Andeavor Plans Heavy Refinery Maintenance Schedule for 2018

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Researched by Industrial Info Resources (Sugar Land, Texas)--Independent refiner Andeavor Corporation (NYSE:ANDV) (San Antonio, Texas) plans an extensive refinery overhaul schedule for 2018, largely driven by U.S. Tier 3 gasoline regulations, which require sulfur content in gasoline produced at U.S. refineries to be no more than 10 parts per million (ppm) by 2020. Industrial Info is tracking more than $200 million in active maintenance projects involving Andeavor--the majority of which are in California.

Speaking to investment analysts during the company's fourth-quarter and fiscal-year 2017 earnings conference call, Steven Sterin, president and chief financial officer, said the heavy refinery-maintenance schedule would continue into 2019, in part to prepare for a change in marine fuel formulation to lower sulfur content from 3.5% to 0.5%.

In October 2016, the International Maritime Organization (IMO) (London, England) implemented a global 0.5% sulfur cap on marine fuels starting from January 1, 2020. Under the terms of the IMO's MARPOL Annex VI regulation, the sulfur cap is due to be cut from 3.5% to 0.5% at the start of 2020, forcing most shipowners either to switch from burning fuel oil to cleaner, more expensive alternatives, or to invest in emissions-cleaning scrubber equipment to be installed on each vessel.

"We are managing our turnarounds to have very, very little turnarounds in 2020," Sterin said. "So, our '18 and '19 plans include preparation for being able to supply the needs of the market in 2020 for the diesel fuel that we expect to produce."

Andeavor, formerly known as Tesoro Corporation, said it expects 2018 capital expenditures of $1.5 billion, consisting of $1.1 billion at Andeavor and $430 million at Andeavor Logistics. Turnaround expenditures for full-year 2018 are expected to be $575 million. By investment value, the largest project being tracked by Industrial Info is a planned $300 million mixed xylene unit addition at Andeavor's 120,000-barrel-per-day (BBL/d) Anacortes refinery in Washington State. Part of the refinery's clean-products upgrade, the 15,000-BBL/d unit would produce petrochemical feedstock. Project kickoff is expected in late 2018. Fluor Corporation (NYSE:FLR) (Irving, Texas) is providing engineering and procurement services for the project. For more information, see Industrial Info's project report and September 22, 2017, article - Fluor to Service $1.87 Billion in Projects Set to Begin Construction in Fourth Quarter.

Click on the image at right chart showing Andeavor's organic project portfolio for 2018.

Another Andeavor project with a substantial price tag is the $190 million gasoline hydrotreater unit addition at the 74,000-BBL/d Mandan refinery in North Dakota. The 15,000-BBL/d unit would meet Tier-3 low-sulfur gasoline requirements. Construction kickoff is expected next year. See Industrial Info's project report for more information.

For the 2017 fiscal year, Andeavor reported $1.5 billion in earnings as benefits from tax reform pushed profit margins higher. Industrial Info is tracking more than $900 million in project activity by the refining, marketing and logistics company.

Andeavor said it booked a tax benefit of $918 million due to the tax reform bill signed into law by President Donald Trump at the end of 2017, but it took a $40 million hit to its earnings related to the Vancouver Energy project--a $210 million crude oil terminal that was planned for the port in Vancouver, Washington. The project was denied by Washington Gov. Jay Inslee in January after years of review.

For the three months ended December 31, Andeavor earned $879 million--more than an 11-fold increase from earnings of $78 million during the same period in 2016.

"Our performance reflected the successful execution of our strategic priorities to grow the business organically through strategic investments and through dropdowns," Sterin said.

Looking ahead to this year's first quarter, Andeavor, which refines the equivalent of a supertanker of crude every 48 hours, plans to run its 10 U.S. refineries up to 96% of their combined crude oil throughput capacity of 1.1 million BBL/d. During fourth-quarter 2017, the company's refineries ran at 97% of their combined capacity, and for all of 2017, the refineries operated at 95% of combined throughput.

"We are in the final stages of completing a turnaround at Los Angeles that we started some time ago, and we are doing a turnaround at Martinez," said Gregory Goff, chief executive officer. "We have a very heavy turnaround year, but everything is going well."

Goff said the company also continues to make headway on the full integration of its two California refineries in Carson and Wilmington, adjacent industrial suburbs of Los Angeles. The plants have a combined capacity of 380,000 BBL/d.

In addition to integrating the operations of the two refineries, the project will yield flexibility of 30,000 to 40,000 BBL/d between gasoline and distillates, and will reduce greenhouse-gas emissions. The company expects the project to generate $65 million of net earnings and $125 million of annual earnings before interest, taxes, depreciation and amortization (EBITDA) and to be completed in 2019.

At the Carson refinery, Industrial Info is tracking the $80 million Wet Jet Merox Treater Unit Addition project, which is part of the refinery integration and compliance project. The 50,000-BBL/d unit would reduce sulfur content in jet fuel. For related information, see Industrial Info's project report, and March 9, 2017, article - Tesoro's 2017 Capex Reflects West Coast Refining, Terminal Projects.

By 2019, the refiner expects between $350 million and $425 million in efficiencies from its $6.4 billion acquisition of Western Refining Incorporated (El Paso, Texas) in November 2016. Through last year's third quarter, Andeavor said it has realized $110 million in savings, with $85 million coming from the corporate side, and the rest in optimization and operational improvements.

Merchandise margins rose to $47 million in the fourth quarter, versus $1 million in the same period in 2016--an increase driven by the Western purchase, the company said.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle TM, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com