When Philadelphia Energy Solutions (PES), owner of the East Coast’s largest refinery, recently announced it was seeking Chapter 11 bankruptcy protection, it begged a question: What happened? The answer requires a look back at the company’s original vision — namely, to capture the upside of the Shale Revolution by processing price-advantaged light, sweet crude oil produced in the U.S. — as well as a review of market developments that undermined its plan. Today, we look at the factors that drove PES’s hopes and why, in the end, they weren’t realized.
PES was formed as a partnership in September 2012 between The Carlyle Group and Sunoco Inc. to rescue the 335-Mb/d Philadelphia Refining Complex. Carlyle would hold a two-thirds ownership interest while Sunoco Inc. (which bought the complex’s Point Breeze refinery in 1988 and its Girard Point refinery in 1994) retained ownership of the remaining third. Just after the PES partnership was launched, in October 2012, Sunoco became a subsidiary of Energy Transfer Partners.
At the time, Carlyle was among a distinguished group of white knights from the private equity realm that helped revitalize the Mid-Atlantic refining sector by eschewing the then higher-priced imported crude that their refineries had traditionally run in favor of price-advantaged light, sweet crude produced in the U.S. But the dynamics that had initially boosted PES’s standing — most notably relying on relatively cheap Bakken crude transported to Philly by rail — shifted, leaving the refinery on shaky ground.
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Let’s start by reviewing the PES vision. PES’s identity was pegged to the boom in U.S. production made possible by the Shale Revolution, so much so that even the company’s name was meant to evoke a mission beyond refining. PES executives saw the revitalization of their refinery as part of a larger effort to make Philadelphia an energy storage, processing and transportation hub for Marcellus/Utica and other unconventionally produced hydrocarbons. They also intended to optimize the Philadelphia Refining Complex’s economics by railing in steeply discounted crude from the Bakken Shale in North Dakota to the complex’s combined Point Breeze and Girard Point operations. In addition, PES and other East Coast refiners hoped that pipelines would one day be built from the Bakken to the East Coast, reducing transportation costs and further enhancing the refineries’ economics.
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About the song
“Philadelphia Freedom,” an exuberate anthem by Sir Elton John, peaked at #1 on Billboard’s Hot 100 chart on April 12, 1975. The song’s timing was impeccable, as it ushered in the 1976 Bicentennial of the signing of the Declaration of Independence. In fact, though, the title of Elton John’s song was a tribute to tennis star and woman’s rights icon Billie Jean King, who coached a team named the Philadelphia Freedoms. The song was dedicated to her as well as the “Soulful Sounds of Philadelphia,” the latter of which was lyrics writer Bernie Taupin’s inspiration. The song made its album debut on 1977’s Elton John’s Greatest Hits Volume II.
Elton John’s Greatest Hits Volume II was Elton John’s 16th official album release and the second compilation. The original 1977 U.S. version featured one song from 1971 and two songs from 1974 that were not on the first greatest hits album. It also featured several hit songs from 1975 and two hit singles from 1976. It was certified 5X Platinum by the Recording Industry Association of America.
Sir Elton John (Reginald Kenneth Dwight) is a British singer, songwriter and pianist. He started playing piano at an early age and released his debut studio album, Empty Sky, when he was 22. He has released 31 studio albums, five live albums, 22 compilation albums, nine soundtrack albums, four EPs, and 140 singles. He has sold over 400 million records worldwide. He has won two Academy Awards, six Grammy Awards, one Tony Award, nine Ivor Novello Awards, and two MTV Video Music Awards. He is a member of the Rock and Roll Hall of Fame and Songwriters Hall of Fame, and is a recipient of Kennedy Center Honors. He received a CBE in 1995 and was knighted by Queen Elizabeth II in 1998. He still records and is on a three-year farewell tour that ends in New Zealand in 2023.
Comments
Very good article.
I would also like to point out that in addition to the crude prices and RINs issues, that PES paid out approx $595 MM between 2013 and 2017 as dividends and loan repayments to the Carlyle-led investor group (Reuters 02-20-2018). This was also a contributing factor to their bankruptcy filing.