Delta to Cut Costs with Refinery Buy

by Christopher Freeburn | May 1, 2012 4:16 pm

Delta Air Lines (NYSE:DAL[1]) will become the first airline to own its own oil refinery[2].

The company has agreed to purchase a Pennsylvania production facility, capable of processing 185,000 barrels of oil a day, from ConocoPhillips (NYSE:COP[3]) for $180 million.

Idled last year, the refinery will supply 80% of Delta’s fuel needs for U.S. operations, the company said. It estimated annual savings of $300 million from the purchase. Reuters noted that Delta currently spends about $2 billion a year on jet fuel.

In order to get the facility ready to produce jet fuel, Delta will make an additional $100 million investment in equipment and process upgrades at the plant. The refinery is expected to restart in the fall.

BP (NYSE:BP[4]) has been retained to supply crude oil to the plant. Pipelines and delivery channels to major airports in the northeast were included in the agreement with ConocoPhillips.

Pennsylvania will contribute $30 million to the deal, further reducing Delta’s cost. State politicians had feared job losses if the plant had been permanently shut down.

Analysts cited by Reuters said the deal was “innovative” but reserved judgement over whether Delta could successfully manage the price fluctuations of the oil refining business.

Delta shares were up slightly in Tuesday afternoon trading.

  1. DAL:
  2. own its own oil refinery:
  3. COP:
  4. BP:

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