Photo courtesy of Shell
Houston, Texas-based re-refiner Vertex Energy, Inc. has entered into a definitive agreement to acquire the Mobile, Alabama, U.S.A., refinery from Shell for USD75 million. The transaction is expected to close in the fourth quarter of 2021, subject to regulatory clearance and various closing conditions.
The divestment is part of Shell’s strategy to reduce its global refinery footprint to core sites integrated with the company’s trading hubs, chemicals plants and marketing businesses.
The 91,000 barrel-per-day (bpd) Mobile refinery is a strategically located asset, one capable of sourcing a flexible mix of cost-advantaged light-sweet domestic and international feedstocks. The Mobile refinery has the option to run as a stand-alone refinery and is also capable of producing base oils and chemicals feedstock. Approximately 70% of the refinery’s current annual production is distillate, gasoline and jet fuel, with the remainder being vacuum gas oil, LPG and other products. The facility distributes its finished product across the southeastern United States through a high-capacity truck rack, together with deep and shallow water distribution points capable of supplying waterborne vessels. As part of the transaction, Vertex will acquire approximately 3.2 million barrels of product storage, inventory, logistics and distribution assets, together with more than 860 acres of developed and undeveloped land. Vertex expects to retain the approximately 200 employees currently engaged in the business being acquired.
Upon completion of the transaction, Vertex expects to initiate an USD85 million capital project designed to modify the Mobile refinery’s hydrocracking unit to produce renewable diesel fuel on a standalone basis. Upon completion of the project, which is expected to conclude by year-end 2022, the refinery will commence production of approximately 10,000 bpd of renewable diesel, increasing to 14,000 bpd by mid-year 2023, while continuing to supply conventional fuels to the regional market at current rates.
Upon completion of the planned renewable diesel project, Vertex will become one of the leading independent producers of renewable fuels in the southeastern United States. Vertex anticipates that the refinery will have the potential to generate at least USD3 billion in annual sales and USD400 million of annual gross profit beginning in 2023, given current refining economics, following the conversion of the refinery’s hydrocracking unit.
“The acquisition of the Mobile refinery will be the largest, most significant transaction ever completed by Vertex, one that positions us to become a leading regional supplier of both renewable and conventional products,” said Benjamin P. Cowart, president and CEO of Vertex. “We will acquire an exceptional refining and logistics asset of scale, one equipped with significant feedstock optionality, together with a high-value, distillate-weighted product slate.”
“Our vision for this site is that of diversification. We will seek to lead the southeast region in marketing next generation fuels and products that are not currently produced by the refinery today. Our entry into these new markets is expected to generate significant, long-term value for our shareholders, while adding new jobs and economic stimulus to the regional market,” Cowart said.
As part of this transaction, Vertex plans to enter into a multi-year crude supply and product offtake agreements with several highly-respected counterparties, including Shell, said Alvaro Ruiz, EVP of Corporate Development at Vertex.
“We believe these agreements will position us to reduce our working capital requirements, while mitigating spot market risk on product sales. Upon closing, we expect to hedge a significant portion of the first-year production, reducing our near-term exposure to movements in refined product margins, as we focus on completing the planned asset conversion, which remains the most significant near-term economic driver resulting from this transaction.”
Vertex expects to fund this transaction and the related renewable diesel capital project through a USD125 million debt facility and cash generated through potential asset divestitures, with the balance coming through the sale of common equity, if required.
At closing, Vertex will acquire the Mobile refinery’s existing hydrocarbon inventory through funding provided by Bunker One. The hydrocarbon inventory will be valued at closing based on actual volumes and prevailing market prices.
Vertex engaged Donovan Ventures as investment banking counsel and Vallum Advisors as financial communications counsel on the transaction.
Recently, Vertex Energy appointed Bart Rice as division president of Renewable and Conventional Fuels.