Delta Air Lines said Monday it plans to purchase an oil refinery near Philadelphia from ConocoPhillips (IW 500/3) spinoff Phillips 66 in a move aimed at cutting fuel expenses.
Through its subsidiary Monroe Energy LLC, the airline has reached an agreement with Phillips 66 to purchase the Trainer, Pa., refinery complex for $150 million.
The cost includes receipt of $30 million in state job-creation and infrastructure incentives.
Delta plans to invest another $100 million to convert the existing infrastructure to maximize jet-fuel production, the company said.
Delta expects to complete the deal in the first half of 2012 and production is expected to begin in the third quarter.
Output from the refinery along with multiyear fuel-exchange deals under the agreement will supply 80% of Delta's jet fuel needs in the United States, the company said.
The deal will cut Delta's annual fuel expense by $300 million, said Delta CEO Richard Anderson in a prepared statement.
"Acquiring the Trainer refinery is an innovative approach to managing our largest expense," said Richard Anderson, Delta's CEO. . . . "This strategy is aligned with the moves we have made to build a stronger airline for our shareholders, employees and customers."
BP PLC (IW 1000/3) will supply the crude oil to be refined at the facility as part of a three-year agreement with the company.
Monroe Energy has also agreed to exchange gasoline and other refined products from Trainer for jet fuel from Phillips 66 and BP.
Jeffrey Warmann, former refinery manager for Murphy Oil USA Inc.'s Meraux La., refinery will lead the Trainer facility.
Warmann led Meraux's restructuring efforts, which helped boost refinery output by more than 30%, Delta said.