State denies price break for Flint Hills
Published Thursday, June 12, 2008
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Stumble It!The owner of Alaska’s largest refinery has repeatedly asked the state for a price break on oil purchased to fuel the North Pole plant in order to ease high operational costs and low profit margins, according to state officials.
But Department of Natural Resources Commissioner Tom Irwin said he is unwilling to negotiate financial aid for Flint Hills Resources until the company provides requested financial information. The company, he said, has denied that request.
The fate of the North Pole Refinery remains uncertain following a May announcement that Flint Hills would be re-evaluating that holding. Flint Hills’ spokesman Jeff Cook said the company is still analyzing its options and a decision is expected by the end of the year.
Flint Hills president Brad Razook, in an e-mail sent May 12 to employees, said three options being considered include reconfiguring the plant, investing in upgrades to increase plant volume and lower costs, and declaring a “fail” and selling the plant and terminals. Cook would not elaborate on what those options may involve and declined to discuss the company’s motivation to change its North Pole operations. The e-mail did not mention financial woes at the refinery, but instead stated that the company regularly assesses the value of its assets to “ensure they are creating value.”
Flint Hills officials have asked for state help several times, Irwin said.
Those discussions started less than a year after Flint Hills purchased the refinery from Williams Companies Inc., said Kevin Banks, director of the state Division of Oil and Gas. The company first sought some sort of forgiveness on money it might owe the state from retroactive trans-Alaska pipeline system tariff adjustments.
Most recently, Irwin and Banks toured the refinery in March 2008 and heard a new request — to lower the price the refinery pays for state crude oil, a price negotiated years ago and approved by the Legislature.
“They are telling us that the refinery margins are so poor that their options are either closing the refinery, selling it, or thinking about some kind of upgrades to improve those margins,” Banks said.
Despite the refinery’s difficulties and the important role it plays in supplying fuel and jobs, the state is unwilling to help without information that would justify a decision, Irwin and Banks agreed.
“Our answer has been very consistent,” Irwin said. “We understand how critical that plant is to Fairbanks. We understand how critical it is to jobs. We want that facility there. But, I need one thing to help them. They need to show me their numbers.”
Irwin said he has offered to keep the company’s financial information private yet is still denied access.
“I continue to be told it is a private company; those numbers are not shared be a private company,” Irwin said. “Well, respectfully, don’t ask me to give you money if I can’t justify it.”
Recognizing the need for jobs and energy production in Fairbanks and beyond, Irwin said he would like to work out a mutually acceptable plan to assist Flint Hills — providing he gains access to financial information.
If negotiations between Flint Hills and the state pan out, the department could decide to change royalty conditions. Such a move must be approved by the Alaska Royalty Oil and Gas Development Advisory Board and by the Legislature, Irwin said.
The North Pole Refinery is Alaska’s largest, with a crude oil processing capacity of 220,000 barrels per day. According to the Division of Oil and Gas 2007 refining report, the plant refined an average of 60,000 barrels per day into products for sale last year. The remainder of the North Slope crude fed into the refinery through the oil pipeline was re-injected into the line, the state reported.
The refinery turns crude oil into gasoline, jet fuel, heating oil, diesel fuel and asphalt for sale in local and international markets, according to Flint Hills’ Web site. About 60 percent of the refinery’s total production goes to aviation markets, accounting for more than half of jet fuel consumption in Anchorage, according to the state report.
Flint Hills Resources Alaska is a subsidiary of Flint Hills Resources, which is owned by Koch Industries. Flint Hills Resources Alaska employs about 175 people through the North Pole Refinery and product terminals in Fairbanks and Anchorage.
Contact staff writer Rena Delbridge at 459-7518.
Community Discussion
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If Flint Hills closes the North Pole refinery, it is going to get real cold and dark in Fairbanks this winter.
James,
You are right on the mark. Lowering Flint Hills oil costs won't do anything to lower fuel prices for Alaskans.
Just like big business, try to get everything their way, sounds like my 6 year old. They probably are already making 1000% profits, they want 10,000% profits... I don't see any price break for gas or fuel oil prices locally, we are paying the highest average prices in the US!
