ConocoPhillips (NYSE:COP) is reported to be in talks with Delta Airlines to sell its mid-sized Trainer refinery in Pennsylvania for an estimated $100-150 million.  Conoco planned to sell the facility by the end of the first quarter of the year but now hopes the year but now hopes to finalize a deal by May. ConocoPhillips will be spinning off its refining and marketing business later this year as it looks to concentrate on the upstream business, which generates higher and more consistent returns. Many oil majors such as Conoco and Exxon Mobil (NYSE:XOM) have reported falling margins in the refining business because of high crude prices and falling demand from end customers.
We have a $79.93 price estimate for ConocoPhillips, which is at a 10% premium to its current market price.
The move by Delta Airlines to purchase assets in the refining business has raised many eyebrows as industry observers question the logic of such a move. The airline industry is looking to find ways to counter rising fuel costs and some analysts estimate that Delta could save as much as $20-25 a barrel by buying the refinery.  The airline plans to reduce its fuel costs in the New York area by purchasing the refinery and is also looking to swap gasoline and other end products from the refinery for discounts on jet fuel purchased in other regions. Aviation fuel is a major source of revenue for ConocoPhillip’s downstream business.
Conoco and other players like BP are looking to reduce their holdings in the refining business by selling facilities in the U.S. and in Europe. The Trainer refinery is a 185,000 barrels/ day refinery and was idled in September. Refineries in the North-Eastern coast of the U.S. are designed for lighter varieties of oil imported from Europe and Africa and have been hit because of the high price of Brent.((Conoco has multiple bids for Trainer refinery-sources, Reuters))