DALLAS—HollyFrontier Corp.'s acquisition last year of Suncor Energy's Petro-Canada Lubricants Inc. business will help round out its process oil product portfolio and expand its capabilities.
PCLI, which is based in Mississauga, Ontario, will operate under the umbrella of the HollyFrontier Lubricants and Specialty Products platform, said Pat Gribbin, vice president of global sales for HollyFrontier. The acquisition retains PCLI's about 730 employees, bringing HF LSP's total to about 900 dedicated to lubricants.
HollyFrontier completed the acquisition of PCLI for $884 million, including working capital with an estimated value of $269 million.
The move makes HF LSP the fourth largest lubricants producer in North America, with a capacity of 28,000 barrels per day, or about 10 percent of total North America production, according to a HollyFrontier release. The Mississauga plant, as the largest producer of base oils in Canada and the only North American producer of high-margin Group III base oils, has a capacity of 15,600 barrels per day.
The acquisition came about as HollyFrontier was working on plans for organic growth through a facility in Salt Lake city, Gribbin said.
"With the crude decline from over $100 to $40 (a barrel), the production of the feedstocks in the Salt Lake City area had declined," he said. "We didn't feel comfortable in moving forward without having security of supply on the feed side."
While exploring that operation, they also investigated the PCLI facility and found potential, Gribbin said.
"It had much more capabilities than what we were planning to build in Salt Lake, so we felt it was a good fit for us," he said.
Historically, HollyFrontier has been a refiner in the mid-continent of the U.S., and the PCLI acquisition brings the possibility for growth in the lubricants and specialty products markets, Gribbin said. Out of total lubricant demand globally, 50 percent or more is industrial and commercial, and the PCLI acquisition helps boost HF LSP's lineup, particularly with process oils, waxes and industrial lubricants.
"It had all the things we were looking for," Gribbin said. "It had a commercial industrial business. It had white oils, which are pharmaceutical-grade health care products. It had an agriculture line, which we also have at HollyFrontier, so we saw the synergy."
PCLI also had the capability to produce Group III base stock oils, which are used to make engine oils. Most of a motor oil compound product is a base oil, and higher quality base oil allows the production of higher quality engine oil, Gribbin said.
"We felt that it rounded out our portfolio by having all of those components," Gribbin said. "It gave us complete span of the lubricants business in all areas that we wanted to play in, which are the higher-value channels. We generally don't play in the commodities area."
The acquisition also gives HF LSP access to PCLI's network throughout Canada, said Gribbin, who has managed the lubricants business for HollyFrontier since 2009. Across HF LSP, its lubricants are sold in more than 80 countries worldwide.
While HF LSP maintained PCLI's employees and management team, it did restructure the organization to focus on HollyFrontier platforms. The PCLI team is excited to be a part of HF LSP, as most of the other suitors for the facility were other lubricant companies that might consolidate the business, he said.
"We didn't have a brand or product line that was going to displace the Petro-Canada brand," Gribbin said. "We feel like we have a complete portfolio. We have the broadest line of base stocks in the industry. We have basically the range from Group I to Group II, Group II+, Group III and Group III+. These are all variations of base stocks used for every type of product you can possibly manufacture that involves oil, including an agricultural business and a pharmaceutical business. There's very few players in that market."
The Mississauga facility joins HF LSP's specialty lubricants business in Tulsa, Okla. HollyFrontier also is maintaining the Petro-Canada trademark in association with lubricants perpetually, Gribbin said.
"The brand was actually very important to us," he said. "We were absolutely interested in maintaining and keeping the brand. Petro-Canada brand has tremendous footprint in Canada and Europe and China, and we have no interest in getting rid of that."
Going forward, the new capabilities will allow some new products and variations, but it's too early to comment on new potential products, Gribbin said. The combined company has more talent to work on new projects, with more than 35 employees with either master's or doctorates in chemistry, and a support team of more than 60 in research.
"Our business interest is continuing to grow in the specialties, so we're absolutely looking for growth both organically and through acquisition," Gribbin said.