I hope Flint Hills decides to sell! The state should buy the plant, sell its residence subsidized fuel oil and gas, and charge the airlines and military the "regular" price.
I'm no fan of Flint Hills, but I do know that there margins have been dramatically impacted by high crude prices. Most refineries heat the crude for distillation with cheap natural gas, while Flint Hills has to burn $139 a barrel crude. This has certainly cut into their profits, but I'm sure they are still making money. Just not as much money as they would like for the cost of the investment.
SELL SELL SELL!
Sell to us! The State should buy them plant if it is put up for sale.
out-in-the-colds ...comment: If Flint Hills closes the North Pole refinery, it is going to get real cold and dark in Fairbanks this winter........
sourdoughjoe knows of another place real cold and dark, out-in-the-cold, we alaskans aren't kindly to threats. Believe me that sounds like what the major oil companies have been shoveling down our throats for years.
SHOW US THE MONEY.
Mr. Irwin's public comment is spot on: "if you wish Alaska to assist you monetarily, show Alaska your books".
For those of us with far less pull than Mr. Irwin, however, the state can assist us, too, in one way. The article states "Irwin and Banks toured the refinery in March 2008 and heard a new request — to lower the price the refinery pays for state crude oil, a price negotiated years ago and approved by the Legislature."
What is that negotiated price structure? Very important to know....and definitely NOT one that only the Koch family is privy to.
All that aside, Flint Hills's response is risible. The refining and marketing industry is likely exceeded only by the fully integrated oil industry (exploration through to marketing) in its ease of dissembling when it comes to demonstrating profits, of all industries worldwide. That the North Pole folks haven't yet been able to crack, retort, refine and process their books in such a fashion as to prove beyond the shadow of a doubt that they are in utter need of anutter break from Alaska.....is proof enough they can't run a business. Good riddance!
Flint Hills is a private family owned corporation - just like you are private, and your tax information is.
Consider the current cost of gasoline - and what it cost last year or the year before when your boss and you agreed to your current pay. Things are now much more expensive for you to drive to work, price of fuel is up, and heating is bound to be an issue for your family this winter. If you approached your boss today and asked for a raise - because your choice is either get a raise or find a job closer to home - would it be fair for him to ask to your tax return? Is it any business of your boss to know where ALL your income comes from> Does he need to know about your home loan, divorce settlements, investments, what your wife earns? You are asking your boss for a pay raise based on the current fuel and economic climate. What does your last year's tax data have to do with it?
The state of Alaska has no business asking. FHR's cost, margin and tax data are included in all the other businesses Koch Industries has too - I have no idea how it could be separated. Or even separated and still have any meaning.
Corn on the cob is about $1.50 per ear in Fairbanks. I am sure the lower 48 corn farmer and people in his town that watch it drive by do not pay the Fairbanks price for the corn. Unfortunatly for us - and thanks to the legislature - the oil going into FHR's pipes is tied into the cost of Alaskan crude delivered in LA. The oil we see flow past our home - we pay the same as if it were in Los Angeles. As the price increases - it only put more $$ into the state treasury.
I agree with Mr. Irwin. If I need help from my bank with by business I won't get in the office without my books! However, you clowns out there that want the state to buy a refinery are looking for another circus! You think that we could then buy oil for free because its already "ours" and then we would refine it ourselves and sell it for .70 cents a gallon and life would be great! You have a computer in front of you. Take a simple economics class on-line somewhere. All companies, including state run companies, are bound by the laws of economics. If we sold gas for really cheap then the rest of the world would show up with tankers and buy it all. That would reduce the supply and woe... that would drive the price up. Then you would be blaming the Refinery Board of Directors of screwing you out of whats yours! You can't stand the way GVEA is run, you think the public schools are a mess because the state can't run anything and now you want the state to buy a refinery! Brilliant. Hey sounds like a great place for the public school teachers to work when you come up with a better plan for education.
SaltCreekBoy, Another great post!!
