ExxonMobil exits refinery deal
ExxonMobil Oil Corp. dealt a potentially devastating setback Friday to the refinery conversion project along Rosedale Highway by acting to nullify its 2019 agreement to buy renewable diesel from the unfinished plant already more than a year behind schedule and hundreds of millions of dollars over budget.
Refinery owner Global Clean Energy Holdings Inc. quickly rejected the termination notice, saying Sunday that the oil giant must give it until at least Nov. 30 to complete the conversion job because of a deadline-extending provision for unforeseeable circumstances like the COVID-19 pandemic.
The product off-take agreement at the center of the dispute was viewed as a critical asset for the plant. Global could try to negotiate a new contract with a different buyer, but it’s unclear how easy that might be given the problems the project has encountered.
Long Beach-based Global said in a regulatory filing it will defend the contract in arbitration. It added by email Tuesday that worker safety and operational integrity are its top priorities as it remains focused on bringing its product to market.
“We strongly disagree with ExxonMobil’s interpretation of our contractual rights as set forth in its recent public filing and will defend our rights vigorously,” the company stated.
Since paying $40 million for the 65,000-barrel-per-day refinery in 2020, Global has worked to retool a portion of the property to process 15,000 barrels per day of used cooking oil, animal fats and, ultimately, a crop called camelina.
Formerly owned by Shell USA Inc. and known as the Big West refinery, the plant has not operated for 12 consecutive months since 2012. Under
Global, it is planned to be the largest renewable diesel refinery in California, adding to what local economic developers see as a promising local sector as the Newsom administration works to phase out in-state oil and gas production.
Various complications have arisen that put Global at odds with its contractors and forced the publicly traded company to seek additional investment to complete the conversion project. Industry observers see its prospects for success fading.
“What a mess,” said refinery consultant Dave Hackett, chairman of Irvine-based Stillwater Associates LLC. He noted Global’s off-take agreement was “one of those things that makes them investable,” adding that the project “looks like it’s in jeopardy at this point.”
He and another refining consultant, President and founder
Ian Goodman of Berkeley-based The Goodman Group Ltd., said Tuesday it was unclear but that maybe ExxonMobil will try to salvage its 27% stake in the company by trying to buy out other investors and take over the project.
ExxonMobil declined Tuesday to address what its future intentions might be with regard to the refinery. The company said by email it had “worked diligently and in good faith with (Global) to try to enable the successful and timely completion of the project.”
ExxonMobil said previously it would terminate the off-take agreement if Global could not finish the project by the end of June. The oil company additionally demanded to see the refining company’s private books because of what it called suspected misconduct and mismanagement.
But after Global asserted it actually had until Nov. 30 to finish the work, citing an unforeseeable “force majeure” stipulation, ExxonMobil countered that the pandemic had already gone on for more than a year and was no longer a justifiable reason for delays — and that it would terminate the contract immediately.
Global has wrestled with construction and engineering-related trouble at the refinery since the pandemic. The company estimated last fall the project’s $200 million price tag had increased to $510 million as it sparred with its primary contractor, Taiwan-based CTCA Corp., over who was responsible for various costs and delays.
Goodman said it’s hard to tell from outside what problems the refinery project faces, but that it’s clear “things are not going well for Global.” He noted ExxonMobil has vast resources to deploy in any legal dispute with Global.
Similar refinery conversion projects have succeeded elsewhere, Goodman said. It’s complicated work that ExxonMobil would likely be able to finish on its own, if that’s what it wants, he said.
But before that could happen, Goodman said, it appears inevitable someone involved with Global is headed for a big financial hit. He pointed out the company has previously acknowledged its viability is uncertain.
“I think part of the fight is, who’s going to lose what?” he said.
For its part, Global said it expects to begin operating the refinery in the second half of this year.