In a seemingly strange paradox, values for U.S. oil plants have not kept pace with increasing profits over the past few years, and as a result, BP (NYSE:BP) may sell its Texas City refinery for less than half its $2.85 billion asking price.
Refiners, such as Marathon Petroleum (NYSE:MPC), Phillips 66 (NYSE:PSX) , and CVR Energy (NYSE:CVI), have set records this month, reporting the highest profits since 2007. Industry growth has been stimulated by increasing supplies of cheap U.S. oil and crude prices have dropped as producers tap into new fields in North Dakota and Texas. Following record profits, shares of CVR Energy reached an all-time high of $37.66 on September 21 and Valero Energy’s (NYSE:VLO) stock priced increased by 48 percent this year to date.
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Yet the value of the refineries that process the oil into gasoline, diesel, or jet fuel have reached historic lows. Since 2009, plants have sold for approximately 12 percent of their replacement cost. According to data compiled by Bloomberg, this results in the average price tag of $1 billion for BP’s refinery. Analysts also evaluate plant sales based on price per barrel of refining capacity. Refineries on average have sold for $3,128 per barrel in the last three years, which places the refinery’s price tag at $1.5 billion, still short of the oil company’s asking price.
The disparity between oil refinery profits and their value hint that surging profits have not silenced doubts about the long-term viability of the industry. Buyers fear that increasing competition from new refineries planned in China, India, and the Middle East may depress domestic prices.
But BP does have potential buyers; Valero, the largest independent processor of fuel in the United States, has considered buying the refinery as has PBF Energy.