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Philly Refineries May Draw Interest From Sponsors

Credit Suisse, the investment bank Sunoco Inc. hired to shop two oil refineries in Philadelphia, is reaching out to private equity firms as potential buyers, Buyouts recently reported, citing an executive at one firm who received a book on the sale.

Executives at the oil company said last month it would sell the two refineries—one in South Philadelphia and another just south of the city—or close the plants by July 2012, according to The Philadelphia Inquirer. The sale is the latest in a campaign by Sunoco CEO Lynn Elsenhans to sell off unprofitable refineries and focus instead on its more profitable business as a seller of fuel and convenience-store items.

Sunoco isn’t the only large oil company divesting oil refineries, which refine crude oil into gasoline. Refineries have been suffering from over-capacity and weak profit margins following a drop in demand with the economic downturn. In August, Shell sold a refinery in England to Essar, and Indian company, for $1.3 billion. Private equity firms are also reported to be potential buyers of two U.S. refineries that BP plc is looking to divest by the end of 2012.

Two private equity firms that have been at the forefront in the sector and would likely be potential buyers in Philadelphia include First Reserve Corp. and The Blackstone Group.

Together with European refiner Petroplus Holdings AG, the firms own PBF Energy, a company run by former Petroplus CEO Tom O’Malley that is seeking to buy refineries in North America. So far, PBF Energy has bought three refineries, in Delaware, New Jersey and Ohio. Martin Brand, an executive at Blackstone, believes profit margins for refineries will have recovered in 10 years, and that in the interim the firm can help refineries improve through efficiency measures, according to The Economist.

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Bernard Vaughan is a Senior Editor at Buyouts Magazine. Follow his tweets @BVaughanReuters.