Delta Air Lines Inc. (NYSE: DAL), the second-largest U.S. commercial airline, is reportedly close to a bid for a Pennsylvania oil refinery that could mitigate high fuel costs by cutting out the middleman.
Reuters reported that Atlanta-based Delta's offer for the ConocoPhillips (NYSE: COP) refinery is imminent. The airline is expected to bid $150 million, with JPMorgan Chase & Co. (NYSE: JPM) providing financing for operations. The plant has refining capacity of 185,000 barrels a day, potentially accounting for 20 percent of the east coast's total output. Production was idled in September and four other bids for the refinery seek to use it as a storage facility.
The plant's assets include close proximity to New York, where Delta originated over 61,000 flights in 2010, and an acquisition would give Delta more control over its supplly chain. Delta could avoid paying a premium for imported European oil, which costs around six cents per gallon to ship to Philadelphia, equivalent to a 2 percent increase in the price of fuel. Delta paid over $12 billion for fuel in 2011, according to Reuters.
Delta first examined the plant in November and created a subsidiary, Monroe Energy LLC, on Dec. 13, 2011 in anticipation for an offer, according to Reuters. Delta would be the first airline to buy an oil refinery, but other users including farmers and steel companies have previously done similar deals.
Houston-based ConocoPhillips also plans to spin off its refining division into a new company, Phillips 66, on May 1.
Shares of Delta were up four cents to $10.86 in Monday morning trading.