Yer right, if ya want something screwed up, let a government agency run it!!!
Salt boy, how bout an id card to get you the "Alaskan price?" No tankers allowed. Greenland has under a dollar fuel prices now, are they getting overrun with profiteers? I know its too simple for you... You should keep paying up cause big oil tells you to... They need mindless masses that don't question or try new ideas. Your right us bozo's don't have a clue about anything. Please tell us how you would address the problem...
Patiently waiting for the "right answer."
Whats with the education comment saltcreekboy?
Glacierwolf:
If FHR has such difficulty in separating the books on all of their different entities, how in the world do they know that they "need assistance" financially at their NP refinery????? Just asking and Nuff said.
Explain to me if they said they get it at a rate defined a few years ago, which fair market value was about $50 a barrel in 2005, why you need it cheaper than that. We are paying the prices on $135 a barrel, not the round about $50 they may have negotiated. But with a negotiation they most likely got it for cheaper than that. We pay them fair market value on things they produce not what they negotiated a "few" years ago. Makes you wonder why they havent upgraded their refinery. Better running equipment, cheaper and well most important CLEANER. Wouldnt that be a good thing. I mean i dont know why no one caught on to the "Let me threaten you with me buying new equipment that better, cheaper and cleaner... So HA in your face" comment. No please dont upgrade so you can make more money and save our environment.
The other comment about people bringing in tankers to get it at a discounted price. Pssst... Do we get oil from Saudi Arabia at their citizen price of abotu 1 US dollar a gallon. I dont think so. We are not asking for everyone to get OUR fuel prices, just the Alaska Citizens. Everything thats exported should be set at fairmarket value. After that i guarantee that fairbanks' population will skyrocket with all the people wanting to move here for the oil prices. Just my 2 cents... well i should save that for gas as well i guess...
How can you think Fairbanks population will skyrocket from low fuel cost? It doesnt matter how cheap it is, you still need money to pay, and the infrastructure (read: jobs) just isnt here for a signifigant increase in population. What is more to the point is the number of businesses that will be forced to close if 10-30% of the interior population leaves for warmer climes.
I also dont understand how a 1/2 hour meeting will accomplish anything other than political posturing by vote-chasing representatives. We'll see...
If you plan on attending this evenings meeting, remember this:
"ITS OUR OIL"
Frozen, I don't have the answers but I know that I don't believe that we should throw away capitolism and let the state government take over refining in Alaska. I know that you did your research but I'll let the other readers in on the Greenland situation. From Yahoo news via AFP, "In Greenland, a Danish autonomous territory since 1979, the local government has long had a retail monopoly on energy, offering generous tax rebates on super unleaded, diesel and heating fuel.
"We do it to help hunters and fishermen in particular, since they have low incomes and the living conditions in the Arctic are tough, with long and very rigorous winters," the head of the local government, Hans Enoksen, told AFP." So there you have it! Sounds like a situation similar to Fairbanks doesn't it! Wait, how do they afford those subsidies? Well readers, as noted, Greenland is a territory of Denmark which has the highest tax code in Europe!! It tops out at an income tax of 65%!! Ouch. Maybe we can have the lower 48 subsidize us up here since its our oil and they want it so bad.
The answer is supply and demand. We need to ramp up exploration and production. Both parties in Washington have not been able to pass any real energy policy for 20 years and we are in a pickle. More availabel crude drives prices down. Did you read why diesel costs so much when it is so much cheaper to make. It's because China and India's demand is so high that they will pay $$ for it which drives the price up for us. And to answer you question about tankers lining up to buy our fuel, they do! And they drive them right back to Asia.
I don't think that a resident fuel card will work well either. Shouldn't we really be giving gas away to tourists so they will come up here and spend their money with us?? Sorry, I'm just an unforgiving capitalist who works in a state job!!
Flint Hills will no longer be making gasoline in less than a year, we will be importing it from Anchorage, and then we can stop complaining about it being cheaper there than here, where "we" make it. How about asking an industry worker whats really going on? Wait, they might not have the answer yet either...
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