Refinery guiso

PDVSA appears to be overpaying for the Refidomsa refinery in the Dominican Republic. The Venezuelan state oil company agreed to buy a 49% stake, after delaying the closing for months. Rumors were that the deal was held up over the DR’s relatively accommodating stance toward the coup d’etat in Honduras. But the two countries’ presidents held a meeting in DR this week and presided over the the signing of a sales agreement. DR Finance Minister Vicente Gemboa previously told Reuters the deal was for $131.5 million.

Royal Dutch Shell SA sold its 50% stake in Refinería Dominicana de Petróleo SA, also known as Refidomsa, to the Dominican Republic government two years ago for $110 million. PDVSA is now buying a 2% smaller stake in the same facility for $131.5 million, even though the refinery values have fallen in the interim and the facility hasn’t received new investment.

Shell signed its share sale agreement with the DR government signed August 8, 2008, when benchmark West Texas Intermediate crude oil was selling for $118.71 a barrel and rising fast. The refining industry was profitable even with the high oil prices, as prices of gasoline and other products were rising even faster than crude oil. Valero Energy Corp., the biggest U.S. refiner, had operating income of $1.84 billion in the quarter, or 5.1% of revenues.

Today, oil is selling for $76.53 a barrel and has been stuck between $75 and $85 a barrel for months. Refinery profits are down — Valero had operating income of $445 million in the last quarter of 2009, equal to 2.6% of sales. That was considered good news, as the company had lost money for the prior two quarters. I am unaware of the DR government investing any cash in Refidomsa in the interim.

Even if PDVSA wanted to pay the same price per barrel of capacity that the DR paid to Shell, it should be paying 2% less, as it’s getting only a 49% stake, while Shell had a 50% stake. A normal company wouldn’t even pay that much, as there is a big difference between 49% and 50% — with a minority stake, you get the problem of having liability without the ability to control the facility’s operations.

The hilarious part of this is that right-wingers in the DR, in an attempt to tar their president as a pawn of Chavez, are complaining that the refinery sale will have implications for the sovereignty of their nation. As if giving a foreign power a 49% stake is worse than the former situation, in which an at-least-equally imperialist institution, Shell, had 50%. These guys don’t know a good deal when they see it.

Two things I want to know: was the price renegotiated? And if not, who got the M&A fees on this deal? I’m guessing they were large, maybe on the order of $21.5 million.


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