FinanceDraft

Philadelphia Energy Solutions in Trouble Again

Philadelphia Energy Solutions Inc (PES) is the owner of the oldest and largest refinery on the U.S. East Coast. It is a facing a financial crisis only a few months after it emerged from a controversial bankruptcy.

PES exited the bankruptcy in August experienced its cash balance fall to $87.7 million last year, down from $148 million just three months earlier. The $61 million declines were reported in its post-bankruptcy financial report which was filed in last January. PES entered bankruptcy about a year ago with $43 million cash on hand, according to court documents.  The cost of shipping crude oil from Canada or West Texas has caused refineries on the East Coast to suffer from difficult economies. However, Philadelphia Energy Solutions also had other additional problems at its plant in South Philadelphia, which included high debt costs and weak gasoline margins.

Philadelphia Energy Solutions filed for bankruptcy in January 2018 and blamed the costs of complying with the 2005 law that states that refiners have to blend biofuels into fuels or purchase credits from competitors who do.  Unfortunately, Philadelphia Energy Solutions does not have the required blending capabilities and has to pay for credits. According to a Reuters analysis, other factors like withdrawal of over $590 million as dividend style payments from PES by the investor-owners also caused the company to file for bankruptcy.

After Philadelphia Energy Solutions filed for bankruptcy, the company was offered a waiver of $305 million in liabilities in relation to biofuel credits as per the U.S. Environmental Protection Agency.  Poor gasoline margin also hurt the company’s bottom line. Philadelphia Energy Solutions’ weak cash positions also forced the refinery to scale back a $90 million maintenance project significantly.

Christina Simeone, director of Kleinman Center for Energy Policy, is not surprised that Philadelphia Energy Solutions is economically struggling again, although she did not expect it to occur this soon.  In the last three months of last year, Philadelphia Energy Solutions experienced a fall in its cash balance by $61 million. Someone also stated that Philadelphia Energy Solutions has been having financial difficulties since RIN prices went down 75 percent.  The Philadelphia Energy Solutions spokeswoman, Cheric Corley declined to comment.

Most U.S. East Coast refiners like Philadelphia Energy Solutions do not have access to cheaper crude which other refiners in different parts of the country have access to. This inflicts greater pain on the refiners in the East Coast region when margins are low.  Delta Air Lines’ refinery located near Trainer in Pennsylvania lost over $40 million in the last quarter. The company is thinking about selling the plant.

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