SOMERSET, Ky. -- A U.S. Bankruptcy Court has ordered the sale at "absolute auction" of the assets of PHS Group Inc. and its subsidiaries, including The Somerset Refinery Inc. and Somerset Oil Inc., Somerset, Ky. As reported in a CSP Daily News Flash yesterday, the sale includes 12 gas stations located throughout eastern Kentucky and a 5,500 barrel-per-day refinery.
The auction is part of a bankruptcy proceeding that began in May 2007, said the Associated Press. "There were some cash-flow problems that created a bottleneck in paying crude suppliers," Ellen Arvin Kennedy, the attorney for [image-nocss] the trustee in the case, told AP.
The Chapter 11 Trustee, William D. Bishop, upon order of the court, has employed Tranzon Asset Advisors, a national real-estate auction firm, to market the assets. The auction team and stakeholders formulated aseven-lot or parcel offering for the assets of Somerset Oil. An absolute auction is one in which the assets must be sold, no matter what.
Lot 1 consists of the refinery, situated on approximately 105 acres of land in Somerset and includes all furniture, fixtures and equipment along with the maintenance and repair shops associated with the plant's operation and upkeep. Most of its oil comes from small and midsized wells in eastern Kentucky and Tennessee.
Lots 2 and 3 are the company offices, including the main offices and a smaller office building and warehouse at a different location in Somerset. Lot 4 is the full right, title and interest in a pipeline easement that traverses six counties in southcentral Kentucky with a permit for crossing Lake Cumberland; this pipeline is available for multiple uses and could provide natural gas, oil or finished product to many communities that have no access to these resources. Lot 5 is all the company's rolling stock that includes more than 100 vehicles, including over-the-road semi-trucks, oil tankers, environmental cleanup vehicles, company cars and vehicles, panel service trucks and dump trucks. Lot 6 is the current inventory from Somerset Oil, which was a significant Pennzoil distributor, as well as refined oil stocks currently at a warehouse facility on the refinery grounds.
Lot 7 consists of the 12 retail sites. The stations are being offered in two distinct auction formats. First, they can be bought separately or as a block by submitting sealed bids to Tranzon. If acceptable bids are not received for each station, they will be sold at a live outcry auction at each site the week following the refinery auction.
The largest of the locations is the approximately 2,780-square-foot fuel stop with c-store and service bays in Albany, Ky., with a diesel canopy, gasoline canopy and truck parking. This location closed in July 2008.
The stations have been supplied gasoline, diesel and kerosene produced at the Somerset Oil Refinery, but are currently being supplied by local petroleum marketers until the refinery is operational or the stores are sold and new contracts implemented with the buyers and suppliers. Most of the locations offer both self service and full service and have at least one diesel pump away from the gasoline islands, plus a kerosene pump near the building.
This is an opportunity to own and operate a refinery, Tranzon said. The right to refine crude oil in the United States presents potential suitors with a chance to trade oil and petroleum products as well as contract for raw crude with regional and international impact. Somerset Oil is an attractive opportunity for strategic, portfolio, or financial investment with growth potential and excellent returns, based on a more then 50-year track record, it said.
The refinery is positioned to serve the needs of small and midsize crude oil producers in eastern Kentucky and Tennessee. It can also provide a nonmonopoly-based refining capacity to similar producers in the remainder of Kentucky, as well as West Virginia and Virginia. "Pipeline and barge providers of crude oil do not serve eastern Kentucky or Tennessee in this geographic area, there is a significant underserved marketplace for the buyers," said Ed Durnil, the court appointed auctioneer and CEO of Tranzon Asset Advisors, Elizabethtown, Ky. The recent installation of a regional intermodal rail park has made the prospect of rail deliveries of crude oil not only possible but probable for expanded capacity in the near term.
Durnil told The Lexington Herald-Leader that he expects the assets to sell for between $5 million to $6 million.
As refineries go, Somerset "is certainly on the small scale," Steve Higley of the National Petrochemical & Refiners Association told the newspaper.
Bidders will have the option of buying only the lot or lots they desire or a bidder can bundle Lots 1 through 7. Potential buyers must provide proof of financial capacity to close on their bid(s) and a deposit of 10% of the purchase price in order to buy the assets. Sealed bids are due on Sept. 19, 2008. Bidders may obtain due diligence from Tranzon through its website, www.tranzon.com, or by calling (866) 243-8243 or (270) 769-0284.
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