Evidence of meeting #26 for Industry, Science and Technology in the 40th Parliament, 3rd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was shell.
A recording is available from Parliament.
11:25 a.m.
Conservative
July 20th, 2010 / 11:25 a.m.
Liberal
Anthony Rota Liberal Nipissing—Timiskaming, ON
Thank you, Mr. Chair.
Thank you for being here this morning.
Mr. Boles, it's going to sound a little redundant, but I just want to confirm. You said that the company is still prepared to buy the business, I believe is what you said until now. You're still open to looking at the business and buying it at the $150 million range.
11:25 a.m.
Liberal
Anthony Rota Liberal Nipissing—Timiskaming, ON
Okay, very good. I just wanted to clarify that.
And despite what the lawyers have released this morning in a press release, you're clearly saying that you're willing to pay $150 million for the refinery now, and then the stations later on, the retail outlets--that's not really a must, but it would be something you'd be willing to look at, at a later date.
11:30 a.m.
Business Development, Delek US Holdings
That's correct. Either way, now or later.
11:30 a.m.
Liberal
Anthony Rota Liberal Nipissing—Timiskaming, ON
Either way, now or later. So it wasn't tied together. It wasn't an all or nothing deal.
11:30 a.m.
Business Development, Delek US Holdings
Well, our preference would be to get it now, right? Our preference would be to maybe not pay for it now, but to get it.
11:30 a.m.
A voice
A post-dated cheque.
11:30 a.m.
Liberal
Anthony Rota Liberal Nipissing—Timiskaming, ON
Now, the issue as well is you mentioned turnaround as one of the deal-breakers. Turnaround, again just to clarify, would be if the refinery shut down, didn't have its customer base, and then you would have to start up and rebuild again. Is that clear? Is that what I understand by business and turnaround?
11:30 a.m.
Business Development, Delek US Holdings
Shell will continue to provide product to its existing customers. They have made some arrangements. I don't know what those are, but we've discussed that they were in the process of doing that. So they've made arrangements for alternate sources of supply.
11:30 a.m.
Liberal
Anthony Rota Liberal Nipissing—Timiskaming, ON
I think we're talking wholesale and refining. One is actually just taking a product from somewhere else and selling it and providing it. That's not what we're talking about here. We're talking about the refinery and keeping it operational, and that's what you're interested in?
11:30 a.m.
Business Development, Delek US Holdings
The refinery will not be operational past September. It will not be.
11:30 a.m.
Liberal
Anthony Rota Liberal Nipissing—Timiskaming, ON
Is it because it's not getting a supply of oil and is shutting down on September 10? What is it?
11:30 a.m.
Business Development, Delek US Holdings
No, it's because the turnaround was not done, and Shell's safety standards and probably Delek's own engineering professionals would agree--
11:30 a.m.
Liberal
11:30 a.m.
Liberal
Anthony Rota Liberal Nipissing—Timiskaming, ON
No, but when would they have started not making that turnaround? Did they plan for this? Did they just say, oh well, we'll just go through the charade and worry about it later, or does it just happen one day that we're beyond the point of no return and we're shutting down the refinery?
11:30 a.m.
Business Development, Delek US Holdings
Those are really questions for Shell, but Shell had a couple of deadlines, I guess, based on pressure it got from parties present and extended that. But at some point in time, if you haven't ordered all of the equipment and made all the engineering preparations for a turnaround, it gets to the point where safety standards would require that you have to shut. I'm thinking that's where Shell is.
11:30 a.m.
Liberal
Anthony Rota Liberal Nipissing—Timiskaming, ON
So their engineering went into shutting down the plant, not into keeping it running. I won't ask you for an answer on that. I'll be fair on that.
Shell says the refinery needs improvements to the tune of some $600 million. Did you see the need for these improvements? Is it falling apart right now? What is the long answer to that?
11:30 a.m.
Business Development, Delek US Holdings
By way of clarification, I'd just like to say that what you talked about earlier, continuing the discussions...the discussions are over, as our press release would state. We're prepared to recommence new discussions, if you will. I'm not saying anything contrary to our press release.
The deal is dead, and we're ready to go back to the table on a new deal.
Our financial model reflected about $800 million that needed to be spent over the next ten years. That's a lot of money. It's give or take $50 million. I don't remember the exact number; it's a lot of money. That would be similar to the situation of the Tyler refinery in Texas, where a substantial amount of money needed to be spent and reinvested in that refinery to get it to the point of being very profitable, and it is that and it has done well.
11:30 a.m.
Liberal
Anthony Rota Liberal Nipissing—Timiskaming, ON
And that was part of your plan as well. That's obviously something you've considered and you're willing to look at, and actually invest in, if you're serious about picking up the business, so that it operates for Delek.
11:30 a.m.
Business Development, Delek US Holdings
We believe the reinvestment of substantial amounts of the cashflow from operations into making those moneys available and making those repairs is what would be required. So the money we'd make would get reinvested in that asset to get over the hurdle of this $800 million that needed to be spent.
The return on investment for us would be acceptable if we leverage it, which we would do. The way we see it is that we can take an asset like that... If we had to deal with Shell's Port Arthur refinery, $500,000 a day, or whatever it is, we'd probably all resign. But when you give us a situation like this one, we believe we're good in these situations. We believe we can go in and bring constituencies together, we can share the pain, and we can reinvest cashflow and do certain things to make it a success.
That's not anything against Shell; that's just how we see the opportunity. We're acquisitive. We want to buy refineries. There are not a lot of refineries for sale at reasonable prices, let's put it that way. So we want this business. We'd love to get back into negotiations.
