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History, and a Future


This year American Refining Group celebrated the 125th anniversary of its Bradford, Pa., refinery, and the company is justifiably proud of its heritage and its community. But owner Harry R. Halloran Jr., ARG chairman and CEO, deserves serious bragging rights for the story of the past decade, when he bought the unwanted plant for $1 (plus another $17 million for inventory and working capital) and saved it from certain closure.

Established in 1881 in the heart of the Pennsylvania oil fields and operated as the Kendall Refining Co. for much of its early history, the Bradford venture was one of many – including Pennzoil and Quaker State – producing lubricants from the regions sweet, highly paraffinic crude.

In 1966 Kendall Refining was acquired by Witco Corp. After another Witco refinery was destroyed by fire in 1969, production of Amalie lubricants was moved to Bradford, and the Bradford refinery became the Kendall-Amalie division of Witco. By 1996, Witco had changed direction and decided to divest its petroleum assets, including the Kendall business. Unable to find one buyer for the whole operation, Witco sold its lubricants businesses in pieces. Sun Oil Co. bought and later resold the Kendall and Amalie names – today Kendall is a ConocoPhillips brand, and Petroleum Packers became Amalie Oil Co. after acquiring that brand – but Sun shunned the Bradford refinery.

Halloran picked up the tale for LubesnGreases during ARGs three-day anniversary celebration, Sept. 7-9 in Bradford.

This is the oldest continuously operating lube refinery of crude oil in the world, but it was written off as an economically viable refinery 10 years ago, Halloran said. One hundred fifty companies looked at it, but no one wanted it.

In March 1997, Hallorans American Refining Group bought the Bradford refinery. Why?

It was the only refinery I could afford to buy. Since 1975 I owned a company that was the largest rerefiner of pipeline interface in the world, so I had rerefining experience. The problem with that business was that you had to bid for the contracts to get your feedstock, and there was lots of competition. When the Bradford refinery came up for sale, it was an opportunity for a small company like ours to acquire a refinery with a dependable supply of crude.

It was a logical step for me, Halloran continued. Im an entrepreneur; [I] look on the bright side and dont see the negatives. But it was a test for four years. In 1999 Halloran sold his pipeline interface business, using the proceeds of the sale to get through the restart-up years. It helped when Pennzoil shuttered its last Pennsylvania refinery, removing competition for crude in the region.

The market is now affording us normal refining margins, said Halloran, but until now there was barely enough to make improvements. Now weve reached a sustainable new plateau, and the new hydrogenation unit [now under construction and expected to come on stream by late 2007] will improve our place in the market.

ARG Then and Now

I n March 1997 most pundits gave us six months, ARG President and COO Harvey L. Golubock told LubesnGreases. A longtime Witco lubricants pro who was recruited by Halloran to run his new operation, Golubock faced an uphill climb. The refinerys lube base stock, formerly consumed by the Kendall and Amalie brands, had lost its customers. And we had no blended lubricants business and no brand; all the lube employees were let go [by Witco]. But within six months we started the Brad Penn brand. The bottles were hand-filled and hand-packed at a local sheltered workshop at the start.

Today, said Golubock, ARGs blended lubricants business is over $100 million per year, accounting for 25 to 30 percent of ARGs total business. On a volume basis, about 20 percent of the business is finished lubes, he noted. About a third of our base oils are used internally. Were now the largest railroad engine oil supplier east of the Mississippi River, a business we acquired from Valvoline.

Other volume-building deals included the right to distribute Gulf Oil brand products sold in 11 Northeastern states, and acquisition of the PennzSuppress line of dust suppressants and soil stabilizers from Pennzoil.

Building Anew

In ARGs early years, crude supply was an issue, Golubock acknowledged, but today its less so. ARG is the only remaining refinery exclusively processing Pennsylvania-grade crude, and theres a tremendous resurgence of drilling in Pennsylvania and Ohio, said Golubock. In 1997, a third of our crude came from Pennsylvania, two thirds from Ohio. Today its 60 percent from Pennsylvania, and were running more crude today. Currently, he noted, ARG spends $150 million per year on crude oil purchases.

During its anniversary celebration in September, ARG staged a ceremonial groundbreaking for a new $20 million hydrogenation unit that will upgrade two base stock cuts and allow the refinery to produce ultra-low-sulfur diesel fuel. The unit will treat 3,500 barrels per day of product, including fuels, distillates and lubricants – medium neutral base oils and bright stocks, Golubock said.

One of North Americas smallest refineries, ARG currently has capacity to refine a total of 9,000 to 10,000 barrels per day of products, of which 2,100 are Group I base stocks and 300 are Group II stocks.

Looking Ahead

After the hydrogenation unit is in place, Halloran said, the company plans to improve its dewaxing capability. We believe there is adequate crude, he said, noting that he recently acquired a crude production company and a crude oil trucking business. Were interested in joint ventures to increase security of supply and give us confidence. But the Pennsylvania-grade field is huge.

Were well positioned as long as we dont expand too much, Halloran continued. Well add technology, and expand our blending and packaging plant. It will be a very sustainable position; we dont plan to be a net buyer of base oils.

Well expand tanks and warehouses, [getting] back to the 45 million-gallon-per-year [lubricant production] level of the Kendall days. That would be the limit of our basic infrastructure, said Halloran. Maybe another $20 to $25 million investment is needed. Working capital will make it possible over the next five to 10 years. Then well be done.

Halloran, who is widely described as a visionary, has diverse interests outside the lubricants and refining businesses. Energy Unlimited is his wind technology firm. He established the Enlightened World Foundation to fund projects to increase corporate social responsibility.

Defining corporate social responsibility as a companys positive relationship with all its stakeholders, Halloran has worked to make ARG an example by improving old environmental problems and cleaning up old spills.

He also is exploring entering the cellulosic ethanol business – making ethanol from corn or wood chips or other sources of plant cellulose. There are five or six technologies being developed, Halloran said. Its a logical future stage given our experience. It adds to the future potential of the refinery. And, he noted, its part of my vision of being involved in environmentally positive energy sources.

Although Halloran has four adult sons (one is getting a Ph.D. in literature, two recently launched an information technology business, the fourth is an artist), none is involved in ARGs businesses. My long-term vision, said Halloran, is to sell the company to employees and community members in the production business, who have the money to keep the business running in Bradford, not to sell to an investment fund or go public. Its all part of what I consider a socially responsible perspective.

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