COME BY CHANCE, N.L. — With Irving Oil walking away from a deal to purchase the Come By Chance oil refinery, the question now is who can step in to ensure it has a future.
Irving confirmed Tuesday morning it won't finalize an agreement with the owner, US-based Silverpeak. Shortly afterward, Origin International told The Telegram it is still interested.
Origin is a privately-owned recycler of waste hydrocarbons with operations in America and Europe. Company CEO Nicholas Myerson wrote to Siobhan Coady, Newfoundland and Labrador’s former Natural Resources Minister and current Finance Minister, in June about Come By Chance, saying his company submitted a bid in May to purchase North Atlantic Refining Ltd. (NARL) from Silverpeak.
"A fair amount of refining capacity is likely losing money right now. In that environment, it’s going to be very challenging to find a buyer who is willing to step in and purchase an asset that’s currently not generating cash flow.” — Marc Amons
The company reconfirmed its interest in NARL Tuesday.
“Origin International does remain interested in the refinery,” a spokeswoman for the company told The Telegram in an emailed statement. “We are limited in the commentary we can provide at this point as we have had no opportunity to do any due diligence and are not aware if any new sale process has begun.”
Deal terminated
When Myerson wrote the province, Irving Oil already had its agreement in place to purchase NARL. The company officially confirmed its termination of that arrangement Tuesday in a statement posted on its website. “Confidentiality provisions of the agreement prohibit Irving Oil from commenting further at this time,” the company stated.
Marc Amons, a senior analyst for the research firm Wood Mackenzie, focuses primarily on North American refining. Right now, there are a couple of factors at play making oil refineries a tough sell. For starters, sluggish demand for oil products during the COVID-19 pandemic lowers the profit margins for oil refineries considerably.
“A lot of refiners right now are struggling to even cover their costs and break even for refining oil,” said Amons, based in Houston, Texas. “In fact, a fair amount of refining capacity is likely losing money right now. In that environment, it’s going to be very challenging to find a buyer who is willing to step in and purchase an asset that’s currently not generating cash flow.”
That certainly applies to Come By Chance. It has been inactive since March, closed at the time due to COVID-19 safety precautions. There are reportedly at least 500 jobs tied to refinery in one way or another. When operating, it processes approximately 135,000 barrels of oil per day.
An initial report from CBC published Monday said NARL was closing the refinery permanently. Industry, Energy and Technology Minister Andrew Parsons issued a statement later Monday that said Silverpeak is still assessing its options.
Buyers’ market
The other issue tilting the odds against Come By Chance is the glut of oil refineries currently on the market.
“You also have several other refining companies — not necessarily within Canada but within the North American region — looking to sell assets,” Amons said. “You’ve got kind of a double-edged sword where refining margins are poor and you’ve got a lot of sellers. It makes it challenging for any one transaction to occur at a price that’s going to be satisfactory to the seller, because the supply-demand of refining assets right now is very much tilted toward excess supply.”
What would change those odds?
Amons said a buyer who believes a refinery will return to profitability once the pandemic abates would be more likely to make a move.
“If a buyer were to see an asset as being valuable say starting in 2022, there’s a chance that for the right price, you could have a refinery transaction,” he said.
“That’s really what in our view we thought was happening with Irving and Come By Chance. Given Irving Oil’s footprint in eastern Canada, we thought they were likely seeing some value in the asset and were going to be willing to accept a period of very poor margins here at the onset ... Even then, they would have to get a very attractive price for the refinery. Obviously, I don’t have any knowledge of why the deal exactly fell through, but clearly one part of that equation broke down for them and they walked away.”
