Sale of Shell's Martinez Refinery Delayed Amid Antitrust Concerns

Federal regulators are raising antitrust concerns about a large independent refining company's plans to buy Shell Oil's Martinez refinery.

In a rare move, the Federal Trade Commission has asked New Jersey-based PBF Energy a series of extra questions about the proposed $1 billion deal, delaying the purchase of one of the Bay Area's largest refineries.

PBF announced plans in June to buy the Contra Costa County facility that has a refining capacity of 160,000 barrels of oil a day. At the time, PBF's top executive called Shell the best refinery in the region, and executives for both companies said they expected the sale to close by the end of 2019.

The Federal Trade Commission, which is reviewing the merger, has asked PBF another round of questions about the proposed sale in what's known as a "second request," according to PBF spokesman Michael Karlovich.

"Pending regulatory and other approvals ... we now anticipate that the transaction will close during the first quarter of 2020," Karlovich said last week in an email.

Betsy Lordan, a FTC spokeswoman, said she could not comment on what specifically prompted the subsequent request for more information, but in general it represents worries from regulators.

"When one of the antitrust agencies issues a second request, it is because the initial review has raised antitrust concerns that warrant closer examination," Lordan said Monday in an email.

Second requests take place in less than 4% of such mergers, said Aaron Edlin, a professor of law and economics at UC Berkeley, who specializes in anti-trust issues.

The queries "indicate that the agency has concerns about the impact of the merger on competition," Edlin said.

"More information could alleviate those concerns but if the agency continues to be concerned it can challenge the merger or negotiate with the companies to get some pro-competitive concession," he said.

PBF disclosed the delay to investors during an earnings call in late October, but it did not gain wide attention.

Company president Matthew Lucey said then that he expected the deal to close in the first half of the first quarter of 2020.

"But again, it's not completely in our control," Lucey said.

When asked about the status of the deal, Shell did not indicate any problems with the proposed transaction.

"Shell's Martinez Refinery divestment deal with PBF Holding Company, LLC, continues to move forward towards closing while working through all necessary regulatory approvals and execution of key implementation activities," said spokesman Ray Fisher.

In June, Shell said the sale was part of the company's efforts to focus on a "smaller, smarter refining portfolio."

The announcement came as state regulators began reviewing Shell's proposal to sell a California pipeline to Long Beach-based Crimson Pipeline.

Martinez Mayor Rob Schroder said PBF's new refinery manager told him in November that the sale was planned for February.

"Although I believe that Shell has been a good corporate member of the Martinez community and has a culture of safety for its employees and community, I do not have concerns, at this time, about the sale," he said. "But I am saddened to see a business leave Martinez after over 100 years."

The Shell facility converts crude petroleum into vehicle gasoline, jet fuel, diesel and asphalt, among other products. Shell and PBF have said in the past that workers employed at the Martinez site would be offered jobs at PBF.

The California Attorney General's Office would be the key state agency tasked with reviewing  PBF and Shell's deal, but it has declined to discuss the proposal.

"To protect its integrity, we are unable to comment on, even to confirm or deny, a potential or ongoing investigation," the attorney general's office said in an email.