Despite robust upstream deals in the U.S. oil industry reaching nearly $200 billion last year, the refining sector struggled to attract buyers amid concerns over the energy transition and the long-term viability of aging refineries.
The increasing number of operators looking to divest reflects optimism that a post-pandemic surge in margins might create a favorable opportunity to exit assets profitably. However, this optimism has not materialized into actual transactions. Industry metrics indicate that plant valuations have decreased by a third since the 2008 global financial crisis and have yet to recover, according to MorningStar analyst Allen Good.
The U.S. refining sector has not witnessed a change in ownership since independent refiner Par Pacific’s $310 million acquisition of Exxon Mobil’s 63,000 barrels per day (bpd) Billings, Montana, plant last year. Despite ongoing efforts, Delta Air Lines has struggled to sell its nearly 100-year-old, 190,000-bpd Trainer, Pennsylvania, refinery since 2018. Phillips 66, the third-largest independent U.S. refiner, is reportedly considering a $3 billion divestiture program that may include some of its smaller refineries.
Venezuelan-owned Citgo has placed three refineries in Texas, Louisiana, and Illinois, with a combined capacity of 805,000 bpd, up for sale as part of a U.S. court auction to settle Venezuelan debts. However, Marathon has shown no interest in these plants, and PBF Energy has announced no plans for deals in the near future.
The challenges facing the U.S. refining industry are compounded by the global energy transition, with increasing adoption of electric vehicles and policies aiming to phase out fossil fuels. Refineries, particularly on the West Coast, face headwinds as the market shifts toward zero-emission vehicles, and state governments accelerate the transition by planning to ban sales of new gasoline-only vehicles by 2035.
The rising costs of maintenance and the workload to keep aging plants operational have also deterred potential buyers. The need for significant investments to upgrade facilities further hinders the attractiveness of aging refineries, with operators such as Shell closing facilities, and others facing extensive maintenance bills.
In conclusion, the challenges faced by the refining sector, including the energy transition, declining demand for gasoline, and the substantial costs associated with maintaining aging plants, have created a hesitancy among buyers, stalling M&A activity in the U.S. refining industry.
