Philadelphia Energy Solutions Inc (NYSE:PESC), the owner of the biggest U.S. East Coast oil refinery complex, has filed for Chapter 11 bankruptcy. The company expects to restructure more than $100.0 million in debt as it continues operations. The refiner secured $260.0 million in new financing, with $75.0 million coming from Sunoco Logistics Partners and another $65.0 million from existing equity holders.
Philadelphia Energy Solutions blamed the bankruptcy in part on the costs associated with meeting the federal Renewable Fuel Standard. The restructuring will allow Philadelphia Energy Solutions to emerge as a new company with the same stakeholders. The company intends to do this through a sale that will wipe $300.0 million to $350.0 million of compliance costs off the books.
Those compliance costs include renewable identification numbers (RINs), which Philadelphia Energy Solutions had to buy under federal programs. The federal government’s Renewable Fuel Standard requires refiners like Philadelphia Energy Solutions to blend renewable fuels into transportation fuels, or to buy credits, known as RINs, from other businesses that do blend the fuels.
Since 2012, Philadelphia Energy Solutions has spent more than $800.0 million on RINs, making it the company’s greatest expense after crude oil.
In theory, Philadelphia Energy Solutions could decide to not sell its assets and to reorganize on its own, but that would leave the company with $225.0 million less in cash and $275.0 million more in debt.
Critics have said that the Renewable Fuel Standard excessively impacts smaller refiners that lack the infrastructure to blend biofuels, by sticking them with surging RIN costs.
U.S. Senator Pat Toomey (R-Pa.) called the Renewable Fuel Standard “counterproductive” and “job-killing.”
“I am pleased PES is able to remain operational during this process and retain its workforce for now; however, the mechanism for enforcing the RFS is the primary cause for this bankruptcy filing and it must be fixed,” said Toomey on his web site.
Others say that blaming Philadelphia Energy Solutions’ financial situation on the Renewable Fuel Standard is short-sighted, arguing that the company should have known to factor in those costs.
Instead, many point to lower crude prices and the increased number of pipelines that have come online. Philadelphia Energy Solutions thrived off of the North Dakota shale boom, building a terminal to take trainloads of oil that couldn’t be sold anywhere else. But new pipelines connecting North Dakota to the Gulf Coast have also come online.
Philadelphia Energy Solutions owns two refineries, “Girard Point” and “Point Breeze.” It refines approximately 335,000 barrels of crude oil per day, making it the largest oil-refining complex on the U.S. East Coast. The company employs about 1,100 people.
“Exclusive: Philadelphia Energy Solutions to file for bankruptcy – memo,” Reuters, January 21, 2018.
“Biggest U.S. East Coast Oil Refinery Files for Bankruptcy,” Bloomberg, January 22, 2017.
“Toomey Statement on Philadelphia Energy Solutions Filing for Bankruptcy Protection,” Pat Toomey, U.S. Senator For Pennsylvania, January 22, 2018.
“About,” Philadelphia Energy Solutions, last accessed January 23, 2018.