody aircraft, will allow Delta to reduce its fuel expense by $300 million annually and ensure jet fuel availability in the Northeast.

—Richard Anderson, Delta CEO

Monroe is partnering with leading energy companies to supply crude oil and receive jet fuel in exchange for Trainer’s non-jet fuel outputs. Under a three-year agreement, BP will supply the crude oil to be refined at the facility. Monroe Energy will exchange gasoline and other refined products from Trainer for jet fuel from Phillips 66 and BP elsewhere in the country through multi-year agreements.

The Commonwealth of Pennsylvania and Delaware County have agreed to provide assistance to ensure the refinery continues its economic contribution to the region.

Monroe expects to close on the acquisition in the first half of 2012. Jet fuel production is expected to begin during the third quarter, and changes to the plant infrastructure to increase jet fuel production would be complete by the end of the third quarter, resulting in expected 2012 fuel savings of more than $100 million.

We expect the Trainer acquisition to be accretive to Delta’s earnings, expand our margins, and to fully recover our investment in the first year of operations. We look forward to closing this transaction and moving quickly to begin capturing its benefits.

—Paul Jacobson, Delta CFO

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