Delta Air Lines is in advanced talks to purchase an East Coast oil refinery for more than $100 million, according to people familiar with the matter.
The refinery, a ConocoPhillipsfacility in Trainer, Penn., has the capacity to refine 185,000 barrels of oil per day, according to industry officials. It is one of two refineries in the Philadelphia vicinity that are currently for sale.
Delta’s potential purchase of the Conoco plant, which the people familiar with the matter say has yet to be finalized, would be a first such deal for an airline.
The idea, say these people, would be to save money on the rising cost of jet fuel by refining petroleum in-house rather than outsourcing the process. One development that could amplify those cost savings, say these people, is the recent discovery of abundant crude reserves in the Bakken Shale formation in North Dakota.
Drilling crude domestically and transporting it to Pennsylvania could potentially be cheaper than shipping it from West Africa, where much of the petroleum used to make jet fuel is from.
A Delta spokesman declined to comment on the deal, which one person familiar with the matter said had been approved by the airline’s board last week.
A ConocoPhillips spokesman said that while the Trainer refinery was indeed for sale — and that the bidding deadline for the facility had recently been extended from late March to the end of May — that company policy prevented him from commenting on market speculation.
Oil analysts and traders have been abuzz about the possible pact since last week, when the Oil Price Information Service published a report citing Delta as a bidder for the Trainer refinery. Some regard the idea as an innovative solution to climbing fuel prices, while others question whether an airline like Delta should take on such a capital-intensive business.
The Atlanta-based Delta “is the world’s largest commercial buyer of jet fuel,” said airline analyst Hunter Keay in a research note on Tuesday, adding that “crack spreads,” or the cost of turning crude oil into a product like jet fuel, “are hard to hedge, and even if [Delta] can obtain a consistent $0.05/gal cost advantage over the long run, it’s worth the risk.”
With additional reporting from Jesse Bergman.
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