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As Delta Prepared to Make Jet Fuel, United Briefly Eyed Refinery

Just months after Delta Air Lines purchased a troubled East-Coast oil refinery in an effort to pare its fuel costs, United Continental Holdings , the nation’s biggest carrier, appeared to be exploring a similar move, according to someone familiar with the matter.

In August, an official in United’s internal acquisitions department reviewed a preliminary offering document for a 100,000 barrel-per-day refinery in Pasadena, Tex., near Houston, according to this person, suggesting that the airline was considering a possible purchase. But United didn’t pursue a deal and no United representatives ever visited the Pasadena facility, this person added.

United said in a written statement that while it has mulled purchasing a refinery in the past and may do so again in the future, a refinery purchase is not in the current plan. “As part of our normal planning and business development activities we routinely evaluate opportunities, and we have evaluated refineries as a means to improve our returns,” the airline stated. “At this time, we believe that the next best use of $100 million dollars is to continue to pay down debt and invest in our product to de-risk the business and enhance returns over time.” (Read More:Airlines Stocks Soar as Price of Oil Sinks)

Any United push to buy a refinery, if it occurred, would come not long after Delta Air Lines, the second-biggest carrier in the U.S., announced its purchase of a 185,000-barrel-per-day refinery in Trainer, Penn. Delta’s facility, which will produce jet fuel to serve its New York-area hubs, has been operating 24 hours a day this month and is scheduled to start producing jet fuel any day now, say people familiar with the airline’s plans.

Delta has been widely criticized for the Trainer purchase, which cost $180 million, $30 million of which came from state subsidies. Some economists and airlines say that operating its own refinery will cost Delta significantly more than it would an oil and gas company, which would have greater economies of scale, and that it may lose money by trading some of the Trainer plant’s ancillary refined products, including diesel and kerosene, which it has agreed to give to certain oil companies in exchange for additional jet fuel. (Read More:Delta Looking Into North Dakota Crude for Refinery)

In a statement issued April 30, the day the Trainer deal was announced, Delta CEO Richard Anderson called it "an innovative approach to managing our largest expense” that would reduce the carrier’s fuel expense by $300 million per year.

The $100 million mentioned in the United statement would be at the very low end of the price range that the Brazilian government-owned oil company Petrobras, which is selling the Pasadena refinery, might consider in a sale of the facility, according the person with knowledge of the situation. The Pasadena plant is a distressed one, said an airline-industry official with knowledge of the facility, that the Brazilian company is keen to unload.

A Petrobras spokeswoman declined to comment on its plans for the refinery.

Still, the low six-figure price tag mentioned in the United statement speaks to the rock-bottom prices at which many U.S. refineries are selling these days relative to just a few years ago. A plant like the Trainer one could have sold for somewhere in the $1 billion range at that time, say industry officials, whereas the price this past spring was far less.

Quick Sector Check:

  • Delta Air Lines
  • United Continental Holdings, Inc.
  • AMR Corporation
  • Jet Blue
  • Southwest Airlines Co.

-By CNBC's Kate Kelly
@KateKellyCNBC

- With reporting by CNBC's Phil LeBeau and Dawn Giel

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